[Federal Register Volume 89, Number 45 (Wednesday, March 6, 2024)]
[Rules and Regulations]
[Pages 16092-16199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04419]



[[Page 16091]]

Vol. 89

Wednesday,

No. 45

March 6, 2024

Part II





Department of Agriculture





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Agricultural Marketing Service





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9 CFR Part 201





Inclusive Competition and Market Integrity Under the Packers and 
Stockyards Act; Final Rule

Federal Register / Vol. 89 , No. 45 / Wednesday, March 6, 2024 / 
Rules and Regulations

[[Page 16092]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-21-0045]
RIN 0581-AE05


Inclusive Competition and Market Integrity Under the Packers and 
Stockyards Act

AGENCY: Agricultural Marketing Service, Department of Agriculture 
(USDA).

ACTION: Final rule.

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SUMMARY: The U.S. Department of Agriculture's (USDA or Department) 
Agricultural Marketing Service (AMS or the Agency) amends its Packers 
and Stockyards Act, 1921, regulations to prohibit undue prejudice and 
unjust discrimination against individuals on a prohibited basis 
unrelated to the quality of the service or product provided. The rule 
also identifies retaliatory practices that interfere with lawful 
communications, assertion of rights, and associated participation, 
among other protected activities, as unjust discrimination prohibited 
by the law. Finally, the rule identifies deceptive practices that 
violate the Packers and Stockyards Act with respect to contract 
formation, contract performance, contract termination, and contract 
refusal. The purpose of this rule is to promote inclusive competition 
and market integrity in the livestock, meats, poultry, and live poultry 
markets.

DATES: This rule is effective May 6, 2024.

FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Chief Legal Officer/
Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade 
Practices Program, 1400 Independence Ave. SW, Washington, DC 20250; 
Telephone: (202) 690-4355; or email: <a href="/cdn-cgi/l/email-protection#bccf92deced9c8c892d3dadac9c8c8fc80dd9cd4ced9da81" http: usda.gov">usda.gov</a>">s.brett.offutt@usda.gov</a>.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
II. Background
    A. Current Market Structure
    B. Risks and Implications for Producers
    C. Need for This Rulemaking
III. Authority
IV. Summary of the Proposed Rule
V. Changes From the Proposed Rule
    A. Market Vulnerable Individual (MVI) to Prohibited Bases
    B. Prohibited Actions Taken on a Prejudicial Basis
    C. Exceptions to the Prohibited Bases
    D. Retaliation Provisions
    E. Technical Changes
VI. Provisions of the Final Rule
    A. Definitions (Sec.  201.302)
    B. Undue Prejudice and Unjust Discrimination (Sec.  201.304(a))
    C. Retaliation (Sec.  201.304(b))
    D. Recordkeeping (Sec.  201.304(c))
    E. Deceptive Practices (Sec.  201.306)
    F. Severability (Sec.  201.390)
VII. Comment Analysis
    A. Definitions (Sec.  201.302)
    B. Applicability
    C. Undue Prejudices and Unjust Discrimination (Sec.  201.304(a))
    D. Specific Actions Constituting Prejudice or Disadvantage 
(Sec.  201.304(a)(2))
    E. Retaliation (Sec.  201.304(b))
    F. Recordkeeping (Sec.  201.304(c))
    G. Deceptive Practices (Sec.  201.306)
    H. Severability (Sec.  201.390)
    I. Effective and Compliance Dates
    J. Regulatory Notices & Analysis & Executive Order 
Determinations
    K. Comments on Legal Authority or Other Legal Issues
    L. Other Comments Related to the Proposed Rule
VIII. Regulatory Analysis
    A. Paperwork Reduction Act
    B. Executive Orders 12866, 13563, and 14094; Regulatory Impact 
Analysis; and the Regulatory Flexibility Act
    C. Executive Order 13175--Consultation and Coordination With 
Indian Tribal Governments
    D. Civil Rights Impact Statement
    E. Executive Order 12988--Civil Justice Reform
    F. E-Government Act
    G. Unfunded Mandates Reform Act
    H. Congressional Review Act

I. Executive Summary

    The rise of concentration and changes in contracting practices in 
livestock and poultry markets over the last four decades have 
facilitated and exposed producers and growers (hereafter, producers 
unless otherwise noted) to increasing economic harms from exclusionary, 
prejudicial, or otherwise discriminatory conduct, as well as deceptive 
conduct, by packers, swine contractors, and live poultry dealers 
(hereinafter regulated entities, unless otherwise noted). The 
regulatory toolkit embodied in the Packers and Stockyards Act, 1921, as 
amended (P&S Act or the Act) (7 U.S.C. 181 et seq.), authorizes USDA to 
issue regulations to address these issues. This final rule seeks to 
address a discrete but important set of those wrongfully exclusionary 
or deceptive practices that undermine inclusive competition and market 
integrity: specifically, (1) discriminatory prejudices on certain bases 
relating to the producer's characteristics, (2) retaliation for 
engaging in certain acts as part of being a livestock or poultry 
producer or grower, and (3) false or misleading statements or material 
omissions in certain contexts. These practices deny producers 
opportunities to compete in the marketplace and earn the full value of 
their livestock sales or poultry growout services.
    On October 3, 2022, AMS published in the Federal Register (87 FR 
60010) a proposal to amend the regulations implementing the Act located 
in title 9, part 201, of the Code of Federal Regulations (CFR) by 
adding a new subpart O titled ``Competition and Market Integrity.'' AMS 
solicited comments on the proposed rule for an initial period of 60 
days, and extended the comment period for an additional 45 days on 
November 30, 2022 (87 FR 73507). AMS received 446 comments from 
industry trade associations, non-profit organizations, individuals, 
State attorneys general, farm bureaus, academic/research institutions, 
and other groups. After consideration of all comments, AMS is adopting 
the proposed rule, with modifications designed to increase specificity 
and, therefore, certainty and enforceability.
    AMS is issuing these regulations to enhance basic protections that 
modern livestock and poultry producers need to promote inclusive 
competition and market integrity. Specifically, this final rule will:
    <bullet> Prohibit, as undue prejudices or disadvantages, actions 
that inhibit market access or actions that are otherwise adverse to 
covered producers on the basis of race, color, religion, national 
origin (including ethnicity), sex (including sexual orientation and 
gender identity, as well as pregnancy), disability, marital status, or 
age; or because of the covered producer's status as a cooperative, with 
certain narrow exceptions such as the provision of religious meats and 
the functions of Tribal governments;
    <bullet> Prohibit, as unjust discrimination, retaliatory and 
adverse actions that interfere with lawful communications, assertion of 
rights, associational participation, and other protected activities;
    <bullet> Prohibit, as deceptive practices, regulated entities 
employing false or misleading statements or omissions of material 
information in contract formation, performance, and termination; and 
prohibit regulated entities from providing false or misleading 
representations regarding refusal to contract; and
    <bullet> Require recordkeeping to support USDA monitoring, 
evaluation, and enforcement of compliance with aspects of this rule.
    AMS is adopting this final rule to promote inclusive competition 
and market integrity, as rational decision-making, so critical to 
economic success, can most effectively occur in a market free of the 
practices prohibited by this

[[Page 16093]]

rule. This final rule also affirms the importance of a clear and direct 
regulatory framework with respect to prohibited conduct, thus 
protecting producers in the marketplace. This rule does not address 
every possible way in which producers may be wrongfully excluded or 
deceived under the Act. Producers who believe their rights under the 
Act have been violated--whether specifically under this final rule, or 
in other circumstances--can report a violation to AMS.\1\ For some 
matters in poultry, USDA further refers the case to the U.S. Department 
of Justice (DOJ) for enforcement.\2\ Producers may also enforce the law 
and its regulations through private rights of action under the Act. 
Penalties under the Act depend upon the nature of the particular 
violation, including the particular animal species, and range from 
monetary penalties to injunctive relief.
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    \1\ Parties may report tips or complaints to farmerfairness.gov. 
Additional information is available at https://www.ams.usda.gov/services/enforcement/psd/reporting-violations.
    \2\ 7 U.S.C. 181, including sections 203-205, 404, and 308 of 
the Act.
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    This final rule is effective 60 days after publication in the 
Federal Register. AMS has chosen this effective date because it 
believes that compliance with this final rule will not require 
significant administrative or financial obligations for regulated 
entities. The low cost, coupled with minimal process changes regulated 
entities will be required to make to comply, support an effective date 
60 days after publication. Sixty days will provide adequate time for 
regulated entities to be informed of the specified conduct this final 
rule prohibits as well as make changes to comply with the final rule.

II. Background

A. Current Market Structure and Risks for Producers

    Market abuses of discrimination, retaliation, and deception can 
occur in livestock and poultry markets. Such conduct is amplified and 
exacerbated under increasingly concentrated livestock and poultry 
markets. Such markets are dominated by a few large packers and live 
poultry dealers. Additionally, changes in contracting practices, 
specifically bilateral contracting and vertical contracting that 
reaches farther into the production aspects of livestock and poultry, 
have given processors greater control over producers. These changes can 
exacerbate the impacts of discriminatory, retaliatory, and deceptive 
conduct by packers and live poultry dealers, which inhibits producers 
from fully participating in livestock and poultry markets or obtaining 
the full value of their livestock and poultry products and services. 
With few marketing options in concentrated markets, producers are more 
likely to suffer long lasting harm from market abuses by packers and 
live poultry dealers than would be the case in a marketplace that is 
more competitive.
    A review of the historical structure of livestock and poultry 
markets shows how the risk of worsened competitive conditions or 
materially adverse effects to producers at the hands of a few large 
processors (livestock packers and live poultry dealers) has grown over 
time. In the late 1800s to early 1900s, the ``Big Five'' \3\ large meat 
packers dominated the livestock market by working cooperatively to 
jointly set prices and divide territories amongst 
themselves.<SUP>4 5</SUP> In 1921, Congress enacted the Packers and 
Stockyards Act, 7 U.S.C. 181-229, to promote effective competition and 
integrity in livestock, meat, and poultry markets because it believed 
that the large packers employed anticompetitive or abusive practices 
that harmed producers and consumers.\6\ The objective of the P&S Act is 
``to assure fair trade practices in the livestock marketing . . . 
industry in order to safeguard farmers and ranchers against receiving 
less than the true market value of their livestock.'' \7\ After the 
enactment of the P&S Act, several decades of relatively more 
competitive conditions in the livestock markets prevailed; however, 
structural shifts in the industry defined by technological and 
productivity advances and mergers and acquisitions by meat processors 
led to fewer and larger meat processors--increased market 
concentration--in the latter half of the 20th century. This 
transformation led to much larger sized packing plants, multi-plant 
packers and live poultry dealers; raised barriers to entry; reduced the 
number of meat processor competitors; and reduced competition. Today, 
greater use of bilateral and vertical contracting in the livestock and 
poultry industries also gives regulated entities greater practical 
ability to cause these harms in ways that are hard for producers to 
avoid.
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    \3\ Swift & Company, Armour and Company, The Cudahy Packing 
Company, Wilson & Co., Inc., and Morris & Company, Rosales, W.E., 
2005. Dethroning economic kings: The Packers and Stockyards Act of 
1921 and its modern awakening. Journal of Agricultural & Food 
Industrial Organization, 3(2). Accessed at https://www.degruyter.com/document/doi/10.2202/1542-0485.1118/html on 01-09-
2024. See also, David Gordon, The Beef Trust: Antitrust Policy and 
the Meat Packing Industry, 1902-1922, at 230, 290 (1983) (Ph.D. 
Dissertation, Claremont Graduate School) (on file with the Wisconsin 
Historical Society Library) (referring to the ``Big Five'' and the 
``Beef Trust'' interchangeably). https://www.proquest.com/openview/b8fb565a39cdb1190b7b80e932cb8495/1?cbl=18750&diss=y&pq-origsite=gscholar&parentSessionId=XHRnq%2FulA9IQvIv3F8HNW40SbD8BIeNZTdBAIYAD8bQ%3D.
    \4\ Rosales, William E. ``Dethroning Economic Kings: The Packers 
and Stockyards Act of 1921 and its Modern Awekening'' Journal of 
Agricultural & Food Industrial Organization 3, no. 2, access Feb. 1, 
2024, (2005), https://doi.org/10.2202/1542-0485.1118.
    \5\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt, 
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May 
15, 2006. Available online at: https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html.
    \6\ The Packers and Stockyards Act: An Overview, National 
Agricultural Law Center, access Feb. 1, 2024, https://nationalaglawcenter.org/overview/packers-and-stockyards/
    \7\ Bruhn's Freezer Meats v. U.S. Dep't of Agric., 438 F.2d 
1332, 1337 (8th Cir. 1971), cited in Van Wyk v. Bergland, 570 F.2d 
701, 704 (8th Cir. 1978) in AGRICULTURE DECISIONS Volume 72 Book One 
Part Two (P & S) Pages 371-434, page 13, access Feb. 1, 2024, 
https://www.usda.gov/sites/default/files/documents/Vol%2072%20Book%201%20Part%202.pdf.
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    The following table shows the level of concentration in the 
livestock and poultry slaughtering industries for 1980-2020 using four-
firm Concentration Ratios (CR4).

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[GRAPHIC] [TIFF OMITTED] TR06MR24.000

    The data are estimates of four-firm concentration ratios at the 
national level, but the relevant economic markets for livestock and 
poultry may be regional or local, where concentration may be higher 
than at the national level. The following figure shows the relative 
access that producers have to slaughter plants within various draw 
areas.

