FAQs for Poultry Grower Payments Systems and Capital Improvement Systems

Sec. 106: Prohibiting Live Poultry Dealers (“LPDs”) from reducing grower compensation or excessive variability in  compensation in the tournament system (a growing arrangement that compensates growers based on the grower’s grouping, ranking, or comparison to others)

1. What do LPDs have to do to comply with § 201.106 of the final rule, which prohibits reductions in compensation rates in a tournament (§201.106(a) - Rate Transparency) and excessive variability, i.e.: when aggregate gross annual payments based on comparison exceed 25 percent of total gross annual payments to growers in a complex (§201.106(b) - Excessive Variability)?  

The Agricultural Marketing Service (AMS) intends for the rule to prevent the unfairness and deception from compensation reductions and excessive variability. As a result, broiler growers can receive their expected compensation, more accurately compare their options among different LPDs, and reasonably predict their income.

First, LPDs may not reduce any rate of compensation because of a grower’s grouping, ranking or comparison (the tournament).  

Second, the tournament should not make up more than 25% of total compensation to growers, complex-wide. The Secretary presumes that a LPD violates the Act when aggregate gross annual payments based upon a grouping, ranking, or comparison of growers exceed 25 percent of total gross payments to growers in a complex on an annual-calendar year basis. 

Third, to facilitate a smooth transition and prevent unfairness, LPDs must provide contracts to AMS if the annual-calendar year’s complex-wide average gross payments to growers at a complex of a LPD is less than the prior annual-calendar year’s complex-wide average gross payments to growers at the complex, during a three-year transition period beginning July 2026.

2. When do LPDs have to comply with the rule?

Compliance is required by July 1, 2026. 

3. If LPDs request contract changes, can growers reject them?  

Growers are not subject to the provisions of the rule. The rule does not affect a grower’s ability to accept or reject contracts as they see fit.  

This rule does not prescribe the exact manner by which LPDs modify their compensation processes. Examples of the regulation operating in practice include LPDs who already compensate growers in a manner that conforms to the regulation. (Department of Justice, “Justice Department Files Lawsuit and Proposed Consent Decree to Prohibit Koch Foods from Imposing Unfair and Anticompetitive Termination Penalties in Contracts with Chicken Growers,” https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing. AMS’ review of compensation for a representative sample of LPDs also suggest that most complexes already operate with performance payments not exceeding 26 percent of total payments, which suggests that few complexes will need to substantially reduce performance payments relative to total payments in order to comply with the regulation.)

The rule’s prohibition on reducing rates of compensation in tournaments apply to the LPDs.  Whether or not LPD’s seek to make contractual changes in response is beyond the scope of the rule.  

AMS will closely monitor any changes to aggregate payments to growers complex-wide, and may also examine whether individual growers are treated fairly during any transition period.

4. Do LPDs have to disclose information to growers regarding how new contracts may affect growers? 

Yes.  LPDs subject to the requirements of the Transparency in Poultry Grower Contracting and Tournaments final rule, which requires the LPDs to provide the grower with a Live Poultry Dealer Disclosure Document setting out certain information on the proposed new contract. 

5. Do growers retain the benefits of the contracts they previously negotiated?  

AMS recognizes that growers have, in some cases, negotiated contracts that fit their particular circumstances, and that contracts can be complicated.  LPDs are not required to change their contracts, and LPDs may retain existing rates in their new contracts.

AMS expects some LPDs will request growers accept new contracts with different rates and compensation designs.  Financial revenue disclosures under the Live Poultry Dealer Disclosure Document may assist growers in identifying whether any requested new contract would affect revenue expectations previously negotiated.  

This rule addresses unfairness and deception in broiler grower payments, poultry grower ranking systems (commonly known as tournaments), and capital improvement systems.  For example, if an LPD seeks to unfairly alter compensation – e.g.: substantially alter rates of compensation, change the number of flock payments, or change stocking density – AMS may evaluate the changes against overall grower compensation in the complex and may also look to the relationship between comparison-based compensation and total compensation, to prevent an unfair lowering of base pay rates. 

