November 2010 Articles

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Changes in the Packers and Stockyards Act

Changes in the Packers and Stockyards Act
Last Friday, the Grain Inspection, Packers, and Stockyards Administration (GIPSA) released significant changes to the Packers and Stockyards Act (PSA). These changes were mandated in the livestock title of the 2008 Farm Bill to occur within 2 years and GIPSA waited to the last moment to publish the proposed rules. The text of Farm Bill suggests that the proposed rules should have been limited to contract poultry and swine production, but some ambiguity in the farm bill language led to some provisions including cattle marketing. Those involved in the purchasing of livestock will now need “legitimate” reasons and documentation of why differential pricing or contract terms were offered to growers or livestock producers. It need not be extensive, but does need to be documented and retained. Producers (individually or collectively) may no longer be discriminated against if they can provide the same volume and quality of livestock as another producer if the packer cannot provide a legitimate reason such as their needs have already been fulfilled. Additionally, packers will no longer be able to acquire, receive, or purchase livestock from other packers or their subsidiaries. The majority of changes were directed at contract poultry production, but contract swine production is included to prevent possible abuses in that sector of livestock production. If the proposed rules are not altered as a result of the 60 day comment period ending August 23, 2010, contract poultry growers will be compared against like type or kind of poultry as well as be ranked against growers using similar houses. The base pay stated in the contract also becomes the minimum payment to a grower. Each type of contract will also be publicly available for viewing on the GIPSA website as long as it is used by contracting firms. Notice of suspension of delivery birds will occur 90 days in advance and be accompanied by the reasoning and date that delivery will resume. What may be the biggest “win” for contract poultry growers is that the contracting firm cannot offer a contract unless 80% of the initial investment cost can be recouped. This 80% rule also extends to mandatory upgrades which will also face additional scrutiny in terms of whether all growers were forced to make the upgrade and age of existing and recent capital improvements. Producers receiving new contracts will have the costs of arbitration and limitations on legal rights and remedies explicitly stated in their contracts. The proposed changes listed above are only for new, modified, altered, or extended contracts as existing (unaltered) contracts will be grandfathered in. Changes may occur to these proposed rules as a result of the comment period and as such should only be viewed as guaranteed to stay as currently proposed. Additional information may be found at www.gipsa.usda.gov. The release of the Cold Storage Report by USDA NASS on Tuesday saw continuation of trends from the past few months. Beef and pork saw declines while chicken, butter, and cheese saw increases from month to month and year over year. Russia’s continued refusal to accept U.S. broiler exports is the primary cause for this as dark cuts continue to mount. However, an announcement was made on Thursday that Russia will begin to accept poultry shipments that will use antimicrobials as opposed to chlorine which was the source of the trade dispute. This should lead to a reduction of chicken in cold storage over the next few months. Total cheese stocks showed a 5% increase year over year with chicken showing a 9% increase. Beef and pork posted 13% and 23% declines, respectively. Source: Ross Pruitt, Department of Agricultural Economics and Agribusiness LSU AgCenter