[[Page 16095]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.001

     
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    \8\ Meat, Poultry and Egg Product Inspection Directory by 
Establishment Name, by Number, and Demographic Data, USDA Food 
Safety Inspection Service, available at https://www.fsis.usda.gov/inspection/establishments/meat-poultry-and-egg-product-inspection-directory. Big Meat Acquisition Datasets, Yale Thurman Arnold 
Project, access Feb. 1, 2024, (2021), https://som.yale.edu/centers/thurman-arnold-project-at-yale/agriculture-and-antitrust. Haines, 
Michael, Fishback, Price, and Rhode, Paul. United States Agriculture 
Data, 1840-2012, Inter-university Consortium for Political and 
Social Research [distributor], access Feb. 1, 2024, (2018), https://doi.org/10.3886/ICPSR35206.v4 (County-level census data from 1978-
2012). USDA Census of Agriculture Large Datasets, USDA National 
Agricultural Statistics Services, access at Feb. 1, 2024, https://www.nass.usda.gov/datasets/ (Livestock data from 1997-2017). Ward, 
C.E., Meatpacking plant capacity and utilization: Implications for 
competition and pricing, access at Feb. 1, 2024, (1990), https://doi.org/10.1002/1520-6297(199001)6:1%3C65::AID-
AGR2720060107%3E3.0.CO;2-V (Estimating travel distances for cattle 
to be around 100 miles). MacDonald, James M. & Ollinger, Michael & 
Nelson, Kenneth E. & Handy, Charles R., 2000, ``Consolidation In 
U.S. Meatpacking,'' Agricultural Economic Reports 34021, United 
States Department of Agriculture, Economic Research Service, access 
at Feb. 1, 2024, (2020), https://www.ers.usda.gov/webdocs/publications/41108/18011_aer785_1_.pdf?v=0. Smith, Timothy L., 
Andrew L. Goodkind, Tae-Gon Kim, Rylie E. O. Pelton, Kyo Suh, and 
Jennifer Schmitt, (2017). ``Subnational mobility and consumption-
based environmental accounting of us corn in animal protein and 
ethanol supply chains'', Proceedings of the National Academy of 
Sciences (38), 114, access at Feb. 1, 2024, https://doi.org/10.1073/pnas.1703793114 (Estimating travel distances for broilers to be 48 
miles on average; and for pigs and cattle, ~115 miles). Beam, A.L. & 
Thilmany, Dawn & Pritchard, R.W. & Garber, L.P. & Metre, DC & Olea-
Popelka, F.J.. (2015). Beam, A.L., D.D. Thilmany, R.W. Pritchard, 
L.P. Garber, DC Van Metre, and F.J. Olea-Popelka. ``Distance to 
Slaughter, Markets and Feed Sources Used by Small-Scale Food Animal 
Operations in the United States.'' Renewable Agriculture and Food 
Systems 31, no. 1, access at Feb. 1, 2024, (2016): 49-59. https://doi.org/10.1017/S1742170514000441. (Estimating transportation 
distances of 90 miles for 95 percent of percent of small-scale 
livestock operations). (Analysts filtered for plants that 
slaughtered beef, pork, and chicken. Analysts joined firm name 
appearing in directory to likely parent firm name by constructing a 
name lookup using merger data published by Yale Thurman Arnold 
Project; and manual internet search for poultry and livestock firms' 
mergers and acquisitions. Analysts obtained geographic coordinates 
from establishment address. For each establishment per animal class, 
analysts calculated the distance from the centroids of all U.S. 
counties to all plant establishments; and filtered for distances 
within 50 miles (broiler) and 115 miles (hog, cattle), based on 
estimates of travel distances for each animal obtained from 
literature search. Analysts calculated number of counties reachable 
by the travel distance for each animal species, i.e.: geographic 
draw area for each plant. Analysts produced for each county the 
number of plants appended with the parent firm name derived from the 
historic merger dataset described above. Analysts present as the 
summary figure the total number of unique parent firm names located 
within 90 (broilers) and 115 (hog, cattle) miles of county centroids 
that contain, for the purposes of this county-level analysis, the 
total number farm operations of each animal type in the county. 
Analysts summarized the number of counties, inventory, and 
operations with hog, broiler, and cattle sales, for all counties 
from 2017 NASS county-level dataset; and, for farm operations, 
filtered only for farm operations above the smallest class size, 
e.g.: for hog, above 25 head; for cattle, above 10 head; for 
broilers, above 2,000 head. This smallest class size is not likely 
to be utilizing the slaughter plants).

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    Half of all broiler growers have two or fewer processors for which 
they can grow broilers.\9\ The following table is a modification of a 
table in MacDonald (2012),\10\ adding the market concentration measure, 
the Herfindahl-Hirshman Index (HHI) \11\ indices to MacDonald's 
calculations of the integrators, i.e., live poultry dealers who 
typically have vertically integrated production, in the broiler 
grower's geographic region. The HHIs in the table assume equal market 
share for each integrator and, as such, are the minimum HHIs possible 
(at least with 2 to 4 growers). They show that 88.4 percent of growers 
are facing an integrator HHI of at least 2,500. The data suggest that 
most contract broiler growers in the U.S. are thus in markets where the 
live poultry dealers have the potential to exercise market power.
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    \9\ MacDonald, J.M. and Key, N., 2012, Market power in poultry 
production contracting? Evidence from a farm survey, Journal of 
Agricultural and Applied Economics, 44(4), pp.477-490, access at 
Feb. 1, 2024, (2012), https://www.proquest.com/scholarly-journals/market-power-poultry-production-contracting/docview/1183766436/se-2.
    \10\ Ibid.
    \11\ The Herfindahl-Hirschman Index, HHI, is a ``commonly 
accepted measure of market concentration. The HHI is calculated by 
squaring the market share of each firm competing in the market and 
then summing the resulting numbers.'' U.S. Department of Justice, 
``Herfindahl-Hirschman Index,'' accessed Feb. 1, 2024, (2018), 
https://www.justice.gov/atr/herfindahl-hirschman-index.
[GRAPHIC] [TIFF OMITTED] TR06MR24.002

    By the late 20th century and early 21st century, contracting 
practices were also changing. Bilateral and vertical contracting were 
becoming the increasingly dominant means to coordinate live animal 
supplies.\12\ Today, most poultry production and about 98 percent of 
hog production fall under production contracts, and roughly 70 percent 
of cattle procurement falls under marketing contracts.\13\ Bilateral 
and vertical contracting have benefits

[[Page 16097]]

and disadvantages for both processors and producers. However, the 
exercise of market power through the contracting practices occurring in 
concentrated livestock and poultry markets have left producers 
susceptible to the conduct this rule aims to prohibit.
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    \12\ Lauck, J. K. (1998). Competition in the Grain Belt 
Meatpacking Sector After World War. II. The annals of Iowa, 57(2), 
https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/ (Finding 
that in 1984, only 7 percent of livestock were marketed through 
terminal markets. By this time, many packers made vertical contracts 
with farmers or feedlots). ``Structural Change in Livestock: Causes, 
Implications, Alternatives,'' Research Institute on Livestock 
Pricing 232728, Virginia Polytechnic Institute and State University, 
Department of Agricultural and Applied Economics, access at Feb. 1, 
2024, (1990), available at https://ideas.repec.org/p/ags/vtrilp/232728.html. See James M. MacDonald and Christopher Burns, 
``Marketing and Production Contracts Are Widely Used in U.S. 
Agriculture,'' Economic Research Service, (July 2019), available at 
https://www.ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/ (For a 
producer to successfully bring an animal to processing, they must 
secure a source of animals to raise, feed, medicine, and processing 
services, among other needs. In contract production, regulated 
entities typically control the inputs and processing and 
distribution channels, and therefore can largely block market access 
for independent producers seeking to bypass these tightly 
controlled, vertically contracted supply chains).
    \13\ USDA ERS, J. M. MacDonald and C. Burnes, (July 1, 2019), 
Marketing and Production Contracts Are Widely Use in U.S. 
Agriculture, Amber Waves. (In 2017, 49 percent of the value of 
livestock production was raised under contract agreements--usually 
between farmers and processors. Most poultry is produced under 
contract, and what is not produced under contracts between 
processors and growers is raised in facilities operated directly by 
processors. See graph for data on hogs.) https://ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/; See also, USDA Packers and Stockyards Division 
(PSD), (2020), Packers and Stockyards Division Annual Report 2020, 
access at Feb. 1, 2024, https://www.ams.usda.gov/sites/default/files/media/PackersandStockyardsAnnualReport2020.pdf.
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    One of the notable structural changes over the course of the 20th 
century was the improvement in refrigeration technology. Refrigeration 
enabled meat packers to move away from the from Great Lakes and the 
Upper Midwest, where they could source large quantities of ice and 
build facilities closer to the centers of livestock production.\14\ 
Slaughterhouse and fabrication plants, therefore, could and did move 
away from urban areas to remote rural locations. As technology and the 
ability to scale operations also grew in the latter half of the 20th 
century, plants also grew in size.\15\
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    \14\ David I. Smith, (Spring 2019), 19th Century Development of 
Refrigeration in The American Meat Packing Industry, access at Feb. 
1, 2024, https://scholarworks.harding.edu/cgi/viewcontent.cgi?article=1118&context=tenor. (``Development of 
refrigeration and transportation in Chicago led the city to become 
the meat packing center of the world,'' p. 100 from Howard Copeland 
Hill, ``The Development of Chicago as a Center of the Meat Packing 
Industry,'' Mississippi Valley Historical Review 10, no. 3 (1923): 
253). (And, ``Refrigerator cars ``enabled dressed beef to be 
slaughtered in Chicago and shipped to the East at a lower cost than 
livestock,'' p. 103, from Mary Yeager Kujovich, ``The Refrigerator 
Car and the Growth of the American Dressed Beef Industry,'' The 
Business History Review 44, no. 4 (1970): 460.); Warren, Wilson, 
(2009), Tied to the Great Packing Machine: The Midwest and 
Meatpacking, Bibliovault OAI Repository, the University of Chicago 
Press, access at Feb. 1, 2024, https://books.google.com/books?hl=en&lr=&id=f-CAclXhhCYC&oi=fnd&pg=PR7&dq=history+of+meat+packing&ots=oFnnxzABzR&sig=gp3eackbDY2CzAdcz8Q67cg0pvQ#v=onepage&q=history%20of%20meat%20packing&f=false (Wilson notes that in the late 19th century plants were 
starting to move closer to livestock; and, by the 1950s, the 
industry hit the end of its third phase (1920s to 1950s) of packers 
buying direct from feedlots/producers and the decline of terminal 
markets.).
    \15\ MacDonald, J.M., Ollinger, M., Nelson, K.E. and Handy, 
C.R., (2000), Consolidation in US meatpacking. Economic Research 
Service, U.S. Department of Agriculture. Agricultural Economic 
Report No. 785, access at Feb. 1, 2024, https://www.ers.usda.gov/
webdocs/publications/41108/
18011_aer785_1_.pdf?v=0#:~:text=Consolidation%20in%20slaughter%20feat
ures%20three,the%20location%20of%20animal%20feeders.
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    These changes had two implications over time. First, as processing 
plants moved from urban to rural areas, producers were more vulnerable 
to an exercise of monopsony power because the local and regional 
markets became more concentrated.\16\ Second, instead of terminal 
(auction) stockyards aggregating livestock for sales to packers, 
packers and producers increasingly entered into bilateral contractual 
relationships to buy livestock.\17\ When producers utilized stockyards 
for their livestock sales, they could rely for protection on the 
provisions of title III under the Act, which established robust 
nondiscrimination protections for producers (in sec. 312), as well as a 
DOJ Consent Decree in 1920 with the major packers, which established 
that the stockyards had to be structurally separate from packers.\18\ 
For example, in 1968 USDA issued a Statement of General Policy under 
the Packers and Stockyards Act to clarify that the prohibitions against 
unjust discrimination under sec. 312 governing ``just and reasonable 
stockyard services'' prohibited discrimination on the basis of race, 
religion, color, or national origin. However, as the industry structure 
evolved and livestock were increasingly sold through bilateral, 
vertical contracts, producers were no longer protected by sec. 312 of 
the Act. Instead, the sales were governed by title II of the Act, under 
which sec. 202(a) and (b) prohibits unjust discrimination and undue 
prejudice.\19\ This final rule seeks to articulate the necessary 
protections around unjust discrimination and deception under those 
provisions of the Act.
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    \16\ Willard Williams, ``Small Business Problems in the 
Marketing of Meat and Other Commodities (Part 4, Changing Structure 
of Beef Packing Industry),'' Hearings before the Subcommittee on SBA 
and SBIC Authority and General Small Business Problems of the 
Committee on Small Business, House, 96th Cong., 1st sess. 
(Washington, DC, 1979), 3; ``Structural Change in Livestock: Causes, 
Implications, Alternatives,'' Research Institute on Livestock 
Pricing 232728, Virginia Polytechnic Institute and State University, 
Department of Agricultural and Applied Economics, access at Feb. 1, 
2024, (1990), available at https://ideas.repec.org/p/ags/vtrilp/232728.html; Lauck, J. K., (1998), Competition in the Grain Belt 
Meatpacking Sector After World War. II. The annals of Iowa, 57(2), 
access at Feb. 1, 2024, available at https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/; Marion, Bruce W., ``Restructuring 
of Meat Packing Industries: Implications for Farmers and 
Consumers,'' Working Papers 204107, University of Wisconsin-Madison, 
Department of Agricultural and Applied Economics, Food System 
Research Group (1988), available at https://ideas.repec.org/p/ags/uwfswp/204107.html; Aduddell, Robert M. & Cain, Louis P., ``The 
Consent Decree in the Meatpacking Industry, 1920-1956,'' Business 
History Review, Cambridge University Press, vol. 55(3) 1981; 
Aduddell, Robert M., and Louis P. Cain. ``A Strange Sense of Deja 
Vu: The Packers and the Feds, 1915-82.'' Business and Economic 
History 11 (1982): 49-60. http://www.jstor.org/stable/23702755 
(Documenting the historic shift from terminal auctions, in which 
around 90 percent of livestock were marketed in the 1920s; to 75 
percent in the 1940s; to just 7 percent by 1984 (Lauck 1998; 
Aduddell 1981). In terminal auctions, market participants, including 
producers, new independent packers, and retailers enjoyed the 
benefits of transparent pricing and many possible marketing 
channels. The number of terminal auctions doubled every decade from 
1935-1955 (Aduddell 1981). In the latter half of the 20th century, a 
new generation of large packers located closer to producers; and 
built new facilities to process larger numbers of animals which they 
purchased directly from increasingly larger feedlots (Williams 
1978). Various researchers during the time period documented how 
direct purchases from these packers accounted for a larger share of 
the industry's sales; and contributed to decreasing numbers of 
market transactions and bids in terminal markets. For example, for 
cattle, the number of single bid transactions for cattle increased 
by 64 percent from 1982 to 1987; and by 38 percent for hogs (Purcell 
1990). In turn, producers facing fewer buyers often reported lower 
prices paid (Marion 1988).
    \17\ Lauck, J.K., (1998), Competition in the Grain Belt 
Meatpacking Sector After World War. II. The annals of Iowa, 57(2), 
access Feb. 1, 2024, available at https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/; Unknown (W. Purcell, editor), (1990), 
``Structural Change in Livestock: Causes, Implications, 
Alternatives,'' https://ideas.repec.org/p/ags/vtrilp/232728.html. 
Research Institute on Livestock Pricing Virginia Polytechnic 
Institute and State University, Department of Agricultural and 
Applied Economics, available at https://ideas.repec.org/p/ags/vtrilp/232728.html; Dickes, L.A. and Dickes, A.L. (2002), 
``Oligopolists then and now: a study of the meatpacking industry,'' 
In Allied Academies International Conference. Academy for Economics 
and Economic Education. Proceedings (Vol. 5, No. 1, p. 15). Jordan 
Whitney Enterprises, Inc. https://www.proquest.com/openview/919b243381c017244c764591d3d50a90/1?pq-origsite=gscholar&cbl=38640.
    \18\ Aduddell 1981, supra.
    \19\ 7 U.S.C. 192(a) and (b).
---------------------------------------------------------------------------