6. How long will AMS’s monitoring of the transition period last?  

The new rule, requires LPDs to submit copies of prior and modified contracts and disclosures for a three-year period starting with the year the rule will be enforced, 2026. With this information, AMS will review changes in compensation rates and evaluate these changes for fairness and reasonableness.

7. How might an LPD rebut the 25% excessive variability presumption?

To rebut the presumption of unfairness triggered when comparison compensation payments exceed 25 percent of total compensation, an LPD might  demonstrate, among other things, that:

  • Their particular tournament’s compensation system allows all growers to be economically successful without the need to receive any payments based upon a grouping, ranking, or comparison of growers that exceed the amount covered by the presumption; 
  • Payments beyond the range covered by the presumption (25%) re sufficient to reflect the increased risk of variability to all growers under that system; or
  • The system is not otherwise unfair or deceptive. 

AMS will examine any rebuttal on a case-by-case basis.

Sec. 110: Establishing a duty of fair comparison for LPDs operating Broiler Grower Ranking Systems

1. Do LPDs have to provide identical inputs and production practices to each grower in a given tournament?

No.  Fair comparison of growers does not require that LPDs provide all growers precisely equal inputs and identical production practices for each flock. This rule permits LPDs to minimize production inefficiencies that would arise from a standard requiring strict equality in inputs, while avoiding an unfair comparison of grower performance.  

Fair comparison of growers requires that growers do not receive a distribution of inputs or assignment of production practices that cause material differences in performance from other growers to whom they are being compared and are caused by factors outside of a grower’s control. Material differences in performance are differences that meaningfully (from the perspective of the grower) impact grower payments.  [See preamble IV (B)); p.54-55 in draft final rule]

LPDs must identify inputs and flock production practices under their control that impact grower payment and ensure that these factors do not meaningfully impact grower payments. LPDs also must improve their monitoring of how inputs and flock production practices are allocated across growers, and, as appropriate, adjust such allocations to reduce the unequal distribution among growers within a settlement group or across a given time period. An LPD could still provide certain growers with different inputs, for example because an LPD believed certain growers were better at raising particular types of inputs, provided it appropriately compensated the growers being compared to each other with respect to the material differences in performance that affect the comparison.  

LPDs must adjust how grower pay is calculated if a fair comparison is impractical due to unavoidable inequitable allocations. See Question 5 for further discussion. 

2. What is the designated time period over which LPDs must design and operate their poultry grower ranking systems to provide a fair comparison among growers? 

LPDs may compare growers over a reasonable period of time.  If the LPDs compare growers fairly over a reasonable period of time, randomly selecting inputs is one way, in most cases, to minimize the effect of the flock-to-flock variance in inputs.  Companies may use non-random distribution, including to temporarily correct for what would otherwise be an inequitable distribution of inputs under an otherwise random system, provided they ensure comparisons are fair. 

AMS would generally consider a period of one year or less to be a reasonable timeframe across which to compare growers’ performance because it provides sufficient time to limit variation from one event while ensuring that LPDs treat growers fairly over a reasonable timeline. The one-year period coincides with commonly used five-flock averages and with one-year comparisons used in some live poultry growing arrangements. 

[See preamble IV (B)); p.54-55 in draft final rule]

3. Under the duty of fair comparison factors, when an LPD’s distribution of inputs or flock production practices cause differences in grower performance, when are those differences considered material? 

The final rule utilizes a flexible standard that focuses on whether the inputs or production practices resulted in a material difference in performance. Material differences in performance are differences that meaningfully (from the perspective of the grower) impact grower payments. [from preamble IV (B); p. 53 in in draft final rule]

When grower comparison-based pay accounts for a very small portion of grower compensation, AMS expects differences in inputs and flock production practices to cause fewer material differences in pay. AMS expect this dynamic to operate on a sliding scale; the smaller the role of comparison pay in total grower compensation, the smaller the effect of variations in inputs and flock production practices on total compensation. AMS will also consider the design of the formula to determine its impact on the magnitude or distribution of compensation, if any. [p. 56 of final draft rule]

4. Under § 201.110, if a fair comparison among growers cannot be made, how should an adjustment to grower compensation be determined under the non-comparison compensation method?

