February 2011 Articles

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Clarification of Certain poultry Provisions of the Proposed GIPSA Rule

Clarification of Certain Poultry Provisions of the Proposed GIPSA Rule Misconception: The proposed GIPSA rule will make reforms to the tournament system that will hurt poultry growers.
Clarification: The proposed rule would require poultry companies to use the same “base pay” for all poultry growers raising and caring for the same type of poultry and prohibit them from paying less than that base amount. It does not prohibit a company from paying incentives above the base pay. It also does not mandate the redistribution of money available in the ranking system, as some have suggested. The reason for this provision is that many contracts tell growers that they will receive a “base pay,” but in reality that rate is actually an “average pay,” with half the growers being paid a perpound rate below that and half above, based on their placement in the ranking system. The proposed GIPSA rule makes sure that contracts are transparent, and that the term “base pay” actually means “base pay.” In this way, growers and their bankers know that their pay cannot fall below that level.
Misconception: The proposed GIPSA rule will require companies to lower growers’ “base” pay. Clarification: There is nothing in the rule that would require companies to lower growers’ base pay. It would only require that “base pay” be a true “base pay” and that growers cannot be paid below that amount. The level of pay is determined by the poultry company not by GIPSA.
Misconception: GIPSA’s proposed reform of the tournament system will make it harder for growers to get bank loans, because it will be harder to show that their contracts will “cash flow.” Clarification: Often, because of the deceptive use of the term “base pay” in many contracts to refer to “average pay,” it is very hard for growers and bankers to know the true base level of income a grower will receive from the poultry growing arrangement. Companies often pay below the “base pay” specified in the contract as a result of the grower’s placement in the ranking system. This is despite the fact that the grower’s placement in the ranking system often has much more to do with factors controlled by the company, such as the quality of the feed and chicks, than it does the grower’s own performance. If the GIPSA rule becomes final, growers and their advisors will have a clear understanding about what their base level of income will be, and incentive payments would be in addition to that base. Growers would no longer have to worry about their payment rate falling below the base rate specified in the contract as a result of their placement in the ranking system. Misconception: The proposed GIPSA rule will increase litigation against agribusiness. Clarification: The Packers and Stockyards Act of 1921 prohibits packers and poultry companies from using “unfair and deceptive” practices and from giving “undue or unreasonable” preferences. These terms are quite broad and have never been defined by GIPSA. Because of the vagueness of these terms, it gives broad discretion to the courts to interpret the terms since GIPSA, the agency in charge, has failed to do so all of these years. In other words, it is the current lack of definition to the terms in the law that invites litigation. The GIPSA rule proposes to put some definition on these terms to bring more clarity for both growers and companies. Poultry company lobbyists are using the fear of litigation to cloud the real issues. What they really fear is that GIPSA will start enforcing the Packers and Stockyards Act to defend growers against unfair practices by poultry companies. As a strategy to derail GIPSA’s efforts to protect poultry growers, companies are trying to convince growers to go against their own interests by opposing the GIPSA rule. Instead, growers should support GIPSA in these efforts. The proposed poultry rule is being supported by almost all producer organizations with poultry-grower membership. It is in the growers’ best interest for GIPSA to start doing its job, and the proposed rule is an important part of that process. The USDA will be accepting comments on these rules until November 22, 2010. For more information on these rules and how to comment, visit www.rafiusa.org or contact Becky Ceartas, Contract Agriculture Reform Program Director at RAFI-USA: becky@rafiusa.org, (919) 542-1396 x 209.