    The broiler industry also grew quickly after the Second World War. 
Early on it adopted a production model in which live poultry dealers 
contracted with poultry growers to grow-out broilers, rather than a 
model of independent producers selling broilers on the open market. 
With most broiler growing contracts, the live poultry dealer provides 
the chicks, the feed, and veterinary services, while the grower 
provides labor, facilities, equipment, and energy necessary to turn the 
chicks into slaughter-ready birds. At first, live poultry dealers were 
often feed suppliers, but now most processors act as live poultry 
dealers. Overall, the reality is that live poultry dealers have 
extensive control over production through the contracting practices.
    Furthermore, it is important to acknowledge the impact of a 
consolidating farm production landscape overall. With the livestock and 
poultry farming sectors consolidating over the last several decades, 
the aggregate number of producers has declined significantly, even as 
total production is stable or growing. Many factors driving the loss of 
producers in the marketplace are the same factors underlying the market 
changes referenced above and include productivity growth wrought by 
scientific and technological advances, economies of scale, and 
transportation improvements. As shown in Figures 2 and 3 below, over 
the last 60 years, changes in animal production have corresponded to 
declines on the order of

[[Page 16098]]

hundreds of thousands of producers in nearly every size class except 
the largest, which increased by only hundreds of producers.\20\
---------------------------------------------------------------------------

    \20\ Haines, Michael, Fishback, Price, and Rhode, Paul. United 
States Agriculture Data, 1840-2012, Inter-university Consortium for 
Political and Social Research [distributor], (2018), https://doi.org/10.3886/ICPSR35206.v4 (County-level census data from 1978-
2012). USDA Census of Agriculture Large Datasets, USDA National 
Agricultural Statistics Services, available at https://www.nass.usda.gov/datasets/ (Livestock data from 1997-2017).
    \21\ USDA Census of Agriculture Historical Archive, USDA 
National Agricultural Statistics Services, available at https://agcensus.library.cornell.edu/ (National-level statistics from 1978-
2012); USDA Census of Agriculture 2017, USDA National Agricultural 
Statistics Services, available at https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/ 
(National-level statistics for 2017) (Analysts obtained the total 
number of operations with sales for each animal size class from 
historic national-level statistics from 1978-2017. Analysts summed 
the number of operations of every class other than the largest size 
class for each animal species, compared to the largest size class; 
and excluded the very smallest size class in each summary because 
the smallest size is not likely to receive slaughter services by 
regulated entities).
[GRAPHIC] [TIFF OMITTED] TR06MR24.003


[[Page 16099]]


[GRAPHIC] [TIFF OMITTED] TR06MR24.004

    In the figure above, the intensity of shading indicates the 
magnitude of decrease (left) or increase (right), with shading 
intensity scaled individually to each map panel. Generally, the number 
of cattle and hog operations for every size class except the largest 
decreased in many counties across the U.S., while the number of 
operations for the largest size class increased in only a few counties. 
Owing to the limitations of available county-level data, the above map 
for cattle operations include both feedlot and cow-calf operations, of 
which only the first sell directly to packers in most instances. 
Feedlots and packers tended to locate closer to producers in the latter 
half of the 20th century. As feedlots became larger and more 
concentrated, the number of farms with fed cattle sales declined. For 
example, McBride found that from 1978-1992, as the distribution of 
cattle feedlots became geographically tighter, the number of counties 
contributing to half of cattle sales decreased from 73 counties in 1978 
to just 44 counties in 1992, with a fourth

[[Page 16100]]

of sales coming from 13 counties. The number of feedlots declined from 
approximately 175,155 in 23 states in 1970 to 27,000 feedlots in 2020, 
with half of all fed cattle from just 132 of them.\22\
---------------------------------------------------------------------------

    \22\ MacDonald, J.M., Dong, X., & Fuglie, K. (2023), 
Concentration and competition in U.S. agribusiness (Report No. EIB-
256), U.S. Department of Agriculture, Economic Research Service, 
available at https://doi.org/10.32747/2023.8054022.ers. McBride, 
William D. (1997). ``Change in U.S. Livestock Production, 1969-92,'' 
Agricultural Economic Reports 262047, United States Department of 
Agriculture, Economic Research Service, available at https://www.ers.usda.gov/webdocs/publications/40794/32767_aer754fm.pdf?v=1657.7. ``Final Estimates for 1970-1975,'' USDA 
(1978), available at https://downloads.usda.library.cornell.edu/usda-esmis/files/sq87bt648/7w62fc32q/qf85nf445/cattleest_Cattle_-_Final_Estimates__1970-75.pdf.
---------------------------------------------------------------------------

    Data from Figure 3 clearly indicate a shift in livestock and 
poultry raising to larger farms. This shift has occurred in concert 
with an increase in bilateral and vertical contracting. Bilateral and 
vertical contracting facilitate the conditions in which discrimination 
and retaliation are more likely to restrict market opportunities of 
producers and cause them to earn less than the full value of their 
animals. It is harder to discriminate in the aggregated market of the 
stockyard than through bilateral contracting regimes. When producers 
are locked into long-term agreements with a single buyer, it is easier 
for buyers to discriminate on prohibited bases or retaliate in response 
to protected activities because they exercise considerably more 
leverage over producers. Buyer-seller relationships are more fixed, 
providing much less flexibility for producers. Furthermore, with the 
number of farms declining in number, the economic harms of 
discrimination and retaliation are more likely to be permanent as being 
denied a long-term contract may lead to permanent exclusion from the 
market. Smaller farms in particular may be more likely to be permanent 
casualties of discriminatory or retaliatory behavior in a consolidated 
farm context as buyers gravitate toward larger suppliers to more easily 
satisfy their volume requirements. Discriminatory or retaliatory 
behavior is more likely to harm producers economically because it is 
much harder to find alternative buyers in a world with fewer, bigger 
farms and fewer, bigger packers and live poultry dealers. This rule is 
not directly addressing consolidation at the farm level or 
concentration at the processor level, but in providing more protections 
to producers from discriminatory and retaliatory conduct, it is helping 
to prevent market exclusion.
    A long-time scholar of these markets stated as early 2004 that the 
livestock and poultry markets appear to be by ``invitation only.'' \23\ 
That statement underscores the power of incumbent entities to control 
access to the market and, in many ways, the destiny of what had been 
multigenerational successful operations of producers and smaller 
competitors.\24\ This final rule addresses some of the ways that 
livestock and poultry markets unfairly exclude producers or otherwise 
limit their ability to obtain the full value of their animals. This 
final rule does not address all the factors contributing to market 
exclusion. However, it does address several practices that exclude 
producers and, in doing so, violate the Packers and Stockyards Act. AMS 
recognizes that creating inclusive and competitive markets with 
integrity requires multiple legal, regulatory, and programmatic 
strategies to mitigate the potential harmful effects of concentration 
and vertical contracting; build up alternatives through investments in 
regional meat and poultry processing; \25\ and protect the rights of 
producers to develop producer organizations that advance farmer 
welfare, rural prosperity, and quality food. Thus, this rulemaking is 
one key piece to AMS's strong commitment to mitigating the factors that 
restrict market access for livestock and poultry producers.
---------------------------------------------------------------------------

    \23\ C. Robert Taylor, ``The Many Faces of Corporate Power in 
the Food System.'' Presented at DOJ/FTC Workshop on Merger 
Enforcement, February 2004, available at https://www.justice.gov/sites/default/files/atr/legacy/2007/08/30/202608.pdf.
    \24\ See, e.g., Jon Lauck, ``Toward an Agrarian Antitrust: A New 
Direction for Agricultural Law,'' 75 N. D. L. Rev. 449 (1999); Peter 
C. Carstensen, ``Buyer Power and the Horizontal Merger Guidelines,'' 
14 U. Penn. J. Bus. L. 775 (2012); Peter. C. Carstensen, ``Buyer 
Power, competition policy, and antitrust: the competitive effect of 
discrimination among suppliers,'' The Antitrust Bulletin: Vol. 53, 
No. 2/Summer 2008; Kenneth E. Boulding, ``Towards a Pure Theory of 
Threat Systems,'' The American Economic Review, May, 1963, Vol. 53, 
No. 2, 424-434.
    \25\ https://www.usda.gov/media/press-releases/2023/04/19/usda-announces-funding-availability-expand-meat-and-poultry.
---------------------------------------------------------------------------

B. Discrimination, Retaliation, and Deception

    The P&S Act is a remedial statute enacted to address problems faced 
by farmers, producers, and other participants in the markets for 
livestock, meats, meat food products, livestock products in 
unmanufactured form, poultry, and live poultry; to protect the public 
from predatory practices; and to protect freedom for farmers and 
businesses to engage in the flow of commerce.\26\ Thus, as academics 
and courts have noted, the Act has ``tort-like provisions that are 
concerned with unfair practices and discrimination'' that fulfill a 
``market facilitating function,'' which Congress designed to prevent 
``market abuse.'' \27\ AMS interprets and implements the Act to achieve 
its core statutory purposes.\28\
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    \26\ Stafford v. Wallace, 258 U.S. 495 (1922). Bruhn's Freezer 
Meats of Chicago, Inc. v. U. S. Dep't of Agric., 438 F.2d 1332, 
1337-38 (8th Cir. 1971) (quoting H.R. Rep. No. 1048, 85th Cong., 1st 
Sess. (1957), U.S. Code Cong. & Admin. News 1958, p. 5213). Public 
Law 99-198, 99 Stat. 1535, 7 U.S.C. 1631 (Section 1324 of the Food 
Security Act). Fed. Trade Comm'n, Report of the Fed. Trade Comm'n on 
the Meat-Packing Industry, Part I (Extent and Growth of Power of the 
Five Packers in Meat and Other Industries); Fed. Trade Comm'n, 
Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part 
II (Evidence of Combination among Packers); Fed. Trade Comm'n, 
Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part 
III (Methods of the Five Packers in Controlling the Meat-Packing 
Industry) (1919) (Finding that the purpose of the combination of Big 
Five packers was to ``monopolize and divide among the several 
interests the distribution of the food supply not only of the United 
States but of all countries which produce a food surplus, and, as a 
result of this monopolistic position, to extort excessive profits 
from the people not only of the United States but a large part of 
the world'').
    \27\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey 
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862 (``subsections (a) and (b) appear to be tort-like provisions 
that are concerned with unfair practices and discrimination, but not 
with restraint of trade or monopoly as such''); Peter Carstensen, 
The Packers and Stockyards Act: A History of Failure to Date, CPI 
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that 
the practices of buyers and sellers in livestock (and later poultry) 
markets were fair, reasonable, and transparent. This goal can best 
be described as market facilitating regulation.''); Michael C. Stumo 
& Douglas J. O'Brien, ``Antitrust Unfairness vs. Equitable 
Unfairness in Farmer/Meat Packer Relationships,'' 8 Drake J. Agric. 
L. 91 (2003); Michael Kades, ``Protecting livestock producers and 
chicken growers,'' Washington Center for Equitable Growth (May 
2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf (``Section 202's prohibitions 
on unjust discrimination and undue preference are not limited to 
conduct that destroys or limits competition or creates a monopoly. 
These provisions address conduct that impedes a well-functioning 
market and deprives livestock and poultry producers of the true 
value of their animals. Taken together, these provisions seek to 
prevent market abuses.'').
    \28\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th 
Cir. 1966).
---------------------------------------------------------------------------

