USDA’s New Poultry Industry Transparency Rule Explained

Don’t have the time to read 155 pages of USDA regulatory text? We did it for you!

What are the main problems that USDA is explicitly addressing with this rule?

  • Incomplete contracts (i.e., contracts in which one party has “discretionary latitude to deviate from expectations), most prominently those that do not guarantee a minimum number of flocks at a minimum stocking density annually. Without this type of guarantee, growers are unable to reliably estimate the guaranteed minimum cash flow of their contracts, which in turn limits their ability to know for sure that they will be able to keep up with the payments on the loans they must secure to build their poultry farms.
  • Income variability inherent to the usage of tournament systems, variable layout times or stocking densities, and variable inputs, which are obscured during grower recruitment with simplified average pay projections. This variability similarly obscures growers’ ability to accurately forecast their cash flow and debt servicing ability.
  • Effects of input quality variability — with regards to flock origin, breed, gender ratio, and health, as well as feed quality and disruptions and facility factors — on the relative performance of growers competing in tournament groups.

What is the USDA’s chosen primary tool for addressing these problems?

  • Require poultry companies to disclose the number of flocks and minimum flock stocking density that they will contractually guarantee annually.
  • Require poultry companies to provide a summary of litigation over the previous six years between them and any poultry grower, including the nature of the litigation, its location, the initiating party, a brief description of the controversy, and any resolution.
  • Require poultry companies to disclose any “sale of farm” policies.
  • Require poultry companies, when finalizing a new contract, to disclose to prospective growers the estimated income range for all relevant housing specifications, broken down by quintiles, of current growers in a prospective grower’s region. Additionally, they will have to disclose average grower revenue in all of the poultry company’s other regions.
  • Require poultry companies to disclose a summary of the information they collect on grower variable costs related to poultry production.
  • Require poultry companies to disclose information about the origin, breed, gender ratio, and health of flocks placed with growers within 24 hours of delivery.
  • Require poultry companies to provide settlement sheets to each grower with anonymized information about the origin, breed, gender ratio, and health of both their own flocks as well as those provided to every other grower in their tournament group. Additionally, they will be required to disclose facility specifications and any feed discrepancies for each grower in the tournament group.
  • Require poultry companies to disclose how their tournament system formulas account for input quality variability and feed discrepancies.

What are the problems that USDA acknowledges but is not substantively addressing with this rule?

  • Poultry companies may still offer contracts that do not guarantee annual flock placements or stocking densities sufficient for grower debt servicing or profitability. Indeed, poultry companies may still choose to offer contracts that do not guarantee any flock placements at all, and they are not required to offer contracts that extend for the entire term of the loans taken out by growers.
  • While poultry companies will be required to disclose input quality variables and feed discrepancies within tournament groups and how their ranking formula accounts for those variables, they are not required to create new tournament formulas that actually account for variable inputs.
  • Tournament group composition effects (wherein a grower can produce identical outcomes on two flocks, but receive different revenue based on which other growers they must compete with in each tournament group) are not addressed or accounted for in the currently proposed rule.

What are the possible positive effects of USDA’s transparency rule for contract growers?

  • By requiring poultry growing contracts to clearly disclose minimum annual flock placement and density guarantees, as well as real income variability and cost estimates, growers may be better positioned to evaluate whether entering into a poultry growing contract is the right decision for them, and lenders may be able to better evaluate whether poultry growing contracts with poor guarantees are a wise lending investment. If fewer growers and lenders are willing to enter into contracts with poor guarantees, integrators may be pressured to improve the guarantees they include in contracts.
  • By requiring integrators to disclose input quality, feed discrepancy, and facility specification information for each grower in a tournament group to each tournament participant, growers should be able to better assess whether they are experiencing retaliation or consistently being disadvantaged by the quality of the inputs they are being provided. If growers keep these records over time, they may have stronger bodies of evidence to provide to regulators should they believe they are experiencing discrimination or retaliation.

What improvements could be suggested, either as modifications to the proposed rule or as additional rules?

  • Within contract disclosures, integrators should be required to clearly disclose the maximum percentage of variance, both positive or negative, from the contract’s base pay rate that is possible within their tournament system formula. This would provide growers with increased transparency concerning the true price floor of a proposed contract.
  • Within contract disclosures, integrators should be required to prominently disclose the contract’s minimum estimated annual cash flow based on the number and density of the flocks guaranteed annually, the minimum possible pay rate (based on their tournament formula’s variance percentage as discussed above), and estimated grower costs. This would provide a more transparent picture to growers and lenders concerning the minimum guaranteed cash flow of a proposed contract.
  • Within contract disclosures, integrators should have to disclose all of the potential input variables that they control, how they have affected the tournament performance of their current growers, and whether their formula equalizes for input quality variability and if so, how.
  • Within flock delivery disclosures, integrators should disclose a breed identifier and a breeder flock identifier in addition to a breeder farm identifier. Integrators should be required to disclose these identifiers for each grower in any grower’s tournament group on settlement sheets. Integrators should then be required to provide a convenient method for growers to access or request historical data profiles outlining best management practices and tournament system performance (disaggregated by impactful variables like breeder flock age, flock pickup date, etc.) of all chicks from any breed, breeder facility, or breeder flock identifier.
  • Within settlement sheet disclosures, integrators should have to disclose the flock age at pickup as an impactful variable, and whether they account for that in the tournament formula.
  • Integrators should be required to maintain an appeals process for growers to report feed quality or delivery issues, input quality issues, or other grievances and should be required to disclose any appeals and a summary of their resolution on settlement sheets. This would further strengthen the value of these disclosures as an official record of the treatment of growers by their integrator.
  • Any integrator that retaliates in any way against a grower who installs a feed scale on their farm to verify the accuracy of feed deliveries would be in violation of the Packers and Stockyards Act.

How can active or former contract growers make their voices heard on these issues?

RAFI-USA Transparency in Poultry Contracts and Tournaments Grower Feedback Survey

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RAFI-USA challenges the root causes of unjust food systems, supporting and advocating for economically, racially, and ecologically just farm communities.

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RAFI-USA

RAFI-USA challenges the root causes of unjust food systems, supporting and advocating for economically, racially, and ecologically just farm communities.