Frequently Asked Questions on the Enforcement of Undue and Unreasonable Preferences under the Packers and Stockyards Act

Question: What is the Packers and Stockyards Act?

Answer: The Packers and Stockyards Act (the P&S Act or the Act) promotes fairness and competition in livestock, meat, and poultry for the benefit of producers, growers, and the public. The Act also provides payment protection and prohibits deception and fraud in the livestock, meat, and poultry industries. The U.S. Department of Agriculture’s (USDA) Packers and Stockyards Division (PSD), located within the Agricultural Marketing Service (AMS), is charged with enforcing the Act and protecting the rights of livestock producers and poultry growers under the Act.

Question: Why did USDA develop a rule on undue and unreasonable preferences?  Is it all that USDA will be doing on undue preferences?

Answer: The 2008 Farm Bill (Title XI of the Food, Conservation and Energy Act of 2008)(P.L. 110-246), required USDA to write regulations under the P&S Act’s provisions that prohibit packers, swine contractors, and live poultry dealers from engaging in undue preferences to some over others in the livestock and poultry industries. The rule “Undue and Unreasonable Preferences and Advantages” was finalized in December 2020 and became effective in January 2021. Since then, USDA has announced its intent to update those and other provisions through a series of three rulemakings under the P&S Act. However, until those new rulemakings are complete, the December 2020 final rule remains in effect. (USDA, “USDA to Begin Work to Strengthen Enforcement of the Packers and Stockyards Act,” Press Release, June 11, 2021.)

Question: What are the criteria established in the December 2020 final rule?

Answer: The final rule established four criteria the Secretary of Agriculture will consider when determining whether conduct by packers, swine contractors or live poultry dealers represents an undue or unreasonable preference or advantage. Those criteria include whether the preference or advantage cannot be justified on the basis of a cost savings related to dealing with different producers, sellers, or growers; cannot be justified on the basis of meeting a competitor’s prices; cannot be justified on the basis of meeting other terms offered by a competitor; and cannot be justified as a reasonable business decision. However, as elaborated below, the criteria are not exhaustive and not determinative. (Agricultural Marketing Service, USDA, “Undue and Unreasonable Preferences and Advantages Under the Packers and Stockyards Act,” Final Rule, December 11, 2020.)   

Question: How will PSD enforce the criteria in the December 2020 final rule? Will some criteria be weighed more heavily than others? Can other criteria be considered?

Answer: Section 201.211 of the final rule lists the criteria for consideration and provides that “the Secretary [of Agriculture] is not limited to those four….[T]he Secretary may also consider other factors relevant to each situation on a case-by-case basis.” That is, the criteria are not exhaustive and not determinative. PSD will enforce the provisions of the regulation by reviewing the specific facts of each case to determine how it is handled. Certain circumstances will require some criteria to be weighted more than others, including criteria not specifically listed. The criteria listed in the final rule are not a safe harbor, and a finding regarding one of them will not eliminate potential liability under the P&S Act should other criteria suggest violations.

Question: Do the criteria also apply to “unfair, unjustly discriminatory or deceptive practices and devices” that are prohibited in Section 202(a) of the Packers and Stockyards Act?

Answer: No. The criteria were written to respond to the 2008 Farm Bill requirement that the Secretary develop criteria to consider when determining if an undue or unreasonable preference or advantage has occurred in violation of the P&S Act. Unfair, unjustly discriminatory, and deceptive practices and devices are not specifically included under these criteria.

Question: How does PSD decide if an unfair, unjustly discriminatory, or deceptive practice or device has occurred in violation of the Act?

Answer: PSD considers potential violations of Section 202(a) of the P&S Act on a case-by-case basis. Some conduct is deemed “unfair” under the Act, such as failing to timely pay for livestock and poultry purchases. (See Section 409, P&S Act.) Other conduct is “unfair” based upon enforcement cases and PSD regulations. PSD investigates and gathers evidence to decide if a violation has occurred. Additionally, many practices that PSD considers undue prejudices may also be evaluated by PSD as unfair, unjustly discriminatory, or deceptive practices under Section 202(a) of the P&S Act.

Question: Is Packers and Stockyards Act analysis limited by the “rule of reason” approach under antitrust laws such as Section One of the Sherman Act?