    AMS finds that current regulations under the Act do not 
sufficiently address the many unduly prejudicial, unjustly 
discriminatory, and deceptive practices in the livestock and poultry 
industry. As discussed above, the combination of increased 
concentration and use of vertical contracts in livestock and poultry 
markets enhances regulated entities' ability to unjustly discriminate 
against or deceive market participants and effect significant harm upon

[[Page 16101]]

producers. With bilateral contracts where one side has significant 
market power, regulated entities can target specific individuals, 
whether because of their personal characteristics (prejudice) or 
because of they have engaged in certain activities (retaliation). With 
market concentration, producers have limited options in the marketplace 
with which to avoid the harms. Vertical contracts where regulated 
entities have greater control over producers' operations also enable 
certain forms of discrimination, such as in the provision of inputs, as 
live poultry dealers particularly have heightened control and 
involvement in the growers' poultry operations. The provision of 
accurate and not misleading information also takes on heightened 
importance in these markets. In markets where producers are exiting, it 
is especially difficult for producers to reenter after being excluded, 
and the harms from exclusion are significant.
i. Discrimination and Prejudice
    Discrimination and prejudice harm market participants and overall 
market integrity and efficiency. Discrimination is economically 
inefficient.\29\ The prejudicing entity that pays a producer below 
market value for his or her cattle or hogs because the producer belongs 
to a protected class causes that producer to not receive the full 
economic value of his or her animals; this discrimination also prevents 
the market from reaching an optimal allocation of wages and labor, 
contributing to a deadweight loss for the economy at large.\30\ 
Likewise, a regulated entity's refusal to buy from a producer of a 
protected class offering animals of comparable quality to those being 
sold by other producers to that same buyer in the same time-frame may 
cause that disfavored producer to exit the market.\31\ If an entity 
refuses to purchase product from a producer of a particular class who 
offers identical product, such as cattle, that disfavored producer may 
face a lower price, resulting in a loss to the producer that may 
discourage the producer from continuing to operate or would-be 
producers of that class from entering the market.\32\ Using non-
economic characteristics of the livestock or poultry producers to 
dictate patterns of production thwarts efforts by producers to 
accurately assess market conditions and make sound business decisions.
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    \29\ Stiglitz, J. ``Approaches to the Economics of 
Discrimination,'' American Economic Review, vol. 63/2, May 1973: 
287-295 (Discussing how discrimination in markets produces an 
economic inefficiency: ``If all firms are profit maximizers, then 
all will demand the services of the low-wage individual, bidding 
their wages up until the wage differential is eliminated. Why does 
this not occur?'').
    \30\ Ibid.
    \31\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture, 
Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado, 
available at https://www.justice.gov/media/1244701/dl?inline; 
https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885 (Producers 
described how packers could ``pick . . . large entities'' as part of 
marketing agreements to procure supply. In turn, this drove up an 
excess supply and drove down prices for producers or suppliers who 
did not receive such an agreement in the cash-negotiated market. One 
producer said that this discrimination had the effect of 
``controlling . . . inventory;'' another said that this conduct had 
the effect of ``tens of thousands of independent producers being 
purged out of the business or going into bankruptcy . . . exited out 
of agriculture'').
    \32\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture, 
Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado, 
available at https://www.justice.gov/media/1244701/dl?inline; 
https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885 (Producers 
described how packers could ``pick . . . large entities'' as part of 
marketing agreements to procure supply. In turn, this drove up an 
excess supply and drove down prices for producers or suppliers who 
did not receive such an agreement in the cash-negotiated market. One 
producer said that this discrimination had the effect of 
``controlling . . . inventory''; another said that this conduct had 
the effect of ``tens of thousands of independent producers being 
purged out of the business or going into bankruptcy . . . exited out 
of agriculture'').
---------------------------------------------------------------------------

    In comments to the proposed rule, multiple organizations spoke of 
the widespread economic harms resulting from discrimination and 
prejudice in livestock and poultry markets.\33\ A producer advocacy 
organization reported that ``discrimination, retaliation, and deception 
have become common features of livestock and poultry markets, leading 
to widespread fear and anxiety among producers.'' \34\ Another 
commenter wrote, ``The current ability to exclude marginal competitors 
and exploit covered producers, rather than producing meaningful price 
discovery and transparency in the production and sales of livestock, 
meat and poultry, has greatly injured not only those involved in 
production but has restricted consumers from accessing reliable, 
affordable sources of protein.'' \35\ We acknowledge that these 
comments addressed what commenters viewed as a range of discrimination 
that could be covered by the proposed rule, and some that we are not 
addressing in this rule. Comments relating to these topics are 
discussed further in Section V--Changes from the Proposed Rule, and in 
Section VII--Comment Analysis.
---------------------------------------------------------------------------

    \33\ Government Accountability Project, Comments on Proposed 
Rule: Inclusive Competition and Market Integrity, (AugJan. 20232), 
available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427 (``Many of these Vietnamese growers were enticed to sell 
profitable businesses and family homes and take out huge loans to 
enter broiler production contracts. Bearing all the same burdens of 
other broiler producers, they were further victimized by language 
barriers, cultural differences, and blatant mockery and exploitative 
behavior. In some cases, to keep their contracts, Vietnamese growers 
were asked to do additional work that was not required of white 
counterparts. Many of the Vietnamese farmers we have spoken to have 
likened the abusive and threatening behavior of their integrators to 
the communist government from which they fled'').
    Rural Advancement Foundation International--USA, Comments on 
Proposed Rule: Inclusive Competition and Market Integrity, (AugJan. 
20232), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0437 (``They don't have to cut you off, they can just bleed 
you dry. The barn we're sitting in here hatched flocks with 
salmonella issues. They can send those compromised flocks to growers 
they want to bleed.'' ``My main concern is that [my integrator] 
operates on fear and threatening tactics to make every grower they 
have scared they are going to lose their contract every single day. 
No human being should have to live every single day in fear that 
their livelihood and only source of income can be taken away from 
them. I am sick of it, someone needs to do something to help us! I 
love to grow chickens and feed the world, but I do not like to live 
as if under a dictatorship.'' ``When I filed a complaint with the 
Packers and Stockyards Division about a weight issue, in which I was 
proven right, I was punished with bad tournament grouping for a 
year. Also, I have been told by my integrator, after receiving a 
really bad flock of birds, that they would be sure to not let it 
happen next time--so they know how to make it happen!'').
    \34\ Food & Water Watch, ``Comment on AMS-FTPP-21-0045: 
Inclusive Competition and Market Integrity Under the Packers and 
Stockyards Act,'' (Jan. 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.
    \35\ Rocky Mountain Farmers Union, ``RMFU Comment for the 
Proposed Rule Inclusive Competition and Market Integrity Under the 
Packers and Stockyards Act'' (Jan. 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441.
---------------------------------------------------------------------------

    As previously noted, this rule does not address every form of 
discrimination or prejudicial exclusion or disadvantage in the 
marketplace but focuses on providing clarity regarding certain specific 
discriminatory and prejudicial practices that AMS has identified in 
this final rule as essentially unjust, which offer no benefits to the 
competitive market or producers, and which undermine competition on the 
merits of the products and services that producers offer. Additionally, 
although the descriptive analyses set forth below do not address the 
prevalence or degree or prejudice for each and every prohibited basis, 
owing to the limitations of available data, AMS believes that leaving 
out any of the bases listed in this rule would be inappropriate. Not 
only would that be inconsistent with the Department's approach toward 
discrimination in other contexts, as repeatedly endorsed by Congress, 
but the resulting uncertainty could also open the door to those forms 
of discrimination in livestock, poultry, and related markets under the 
Act, which would be contrary to the purposes of this regulation and

[[Page 16102]]

the Act, which prohibits ``undue prejudice . . . in any respect.''
a. Discrimination and Prejudice on Personal Characteristics and Status
    AMS (including its predecessor agencies) has received complaints 
over the years of discrimination against producers, in particular in 
the poultry industry, and especially on the basis of race. The Agency 
has not always been able to act on these complaints for a variety of 
reasons. The Agency also believes that some complaints may have been 
suppressed due to the risks of retaliation, which are discussed below. 
As highlighted below, comments to this rulemaking affirmed the 
prevalence and remaining challenge of discrimination on prohibited 
bases.
    Researchers have documented the history of discrimination against 
racial and ethnic minorities in agricultural markets. Multiple factors 
have contributed to the decline of non-white-owned farms, specifically 
to the decline of Black-owned farms, including the Homestead Act of 
1862, the Morrill Land Grant Act of 1862, lack of legal protections for 
heirs' property, and limited access to capital through discriminatory 
lending practices.\36\ For example, in the earlier part of the 20th 
century, the Federal government and agricultural landholders restricted 
land sales, engaged in predatory and fraudulent lending practices, and 
denied farm support programs to Black farmers and ranchers,\37\ which 
has resulted in the loss of Black economic security and land 
loss.<SUP>38 39 40 41</SUP> A 1959 paper reported ``significant market 
discrimination'' against Black American producers in the Southern 
United States.\42\ Discrimination by the Federal government and private 
sector also caused Hispanic people and American Indian people farming 
on reservations to lose farmland and decline in number.<SUP>43 44</SUP> 
More recently, some news reports have documented that companies may 
present contract terms to non-native English speaking immigrant 
communities who may not understand them, and have spotlighted the 
treatment of Asian American and Pacific Islander poultry growers in 
particular.\45\
---------------------------------------------------------------------------

    \36\ McKinsey & Company. November 10, 2021. Black Farmers in the 
U.S: The Opportunity for Addressing Racial Disparities in Farming. 
Accessed at Black farmers in the US: The opportunity for addressing 
racial disparities in farming [verbar] McKinsey on 10/04/2023; and 
https:/www.archives./gov/milestone-documents/morrill-act https://www.archives.gov/milestone-documents/morrill-act (see, e.g., 
``People of color were often excluded from these educational 
opportunities due to their race.'').
    \37\ Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell, 
Nathan A. Rosenberg, and Bryce Wilson Stucki. ``Black Land Loss: 
1920-1997.'' In AEA Papers and Proceedings, vol. 112, pp. 38-42. 
American Economic Association, 2022.
    \38\ U.S. Department of Agriculture, National Agricultural 
Library, ``Heirs' Property,'' https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property (last accessed Aug. 
2022).
    \39\ Mitchell, Thomas W. 2019. Historic Partition Law Reform: A 
Game Changer for Heirs' Property Owners. In Heirs' property and land 
fractionation: fostering stable ownership to prevent land loss and 
abandonment. https://www.fs.usda.gov/treesearch/pubs/58543 (last 
accessed 8/9/2022).
    \40\ U.S. Commission on Civil Rights. 1965. Equal Opportunity in 
Farm Programs: An Appraisal of Services Rendered by Agencies of the 
U.S. Department of Agriculture. https://files.eric.ed.gov/fulltext/ED068206.pdf US Commission on Civil Rights. 1982. ``The Decline of 
Black Farming in America.'' https://eric.ed.gov/?id=ED222604.
    \41\ Feder, J. and T. Cowan. 2013. ``Garcia v. Vilsack: A Policy 
and Legal Analysis of a USDA Discrimination Case,'' Congressional 
Research Service report number 7-5700, February 22, 2013.
    \42\ Tang, Anthony M. ``Economic development and changing 
consequences of race discrimination in Southern agriculture.'' 
Journal of Farm Economics 41, no. 5 (1959): 1113-1126.
    \43\ Casey, Alyssa R. Racial Equity in U.S. Farming: Background 
in Brief 2021. Congressional Research Service. https://crsreports.congress.gov/product/pdf/R/R46969 (Finding that the 
percent of American Indian and Hispanic producers increased by 1.3 
and 2.4 percent between the early 1900s to 2017, compared to White 
producers which increased by 9 percent).
    \44\ Horst, M., Marion, A. ``Racial, ethnic and gender 
inequities in farmland ownership and farming in the U.S.'' Agric Hum 
Values 36, 1-16 (2019), available at https://doi.org/10.1007/s10460-018-9883-3.
    \45\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt, 
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May 
15, 2006. Available online at: https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html.
---------------------------------------------------------------------------

    Researchers have also documented some of the adverse outcomes, 
including economic outcomes, caused by discrimination. In the livestock 
sector, the results of historical prejudice and the risk of present-day 
prejudice are apparent when looking at data from the 2017 Census of 
Agriculture, which show that a small fraction of livestock farms with 
production contracts are operated by Black, Asian, American Indian, or 
Native Hawaiian producers (Figure 1).\46\ In Figure 1, the checkered 
bars represent the share of racial and ethnic groups among all 
livestock and poultry farms, and the colored bars indicate the share of 
production contracts received by each group. As indicated in Figure 1, 
American Indian, Black, Native Hawaiian, and Hispanic producers receive 
less than a proportional share of livestock and poultry production 
contracts relative to their respective populations. For example, Black 
producers and growers account for 1.6 percent of U.S. farms by race and 
ethnicity and receive a disproportionately lower 0.5 percent of 
livestock and poultry contracts. White producers and growers, 
meanwhile, represent 91 percent of all farms, but 98 percent of hog 
contracts and 97 percent of cattle contracts--a greater than 
proportionate share of livestock contracts, and at 90 percent, a lower 
than proportionate share of poultry contracts. Non-white racial and 
ethnic groups constitute a very small share of contracted livestock and 
poultry producers, which can be attributed to limited access to land 
and capital,\47\ having on average smaller operations, and 
discrimination.
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    \46\ Most production contracts are held by poultry growers and 
less so by packers. A production contract, according to USDA NASS, 
``is an agreement between a producer or grower and a contractor 
(integrator) setting terms, conditions, and fees to be paid by the 
contractor to the operation for the production of crops, livestock, 
or poultry.'' In contrast, many packers hold marketing contracts 
which, according to NASS, are ``based strictly on price.'' USDA 
NASS, No Date. ``Appendix B. General Explanation and Census of 
Agriculture Report Form.'' usappxb.pdf (usda.gov), accessed 8/12/23.
    \47\ See, generally, Congressional Research Service, ``Racial 
Equity in Farming,'' Nov. 2021, available at https://crsreports.congress.gov/product/pdf/R/R46969; Economic Research 
Service, USDA, ``Access to Farmland by Beginning and Socially 
Disadvantaged Farmers: Issues and Opportunities,'' Dec. 2022, 
available at https://www.ers.usda.gov/publications/pub-details/?pubid=105395.

