Cattle industry talks possible effects of GIPSA rule

by | Jan 27, 2017 | 0 comments

While some see David preparing to hurl a stone at Goliath, others perceive a group of whiny kids expecting special treatment.

Just what is GIPSA, who does it affect and does it need to be updated? The answer, of course, varies drastically, depending on who is asked.

The Packers and Stockyards Act, passed by Congress in 1921, is administered by the Grain Inspection, Packers and Stockyards Administration (GIPSA).

Upon instruction from Congress, GIPSA wrote and released last month the “Farmer Fair Practices Rules,” two proposed rules and an interim final rule to update the Packers and Stockyards Act. The proposals are based on 2010 rules, some of which were never implemented.

The proposal includes three pieces, expected to primarily affect the poultry industry, but the cattle industry believes it will be impacted as well.

  1. According to USDA’s news release, the proposals will:
  2. Affirmatively establish the Department’s long-time position that it is not necessary to demonstrate that an unfair practice harms the entire market in order to prove a violation of the Packers and Stockyards Act. “Such overly broad interpretations have put family farmers at a disadvantage for decades when pursuing their rights under the Act,” said the release.
  3. Clarify what GIPSA views as practices that clearly violate the Act and would establish criteria to protect the legal rights of farmers. Establish criteria that GIPSA would consider in determining whether a live poultry dealer has engaged in a pattern or practice to use a poultry grower ranking system unfairly.

The first one listed, the interim final rule, is the cause of much debate within the cattle industry.

According to its website, GIPSA is the U.S. Department of Agriculture’s agency that facilitates the marketing of livestock, poultry, meat, cereals, oilseeds, and related agricultural products, and promotes fair and competitive trading practices for the overall benefit of consumers and American agriculture. The agency oversees enforcement of the Packers and Stockyards Act, as well as some grain inspection regulations.

The Packers and Stockyards Act was implemented in 1921 to protect the cattle industry from the control exerted over it by five meatpackers who had control of 45 percent of the beef produced in the country.

Former GIPSA administrator J. Dudley Butler fears that the cattle industry is in the process of being “chickenized” or vertically integrated, like the pork and poultry industries have been. Four packers now control over 80 percent of the beef supply.

“The independent pork producer has all but disappeared,” he said in a paper, The Dismantling of Independent Farm and Ranch Agriculture.

Butler, who oversaw GIPSA from 2009 to 2012, said that updates are badly needed to protect independent feeders and producers.

“There is a reason that around 35,000 small to medium sized feeders have gone out of business in the last 20 years. When vertical integration zeroes in, it is on the concentration of the chicken house, the swine parlor, and now the feedlot. So the companies take over the feedlots through ownership, contracts or deals. Then the cow-calf person becomes a price-taker not a price-maker. He’s captured.” The cow-calf producer can’t survive without a healthy independent feeding segment, he said.

The third-generation Mississippi cattleman became so discouraged when Congress continued to refuse to fund its own directive for GIPSA updates that he stepped down from his administrative post in 2012. “If I couldn’t make a difference, I didn’t want to be there. I went there to try to help, to make a difference,” he said.

The current Packers and Stockyards law lists seven subsections describing specific behavior that is illegal for meatpackers. The first two subsections say that it is unlawful for a meatpacker 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.

A disadvantaged feeder can file suit – and some have, and won in the lower courts. The most well-known case, Pickett v. Tyson Fresh Meats (originally IBP), resulted in summary judgment by the judge against the plaintiff, even though the jury found for the plaintiff on all counts. The appeals court then agreed with the judge, finding that the entire industry wasn’t harmed, and essentially threw out the case.

