Eight Questions You Might Not Know You Have About the Packers and Stockyards Act

We all want a chance to earn a fair living in exchange for doing work that we take pride in. For decades, contract farmers have been fighting against unfair corporate practices that treat food producers and rural communities as disposable. The COVID-19 pandemic has repeatedly shown us that now, more than ever, the extremely concentrated corporate agriculture industry would rather maintain and intensify the harmful status quo, at the expense of resilience, if it means they can increase their profits and power. The system that these corporations have built pushes all the risk onto farmers and restricts farmers’ freedom while leaving the rest of us with a precarious food system.

Now, contract farmers need all of us to have their backs. Over the coming months, the USDA is gearing up to strengthen its enforcement of the Packers and Stockyards Act, a law that protects farmers, ranchers, and growers from corporate power abuses by massive meatpacking corporations. Here are eight questions you might have about how protections for farmers could be strengthened over the coming months.

What is the Packers and Stockyards Act (PSA)?

The PSA was passed to make meatpacking companies play fair.

In the early 20th century, the meatpacking industry was dominated by a few massive and monopolistic corporations, much as it is today. As World War I drew to a close, President Woodrow Wilson ordered the Federal Trade Commission to conduct an investigation of the industry, which found rampant market and price manipulation and unfair and fraudulent treatment of farmers and consumers. In response, Congress passed the Packers and Stockyards Act in 1921, which barred meatpacking corporations from:

• Engaging in unfair or deceptive practices in the marketplace.
• Giving “undue preferences” to any persons or localities in the conduct of their purchasing or business dealings.
• Engaging in activity that manipulates prices, creates monopolies, or in other ways illegally restrains fair competition.

Why should I care about it right now?

We are about to have our best chance in decades to get better conditions for farmers.

Earlier this year, the USDA announced that it would propose three rule changes related to the Packers and Stockyards Act to strengthen its ability to enforce the protections afforded by the Act to U.S. farmers. The three rule changes that the USDA is proposing are:

• A rule placing limits on the “tournament system” used by poultry corporations to restrict the pay and power of contract poultry growers.
• A rule boosting enforcement against an updated set of unfair, deceptive, or discriminatory industry practices.
• A rule clarifying that farmers who seek to bring a lawsuit under the provisions of the Packers and Stockyards Act need not prove that the corporate conduct prompting their individual grievance resulted in harm to competition in the industry overall.

These rules would provide farmers with critically needed protections against the abusive corporate practices they face right now. The COVID-19 crisis has clearly demonstrated that it is vital that the USDA establish these rules and begin to enforce them aggressively as soon as possible. The good news is that the current political landscape offers our best chance in years to secure the reforms contract farmers need.

What is the poultry tournament system, and how should the USDA seek to reform its use?

The tournament system means unstable incomes for farmers due to factors they don’t control.

The “tournament system” is a payment scheme designed by poultry processing corporations that transfers the financial risk involved with growing chickens onto growers they contract with, who are placed in tournament groups and pitted against each other. Contract poultry growers do not own the chickens they raise, nor do they choose the feed or medicine they use to raise them — these are all provided by the poultry corporation, or “integrator,” that they contract with. When these growers return flocks of fully grown chickens to their integrator for processing, the corporation averages various statistics about the value of the flocks in the tournament group. It then docks the pay of the growers whose flocks were found to be below average and transfers that money to growers of above-average flocks as bonuses. This results in unpredictably unstable incomes for poultry growers — who often carry huge debts from building or upgrading their chicken houses — and farm losses.

Poultry corporations cast this system as encouraging healthy competition, but in reality, the factors that could lead to a flock being above or below average, like the health of chicks or quality of food or medicine provided, are never in the control of growers, because all of these inputs are provided by their integrator. Thus, instead of a legitimate competition, the tournament system functions as a way for poultry companies to transfer the risk and cost of any problems with the chicks, feed, or medicine they provide onto the growers they contract with.

