USDA announces fair and competitive livestock and poultry markets proposed rule

The proposed rule would establish standards for “unfair practices” that harm the market overall as well as conduct that harms individual market participants.¹ Importantly, the proposal is based on USDA’s position that a showing of injury or likely injury to competition is not necessary to establish a violation of Section 202 of the PSA. The proposed rule marks an attempt to substantially lower the barrier to bringing a lawsuit under Section 202 of the PSA.

The proposal comes as part of USDA’s years-long focus on addressing perceived issues affecting competition in the livestock and poultry industries. Comments on the proposed rule are due August 27, 2024.

Background

The proposed rule is the fourth and possibly final rule in a series of rulemakings AMS is pursuing to advance USDA’s agricultural competition agenda. Two of these rules have been finalized, and USDA proposed the third earlier this month.² USDA presents the suite of regulations as seeking to promote competition in the meat and poultry industries, address inflationary and supply chain pressures, and protect livestock and poultry farmers from market abuse.

Collectively, these actions reflect a revival of a long-running and controversial rulemaking process that originated from the 2008 Farm Bill and that has seen repeated rulemaking attempts, changes in position, and Congressional involvement. In particular, AMS’s predecessor agency responsible for implementing the PSA, the Grain Inspection, Packers and Stockyards Administration (GIPSA), had previously issued a proposed rule in 2010 that had similar goals to the current proposal.³ The 2010 rule brought significant controversy and was never implemented.

In announcing the current proposed rule at an event at the Center for American Progress on June 25, 2024, speakers from USDA and DOJ indicated they view the proposed rule as being a major change. Jonathan Kanter, Assistant Attorney General at the Department of Justice, indicated in particular that he is hopeful the proposal will encourage potential plaintiffs to bring PSA cases against companies.

Injury to Competition

The proposed rule is based on the controversial premise that plaintiffs seeking relief under the PSA need only show that a firm’s anti-competitive conduct harmed them as an individual rather than needing to show that the action caused injury or likely injury to competition. Section 202 of the PSA (7 U.S.C. § 192) establishes various unlawful conduct under the PSA. USDA has long taken the position that Sections 202(a) and (b) do not require a showing of injury to competition, but federal appellate courts, in part drawing on antitrust jurisprudence, have historically interpreted these provisions as requiring a showing of injury or likely injury to competition to sustain a claim.⁴

In the preamble to the proposed rule, AMS explains its position that Congress did not intend application of Sections 202(a) and (b) to be limited to instances in which there is harm to competition. AMS further frames the proposal as providing clarity on the meaning of “unfair” under the PSA, asserting that courts have been inconsistent in their application whether cases brought under Section 202(a) or (b) require a showing of injury to competition. Although AMS characterizes caselaw as being inconsistent, the eight federal circuit courts of appeal that have considered the issue have held that establishing a violation of Section 202(a) and (b) of the PSA requires showing injury or likely injury to competition.⁵ As recently as 2020, AMS had also recognized there was a question of competitive injury.⁶

Unlike the earlier 2010 rulemaking effort, the current proposed rule does not expressly state in the regulatory text that it is not necessary to establish injury to competition to sustain a violation of Sections 202(a) or (b) of the PSA, but by establishing other criteria that do not include an injury to competition component, the current proposal would advance effectively the same concept.

Summary of Proposed 9 C.F.R. § 201.308, “Unfair practices and devices”

Proposed § 201.308(a) and (b) aim to protect against injuries to market participants from unfair practices and proposed (c) and (d) would protect the market from unfair practices. AMS proposes that it would be able to rely on either approach (or both approaches) when determining whether an injurious practice rises to the level of an “unfair practice.”

§ 201.308(a)–(b): Unfair practices with respect to market participants

These sections would establish that a company engages in an unfair practice under Section 202(a) of the PSA when it “causes or is likely to cause substantial injury to one or more market participants” that cannot be reasonably avoided by the market participants and is not outweighed by “countervailing benefits” that offset or balance out the injury or likely injury. AMS would consider the following factors in determining whether a practice causes or is likely cause substantial injury such that the agency would need to interfere and stop the practice:

• The extent of the practice’s interference with the individual’s market participation. For example, how much the practice impedes or restricts the ability to participate in a market, interferes with autonomy in decision-making, subverts competition, denies a producer the full value of their products or services, or “violates traditional doctrines of law or equity.”
• Potential magnitude of the injury. The proposed rule contemplates that injury could be considered “substantial” in various scenarios including substantial harm to one market participant or a small harm to many.
• Whether the injury could be avoided with reasonable steps by the producer. The proposal states a producer “is not required to take unreasonable steps, such as exiting the market or making unreasonable additional investments” to avoid injury. Under the proposal, merely disclosing the practice would not necessarily be sufficient for the injury to be reasonably avoidable.

As noted above, AMS takes the position that a plaintiff whose claims meet the above requirements could bring a case under Section 202(a) of the PSA on the basis of injury to the individual market participate alone.

§ 201.308(c) –(d): Unfair practices with respect to markets

These sections would establish that a company engages in an unfair practice under Section 202(a) of the PSA when it could “negatively affect competitive conditions” by engaging in a collusive, coercive, predatory, restrictive, deceitful, or exclusionary method of competition.

The proposed rule provides that in determining whether a practice causes or is likely to pose a threat to markets such that USDA could take action to halt the practices, the agency “may” consider “the extent to which the practice impedes or restricts the ability to participate in a market, tends to subvert the operation of competitive market forces, interferes with the free exercise of decision-making by market participants, violates traditional doctrines of law or equity, or has indica of oppressiveness, such as evidence of anticompetitive intent or purpose, or absence of an independent legitimate business reason for the conduct.” The agency may also consider how the practice affects competition, including foreclosing or impairing market opportunities, reducing competition, limiting choice, distorting or impeding the process of competition, or denying a “market participant the full value of their products or services.”

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AMS estimates the total administrative costs of the proposed rule on livestock packers and poultry dealers would be $20.14 million ($14.03 million to learn the proposed rule and assess business impacts, and $6.11 million to review production and marketing contracts). AMS estimates that these costs are one-time costs to be incurred in the first year and not be recurring. AMS does not expect that producers would face any costs from the proposed rule. AMS did not factor litigation costs or lost operational efficiency into its cost analysis.

Comments on the proposed rule are due August 27, 2024. We will continue to monitor developments related to this proposal and other PSA developments. Please contact us if you have any questions about this rule or would like additional information.

References

1  89 Fed. Reg. 53886 (June 28, 2024).

2  The three previous rules that have been released are as follows: