The rule, “Inclusive Competition and Market Integrity Under the Packers and Stockyards Act” expands USDA’s Agricultural Marketing Service (AMS) requirements for packers and live poultry dealers under the PSA and is intended to strengthen requirements relating to discrimination, retaliation, and deception in contracting.1 The rule is the second in a series of four rulemakings AMS is pursuing to advance USDA’s agricultural competition agenda. In December 2023, AMS finalized the first rule focused on transparency in poultry grower contracting.  AMS reports it is working on two additional rules—one to address the requirement to show injury or likely injury to competition when establishing a violation of Section 202 of the PSA and one to implement further changes to poultry contracting systems.2

Overview of the Final Rule

Like the proposed rule, the final rule has two main parts: regulations addressing disadvantages and discriminatory practices, and regulations addressing deceptive practices. The rule maintains the terminology used in the proposed rule, calling live poultry dealers, swine contractors and packers “regulated entities,” and calling poultry growers, livestock producers, and swine contract growers “covered producers,” while making slight changes to the definitions for clarity.

The final rule adds a new regulation at 9 CFR § 201.34 that defines prohibited bases for discrimination, identifies prohibited retaliatory practices, and creates recordkeeping obligations. It also adds new 9 CFR § 201.306 that identifies “deceptive practices” that are prohibited.  We summarize these key provisions below.

Discrimination

The final rule prohibits regulated entities from inhibiting market access or otherwise acting adversely against covered producers based on the following attributes: Race, color, religion, national origin (including ethnicity), sex (including sexual orientation and gender identity, as well as pregnancy), disability, marital status, age, or the covered producer’s status as a cooperative.3

The final rule lists conduct that would be considered prejudicial or disadvantageous if done on the basis of the above attributes (* indicates new provision added in the final rule):

• Offering less favorable contract terms than those offered to similarly situated covered producers;
• Refusing to deal on terms offered to similarly situated covered producers;
• Performing under or enforcing a contract differently than with similarly situated covered producers;
• Requiring a contract modification or renewal on terms less favorable than similarly situated covered producers*;
• Terminating or not renewing a contract; and
• Any other action that a “reasonable covered producer would find materially adverse.”*4

AMS added to the final rule a narrow carve-out specifying that two types of activity are not considered prejudicial or disadvantageous: 1) fulfilling a religious commitment related to livestock, meat, livestock or meat products, or live poultry; or 2) federally recognized tribe performing Tribal government functions.  The first exception is intended to recognize the role of ritual slaughter in religious traditions and ensure that kosher, halal, and Amish products are not impacted by the rule’s restriction on discrimination on the basis of religion. The second exception intends to align the rule with jurisprudence on Tribal sovereignty.  The rule clarifies, “ the prohibition on discrimination on the basis of race or color would be read to protect a person from discrimination for being of Native American Descent, but not on preferential treatment given to Tribal members based on their political classification.”5

Notably, AMS omitted from the final rule the concept of a “market vulnerable individual,” a term that was vaguely defined in the proposed rule and had potentially limitless scope. In the preamble to the final rule, AMS explains that it omitted the “market vulnerable individual” definition and chose instead to incorporate the specific prohibited discriminatory bases into the rule to more clearly set forth its standards and align with the prohibited bases that are widely accepted as standards of non-discrimination at USDA and across the United States.

Retaliation

The final rule also prohibits regulated entities from retaliating or taking adverse actions against covered producers because of the producer’s participation in certain activities that AMS asserts would interfere with lawful communications, assertion of rights, associational participation, and other protected activities.  The final rule names the following activities that producers must be able to participate in without retaliation:

• Communicating with a government agency for redress of grievances with respect to livestock or poultry;
• Refusing a request by a regulated entity to communicate with a government agency in a manner not required by law;
• Joining, forming, or refusing to join or form a producer or grower association or cooperative;
• Communicating with a person for to improve production or marketing practices;
• Communicating or negotiating with a regulated entity to explore business relationships (e.g., talking to a competing dealer or packer);
• Supporting or participating as a witness in any legal proceeding under the PSA or an alleged violation by a regulated entity; and
• Asserting any of the rights granted under the PSA or asserting contract rights.