The USDA should designate the tournament system as a practice that provides an undue preference in violation of the Packers and Stockyards Act. Any contract poultry grower payment system should be objective and transparent, should guarantee a stable base pay level for contract growers, and should not penalize them based on factors outside of their control.

What unfair, deceptive, and discriminatory practices should the USDA seek to stop?

Farmers are currently unprotected against retaliation for speaking up or forming associations, and against racial discrimination.

There are several ways that massive meat corporations engage in unfair, deceptive, or discriminatory practices. Many engage in retaliatory actions against farmers who organize together to advocate for themselves to government officials and regulators or the media. For example, it is common for poultry producers who speak out about issues within their industry to receive lower quality inputs, like sick chicks or lower quality feed, which leads to reductions in growers’ pay. In the worst cases, a growers’ contract can be cut entirely. Further, growers are not currently adequately protected from retaliation when they attempt to form associations, which often preempts the possibility of growers using their shared voices to fight for change. Finally, there are well-documented cases in which meat corporations engage in discriminatory practices against farmers of color. These cases demand increased scrutiny. The USDA should issue clarifications about these and other common unfair practices, and then pursue rigorous enforcement to end such practices within the livestock industry.

Why is the USDA’s clarification concerning industry-wide competitive injury important?

The current standard for a successful lawsuit is impossibly high for individual farmers.

It is currently very difficult for farmers to successfully bring suits against meat corporations for violating the Packers and Stockyards Act because many judges have required farmers to prove that the company’s actions harmed competition within their entire industry. Since any given farmer’s production only represents a tiny fraction of their overall industry, it is very easy for large corporations to allege that their extractive practices against any given farmer that sues them are not hurting overall competition.

The USDA must clarify that the Packers and Stockyards Act does not require individual farmers or USDA to demonstrate a likelihood of competitive injury to the sector as a whole when alleging a violation of the Act. Instead, farmers and USDA should only be required to prove harm to individual farmers under the Act.

These rules make a lot of sense, why aren’t they already on the books?

Giant meatpacking companies used their deep pockets and powerful lobbies to maintain the unfair status quo.

Farmers and their allies have been advocating for these reforms for years. In 2010, USDA engaged in a rulemaking process on similar issues, but livestock and poultry companies successfully used their wealth and lobbying connections to convince Members of Congress to use the annual appropriations process to block USDA from finalizing or implementing the rules. It wasn’t until 2016 that farmer advocacy groups, including RAFI-USA, succeeded in pressuring Congress to allow these rules to be issued in the final weeks of President Obama’s second term. The rules did not survive the Trump administration, which withdrew the rules to protect corporations, in addition to demoting the Grain Inspection, Packers and Stockyards Administration (GIPSA) within USDA to further weaken enforcement.

What could get in the way this time?

The corporate meatpacking lobby will use every tool they have to derail and delay.

The Biden administration’s stated commitment to reform the power of massive agriculture corporations, along with growing congressional majorities friendly to such reform, presents the greatest opportunity in years for needed protections for farmers to be reinforced. However, there are still plenty of risks that could derail needed reforms. It is critical that the USDA issue the strongest possible rules as rapidly as possible, and then immediately begin aggressive enforcement. If the USDA delays its rulemaking or enforcement, there is a risk that changes in Congress could allow implementation of stronger rules to be blocked once again.

What can I do?

Stay in touch: there’s more to come!

The good news is that you’ve already started to act by educating yourself in reading this article! There are a number of things you will be able to do over the next months to support strong protections for farmers and their families. You can use your own social media channels to spread the word about these important issues. You can make a public comment in support of strong rules when USDA releases its draft. You can contact your representatives and urge them to support finalization of these rules, and oppose actions in Congress that could weaken or block them. Join RAFI-USA’s action network now to stay up to date on ways you can act as this policy-making process develops in real-time!

Aaron Johnson is the Program Manager for the Challenging Corporate Power Program at RAFI-USA, working to end trends of concentration and extraction in the meat industry and build resilient community-rooted animal agriculture economies.