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[[Page 16103]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.005

    Disparities are also found in income across racial and ethnic 
groups. It is difficult to disentangle historical discrimination--
whether that be prejudicial administration of USDA farm policies, 
racial segregation laws, or discriminatory private lending policies, 
from current discrimination practiced by livestock and poultry 
companies. Figure 5 shows the percentage of livestock and poultry farms 
(omitting nonfamily farms) by the reported race or ethnicity, and 
categorized by the lowest level of Gross Cash Farm Income (GCFI), which 
is annual income before expenses, including cash receipts, farm-related 
cash income, and government payments.\48\ These data indicate that 
livestock and poultry farms with producers who identify as American 
Indian, Black, Native Hawaiian, and Hispanic are more likely to be in 
the lowest income category (measured by GCFI <$150,999) than their 
white counterparts. Those farms with producers who identify as Asian 
are less likely than their White counterparts to fall into the lowest 
income group, which might be a factor of being relatively recent 
immigrants and not facing past discrimination.\49\ The fact that Black, 
Native Hawaiian, Native American, and Hispanic livestock and poultry 
farmers are more likely to be in the lower income GFCI category could 
be an effect of past discrimination, and it also could make such 
producers more vulnerable to current discriminatory behavior by 
packers. Markets dominated by one or a few large packers or live 
poultry dealers may also be less accessible to these lower income 
farms, which have limited financial or other economic resources with 
which to engage.
---------------------------------------------------------------------------

    \48\ USDA ERS, No date. Farming and Farm Income. Available at 
https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/farming-and-farm-income/ (last accessed 9/8/
23). GCFI income categories incude <$149,900, $150,000-$349,999, 
$350,000-$999,999, and >=$1,000,000.
    \49\ Pew Research Center. June 19, 2012. The Rise of Asian 
Americans. Accessed at https://www.pewresearch.org/social-trends/2012/06/19/the-rise-of-asian-americans/ on 10-13-23.

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[[Page 16104]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.006

    Recent research conducted by the USDA's Office of the Chief 
Economist and presented at the Agricultural & Applied Economics 
Association \50\ suggests that certain ethnic or racial groups are 
receiving lower prices compared to White producers from regulated 
entities in livestock and poultry contracts. In some cases, the 
research showed statistically significant differences in prices 
received for livestock (cattle and hogs) and broiler products across 
ethnic or racial groups after controlling for variables such as farm 
size, region, type of marketing contract or channel, organic 
certification status, distance to closest packer, and size of closest 
packer. Specifically, Black and American Indian cattle producers, Black 
contract broiler producers, and Black and American Indian hog producers 
all received lower prices for their livestock products relative to 
White producers. However, the effect of many animal quality variables, 
such as weight per animal, dressing percentage, and yield grade, cannot 
be controlled for under this analysis because the data is not in the 
Census of Agriculture or other data sets organized by race and 
ethnicity. Thus, endowment differences, such as better land and more 
capital, that represent the legacy of historical discrimination may 
account for a portion of these price differentials.
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    \50\ Breneman, V., Cooper, J. Nemec Boeme, R. and Kohl, M., 
``Competition and Discrimination--is there is a relationship between 
livestock prices received and whether the grower is in a 
historically underserved group?'' 2023 AAEA Annual Meeting, 
Washington, DC, July 23-July 25.
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    Differences in livestock and broiler prices could also be due, at 
least in part, to discrimination. Due to current data deficiencies, 
however, it is impossible to tell whether differences in prices 
received across ethnic or racial groups are due to current 
discriminatory practices, historic discrimination, or some combination 
thereof. These omitted variables may be correlated with race or 
ethnicity, and thus may account for a substantial portion of the price 
differentials. Additional data collection efforts may shed light on the 
role of omitted variables, such as animal size, thus helping to 
distinguish economic effects arising from current racial discrimination 
from disparate economic outcomes due to historical discrimination.
    Gender is also a basis of discrimination in livestock and poultry 
markets. According to the 2017 Census, livestock and poultry operations 
where principal operators are female received significantly lower 
market value for the livestock and poultry they sell. Female principal 
operators in livestock and poultry earned 53 cents per operation for 
every dollar earned by male principal operators per operation. By 
comparison, in the broader U.S. population, females earn 77 to 82 cents 
for every dollar earned by men in 2022.\51\ Figure 6 shows that the 
difference in livestock and poultry sales by gender is about $117,000 
less per operation for female principal operators, or 47 percent less, 
compared to male principal-operated farms. Disproportionately more 
female operators are found in the lower income classes relative to 
males, and a disproportionately higher number of male operators are 
found in the highest income classes. The value of livestock and poultry 
production per total acres owned by males and females is $0.22 per acre 
for males and $0.18 per acre for females, or $0.82 per acre for female 
operators relative to every $1 per acre earned by male operators. 
Together, these data suggest that female

[[Page 16105]]

producers--in livestock and poultry markets--achieve poorer economic 
outcomes than male producers.
---------------------------------------------------------------------------

    \51\ The Pew Research Center. March 1, 2023. ``The Enduring Grip 
of the Gender Pay Gap.'' Accessed at https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/ on 
09-25-2023, and World Economic Forum. July 2023. Global Gender Gap 
Report 2023 Accessed at WEF_GGGR_2023.pdf (weforum.org) on 09-225-
2023.
[GRAPHIC] [TIFF OMITTED] TR06MR24.007

    AMS also utilized a regression analysis showing support for 
disparities in income across different protected classes. Table 3 
presents the empirical results of multivariate regression analysis of 
the 2017 Agricultural Census and other data by the USDA Office of the 
Chief Economist. Black and American Indian cattle and broiler 
producers, and Black and American Indian hog producers of owned hogs 
(hogs not sold under production contracts) all received lower prices 
for their livestock products relative to White producers. For example, 
Black and American Indian producers received around 5 percent lower 
broiler prices but no statistically significant decrease in payments 
for hogs delivered under production contracts. However, the effect of 
many animal quality variables, such as weight per animal, dressing 
percentage, and yield grade, cannot be controlled for under this 
analysis because the data is not in the Census of Agriculture or other 
data sets organized by race and ethnicity. Thus, endowment differences, 
such as better land and more capital, that represent the legacy of 
historical discrimination may account for a portion of these price 
differentials. Hawaiian contract hog producers received 68 percent 
higher prices even though producer location was controlled for in the 
analysis, but the analysis cannot control for some unknown factors 
associated with this relatively small cohort of producers that may 
account for this relatively large price effect.

[[Page 16106]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.008

    The results of an analysis presented in Table 3 found there is a 
statistically significant and positive relationship between female 
operators and price received for the owned-hog market, which includes 
producers of both contracted and owned hogs (the regression accounted 
for whether the producer was on a production contract or not through an 
explanatory variable), but which examines the price impact only on 
owned-hogs sold.\52\ However, for the production contract-only hog 
market, which makes up about 70 percent of all hogs produced, this 
relationship becomes negative, though not at a statistically 
significant level (non-statistically significant results are shown as 
zero values in the table). From regression results not shown in Table 
3, it appears that female contract hog producers who also produce owned 
hogs receive a higher price for owned hogs than female farmers who only 
produce owned hogs. This finding suggests that females with hog 
contracts face preferential prices relative to those females that do 
not hold contracts.
---------------------------------------------------------------------------

    \52\ From the Agricultural Census data, some farmers who produce 
under production contracts also report some owned production as 
well.
---------------------------------------------------------------------------

    The regression analysis used above to study the effect of sex on 
prices received in livestock and poultry markets also found a 
statistically significant negative relationship between age of a farm 
operator and price received in poultry and owned-hog markets, as well 
as a statistically significant negative relationship between the 
experience of a farm operator and price received in the contract hog 
market. That is, as producers and growers age in the owned-hog and 
poultry markets and gain experience in the contract hog market, average 
price received declines. However, the same finding was not evident in 
cattle markets, where the relationship between increasing producer age 
and price is positive and statistically significant.
    Gender is also a basis of discrimination in livestock and poultry 
markets. According to the 2017 Census, livestock and poultry operations 
where principal operators are female received significantly lower 
market value for the livestock and poultry they sell. Female principal 
operators in livestock and poultry earned 53 cents per operation for 
every dollar earned by male principal operators per operation. By 
comparison, in the broader U.S. population, females earn 77 to 82 cents 
for every dollar earned by men in

[[Page 16107]]

2022.\53\ Figure 7 shows that the difference in livestock and poultry 
sales by gender is about $117,000 less per operation for female 
principal operators, or 47 percent less, compared to male principal-
operated farms. Disproportionately more female operators are found in 
the lower income classes relative to males, and a disproportionately 
higher number of male operators are found in the highest income 
classes. The value of livestock and poultry production per total acres 
owned by males and females is $0.22 per acre for males and $0.18 per 
acre for females, or $0.82 per acre for female operators relative to 
every $1 per acre earned by male operators. Together, these data 
suggest that female producers in livestock and poultry markets achieve 
lesser economic outcomes than male producers.
---------------------------------------------------------------------------

    \53\ The Pew Research Center. March 1, 2023. ``The Enduring Grip 
of the Gender Pay Gap.'' Accessed at https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/ on 
09-25-2023, and World Economic Forum. July 2023. Global Gender Gap 
Report 2023 Accessed at WEF_GGGR_2023.pdf (weforum.org) on 09-225-
2023.
[GRAPHIC] [TIFF OMITTED] TR06MR24.009

    Producers have also been targeted by processors that discriminate 
or retaliate against them for forming or being members of a cooperative 
because of the check on dominant firm bargaining power that 
cooperatives provide.\54\ Growers and experts on agricultural 
cooperatives have reported numerous instances of live poultry dealers 
taking adverse actions against producers for their participation in 
agricultural cooperative activities.\55\
---------------------------------------------------------------------------

    \54\ USDA, Publications for Cooperatives, available at https://www.rd.usda.gov/resources/publications-for-cooperatives (See 
generally USDA's published research reports that document the 
history and importance of agricultural cooperatives that allow 
farmers to negotiate collectively for prices on product either sold 
or bought by input or buyer entities. For example, USDA in Farm 
Bargaining Cooperatives: Group Action, Greater Gain (1994) describes 
one harrowing instance in which members of a cooperative initially 
hesitated in bringing a complaint against a processor that allegedly 
punished them by refusing to buy their fruit due to their 
association with the cooperative; but eventually successfully 
brought the complaint and, after a lengthy legal process, won 
punitive damages and the processor's agreement to buy product); 
Vaheesan, S. and Schneider, N., 2019. Cooperative Enterprise as an 
Antimonopoly Strategy. Penn St. L. Rev., 124, p.1. Accessed at 
https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1000&context=pslr (Oct. 2023).
    \55\ Baldree v. Cargill, Inc. and United States v. Cargill, 
Inc., et al., 758 F.Supp.704 (M.D.Fla. 1990). Arkansas Valley 
Industries, Inc., Ralston Purina Company, and Tyson's Foods, Inc., 
27 Ag. Dec. 84 (January 23, 1968), and In Re: Curtis Davis, Leon 
Davis, and Moody Davis d/b/a Pelahatchie Poultry Company, 28 Ag. 
Dec. 406 (April 3, 1969).
    \56\ For the purposes of this preamble, a cooperative is an 
incorporated or unincorporated association of producers, with or 
without capital stock, formed for mutual benefit of its members. 
Farm cooperatives are formed under State, not Federal law, even 
though cooperatives have Federal protections. See James B. Dean & 
Thomas Earl Geu, The Uniform Limited Cooperative Association Act: An 
Introduction, 13 Drake J. Agric. L. 63, 67 (2008) (``There is, 
however, no single type of cooperative. Although much of the law 
that has developed around cooperatives has developed with respect to 
agricultural cooperatives, cooperatives exist in many areas . . . 
including housing, insurance, banking, health care, and retail 
sales, among others.''). Cooperatives can both be buyers and sellers 
of agricultural products. Cooperatives made up of sellers, because 
they jointly fix the prices of their goods, are legally permitted to 
market the products they produce when the cooperative organization 
meets the requirements of the Capper-Volstead Act (see 7 U.S.C. 
291)7 U.S.C. 291) or the Clayton Act (see 15 U.S.C. 17).15 U.S.C. 
17).
---------------------------------------------------------------------------