As with the proposed rule, the final rule specifies that retaliation can include any of the following actions:

• Terminating or not renewing a contract;
• Performing under or enforcing a contract differently from others similarly situated;
• Requiring a contract modification or renewal on terms that differ from others similarly situated;
• Refusing to deal with the covered producer;
• Interfering in farm real estate transactions or contracts with third parties; and
• Any other action that a reasonable covered producer would find materially adverse.6

Deception

The rule prohibits regulated entities from certain deceptive conduct, including using false or misleading statements or omissions of material information during contract formation, performance, and termination, as well as providing false or misleading information to a covered producer or association when refusing to contract.  In the preamble, AMS states it declined to provide an enumerated list of specific prohibited behaviors as requested by several comments and instead maintained its broader categories of prohibited behavior, as the agency felt it could not cover the facts and circumstances of every case and the rule is intended “to provide a broad array of coverage.”7

AMS notes that it also omitted use of the term “pretext” in relation to false or misleading information in response to comments indicating the term was unclear, noting that it believes the phrase “false or misleading statement” is sufficient to cover its intent.8

Recordkeeping

The final rule maintains provision from the proposed rule that requires regulated entities maintain all records pertaining to the discrimination and retaliation requirements above for at least five years.  In the preamble to the final rule, AMS recognizes that existing regulations under the PSA require some records be maintained for two years (in some cases one year), and in instances where those records need to also be maintained under the new rule, the recordkeeping period would become five years.9 AMS notes in the preamble to the final rule that it declined to require recordkeeping in relation to the provisions on deceptive practices as called for in some comments, as regulated entities are already required to maintain records regarding their business activities and “a recordkeeping requirement covering every statement or interaction that could amount to deception is not appropriate as it could be expensive and burdensome, while yielding little benefit in terms of usable, searchable information.”10

The non-exhaustive list of potentially relevant records named in the rule includes “policies and procedures, staff training materials, materials informing covered producers regarding reporting mechanisms and protections, compliance testing, board of directors' oversight materials, and the number and nature of complaints received relevant to this section.”  Although the rule does not expressly require that regulated entities create any particular records to comply with the rule, the broad list of examples suggests AMS would view the recordkeeping requirement expansively.

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Consistent with the proposed rule, the regulatory text does not expressly address whether there must be a showing of injury to competition to establish a violation of Sections 202(a) or 202(b) of the PSA.  In the preamble to the final rule, AMS maintains its view that it is not always necessary to demonstrate injury, or likely injury, to competition. 

The rule is scheduled to go into effect on May 6, 2024.  AMS estimates the first-year total cost of the rule is estimated to be $586,000 and $298,000 for each succeeding year.  Despite AMS recognizing some comments asserted the agency underestimated the proposed costs of the rule, AMS largely defended its estimates, noting in particular that it did not feel litigation costs should be included in the estimate and that it does not anticipate significant litigation costs as a result of the rule.

We will continue to monitor the implementation of this rule and other PSA developments. Please contact us if you have any questions about this rule or would like additional information.

References

1 89 Fed. Reg. 15092 (March 6, 2024); see AMS, Inclusive Competition and Market Integrity under the Packers and Stockyards Act, https://www.ams.usda.gov/rules-regulations/unfair-practices-violation-packers-and-stockyards-act.

2 The White House Office of Management and Budget (OMB) is currently reviewing the proposed rules addressing injury to competition and poultry grower payment systems.

3  AMS indicated in the proposed rule that it takes a broad view of the term “cooperative,” noting that cooperatives can be formal or informal and would constitute an association or group made up of one or more producers. It further elaborates in the final rule that it views cooperatives as strong procompetitive mechanisms and seeks to promote their organization. 89 Fed. Reg. 16139.