Answer: The December 2020 rule states PSD may consider the “rule of reason” approach described in cases such as Chicago Board of Trade v. United States, 246 U.S. 231 (1918), but also that it is not limited by or to that analysis and it maintains a flexible approach.  Like the Sherman Act, the statute is textually susceptible to both “rule of reason” type analysis, but also “per se” rules for certain types of conduct. The unique circumstances applicable to the markets where PSD investigates or has enforcement authority also inform the competition analysis in distinct and important ways, including allowing for simplified competitive effects analysis where common market characteristics inform consideration of specific types of conduct.  In addition, the PSD has long taken the position that a violation of section 202(a) or (b) of the P&S Act may be established without proving an industry-wide injury to competition. Moreover, the December 2020 final rule does not determine what evidence would be required or necessarily used in a court of law. The future rulemakings, mentioned above, are expected to elaborate on these points.

Question: How would PSD handle a case where a packer, swine contractor, or poultry company withheld a contract offer or cancelled or terminated a contract on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status, where the producer or grower was capable of meeting the terms of the contract?

Answer: PSD would investigate as, based on the information provided, the contract termination may have violated Sections 202(a) and/or 202(b) of the P&S Act. As the December 2020 final rule noted, “Issues of retaliation and racial discrimination typically would arise in complaints of undue or unreasonable prejudices or disadvantages.”

Question: Is retaliation prohibited? For example, if a producer or grower makes public statements criticizing a packer, swine contractor, or poultry company, and the packer or poultry company in turn terminates an existing contract with the producer or grower, would that contract termination be an unfair practice?

Answer: The December 2020 final rule noted, “Existing law prohibits retaliation…. Issues of retaliation… typically would arise in complaints of undue or unreasonable prejudices or disadvantages.” PSD will investigate allegations of coercion, intimidation, or retaliation against any producer or grower as termination of a contract under such circumstances may violate Sections 202(a) and/or 202(b) of the P&S Act.

Question: I have a poultry growing (broiler) house that does not have the latest technology that some of the other growers in the local area have. (A)  When it came time to renew my poultry growing contract, the poultry company cut the number of birds placed on the farm, offered me a lower contract price, or threatened to terminate the contract, unless I upgrade my houses. Is this an undue or unreasonable prejudice or an unfair practice? (B)  The growers with the upgraded houses have received a higher base price. Are they receiving an undue preference or advantage over me?

Answer: It depends. (See Packers and Stockyards Act Regulation 201.216.)

• In part (A), PSD could investigate whether this was an undue or unreasonable prejudice or an unfair practice. For example, decreasing the number of birds or your contract rate, or threatening to terminate your contract, could result in PSD investigating whether coercion or retaliation was present. PSD could also investigate whether any higher pay offered by the poultry company if the grower makes the upgrades is adequate for the grower to reasonably recoup the cost of the upgrades.
• In part (B), PSD could investigate whether the poultry company’s payment of higher contract rates to the growers who upgrade their houses was an undue preference. While PSD could consider, for example, whether the upgraded housing results in a cost savings to the poultry company through lower feed conversion or lower bird mortality, other factors will also be examined on a case-by-case basis and appropriately weighed to determine if an undue preference was involved. PSD would examine, for example, whether there is evidence of a pattern and practice of racial discrimination, or whether benefits available from the poultry company or its regular business partners are available to growers, including those growers that participate in associations.

Question: My integrator recorded a delivery of 40,000 pounds of feed to me but delivered only one-half that amount, based on how the feed looks in my feed bins. Can they do that?

Answer: A poultry company’s failure to deliver the full amount of feed shown on the feed mill’s scale ticket and recorded to a grower’s account is a material breach of the contract and an unfair and deceptive practice in violation of the P&S Act. Note that it can be difficult to judge the weight of feed based on how it appears in the feed bin. Pelleted feed that weighs the same as starter (or crushed) feed may appear to take up more room in a feed bin when the weight is the same. The type and quality of feed ingredients can also affect how feed looks inside a feed bin.

Question: Some growers have not received sufficient information from poultry companies to determine the accuracy of their pay. Could this be an unfair or deceptive practice?

Answer: Yes. Regulations require that poultry growers receive all information necessary to calculate and verify their settlement pay. PSD would consider it an unfair and deceptive practice for a poultry company to refuse to provide a grower with the information and data used to determine compensation, upon the grower’s request. This data would include, but is not limited to, feed conversion rates, feed analysis, origination, and any other factor that impacts pay. (See Packers and Stockyards Act Regulation 201.100(d).)

Question: The contract I got from the poultry company requires any disputes about my contract to be resolved in State A where the company is incorporated. My poultry farm is located in State B. Do I have to go to court in State A?