    Regulated entity resistance to producer cooperatives is not 
difficult to understand--and indeed has been the basis for 
congressional action in the past. The increased bargaining power that 
cooperatives give to their members makes them a target for opposition 
or curtailment by regulated entities. In a market characterized by 
concentration of larger market intermediaries, cooperatives \56\ can 
assist producers in promoting equal access to the market

[[Page 16108]]

and enhance the bargaining power of smaller producers. At the same 
time, cooperatives are responsive to the needs of regulated entities 
and the market for greater volume, as opposed to negotiating with many 
smaller producers.\57\ Yet precisely that presence of enhanced 
bargaining power, which cooperatives give to their members, makes them 
a target for opposition or curtailment by regulated entities. Congress 
has affirmed that cooperatives are necessary to protect the marketing 
and bargaining position of individual farmers and that interference 
with this right is not only contrary to the public interest but 
damaging to the free market.\58\ As stated in the Congressional Record 
``. . . wherever waste and uneconomic practices are discovered they 
should be eliminated, and whenever improvement can be made by 
cooperative effort these improvements should be sanctioned and adopted 
by those interested in our marketing system. . . .'' \59\
---------------------------------------------------------------------------

    \57\ At least some of the drafters of the Act fully expected the 
Act to be consonant to the goals of cooperatives: ``My own 
conviction is that the cooperative effort of producers and consumers 
to get closer together in an effort to reduce the spread between 
them is the most favorable tendency of our time, so far as the 
question of marketing and distribution is concerned.'' 61 Cong. Rec. 
1882 (1921).
    \58\ 7 U.S.C. 2301.
    \59\ 61 Cong. Rec. 1882 (1921).
---------------------------------------------------------------------------

    Producers have indicated to AMS that increased use of cooperatives 
is necessary because of the rise of abusive conduct aggravated by 
concentration in the markets and the decline in marketing options for 
smaller producers. For example, small cattle producers have expressed 
their concern to AMS about packers' disparate treatment of large and 
small producers. Large packers have commonly shown limited interest in 
dealing with producers that operate on a smaller capacity. Packers 
often prefer to buy large numbers of animals at once to lower 
transaction costs,\60\ and if a single producer is unable to meet such 
demand, that producer is unable to compete in the industry. Smaller 
livestock producers can join together through cooperatives to achieve 
scale and meet buyers' volume requirements. Thus, cooperatives can help 
smaller producers gain business they would otherwise be unable to 
compete for in light of the current market structure. Moreover, 
Congress has encouraged the formation of agricultural cooperatives and, 
under the AFPA, has provided enhanced protection for them in the 
marketplace. Given that policy and statutory judgment, AMS interprets 
the Act to reinforce that objective. Accordingly, discriminating 
against a cooperative, absent a legitimate basis set forth under this 
final rule, is unjust and violative of the Act.
---------------------------------------------------------------------------

    \60\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops, Exploring Competition Issues in 
Agriculture Livestock Workshop: A Dialogue on Competition Issues 
Facing Farmers in Today's Agricultural Marketplaces, Fort Collins, 
Colorado August 27, 2010. Available at https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf.
---------------------------------------------------------------------------

    Additionally, cooperatives counterbalance the ability of regulated 
entities to exert market power against smaller or more vulnerable 
producers. Facing the threat of such a counterbalance, regulated 
entities have over time stymied producers' ability to form and utilize 
cooperatives. AMS has heard numerous reports of regulated entities 
terminating growers' or producers' contracts for their attempts to form 
cooperatives, as well as reports of the chilling effect such action has 
on any future attempts to do so.\61\ More recently, cooperatives in the 
cattle sector have been frustrated in their effort to negotiate 
collectively. In recent years, the number of livestock and poultry 
cooperatives has declined, as shown in the figure below. While many 
reasons for that decline are unconnected to the discrimination 
prohibited in this rule, AMS believes cooperatives serve a crucial 
function in the marketplace and need protection against unjust 
discrimination by regulated entities. This final rule will protect 
producers who wish to form cooperatives and will strengthen the 
marketing and bargaining position of smaller or more vulnerable 
producers by enabling them to pool resources, coordinate, compete more 
effectively, and negotiate for fair and appropriate terms in the open 
market without fear of prejudice or discrimination from larger market 
intermediaries.
---------------------------------------------------------------------------

    \61\ United States Department of Justice, United States 
Department of Agriculture, Public Workshops Exploring Competition in 
Agriculture: Poultry Workshops, (2010), available at https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305; https://youtu.be/8CvEGyMQ9v8?si=_tvtJVtlNmWDxedQ&t=3675; https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305 (In which poultry growers 
discussed numerous instances of regulated entities terminating their 
contracts, reducing the quality of their feed, or otherwise 
intimidating them for participating in cooperative activities).

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[[Page 16109]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.010

    Numerous public comments on the proposed rule supported the 
prohibition of undue prejudice based on protected bases such as those 
described above. In expressing support for the proposed ``market 
vulnerable individual (MVI)'' approach to addressing undue prejudices, 
several agricultural advocacy groups recommended that AMS explicitly 
enumerate protected bases in its definition of MVI. MVI, as defined in 
the proposed rule, is a person who is a member, or who a regulated 
entity perceives to be a member, of a group whose members have been 
subjected to, or are at heightened risk of, adverse treatment because 
of their identity as a member or perceived member of the group without 
regard to their individual qualities. The organizations said these 
protected bases should include, but not be limited to, the protected 
classes of race, color, national origin, religion, sex, sexual 
orientation, disability, age, income derived from a public assistance 
program, and political beliefs.\62\ An agricultural advocacy group 
commented in support of a protected-bases approach, saying that ``fair 
access to markets for growers, farmers, and ranchers should be based on 
their farming and business skills, not on their membership in any of 
the above groups.'' \63\ Another advocacy group added that defining 
protected bases ``will be an appropriately flexible concept with which 
to enforce enhanced protections against discrimination in the 
marketplace.'' \64\ The group continued: ``Given the history of 
discrimination that farmers of color have faced over the course of 
American history, these producers should not be made to relitigate 
their status as market vulnerable in any given complaint.'' \65\
---------------------------------------------------------------------------

    \62\ Government Accountability Project, Comments on Proposed 
Rule: Inclusive Competition and Market Integrity, (AugJan. 2022), 
https://www.regulations.gov/comment/AMS-FTPP-21-0045-042720232), 
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427 
(Describing instances in which some producers described racially 
prejudicial treatment received from regulated entities, including 
requirements to do additional work, mockery, and exploitative 
behavior). Farm Action, Comments on Proposed Rule: Inclusive 
Competition and Market Integrity, (AugJan. 20232), https://www.regulations.gov/comment/AMS-FTPP-21-0045-0435 (Listing Supreme 
Court and lower court cases finding these forms of discrimination to 
be essentially unjust).
    \63\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045: 
Inclusive Competitive and Market Integrity Under the Packers and 
Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434. https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434.
    \64\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045: 
Inclusive Competition and Market Integrity Under the Packers and 
Stockyards Act,'' available at Regulations.gov.
    \65\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045: 
Inclusive Competition and Market Integrity Under the Packers and 
Stockyards Act,'' available at Regulations.gov.
---------------------------------------------------------------------------

    Multiple commenters from the meat and poultry industry who opposed 
the MVI approach nevertheless indicated that they would support rules 
targeting discrimination on specific prohibited bases.\66\ A livestock 
industry association said discrimination on these types of bases is 
``reprehensible and should be remediated using the appropriate legal 
avenues.'' \67\ Several national and State farm bureaus expressed 
support for the rule's action to protect producers facing undue 
prejudice and unjust discrimination.\68\
---------------------------------------------------------------------------

    \66\ See, e.g., Meat Industry Trade Association, ``Comment on 
AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under 
the Packers and Stockyards Act'' (received Jan. 17, 2023), available 
at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; 
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; Industry 
Trade Association, ``Comment on AMS-FTPP-21-0045: Inclusive 
Competitive and Market Integrity Under the Packers and Stockyards 
Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424 Live Poultry 
Dealer;, ``Comment on AMS-FTPP-21-0045: Inclusive Competitive and 
Market Integrity Under the Packers and Stockyards Act'' (received 
Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419.
    \67\ Industry Trade Association, ``Comment on AMS-FTPP-21-0045: 
Inclusive Competitive and Market Integrity Under the Packers and 
Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418.
    \68\ See, e.g., Farm Bureau, ``Comment on AMS-FTPP-21-0045: 
Inclusive Competitive and Market Integrity Under the Packers and 
Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426; Other Association 
or Non-Profit, ``Comment on AMS-FTPP-21-0045: Inclusive Competitive 
and Market Integrity Under the Packers and Stockyards Act'' 
(received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426; Other Association or Non-Profit, ``Comment on 
AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under 
the Packers and Stockyards Act'' (received Jan. 17, 2023), available 
at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416; 
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416; Other 
Association or Non-Profit, ``Comment on AMS-FTPP-21-0045: Inclusive 
Competitive and Market Integrity Under the Packers and Stockyards 
Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441.

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[[Page 16110]]

    Discrimination on the bases of race, color, religion, national 
origin, sex (including sexual orientation and gender identity),\69\ 
disability, marital status, or age is recognized throughout economic 
markets as impermissible, yet commonly occurring, bases for 
discrimination.\70\ AMS recognizes the other Federal laws and 
authorities that justify these bases, finds that these bases are 
consistent with its understanding drawn from complaints and in the 
field, and accordingly adopts these bases as part of this rule.\71\ 
Removing prejudicial barriers to the market will enhance producers' 
economic bargaining power, support investment in rural America, assure 
the next generation that taking over the farm can be a wise economic 
decision, and otherwise enhance economic opportunity and vitality in 
communities facing higher business and labor market concentration and 
the conduct addressed by this rule.
---------------------------------------------------------------------------

    \69\ 140 S. Ct. at 1737, available at https://www.supremecourt.gov/opinions/19pdf/17-1618_hfci.pdf (The Supreme 
Court has held that the prohibition on discrimination ``because of . 
. . sex'' covers discrimination on the basis of gender identity and 
sexual orientation).
    \70\ See, e.g., U.S. Department of Justice, ``The Attorney 
General's 2021 Annual Report to Congress on Fair Lending 
Enforcement,'' available at https://www.justice.gov/media/1259491/dl?inline.
    \71\ 15 U.S.C. 1691; 7 U.S.C. 2301 et seq. (See below section, 
Provisions of the Final Rule--Undue Prejudice and Unjust 
Discrimination, that discusses the adoption of other Federally 
listed bases as part of this rule).
---------------------------------------------------------------------------

