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Poultry Workshop Shows Two Sides of Anti-competition Issue

USDA and the Justice Department continued its focus on antitrust issues at their second of five joint workshops, this one focusing on poultry. The two sides contributing to the debate prove that the competitiveness issue in agriculture is both difficult and complex.

The workshop, led by U.S. Agriculture Secretary Tom Vilsack and U.S. Attorney General Eric Holder, featured panel discussions on poultry grower issues and trends in poultry production. Many farmers at the workshop complained bitterly, saying their livelihoods were left to the whims of poultry companies which provide the chickens to be raised under contract. Several farmers criticized the companies for terminating contracts without cause or for demanding expensive equipment upgrades to maintain contracts, leaving many of them in a no-win situation –perpetual debt from building upgrades or risk losing the only income stream they have.

Kate Doby told the officials that even if there happens to be more than one integrator in an area, they do not try to take growers from each other and if a farmer is let go by one integrator the other one won't offer them a contract. There is no competition at the grower level.

Tom Terry, a former grower from Tennessee, resisted making a set of upgrades because he calculated that the upgrades would cost him more than the incentive the company was offering. The company quit placing birds on his farm and his contract was terminated.

On the other hand, Thomas Elam, an agricultural economist and president of FarmEcon LLC, released a study commissioned by the National Chicken Council which stated, in part: "Intense competition among chicken companies leads to product innovation and lower prices for consumers. The vertically integrated structure of the industry has given it an advantage compared to its competitors and allowed it to respond quickly to changing consumer demand. The vertically integrated system also benefits the independent family farmers who raise chickens under contracts with the companies."

New rules proposed. Shortly after the workshop, USDA proposed rule changes that could significantly improve protections for poultry growers and livestock producers. The proposed rules would come through a revamping of the Packers & Stockyards Act (PSA), the 1921-era law originally written to protect farmers from unfair practices.

The changes proposed in the rule are designed to protect producers and would prohibit packers from engaging in practices that USDA believes are anticompetitive if not collusive, such as favoring certain-sized producers and packer-to-packer buying.

In particular, the proposed rule will require that contracts be publicly available so producers entering into contracts can determine if they're receiving terms that are consistent across substrates such as a region or an industry itself or fundamentally different from contracts offered other parties. The rules include a provision to ensure that poultry growers have the opportunity to recoup at least 80% of the cost of any expensive capital upgrades.

Vilsack says the issues that the rule addresses are not so much about demand and supply but for whom demand and supply "is working." He said it's about level playing fields so those who "work hard have a shot at success."

He also emphasized that there are "a number of great companies" in the livestock packing and poultry industry "that do the right thing," and the rule won't really change how they conduct business. It's the companies that don't "play by the rules" that will be affected, he said.

The proposed rule is available from the Grain Inspection, Packers & Stockyards Administration (GIPSA) at Poultry Rule.