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USDA Issues Proposed Rule on Poultry Grower Payment Systems and Capital Improvement Systems

Published on

June 19, 2024

This is an update to our December 6, 2023 alert titled “New Poultry Contract Regulations Going into Effect.”

On June 3, 2024, the U.S. Department of Agriculture (USDA) formally published another new rule for public comment, the Poultry Grower Payment Systems and Capital Improvement Systems (the Rule), which proposes to revise regulations under the Packers and Stockyards Act (P&S Act) purportedly aimed at addressing unfairness and deception in broiler grower payments, tournament operations, and capital improvement systems.

This is the third of four expected P&S Act updates being promulgated by the USDA to address supposed abusive and deceptive practices of poultry companies and meatpackers. The Rule builds on prior rulemaking that requires poultry companies (live poultry dealers or “LPDs”) to make full disclosures to prospective poultry growers about what they can expect if they sign a contract to grow chickens for the company, and to also disclose details to existing growers about how their pay is calculated.

According to the USDA, the Rule would:

  • Eliminate any pay deductions or discounts of rates from the base price in contracts for broiler chicken growers paid according to a poultry grower ranking system (otherwise known as a tournament system). The base pay, minimum rate, or any other rate term used would have to be prominently and clearly defined as the guaranteed level of pay a grower will receive if they perform minimum specifications of the relevant contract.
  • Establish a duty of fair comparison to ensure that comparisons between growers in a tournament do not disadvantage specific growers and are conducted in reasonable and equitable ways. LPDs control the inputs and production practices assigned to growers. The Rule would require LPDs to structure their tournament system in a manner that would provide fair comparison among growers and will set forth specific factors which will be considered in determining whether an LPD reasonably designed a ranking system to deliver a fair comparison among growers. In addition, LPDs would be required to establish policies and procedures for the design and operation of the poultry grower ranking systems to maintain a full and complete record of every aspect of the system.
  • Establish disclosure requirements when broiler growers are requested or required to make additional capital investments to guard against deception which will enhance the USDA’s ability to enforce existing prohibitions on unfair additional capital improvement projects. The Rule requires all LPDs use a Capital Improvement Disclosure Document, including information relating to the purpose of, and justification as to the reason for the Capital Improvement.

The Rule, if adopted as currently proposed, will have implications for Live Poultry Dealers requesting any kind of capital improvement, and those paying growers pursuant to a poultry grower ranking system.  

While the Rule is in the comment period, it is imperative for poultry companies to familiarize themselves with the Rule and the potential implications of it on their operations. Additional rights and responsibilities under the Packers and Stockyards Act may be found here. The USDA has also published additional rules and made other changes that may affect agricultural businesses.

If you any questions regarding the USDA’s proposed rule or would like to discuss the impact it may have on your business, please reach out to Charmaine Nyman, EmmaRose Strohl, Timothy Dietrich or any member of the Barley Snyder Food & Agribusiness Industry Group.

DISCLAIMER: The information in this alert should not be construed as legal advice to be relied upon nor to create an attorney/client relationship. Please note that the reader’s or an industry’s specific situation or circumstances will vary and, thus, for example, an approach that is advisable in one industry may not be appropriate in another industry. If you have questions about your situation or about how to apply information contained in this alert to your situation or industry, you should reach out to an attorney.

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