    AMS finds that discrimination continues to occur through adverse 
actions described in the inexhaustive list offered in the final rule. 
The list includes offering contract terms that are less favorable than 
those generally or ordinarily offered, refusing to deal, performing 
under or enforcing a contract differently than with similarly situated 
producers, requiring modifications to contracts on terms that are less 
favorable than the existing contract with the covered producer or only 
offering to renew contracts on terms that are less favorable than those 
of the existing contract with the covered producer, and terminating or 
not renewing a contract.
    As discussed further in Section VII--Comment Analysis, producers 
have indicated that regulated entities continue to engage in these 
types of discriminatory actions.
ii. Retaliation as Discrimination
    Many producers across all animal species have expressed concerns 
about being retaliated against for engaging in legitimate business and 
advocacy activities inextricably linked to livestock and poultry 
markets. Contract poultry growers and hog producers have expressed to 
USDA that they have experienced--and consistently fear--retaliation 
from live poultry dealers and packers for communicating with each 
other, with their dealer's and packer's competitors, and with 
governmental officials, as well as for forming associations and 
cooperatives, exercising contract or legal rights, or being a witness 
in proceedings against the regulated entity.\72\ Cattle producers have 
similarly expressed fear that packers will refuse to offer bids on 
livestock, or purchase livestock from disfavored producers, and they 
have highlighted other, more subtle retaliatory behaviors, like 
delaying delivery or shipment, for engaging in similar activities.\73\ 
Producers believe the ability to communicate with others, to form 
associations and cooperatives, to exercise legal rights, and to witness 
against regulated entities are critical to free participation in the 
livestock and poultry markets. Inhibition of these freedoms jeopardizes 
producers' ability to obtain the full value of their livestock and 
poultry products and services. Indeed, producers have reported to AMS 
over the years that retaliation by regulated entities--or threat 
thereof--for producers' exercise of these rights is significant enough 
to place a producer's entire farm at risk. This reported conduct is the 
type of behavior AMS aims to prohibit through this rulemaking.\74\
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    \72\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture, 
Poultry Workshop, May 21, 2010, Alabama A&M University Normal, 
Alabama. Available at Poultry Workshop Transcript (justice.gov) 
(https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656; https://youtu.be/8QJ_K06lp5M?si=C1HA0i84opqaoIn8&t=1051).
    \73\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture, 
Livestock Industry, August 27, 2010, Fort Collins, Colorado, 
Available at https://www.justice.gov/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10 (https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656https://youtu.be/Ygerhjjp0Is?si=WMS4YGdAjNtIsBgH&t=1833; https://youtu.be/tF4Dr-O-l8s?si=BZJQYN-rkp-qqvjN&t=1158; numerous producers, including the 
previous president of the Kansas Cattlemen's Association, discussed 
instances in which they experienced retaliation from the largest 
packers. For example, one producer described how they decided to 
allow other packer buyers first opportunity to buy cattle in 
response to the packer not selecting them for a contracting 
agreement. The producer said that the packer told ``his buyer to 
quit coming into our yard.'' Another producer agreed, describing an 
incident in which they perceived that one of the largest packers 
possibly retaliating against them for previous litigation: the 
producer described how the packer hung a ``No Trespassing'' sign on 
the producer's door and began offering a ``five-minute window'' to 
buy cattle).
    \74\ Lina Khan, ``Obama's Game of Chicken,'' Wash. Monthly 
(2012), https://washingtonmonthly.com/magazine/novdec-2012/obamas-game-of-chicken/ (Recounting testimony by Tom Green, an Alabama 
farmer who contested a contract and lost their farm: ``We did not 
give up a fundamental right to access the public court . . . which 
is guaranteed by our Constitution, regardless of price. I had flown 
too many combat missions defending that Constitution to forfeit it. 
It was truly ironic that protecting one right, we lost another. We 
lost the right to property''). Isaac Arnsdorf, ``How a Top Chicken 
Company Cut Off Black Farmers, One by One,'' Propublica (June 26, 
2019), https://www.propublica.org/article/how-a-top-chicken-company-cut-off-black-farmers-one-by-one (Describing how one farmer 
participated in the 2010 USDA-DOJ workshops and ``. . . never got 
another chicken after going to that meeting over there in Alabama. . 
. They put me slap out of business'').
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    This is a persistent problem. As recently as April 2022, threats 
and fear of retaliation interfered with witness testimony at each of 
the House and Senate Agriculture Committees' hearings on livestock 
competition practices. In his opening remarks, House Agriculture 
Committee Chair David Scott noted, ``We were supposed to have a 4th 
witness, a rancher, on our panel, but due to intimidation and threats 
to this person's livelihood, to this person's reputation, they chose 
not to participate out of fear. Witness intimidation is unacceptable. . 
. .'' \75\
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    \75\ House Chair David Scott D-GA, opening remarks, U.S. House, 
Committee on Agriculture, ``An Examination of Price Discrepancies, 
Transparency, and Alleged Unfair Practices in Cattle Markets,'' 
April 27, 2022, (14 min: 24 sec), available at https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies--Transparency--and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk.
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    The day before, Senator Deborah Fischer had stated, ``I wish we had 
a Nebraska producer here, but as is noted in their letter, none of our 
producer members we encouraged to testify were willing to put 
themselves out front for fear of possible retribution from other market 
participants, an unfortunate reality of today's cattle industry.'' \76\
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    \76\ U.S. Senate Committee on Agriculture, Nutrition, and 
Forestry, ``Legislative hearing to review S. 4030, the Cattle Price 
Discovery and Transparency Act of 2022, and S. 3870, the Meat and 
Poultry Special Investigator Act of 2022,'' April 26, 2022, (1 hour 
39 min), available at https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022.
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    In response to the proposed rule, commenters expressed support and 
opposition for the proposal to establish prohibitions against 
retaliatory practices. Several industry associations opposed the 
proposed rule, indicating it is duplicative and therefore not 
necessary. These commenters contended the conduct addressed in the

[[Page 16111]]

proposed rule is not a widespread problem and is already prohibited 
under the Act. Other commenters supported the rule. One organization 
cited a recent anonymous survey of contract growers it had conducted. 
Multiple respondents had experienced retaliation from integrators and 
said integrators regularly terminate contracts with farmers who engage 
in whistleblowing activities. These contract terminations leave growers 
with substantial debt tied up in specialized, single-use structures 
built as a condition of their contractual agreements. Although comments 
in response to the proposed rule differ greatly regarding the need for 
this rule, commenters generally do not disagree that discriminatory and 
retaliatory conduct is harmful to producers and offers no 
procompetitive benefits. For these reasons, AMS needs to use its 
statutory authority to provide a regulatory framework for prohibiting 
retaliatory behavior by regulated entities against covered producers. 
Establishing regulatory protections to prohibit regulated entities from 
retaliating against producers engaging in lawful activity will help 
promote fair trade practices and competitive markets.
    In recent years, producers have been increasingly vulnerable to 
harms from retaliatory behavior due to the market power afforded 
regulated entities under contracts that can reach further down into 
livestock and poultry production and/or are bilateral. This is in 
contrast to past circumstances where these relationships were 
intermediated through an institution such as a stockyard (auction) 
subject to heightened regulatory duties around nondiscrimination.
    As regulated entities have obtained greater control over the input 
industries, particularly in poultry, producers are increasingly 
dependent upon regulated entities for success. That dependence, in 
combination with high levels of debt, leaves producers vulnerable to 
the retaliation that regulated entities can exact through input 
distribution and in other ways. Growers have for years reported 
punitive delivery of inputs to deter their exercise of a wide range of 
legal rights and remedies that would enable them to earn the full value 
of their services.<SUP>77 78</SUP>
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    \77\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture, 
Poultry Workshop, May 21, 2010, Alabama A&M University Normal, 
Alabama. Available at Poultry Workshop Transcript (justice.gov); see 
also Lina Khan, ``Obama's Game of Chicken,'' The Washington Monthly, 
Nov. 2012, available at
    \78\ Oscar Hanke, ed., American Poultry History, 1823-1973 
(Madison, Wisc., 1974), 384-85. Fite, Cotton Fields No More, 201; 
Peck, A, (2006), ``State regulation of production contracts.'' 
University of Arkansas National Center for Law Research and 
Information, available at http://nationalaglawcenter.org/wp-content/uploads/assets/articles/peck_contractregulation.pdf; Stephen F. 
Strausberg, From Hills and Hollers: Rise of the Poultry Industry in 
Arkansas (Fayetteville, Ark., 1995), 136; Heffernan, W. D., (1984), 
Constraints in the U.S. poultry industry. Research in Rural 
Sociology and Development, 1, 237-260 (Researchers have documented 
the increased incidence of producers' complaints and decreasing 
satisfaction in the industry beginning in the 1980s, which coincided 
with increasing concentration of the industry. Weinberg writes how, 
in 1960, 19 firms processed 30 percent of total US poultry processed 
and that producers who entered the business tended to achieve upward 
mobility. In the 1970s, only 8 firms processed the same percent of 
poultry. This trend accompanied an increased incidence of grower 
dissatisfaction. Gordy notes how ``loss of independence and lower 
incomes caused some growers to become disenchanted.'' Fite observed 
how poultry farmers were ``controlled and sometimes exploited by 
their suppliers.'' Peck notes how dissatisfaction by growers 
prompted State attorneys general to propose a 3-day right of review 
in a model producer protection act in the early 2000s. In 2010, the 
USDA and DOJ hosted a series of workshops in which growers raised 
concerns about retaliation in the industry. These trends, which 
occurred alongside increased productivity gains and use of 
technology, coincided with exits in the industry. As Weinberg 
documented, in Georgia, in 1950, 1176 Hall County farms sold 6.8 
million chickens; in 1992, only 192 sold 44.3 million chickens).
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    Based on complaints and industry experience, AMS is aware that 
retaliation by regulated entities may take many forms, such as 
canceling contracts, selectively enforcing contract terms, refusing to 
deal or negotiate, or otherwise impairing an individual's or group of 
producers' ability to operate.\79\ In contrast, in more competitive 
markets, producers facing retaliation can more easily avoid or mitigate 
adverse impacts by simply finding other entities with whom to do 
business. Without choices, producers are at the mercy of the types of 
abuses the Act was designed to prevent--market abuses that inhibit 
producers' ability to get the full value of their products and 
services. Ultimately, regulated entities may retaliate for various 
reasons, but none have any role in or benefit to the competitive 
functioning of the market.\80\
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    \79\ See, e.g., U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture, 
Poultry Workshop, May 21, 2010, Alabama A&M University Normal, 
Alabama, available at https://youtu.be/8CvEGyMQ9v8?t=3135 (in which 
poultry growers described how companies seemingly arbitrary mandated 
expensive upgrades).
    \80\ Fehr, Ernst, and Simon G[auml]chter. ``Fairness and 
retaliation: The economics of reciprocity.'' Journal of economic 
perspectives 14, no. 3 (2000): 159-181.
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    As discussed below in Section VII--Comment Analysis, in response to 
the proposed rule, commenters expressed extensive agreement with the 
need to establish prohibitions against retaliatory practices.
iii. Deceptive Practices
    The Packers and Stockyards Act has long recognized that integrity 
and honesty are vital to the marketing of livestock and, therefore, to 
the efficiency with which these markets supply meat to the American 
consumer.\81\ This rulemaking is a response, in part, to the range of 
complaints lodged with USDA, Congress, and the media over the years 
regarding inaccurate, incomplete, or otherwise false or misleading 
statements, or omission of material information that affects decision-
making or access to markets by producers. These complaints reflect, in 
part, changed industry contracting norms or a market environment where 
the prevalent norms result in more acute harms to producers. For 
example, packers and industry representatives have routinely indicated 
that producers may choose the form of pricing mechanism for their 
transactions. However, as cash-negotiated markets have declined, 
producers have increasingly complained to USDA that they are not 
provided such a choice, and are commonly given a take-it-or-leave-it 
offer to buy their cattle off of a pricing formula provided by the 
company.\82\ Producers have complained they have been told that packers 
refuse to buy their cattle on the grounds they are not of sufficiently 
high quality or that formula market arrangements are necessary to 
incentivize such quality, when the cattle being offered were of no less 
quality than those the packer procured under other marketing 
arrangements.\83\
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    \81\ See, e.g., Midwest Farmers v. United States, 64 F. Supp. 
91, 95 (D. Minn. 1945); In re: Frosty Morn Meats, Inc., 7 B.R. 988, 
1020 (M.D. Tenn. 1980).
    \82\ Other Association or Non-Profit, ``Comment on AMS-FTPP-21-
0045: Inclusive Competitive and Market Integrity Under the Packers 
and Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.
    \83\ C. Robert Taylor, ``Harvested Cattle, Slaughtered 
Markets,'' April 27, 2022, 7-9, available at https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/.
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    Poultry producers have complained to USDA over the years regarding 
unfavorable provision of inputs made to certain producers despite 
statements by live poultry dealers that there are no differences in 
treatment. Producers have also complained to USDA of terminations, 
suspensions, or reductions in flocks on pretexts--i.e., on the 
provision of false or misleading information such as claims of animal

[[Page 16112]]

welfare contractual violations--when other reasons may exist for the 
adverse actions, including the discrimination and retaliation noted 
previously, or other unreasonable bases, such as a preference for 
family or friends of the local agent of a live poultry dealer or for a 
poultry grower connected to a senior executive of a live poultry 
dealer.\84\ Contract termination puts the grower at severe risk of 
significant economic loss. A production broiler house often has 
significant long-term financial obligations. The potential loss 
includes not only the loss of production income, but financing for 
construction, which often comes from mortgages on the grower's farm or 
family home. Pretextual cancellation may make even the sale or transfer 
of the broiler production house impossible because purchasers may be 
unable to determine whether the broiler houses have value.
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    \84\ Wheeler v. Pilgrim's Pride, 536 F.3d 455 (5th Cir. 2008); 
United States Department of Justice, United States Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture: 
Poultry Workshop May 21, 2010; Normal, Alabama, https://www.justice.gov/sites/default/files/atr/legacy/2010/11/04/alabama-agworkshop-transcript.pdf, last accessed 8/14/23.
---------------------------------------------------------------------------

    As discussed in Section VII--Comment Analysis, comments underscored 
the need to address deceptive practices in this rulemaking.

