Final Rule Will Add More Transparency to Poultry Market
Dec. 3, 2009. The Grain Inspection, Packers and Stockyard Administration
(GIPSA) promulgated a final rule that was published on December 3, 2009 at 74
Fed. Reg. 63271 that takes aim at the lack of transparency in the poultry
market.
GIPSA asserted that the current poultry market, due to
vertical integration and high concentration, have put poultry growers in an
inauspicious position in regards to contracting. The poultry grower has very
little power to negotiate terms with its live poultry dealer and may not have
the ability to market to another live poultry dealer due to lack of competition
or a difference in equipment requirements that will demand significant capital
investment. Many poultry contracts have broad confidentiality clauses that
prohibit the poultry grower from disclosing the terms of the agreement. This
prohibition even extends to the grower showing a business advisor who could
assist in financial planning. The rule asserts that such restrictions can lead
to more vulnerability on the side of the grower. There was also growing concern
that some live poultry dealers were not providing a written copy of the poultry
growing agreement in a timely fashion.
This is a major concern because these are typically merely recitations
of an oral contract that was agreed to between the grower and live poultry
dealers. An obvious concern could be added provisions, failure to have
termination procedures, and simply having different terms then were originally
agreed to by the parties. GIPSA asserts that many of these practices are
deceptive and unfair and are in violation of Packers and Stockyards Act of 1921
(P&SA).
The poultry growing agreement must now also contain a
statement as to whether a Performance Improvement Plan (“Plan”) exists for that
grower. If a Plan does exist, the agreement must state 1) the factors that
are considered when placing a grower on a Plan, 2) the guidance and support
provided to a grower on a Plan, and 3) the factors considered when either removing
a grower from a Plan and placing the grower back in good standing or when
terminating the agreement. There
also should be a clause that states the poultry grower may terminate the
growing agreement upon a 90-day written notice. These requirements are in
addition to the contract requirements found in 9 CFR 201.100(c)(1)-(2), which
include the duration of the contract, conditions for termination, payment
terms, the method for figuring feed conversion rates, and the methods used for
ranking or grouping poultry growers.
In order to combat the practice of a poultry grower having
little or no notice prior to termination of a contract, the final rule requires
the live poultry dealer to provide a 90-day written termination notice if the poultry
growing agreement is terminated, not renewed, or expires with no subsequent
replacement of the agreement. The notice must state the reason(s) for
termination, the effective date of termination, and any appeal rights that the
grower may have with the live poultry dealer.
In addition, the expansive confidentiality
clauses of prior contracts are no longer allowed, as the final rule allows the
poultry growers to disclose the terms of the agreement with (1) a federal or
state agency, (2) the grower’s financial advisor or lender, (3) the grower’s
legal advisor, (4) an accounting services representative hired by the grower,
(5) other growers for the same live poultry dealer or a member of the grower’s
immediate family or a business associate who is a non-employee. These changes are
said to level the playing field for the contracting parties as anticipated in
the 2002 Farm Bill, as the rule asserts that live poultry dealers currently have
the ability to show the terms and provisions of an agreement to a similar range
of persons.
Craig Raysor