Any adjustment to how grower compensation is determined must use a non-comparison method specified in the contract that reflects reasonable compensation to the grower for its services. The contract should set forth the preferred approach(es) of the parties. Ensuring that agreed to payment adjustments are fair will be part of regular AMS poultry compliance reviews.   [p. 54 of final draft rule]  

5. How should a LPD determine that particular conditions or circumstances are outside the control of the LPD, and thus make comparisons between growers impractical or inappropriate? 

A settlement group may have differences in inputs, production practices, or other factors beyond the control of the LPD and growers that render a reliable comparison impossible. One example might be the previously described situation where a company unknowingly delivered chicks to a grower that are later discovered to be diseased so that no fair comparison is possible. The facts and circumstances applicable may vary, so the focus will likely be on whether the LPD have established reasonable policies and procedures for managing such matters. The rule is designed to balance protections for growers with necessary flexibility in dealing with natural systems, such as birds and feed, and human error.  [from preamble IV (B)’ p. 55 of draft final rule]

6. What standard should a LPD use to ensure it has made reasonable efforts to resolve in a timely manner a grower’s concern? 

The focus should be on responsiveness and commitment to resolving legitimate concerns to avoid potential secondary harm to the grower. What constitutes “reasonable efforts” and “timely resolution” of a grower’s concerns will depend on the facts and circumstances of each case, with particular attention placed on whether the situation adversely impacts the fairness of the comparison(s) for the grower. 

For example, if a grower raises immediate and urgent concerns about feed quality, such as the delivery of feed meant for older chicks than the grower has, the LPD should have in place processes to—and in fact, actually—resolve this concern as soon as possible to minimize any additional undue damage to the grower’s flock due to lack of proper nutrition. If a grower raises concerns about feed persistently being delivered late or in an insufficient quantity, the Agency will examine the LPD’s “reasonable efforts” taken to adjust the method of delivery. 

Additionally, a LPD is prohibited from retaliating against a grower in any manner for raising concerns as to whether a fair comparison method was used. [from preamble IV(B); p.55-56 of draft final rule]

7. If a reliable comparison impossible, impractical, or inappropriate, how will AMS determine if a non-comparison method specified in the contract reflects reasonable compensation to the grower for its service?

Multiple approaches could be considered reasonable depending on the circumstances, and LPD’s costs are an appropriate consideration as part of those particular facts and circumstances. AMS is aware that one commonly used method is to pay the grower an amount equal to the average rate they received over their previous five flocks. The non-comparison method is intended to fairly compensate the grower. Therefore, absent special circumstances where a rationale and an agreement to do otherwise are reasonable and appropriate (and documented as such), the non-comparison compensation method needs to equal or exceed the pay that the comparison-based compensation rate would have delivered. [p. 57 of draft final rule]

An average of the last five settlements by the grower is considered a non-comparison method for the purpose of the tournament settlement that the grower is being excluded from, even though the average is affected by the previous comparisons (unless unusual facts and circumstances call into question the fairness of such an approach). [from preamble IV(B); p.54 of draft final rule]

8. Does failure to meet the documentation requirements necessarily lead to failure to comply with the duty of fair comparison? 

AMS will rely on the documentation of written processes set out in § 201.110(b), as well as the facts and circumstances of specific occurrences, to evaluate compliance. [p. 57-58 of draft final rule]

Sec. 112 - Broiler Grower Capital Improvement Disclosure Document

1. When is an LPD obligated to provide a grower with a Capital Improvement Disclosure Document (Disclosure Document)?

When a LPD requests that a grower make an additional capital investment, the company must provide the grower with a Disclosure Document that contains the information required by paragraph (b) of the final rule. [preamble p. 74]

There is no ongoing obligation to update the disclosure, although if the Disclosure Document was incomplete or inaccurate, the company should consider revising it and providing an updated copy to the grower to minimize the risks of having engaged in a violation of deceptive practices.

