The Biden administration has talked more openly about the problems of unfair, concentrated markets than any recent administration. One year ago, President Biden issued a bold executive order on the need to address the loss of competition in agriculture markets. Now, the administration is starting to act. In the last month, the U.S. Department of Agriculture (USDA) and the Department of Justice (DOJ) separately proposed new rules to greatly improve transparency in largely secretive poultry contracts, took action to prevent poultry companies from conspiring to keep worker wages low and set a precedent for price transparency in a recent merger approval.
The USDA’s proposed rules on poultry contracts are the first in a series designed to strengthen farmers’ rights and ensure fairness in agriculture markets through a key USDA enforcement tool known as the Packers and Stockyards Act (PSA) first established 100 years ago.
A handful of poultry companies control the sector including Tyson Foods, Pilgrim’s Pride (JBS), Sanderson Farms and Perdue. Nearly all of U.S. poultry production is done under contract. Under such contracts, the poultry company sends the farmer the birds, feed, medications, a schedule for production and parameters for raising the birds. While the company retains tight control over the system, including owning the birds throughout the contract, the farmer takes all the risk (and debt) on capital costs (such as buildings built to the company’s specifications) and provides the land and labor. Described as a modern plantation system, these poultry contracts have been the subject of numerous investigations, including the classic book “The Meat Racket.”
At the heart of modern poultry contracts lies something called the tournament system, designed to reward and punish growers, depending on their chicken production performance. The Rural Advancement Foundation International (RAFI), who has been working with contract poultry growers for decades, describes the tournament, or ranking, system as controlled entirely by the companies because the growers have little control over major factors that affect how fast their birds grow, such as the quality, breed or sex of chicks, feed, appropriate medication, or stocking density and frequency of flock replacement. The contract tournament system pits growers against each other in a system they don’t control and have very little information about. Farmers don’t know how many birds they will be raising under the contract and thus cannot reasonably estimate their income — income that is often needed to pay loans to construct poultry buildings. (The Agriculture Marketing Service estimates current construction costs at $350,000 to $400,000 per poultry house.) Farmers with fewer than six years of experience in broiler production carried debt equal to 51% percent of assets, on average, and one-quarter of those farmers carried debt equal to at least 77% of assets, USDA researchers found. Under the tournament system, farmers don’t know how much other farmers are being paid, so there’s no way to determine a fair market price.
Farmers under contract with large, often global, companies are particularly vulnerable. Where one company controls production in an entire region, producers don’t have options. Some research shows a correlation in local markets between the number of available poultry processors and grower payments, with payments shrinking as the number of companies operating decreases.
Many of the major poultry companies have a record of bad corporate behavior and are currently under investigation by the DOJ for price fixing. Pilgrim’s Pride, owned by global meat giant JBS, plead guilty to price fixing from 2012 through 2017 and agreed to pay a $107 million fine earlier this year. Another poultry company, Koch Foods, was indicted on price fixing charges in July 2021 and has been linked with allegations of discriminatory practices by Black farmers.
The industry’s record on workers is just as troublesome. Worker injuries in poultry plants are common, with workers often afraid to speak out for fear of retaliation. The DOJ has opened an investigation into how the big poultry companies share employment practices, potentially conspiring to keep wages low for workers at processing plants. Last week, the DOJ announced it was filing an antitrust suit against a data management company, WMS, that reports out employment practices by the poultry companies — essentially allowing them to work together to keep wages and benefits low.
The USDA’s proposed new rules would take major steps in requiring the poultry companies to be more transparent about the production process, inputs and ultimately prices in these contracts. (RAFI published a great backgrounder on the USDA proposed rule). Specially, the new rules would require poultry companies to provide specific information on the number of flocks it will provide growers, the income range the grower can expect and additional details about the quality of inputs, as well as explain how the tournament system formulas are derived. Poultry company CEOs must sign agreements that require accurate disclosures and compliance with USDA audits of disclosed data, and the company must disclose any recent litigation with poultry growers in that region. Additionally, USDA is “opening an inquiry into whether some practices of processors in the tournament system are so unfair that they should be banned or otherwise regulated.”
In IATP’s comment to the USDA, we support the reforms for greater transparency requirements and made recommendations to further ensure contracts allow farmers enough income to pay back loans for capital investments; the need to better inform growers of minimum and maximum levels of expected income in order to plan; and the need to address regional monopolies (50% of poultry growers only have one or two companies available to contract with). You can read our full comment here.
The USDA’s rules got a boost with the recent Justice Department consent decree involving the creation of a new poultry company — a merger between Sanderson Farms, Wayne Farms, Cargill and Continental Grain. Under the consent decree, the new company agreed to comply with the USDA’s proposed transparency rules for contracts, set a clear minimum price for growers and protect growers against retaliation for raising concerns. The agreement is an admission that companies can operate under a better system, which should be adopted industry wide.
The Biden administration’s action to ensure fair contracts in poultry is long overdue. The 2008 Farm Bill included a Livestock Title that ordered the USDA to set new rules to protect farmers from predatory, unfair and exploitive contracts with the big poultry and meat companies. At a 2010 public workshop in Alabama organized by the USDA and DOJ, poultry growers outlined their concerns with unfair contracts, including fears of retaliation from the companies themselves.
Predictably, the meat and poultry companies kicked into action and flexed their muscles in Congress, routinely attacking the necessary USDA funding to finish new rules to ensure market fairness. In a 2012 article, current Federal Trade Commission chair Lina Kahn documented the failure of the Obama administration to take on the poultry industry, including the heavy lobbying of the House Agriculture Committee to undermine USDA’s ability to write new Packers and Stockyards rules, and targeting Appropriations Committees to slash funding. While USDA did finally publish fairness rules at the end of the Obama administration in 2016, they weren’t able to finalize them, and the Trump administration killed them immediately — a big win for the global meat and poultry companies.
As they did before, we can expect the big poultry and meat companies to pull out all the stops to block these common sense rules. The industry, in the form of the North American Meat Institute, has already come out stating that any new Packers and Stockyards rules could hurt the ability of the industry to be environmentally “sustainable” by limiting their ability to require more environmentally-beneficial systems of production.
The USDA is accepting comments on its proposed rule to ensure fairness in poultry contracts through August 23. Greater transparency is a critical first step but only the beginning of what is needed to address unfair markets controlled by a handful of companies in nearly each sector of agriculture.