The U.S. Department of Agriculture's (USDA) far-reaching proposed regulations that would overhaul the regulation of livestock and poultry contracting under the Packers and Stockyards Act features a significant section that would govern the use of arbitration in such contracts.
In its June 22 proposed rule, USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA) said it contemplated banning entirely the use of arbitration to resolve disputes in the livestock and poultry industry, but decided against doing so since it would have gone "against a popular method of dispute resolution in other industries and is not in line with the spirit of the (2008) farm bill" under whose authority the agency developed the regulations. USDA was required under the 2008 farm law to conduct a rulemaking designed to improve fairness in the marketing of livestock and poultry.
Among other things, GIPSA's proposed regulations concerning the application of arbitration to livestock and poultry contracts would establish criteria under the Packers and Stockyards Act under which USDA would determine whether an arbitration process provides a "meaningful opportunity" for producers to "participate fully" in the arbitration process. These criteria, GIPSA stated, are designed to "establish a uniform means by which poultry growers, swine production contract growers or livestock producers are offered the option to decline the use of arbitration to resolve disputes…."
GIPSA proposed that the criteria used to judge arbitration include, but not be limited to, the following: 1) the contract discloses sufficient information "in bold, conspicuous print" describing all costs to the grower associated with the arbitration process, as well as any limits on legal rights and remedies to enable the grower "to make an informed decision" on whether to arbitrate; 2) "impartial and unbiased qualified neutrals" are used as arbitrators; 3) the cost of arbitration "is reasonable compared to costs found in a typical employer/employee arbitration process; 4) there are "reasonable time limits" for completing arbitration cases and fulfilling their outcomes; 5) there are "fair procedures" that comply with the Federal Arbitration Act; 6) growers are provided access and opportunity to "engage in reasonable discovery" of information possessed by the packer, swine contractor or live poultry dealer; 7) the arbitration is used solely to resolve disputes relevant to the contractual obligations of the parties; and 8) "reasoned, written" arbitration decisions are rendered to the parties involved in a case. Further, GIPSA proposed to require that clauses appear in all livestock and poultry contracts that allow the grower to agree or decline to be bound by the arbitration provisions when entering into the agreement.
Other Proposed Regulations: GIPSA's proposed regulations also contain provisions that would define explicitly what constitutes "unfair, unjust and deceptive practices" under the Packers and Stockyards Act. Among practices that would be prohibited are: 1) paying a premium or assessing a discount under a swine production contract unless the contractor "documents the reasons and substantiates the revenue and costs" justifying the action; 2) limiting the grower's right to trial by jury (unless arbitration has been agreed to voluntarily); 3) requiring that a trial or arbitration proceeding be conducted in a geographic location where the "principal part" of the contract's performance occurs, such as the grower's home site; 4) requiring that the packer immediately notify relevant law enforcement authorities if they plan to use alleged violations of applicable laws, rules or regulations as the basis for terminating a poultry or swine production contract; and 5) "any action that causes competitive injury or creates likelihood of competitive injury."
The proposed regulations also would prohibit packers, swine contractors and poultry dealers from exerting "undue or unreasonable" preferences, advantages, prejudices or disadvantages on poultry, swine or livestock growers. Among other things, the proposed rules would require that: 1) the same contract terms be offered to all growers who "individually or collectively" could meet the contract conditions; 2) price premiums based on standards for product quality, time of delivery and production methods not discriminate against a grower or group of producers that could meet the same standards; 3) information on acquiring, handling, processing and quality be disclosed to all producers if it is disclosed to one or more growers.
The proposed regulations also would require that all growers raising the same type and kind of poultry receive the same base pay. Other sections of the proposed regulations address criteria USDA can use to determine whether reasonable notice has been provided for suspension of delivery of poultry -- at least 90 days' notice would be required -- and acceptable criteria under which poultry growers and swine production contract growers can be required to make capital investments. Under the GIPSA proposal, any capital investments required of growers as a condition of entering into or continuing a growing arrangement would require that the contract duration be of sufficient length to allow the grower to recoup at least 80 percent of the cost of the required capital investment.
Concerning livestock and poultry contracts, GIPSA's proposed regulations would require that a sample of each "unique" contract or agreement be submitted to GIPSA within 10 days after being entered into with a grower for posting on the agency's website. The requirement would include, but not be limited to, forward contracts, formula contracts, production contracts or other marketing agreements, as well as poultry growing arrangements. Companies would have the opportunity to identify confidential business information that should be redacted before the agency posts it on the internet.
Finally, GIPSA's proposed regulations would prohibit packer buyers from entering into exclusive arrangements with dealers, except those the packer has identified as its packer-buyers and reported to GIPSA on "approved forms." Packers would be prohibited from purchasing, acquiring or receiving livestock from another packer or packer-affiliated company, unless they apply for a waiver in the case of "catastrophic or natural disaster, or other emergency."
You may click here to access GIPSA's proposed regulations, which were published in the June 22 Federal Register.