2. Is there a template for the Disclosure Document?

No, there is not a template for the Disclosure Document.  To comply with this section of the rule, LPDs must ensure the Disclosure Document contains all of the required disclosure contents listed in § 201.112 (b) in a clear, concise, and understandable manner.  

3. What is “research or other supporting material” with respect to understanding the intended purpose of additional capital investments?

LPDs commonly research and design additional capital investments and usually have a plan or intended outcomes of the additional capital investment. For example, a grower’s decision to make an additional capital investment may depend on whether it is intended to enhance performance (e.g., tunnel ventilation), change the product being offered (e.g., a switch to “No Antibiotics Ever”), or change the nature of the controls and risks (e.g., automation and monitoring).  [preamble p. 75-76]

4. Section 201.112(b)(2) requires the Disclosure Document to disclose “all financial incentives and compensation for the grower associated with the additional capital investment.”  What is the scope of this requirement?  What does compensation mean in this context as distinct from financial incentives?

LPDs are required to disclose all financial incentives and compensation for the grower associated with the additional capital investment. The Disclosure Document shall clearly delineate how long such financial incentives or changes in grower compensation will last and the degree to which benefits accruing to growers making such investments are contingent on how widely they are adopted by other growers. This disclosure will assist the grower in assessing the relative risks of non-recoupment, as the reliability of those incentives may vary based on the duration of the contract and whether other growers are likely to incorporate the additional capital investment technology in a way that would make recoupment through performance pay less reliable.  [preamble p. 76]

Compensation and financial incentives are broad terms and may include changes to grower base pay or performance pay, payments specifically linked to adoption of the particular technology resulting from the additional capital investment, and any other changes to the economics of the grower’s relationship with the LPD associated with making the additional capital investment or its implementation once made.  [preamble p. 76]  

5. How detailed must the financial analysis be in the Disclosure Document? What specific assumptions and risks should be included?

This provision is designed to enable the grower to evaluate the reliability of the financial returns that the grower could receive over the duration of the contract. Such information should include, where relevant, assumptions regarding the expected likelihood of other growers adopting the additional capital investment and the impacts of adoption rates on the reliability of projected returns. The financial analysis of projected returns should allow growers to understand the opportunities, and hence risks, they may be taking on with the additional capital investment. For example, revenue projections should include assumptions that can be relied upon by growers in relation to annual flock placements, stocking density, and the expected distribution of performance pay.  [preamble p. 81]

6. Who is covered by “any officer, director, decision-making employee, or close family member of any such person” in § 201.112(b)(5)? What is considered a close family member?

A close family member covers an immediate or other family member where a reasonable person would question the impartiality of the business judgment of the decision-maker.  [preamble p. 80]

7. Who is a decision-making employee?

Decision-making employees refers to those employees who are involved with the decision-making for the additional capital investment and its implementation. [preamble p. 80]

8. What constitutes reasonable efforts by the LPD in making growers aware of their right to request translation assistance and to assist the grower in translating the Disclosure Document?

Reasonable efforts include, but are not limited to, providing current contact information for professional translation service providers, trade associations with translator resources, relevant community groups, or any other person or organization that provides translation services in the poultry grower's geographic area.  Depending on the facts and circumstances (such as convenience, expense, and timeliness of the translation), reasonable efforts may also include allowing the grower access to a computer-generated translation of the Disclosure Document and additional time to review any translated Disclosure Document. 

A LPD may not restrict a broiler grower or prospective broiler grower from discussing or sharing the Disclosure Document for purposes of translation with a person or organization that provides language translation services.  Nothing in the rule prevents companies from providing a translation, provided it is complete, accurate, and not misleading. [preamble. 84]

9. How will AMS monitor and oversee the implementation of the Disclosure Document requirements?

Enforcement of § 201.112 could occur in several ways. Growers could contact AMS (PSD) to submit a complaint regarding an alleged violation of § 201.112. PSD would investigate, which could lead to referral to DOJ for appropriate action or, where failure to pay is implicated, there may be enforcement through USDA administrative processes.44 As necessary for compliance reviews or during investigations, PSD will review Disclosure Documents to ensure completeness. Injured individuals will also have a right to proceed in Federal court.   [preamble p. 85]