“In the historic cattle trial, Pickett v Tyson Fresh Meats, Inc., Plaintiff cattlemen alleged that Tyson/IBP used captive (contracted) supplies of cattle ready for slaughter to manipulate the cash market, in violation of the 1921 Packers & Stockyards Act (PSA). After a five-week federal trial, the jury found Tyson/IBP guilty on all counts and assessed actual damages of $1.28 billion, which applied to a large but unspecified number of cattle, likely 10-50 million head. Justice for plaintiff cattlemen was short, as the trial judge set aside the Jury’s verdict – a rare but not unprecedented legal action – and entered summary judgment for Tyson. The Eleventh Appellate Court subsequently sided with the trial judge. In 2006, the United States Supreme Court denied without comment plaintiff’s petition to rehear the case, thus ending legal activities in Pickett v Tyson and effectively killing similar legal action pending under the same trial judge against two other major beef packers, Excel (Cargill) and Swift (ConAgra),” described Auburn University’s Dr. Robert Taylor in 2007.

Kansas feeder and United States Cattlemen’s Association director Allan Sents said that the new rules will remedy the case law precedent set by the Pickett case. “This rule says an individual producer or feeder can claim there has been an action or violation of the Packers and Stockyards Act and they don’t have to prove that the entire industry’s competition was harmed.” The new rule clarifies that long-held position that livestock producer cases don’t have to meet the same standards as general anti-trust cases, he said.

Sents said, as a feeder, he has reminded packers of the GIPSA rules when he believes he’s been treated inappropriately.

“There have been times when they have been able to assert their power and do something that’s not right and they basically tell you to take it or leave it. Then if you have the GIPSA rules to fall back on and point them out, it changes their behavior. I’ve seen that in two or three cases,” he said. “I think the rules are critical to maintaining market integrity.”

In the supporting documents with their December 2016 proposal, GIPSA administration states that the rule changes are not meant to limit alternative marketing agreements, he said.

GIPSA doesn’t expect any rapid effect on the market or on packer-feeder relationships, he said. “They indicate the actual interpretation of this rule would likely be done through the legal system and that may or may not happen anytime soon. They don’t anticipate any immediate change in buying practices,” he said.

Although the proposed rules appeared to be another of the Obama administration’s last minute actions before handing over the reins to a different party, because of the timing, this was not the case, said Butler. The agency was just unable to carry out the directive until 2016 when funding was finally available in the budget, he said.

And with the releasing of the rules came a fire storm of responses – some saying the rules will eliminate competition from the marketplace by eliminating value-based pricing, others saying the rules don’t go far enough to protect the independent feeder and – farther down the chain – the independent producer.

The National Cattlemen’s Beef Association will submit comments urging that the rules be rescinded, said the group’s president Craig Uden, a Nebraska feeder and rancher.

“How it stands now (the proposed rules), it’s kind of a trial lawyer’s dream,” said Uden, who operates Darr feedlot near Elwood, Nebraska.

Uden worries that the rules will scare packers who are currently paying premiums for better quality cattle.

“Who determines what is fair and what is not fair?

“People spend money to buy genetics or carry out management techniques that will give them an advantage. Here (with these rules) they say there is no difference.”

The biggest concern among his group is that “there has to be no proof. Let’s say they are all Angus cattle but some are of better quality, here they say there is no difference, everything is created equal.”

Butler doesn’t believe this is the intent, or will be the result of the rule.

Litigation will be rare, he believes. “In most cases, if not all cases, the farmer would make a complaint to GIPSA and GIPSA would take over handling the complaint if it was legitimate,” he said. Complaints can be resolved through the agency, without litigation, he said.

A plaintiff would have the burden of proof, with specific parameters, said Butler. “It has to meet muster. ‘Unjustly’ – there is a reason that term ‘unjustly’ is in there. And there is a reason ‘undue’ is in there. Those terms further explain the terms that follow them. Unjustly discriminatory is not just any kind of discrimination. There must be a reasonable and legitimate business justification for the discrimination.

“That’s the bottom line. In no way does it do away with value-based marketing.”

In his commentary on the rule, the out-going GIPSA administrator said the 2013 rule update “does not prevent packers from offering quality incentives to hog or cattle feeders, and any vertical coordination among feeders and producers would be outside of GIPSA’s jurisdiction.”