Answer: No. The P&S Act requires that any disputes related to poultry growing contracts or swine production or marketing contracts be resolved within the federal judicial district in which the principal part of the performance takes place. In your example, any legal action such as a lawsuit must occur within the federal judicial district in State B where your farm is located. (See Section 209(a) of the Packers and Stockyards Act (7 U.S.C. § 197b(a)).)

Question: The beef packer that I sell fed cattle to routinely refuses to put a fixed price in the contract, but instead ties the contract to a spot market that trades and whose prices are reported several days later. The packer may not bid in that market, and there may not even be enough bidders in the market for there to be a reported price. Is that an unfair or deceptive practice?

Answer: Based on the information provided, PSD may investigate to determine if the packer engaged in efforts to lower the spot market price. One factor that may be considered in the investigation is the level of regional concentration. Price manipulation violates the P&S Act.  

Question: A packer offers to buy cattle from my neighbor on a negotiated spot market live weight basis. The same packer will take my cattle only if I agree to sell them on its standard market formula. The cattle are the same quality. Is this a violation of the Packers and Stockyards Act?

Answer: Based on the information provided, PSD would investigate whether the packer is consistently treating you less favorably than other similar producers and if that treatment rises to the level of an undue prejudice. PSD may also investigate whether the packer is providing a preference to your neighbor that cannot be justified as cost savings, meeting a competitor’s price or terms, or as a reasonable business decision. In furtherance of policy set out in the Agricultural Fair Practices Act of 1967 (7 U.S.C. §2301 et seq.), PSD generally would not view cost savings to include circumstances where multiple producers can meet reasonable terms of delivery on a cooperative or aggregated basis.

Question: The beef packer that I sell fed cattle to on a negotiated basis routinely offers higher negotiated prices for cattle of the same quality to a feeder whose cattle are certified as organic. My cattle are not certified as organic. Since the quality of the cattle, including yield grade, is the same as the organic cattle, does the premium paid for the organic cattle constitute an undue preference or advantage?

Answer: Based on the information provided, no. Products with special characteristics, e.g. organic, generally have higher retail prices. Therefore, packers are willing to pay more for cattle that are certified as organic.

Question: I grow hogs on a contract basis. I believe that the waste from many of the neighboring growing structures is being handled improperly, resulting in what I believe could be air and water pollution violations. I spoke to my state legislator at a community town hall, and recently, I shared my concerns with a reporter. I think my swine contractor knows I have spoken up to the government and the media about the pollution. As my contract is nearing renewal time, if my swine contractor proposes a less favorable formula for my hogs, is this a violation under the Packers and Stockyards Act?

Answer: Possibly. PSD would investigate if the swine contractor was retaliating against you based on concerns regarding redress of grievances through governmental agencies or legislative representatives, or with exercising freedoms of press or association, regarding compliance with environment laws. As the December 2020 final rule noted, “Farmers have the right to file complaints regarding wrongdoing, speak with media and elected officials, and form and join farmer associations. If retaliation occurs, there is likely discrimination, which may be unlawful under the P&S Act or other laws.”

Question: How do I report what I believe may be a violation of the P&S Act?

Answer:  PSD has a toll-free hotline that you can call to voice complaints or concerns. You can make anonymous or confidential complaints. Although you will need to leave your name and contact information so that PSD can call you back, .PSD will not disclose the name of a person who is complaining without the person’s authorization. The hotline number is 1-833-DIAL PSD (1-833-342-5773).

You can also contact the PSD Headquarters Office at (202) 720-7051 or PSDWashingtonDC@usda.gov, or any of the three PSD regional offices. You can reach the Eastern Regional office at (404) 562-5840 or PSDAtlantaGA@usda.gov, the Midwestern Regional Office at (515) 323-2579 or PSDDesMoinesIA@usda.gov, or the Western Regional Office at (303) 375-4240 or PSDDenverCO@usda.gov.   

Question: Where can I find more information about how the Packers and Stockyards Act protects me? How can I offer views about what should be done?

Answer:

• For general information about P&S Act and regulations, you can visit https://www.ams.usda.gov/services/enforcement/psd.
• If you have a specific question, or wish to share your views on regulations or on these FAQs, contact the Headquarters Office at (202) 720-7051 or PSDWashingtonDC@usda.gov.  You may also write to the Chief Legal Officer, Packers and Stockyards Division, Rm. 2097-S, STOP 3601 1400 Independence Ave. SW, Washington, DC. 20250-3601.

USDA may update Packers and Stockyards Act FAQs from time to time.