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AMI Urges USDA To Withdraw Proposed Livestock and Poultry Marketing Rule

Monday, November 22, 2010

Washington, D.C. -- The American Meat Institute (AMI) today filed comments urging the Grain Inspection, Packers and Stockyards Administration (GIPSA) to withdraw its livestock and poultry marketing proposed rule, because it 1) exceeds the Congressional mandate in the 2008 Farm Bill, 2) will eliminate more than 100,000 jobs, 3) will destroy partnerships between livestock producers and meat companies that have improved product quality and 4) will raise meat and poultry prices paid by consumers. 

“In addition to exceeding the direction it received from Congress and containing numerous provisions that are legally infirm, GIPSA’s proposed rule, if finalized, will cost the meat and poultry industry dearly in jobs, revenue and productivity,” said AMI Senior Vice President of Regulatory Affairs and General Counsel Mark Dopp.  “Unfortunately, GIPSA is hurtling down a path, based on anecdote and innuendo, but with no regard to the truly significant adverse economic and social consequences this rule would have on livestock producers, consumers, and the meat and poultry industry,” Dopp said. 

In its comments, AMI outlined five key areas in which the proposed rule is seriously flawed: 

1. The proposed rule conflicts with long-standing judicial precedent.  The Institute pointed out that as recently as 1997, the agency understood and accepted the position that in order to prevail in a Packers and Stockyards Act case, a plaintiff had to demonstrate injury or likelihood of injury to competition.  This fact calls into question the agency’s assertion in the proposed rule that its new proposed competitive injury language reflects a “longstanding” GIPSA interpretation.  

The comments also detail the substantial judicial precedent established by numerous federal courts that conflict with GIPSA’s proposal, including several very recent court cases that affirm the need to demonstrate harm to competition in such cases.  “Just six weeks before the proposed rule published, the most recent court to review the issue, the United States Court of Appeals for the Sixth Circuit in Terry v. Tyson Farms, Inc., raised to eight the number of federal appellate courts that have considered the key issue of whether demonstrating harm or likely harm to competition is a necessary element of a PSA claim.”

2. Many provisions would cause severe economic harm to producers, consumers, packers, and live poultry dealers.   The 2002 Farm Bill authorized GIPSA to conduct a study regarding the effects of what the agency defined as “alternative marketing arrangements” (AMAs) on the livestock and meat industries.  The study was completed in 2007 by RTI International (RTI)

“Based on the RTI study’s conclusions, the proposal, if finalized, would have a very adverse effect on the meat and livestock industry, with the greatest negative impact on livestock producers and consumers,” Dopp notes.   “Unfortunately, if the proposal as written is finalized, the significant losses identified by RTI will not be hypothetical – they will be real,” says Dopp.  Because the proposal lowers the burden involved in winning a P&S case, it makes the use of AMAs a risky practice – perhaps unacceptably so – for many packers. 

3.  Many elements of the proposal are unconstitutionally vague and patently unworkable.  According to Dopp, the proposed rule is littered with vague and unworkable terms and concepts.  “One definition would find a ‘likelihood of competitive injury’ to include a situation in which a packer impairs ‘a producer's or grower's ability to receive the reasonable expected full economic value from a transaction in the market channel or marketplace’ but nowhere in the proposal is there any guidance about what constitutes the “reasonable expected full economic value” or how that value should be measured.  Similarly, the proposed rule provides no guidance or explanation as to actions or decisions by a packer, swine contractor, or live poultry dealer might “impair” a producer’s or grower’s ability to compete with other growers or producers.

Language in the proposal requiring dealers to purchase livestock for a single packer only will also adversely affect competition, according to Dopp.  In the comments, he explained that as far back ten years ago, GIPSA recognized that there were not enough buyers at auctions and that it was not economical for packers to send individual buyers to every location.  Those economic challenges are even truer today and several packers have advised AMI that this proposed rule will limit even further their ability to procure livestock that best suits their purchase criteria.  “Contrary to the agency’s assertion in the preamble that the proposal will increase participation in the cow and bull slaughter market, simply put, if the proposed rule becomes final, although the number of bodies at auctions may not change much, there will be fewer buyers at many of those locations,” says Dopp.

In addition, GIPSA’s proposed prohibition on packer-to-packer livestock sales is a de facto ban on packer ownership of livestock and will adversely affect producers and packers.   “Not only is the packer-to-packer sales ban provision unnecessary because GIPSA has the authority today to take action if warranted, authority it has never needed to exercise, but its impact will be detrimental to packers and producers because of the various inefficiencies it will introduce into the marketing system and the displacement of livestock marketing that will occur,” he said.

4.  The proposal would adversely affect the meat and poultry industry’s ability to compete internationally.   The proposed rule would largely eliminate the marketing agreements that are used to maintain customized meat production programs including European Union beef business (certified hormone free; 45,000 MT quota for each of the next three years), natural beef, many packers’ premium programs, and meat from age-verified livestock and specialized production systems such as “Certified Angus Beef.”

“International customers pay a premium to U.S. producers and packers who meet these requirements and producers benefit from participating in these specialty programs,” AMI said. “If the proposed rule is finalized, the U.S. would stand to lose international markets because competing suppliers in other countries will not face similar restrictions.  The inability to produce and guarantee the meat characteristics demanded overseas would turn U.S. beef and pork cuts into commodity cuts with lower values and lower returns to producers and packers throughout the production and marketing chain,” AMI wrote.   

5.  The agency failed to meet the requirements of Executive Order (EO) 12866. Executive Order 12866 requires a more comprehensive assessment than the simplistic cost-benefit analysis conducted as part of the proposed rule.  AMI points out that the EO defines a “significant regulatory action” as any regulatory action that is likely to result in a regulation that may have an annual effect on the economy of $100 million or more.

“Any reasonable analysis of the industry and the proposed rule would have led to the conclusion that the annual effect on the economy would exceed $100 million,” Dopp wrote. “A recent analysis done by John Dunham and Associates examining the impact of the proposed rule and the fact that it will significantly alter and lessen the use of marketing agreements by packers yielded a conclusion that implementation of the proposed rule as written will cause the loss of approximately 104,000 jobs and adversely affect domestic GDP by $14 billion,” Dopp said.  “Here, the agency has failed to properly conduct a thorough economic impact analysis as required.  That failure compels the agency to perform that analysis and then re-propose the rule,” the comments point out.

To read AMI’s complete comments, click here: http://bit.ly/9SQVOp

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