Iowa feeder Eric Nelson believes there are many in his industry sector who need GIPSA’s  protection, and their fear of publicly asking for it is proof of their vulnerability.

The R-CALF member estimates that about 75 cattle feeders attended a recent cattle producer meeting hosted by Iowa Congresswoman Ernst, and a few testified as to their concerns in the industry. “Most of them were scared sh**less of saying anything for fear of retribution that the packing companies would quit buying their cattle. I told them I am a third generation Iowa cattleman and the fourth generation was with me. I explained that my sons won’t have a chance to be involved in the industry if something doesn’t change. I’m afraid too, but if people like me don’t come forward and call these things out, the next generation won’t have a chance. There were several that thanked me afterward, saying they were afraid to say the same thing in public.”

A cattle feeder friend of Nelson’s, after 20 years of dealing successfully with the same packer buyer, waited two months for a call back in 2015 when the market crashed. “When that buyer finally called back – put yourself in their shoes – all they knew was they had a bunch of fat cattle way too fat and they had to take whatever price was offered to them. That’s called limiting access.” That action was not an anomaly, Nelson said, but was common around the region.

“So now we fast forward 18 months. Bankers in feeding country were keenly aware this was going on. Now there are way more cattle contracted to packers than have been for years because a lot of feeders are scared that will happen again.”

The packer organizations say they need an organized, consistent, known supply of cattle, Nelson said. “But I’m selfish, I want to get all I can for my cattle. I want the packer to be in a situation, once in a while, where he didn’t buy enough for the next month. That causes a price rally and the price ends up being elevated for a few months.”

Nelson said about 10 years ago he testified before the senate ag committee about his real world experience. One packer would consistently bid him slightly higher than the others for about two years at a time, then, like clockwork, another packer would be the top bidder for about two years. The day Nelson testified to this, he sold a pen of cattle to a different packer while sitting in the airport. “Since then it’s been a rainbow, a pen to this packer, a pen to that packer. That’s anecdotal, there is no way to prove anything, but it’s that kind of control that makes me want to help the little guy any way I can.”

But Uden believes that feeders, himself included, will be discouraged from paying premiums for higher quality cattle because packers won’t reward him with premiums for those cattle, for fear of being sued for discrimination. “If I’m buying certain attributes of quality, if I’m looking for high choice cattle that feed really good – I’m going to get the same money as someone with lower quality cattle.”

Butler doesn’t expect unfounded lawsuits.

“I’ve been around farmers and cattlemen all over this country and they are probably the least litigious people in the world. I don’t know of one farmer or rancher who goes out and files frivolous lawsuits.” Ambiguity causes litigation. but clarity diminishes litigation, he said. “By putting these rules out there you’ve got the rules of the game, you know how you have to operate.”

Uden said that beef on the whole is perceived as a higher quality product than competing proteins, allowing it market privileges and a higher dollar value. “We sell our product because it is all about the quality, right? If everything is the same and markets tend to gravitate lower, then who’s making the money? Not the producer.” Uden believes that strengthening the GIPSA rules will remove competition from the marketplace, lower prices and give the packer a wider profit margin. “It would go up the chain, not down the chain.”

“I don’t want to throw the packer under the bus. If you were told you were going to get sued if you did something, you are going to play it safe. Why would you pay the guy that had above average cattle more?”

He doesn’t want the government in his business, he stresses, and believes the current law is sufficient. “There are ways to handle this, if you prove injury.”

Nelson said he believes the government exists, at least in part, to protect small businessmen like himself, not big corporations.

“Rural America has kind of laid their bets on President Trump. Is he going to come through or not?” asked Butler.

The industry will wait to find out if David is now better equipped to battle the giant or if Goliath is really just a figment of the imagination.

The comment deadline for the proposed rules and interim rule is Feb. 21. The president enacted a freeze on all rules released by USDA so the expected implementation date is unknown.


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From the Holcomb Tyson fire to COVID-19;
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