III. Authority

    Congress enacted the Act to promote fairness, reasonableness, and 
transparency in the marketplace by prohibiting practices that are 
contrary to these goals. AMS is issuing these regulations under the 
Act's provisions prohibiting undue prejudice, unjust discrimination, 
and deception to provide for clearer, more effective standards to 
govern the modern marketplace and to better protect, through compliance 
and enforcement, individually harmed producers.
    Enacted in 1921 ``to comprehensively regulate packers, stockyards, 
marketing agents and dealers,'' \85\ the Act, among other things, 
prohibits actions that hinder integrity and competition in the 
livestock and poultry markets. Section 202(a) of the Act states that it 
is unlawful for any packer, swine contractor, or live poultry dealer to 
engage in or use any unfair, unjustly discriminatory, or deceptive 
practice or device.\86\ Section 202(b) of the Act states that it is 
unlawful for any packer, swine contractor, or live poultry dealer to 
make or give any undue or unreasonable preference or advantage to any 
particular person or locality, or subject any particular person or 
locality to any undue or unreasonable prejudice or disadvantage in any 
respect.
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    \85\ Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498 
F.2d 925, 927 (10th Cir. 1974).
    \86\ 7 U.S.C. 192(a).
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    Section 407 of the Act provides that the Secretary ``may make such 
rules, regulations, and orders as may be necessary to carry out the 
provisions of this [Act].'' (7 U.S.C. 228(a)) The Secretary has 
delegated the responsibility for administering the Act to AMS. Within 
AMS, the Packers and Stockyards Division (PSD) of the Fair-Trade 
Practices Program has responsibility for the day-to-day administration 
of the Act. The current regulations implementing the Act are found in 
title 9, part 201, of the CFR. Therefore, based on the authority 
delegated to USDA by Congress to administer the Act, AMS is 
promulgating this rulemaking to amend part 201 to specifically clarify 
that discriminatory, deceptive, and retaliatory conduct, as defined in 
this rule, are violations of the Act.
    Executive Order (E.O.) 14036, ``Promoting Competition in the 
American Economy'' (86 FR 36987, July 9, 2021), directs the Secretary 
to further the vigorous implementation of the Act. Accordingly, this 
final rule addresses the unfair treatment of farmers and improves 
competitive conditions in markets. This rule adds clarity to USDA's 
regulations concerning unjustly discriminatory practices, deceptive 
practices, and undue or unreasonable prejudices or disadvantages. E.O. 
14036 underscored that ``it is unnecessary under the... Act to 
demonstrate industry-wide harm to establish a violation of the Act and 
that the `unfair, unjustly discriminatory, or deceptive' treatment of 
one farmer'' violates the Act. Among other policy goals in the E.O., 
this final rule is specifically intended to address the unfair 
treatment of farmers and make it easier for them to garner the full 
value of their animals. The Act is a remedial statute enacted to 
address problems faced by farmers, producers, and other participants in 
the markets for livestock, meats, meat food products, livestock 
products in unmanufactured form, poultry, and live poultry; to protect 
the public from predatory practices; and to help ensure a stable food 
supply. Thus, as academics and courts have noted, the Act has ``tort-
like provisions that are concerned with unfair practices and 
discrimination'' that fulfill a ``market facilitating function,'' which 
Congress designed to prevent ``market abuse.'' \87\ AMS interprets and 
implements the Act to achieve its core statutory purposes.\88\
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    \87\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey 
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862 (``subsections (a) and (b) appear to be tort-like provisions 
that are concerned with unfair practices and discrimination, but not 
with restraint of trade or monopoly as such''); Peter Carstensen, 
The Packers and Stockyards Act: A History of Failure to Date, CPI 
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that 
the practices of buyers and sellers in livestock (and later poultry) 
markets were fair, reasonable, and transparent. This goal can best 
be described as market facilitating regulation.''); Michael C. Stumo 
& Douglas J. O'Brien, Antitrust Unfairness vs. Equitable Unfairness 
in Farmer/Meat Packer Relationships, 8 Drake J. Agric. L. 91 (2003); 
Michael Kades, ``Protecting livestock producers and chicken 
growers,'' Washington Center for Equitable Growth (May 2022), 
https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf (``Section 202's prohibitions on 
unjust discrimination and undue preference are not limited to 
conduct that destroys or limits competition or creates a monopoly. 
These provisions address conduct that impedes a well-functioning 
market and deprives livestock and poultry producers of the true 
value of their animals. Taken together, these provisions seek to 
prevent market abuses.'').
    \88\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th 
Cir. 1966).
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IV. Summary of the Proposed Rule

    In the October 2022 proposal, AMS proposed amending 9 CFR 201 by 
adding a new subpart O, titled ``Competition and Market Integrity,'' 
and containing Sec. Sec.  201.300 through 201.390. AMS proposed adding 
a Definitions section, Sec.  201.302, containing the terms covered 
producer, livestock producer, market vulnerable individual, and 
regulated entity.
    AMS also proposed adding Sec.  201.304, titled ``Undue prejudices 
or disadvantages and unjust discriminatory practices,'' to prohibit 
regulated entities from discriminating against a market vulnerable 
individual or a cooperative, detailing in proposed paragraph (a) types 
of prohibited actions. Paragraph (b) of the proposed regulation would 
prohibit regulated entities from retaliating against a covered producer 
because of the covered producer's participation in a producer 
association, protected activities, including assertion of rights under 
the Act, and lawful communication. Proposed paragraph (b) also provided 
examples of prohibited retaliatory actions. Proposed paragraph (c) 
included a requirement that regulated entities retain records of 
compliance with paragraphs (a) and (b) for no less than five years from 
the date of record creation.
    AMS also proposed adding Sec.  201.306, titled ``Deceptive 
practices,'' prohibiting a regulated entity from employing a false or 
misleading statement or omission of material information necessary to 
make a statement not false or misleading during contract formation,

[[Page 16113]]

performance, and termination. Section 201.306 also proposed to prohibit 
a regulated entity from providing false or misleading information 
concerning a refusal to contract. The proposal was designed to prohibit 
regulated entities from specified deceptive practices in contracting, 
which are of particular concern because of the power of the regulated 
entities over their vertical contracting relationships. As stated in 
the proposal, AMS intended this proposed regulation to address broad 
areas of specific concern, not exhaustively identify all deceptive 
practices that would violate sec. 202(a) of the Act.
    Finally, AMS proposed adding Sec.  201.390, titled 
``Severability.'' This provision was intended to inform reviewing 
courts that if any provision of subpart O was declared invalid, or if 
the applicability of any of its provisions, or any components of any 
provisions, to any person or circumstances was held invalid, the 
validity of the remaining provisions of subpart O or their 
applicability to other persons or circumstances would not be affected. 
Severability provisions are typical in modern AMS regulations. AMS 
regulations often cover several different topics in a subpart. This 
provision was added because the regulations in subpart O are designed 
to address several different types of violations under the Act. Because 
these violations address similar underlying developments in the 
livestock and poultry markets--namely, abusive practices facilitated by 
increased vertical integration and horizontal concentration--these 
violations were suitable for joining in a single rulemaking. However, 
each could be viewed as its own stand-alone rulemaking and therefore 
should be severable.
    Upon consideration of public comments on the proposed rule, AMS 
modified some of its proposed provisions to derive this final rule. 
These changes are outlined below.

V. Changes From the Proposed Rule

    AMS is making the following changes to the proposed rule based on 
the agency's analysis of the issues raised by commenters.

A. Market Vulnerable Individual (MVI) to Prohibited Bases

    With respect to the proposed regulations regarding undue prejudice 
and unjust discrimination, Sec.  201.304, several commenters expressed 
concern that the definition of ``market vulnerable individual (MVI)'' 
as the basis for prohibiting undue prejudice and discrimination was too 
broad and ambiguous and could lead to an avalanche of litigation. To 
simplify this section, the final rule uses a delineated set of 
protected bases against undue prejudice and discrimination that were 
discussed in the proposed rule: race, color, national origin, religion, 
sex, sexual orientation, gender identity, age, disability, and marital 
status. These delineated bases reflect the Statement of General Policy 
Under the Packers and Stockyards Act published by USDA in 1968 (9 CFR 
203.12(f)) and USDA's Conducted Programs Statement, and reflect a 
general congressional policy as indicated in other statutory sources 
(discussed below).\89\ The final rule retains status as a cooperative 
as a protected basis against undue prejudice and discrimination, which 
reflects the principles set forth in the Agricultural Fair Practices 
Act of 1967.\90\ (For the avoidance of doubt, AMS notes that 
discrimination against a member of a cooperative is prohibited under 
the provisions of paragraph (b)(2)(iii).) Accordingly, AMS has removed 
the term market vulnerable individual from the list of terms defined 
for subpart O in Sec.  201.302.
---------------------------------------------------------------------------

    \89\ 7 CFR 15d.3; U.S. Department of Agriculture, 
``Nondiscrimination in Programs or Activities Conducted by the 
United States Department of Agriculture,'' 79 FR 41406, July 16, 
2014.
    \90\ Public Law 90-288.
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    AMS is adopting the aforementioned specific bases, as opposed to 
MVI, because the specific prohibited bases offer clearer, more workable 
standards to achieve the same goal set forth and specifically 
articulated in the proposed rule, but in a manner that will facilitate 
compliance by regulated entities and better enable producers to 
exercise their rights under the Act. As AMS explained in the proposed 
rule, the principal purpose of the MVI approach was to address 
prejudices in the marketplace against producers that are more 
vulnerable to such treatment and to stop unjust discrimination. AMS 
views vulnerability to adverse marketplace treatment to include, but 
not be limited to, exclusion or disadvantage on the basis of race, 
color, religion, national origin, sex (including sexual orientation and 
gender identity), disability, marital status, or age, or on the basis 
of the covered producer's status as a cooperative. AMS initially 
adopted the MVI approach because it believed that the proposed rule's 
flexible approach to resolving marketplace vulnerabilities offered 
producers protection in an ever-evolving market. The proposed approach 
had the advantage of being responsive to the particular facts of given 
cases and particular markets over time.
    As part of the rulemaking process, however, AMS sought comment on 
whether this was the best approach. AMS requested comment on whether it 
should ``delineate specific categories of vulnerable producers on the 
basis of membership in groups that have historically been subject to 
adverse treatment owing to racial, ethnic, gender, or religious 
prejudices.'' (87 FR 60010, Oct. 3, 2022) AMS also sought comment on 
``whether this regulation should ban discrimination against specific 
classes, such as on the basis of race, color, national origin, 
religion, sex, sexual orientation, gender identity, age, disability, 
marital status, or family status. Such an approach would differ from 
the market vulnerable individual approach and would instead more 
closely follow the civil rights laws that prohibit prejudicial 
discrimination against certain protected classes.''
    After considering the comments on both the MVI approach and on 
specific delineated bases, AMS determined that MVI is not sufficiently 
clear enough to meet the objectives of this regulation. The enumeration 
of specific prohibited bases provides more clarity and certainty by 
limiting the scope of the rule to prohibited adverse actions against 
all producers on the basis of their membership of a protected class, in 
line with existing civil rights requirements. Commenters, such as a 
meat industry trade association, a poultry industry trade association, 
and a live poultry dealer, criticized the proposed rule's MVI 
definition for being vague and ambiguous and potentially exposing their 
businesses to an unworkable standard that could potentially encompass a 
wide range of covered producers far beyond what the Agency appeared to 
be contemplating in the proposed rule. In contrast, these commenters 
indicated that an approach based on specific classes, such as race, 
sex, sexual orientation, or religion, would be clearer and would follow 
the precedent of civil rights laws already in place while protecting 
all producers.\91\

[[Page 16114]]

Several meat and poultry industry commenters who opposed use of the MVI 
approach stressed that they do not engage in discrimination on the 
specific bases set forth in this final rule and oppose such 
discrimination.\92\
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    \91\ See, e.g., ``Comment on AMS-FTPP-21-0045: Inclusive 
Competitive and Market Integrity Under the Packers and Stockyards 
Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; ``Comment on AMS-
FTPP-21-0045: Inclusive Competitive and Market Integrity Under the 
Packers and Stockyards Act'' (received Jan. 17, 2023), available at 
https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; ``Comment on AMS-
FTPP-21-0045: Inclusive Competitive and Market Integrity Under the 
Packers and Stockyards Act'' (received Jan. 17, 2023), available at 
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419.
    \92\ See, e.g., National Cattlemen's Beef Association, ``Comment 
on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity 
Under the Packers and Stockyards Act'' (received Jan. 17, 2023), 
available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418 (Deception, discrimination, or retaliation on the basis of 
race, ethnicity, sexual orientation, gender identity, ability, 
religion/spirituality, nationality and/or socioeconomic status is 
reprehensible and should be remediated using the appropriate legal 
avenues, including legislative changes where necessary).)
---------------------------------------------------------------------------

    Multiple agricultural advocacy organizations also expressed 
approval of these protected classes as the prohibited bases for 
discrimination when responding to the proposed rule's solicitation of 
responses on this issue, saying discrimination against individuals in 
these groups should be clearly recognized so those individuals do not 
have to continually prove discrimination and prejudice against them 
based on the characteristic that makes them vulnerable in the market. 
AMS agrees that the bases adopted in the final rule reflect genuine 
vulnerability to market exclusion and have no competitive benefit.
    AMS also notes that some commenters interpreted the MVI approach as 
potentially providing protection to small producers on the basis that 
small producers were vulnerable to discrimination in the form of the 
same kinds of adverse treatment proposed to be prohibited in this rule. 
While AMS is sympathetic to the plight of small producers' challenges 
in accessing fair markets, AMS did not intend this rule to address 
those concerns (as also discussed below in Section VII--Comment 
Analysis). Basing the rule on a term that gave rise to such disparate 
interpretations underlined the necessity of utilizing the more specific 
bases set forth in the proposed rule's alternative formulation.
    Additionally, AMS notes that these prohibited bases are now widely 
accepted standards of non-discrimination at USDA and in the U.S. 
economy more broadly. AMS adopted many of these as part of its 1968 
Statement of General Policy.\93\ Together with the Agricultural Fair 
Practices Act of 1967, these bases also apply to AMS enforcement of the 
Equal Credit Opportunity Act (ECOA) under the Act, to USDA programs 
through its Conducted Programs Statement, and, more recently, to the 
terms of USDA's debt relief under section 22007 of the Inflation 
Reduction Act.\94\ The terms are also widely accepted bases in other 
laws that prohibit discrimination, such as in housing and 
employment.\95\ The prohibited bases defined in the final rule have 
become so widely accepted as prohibited bases of discrimination that it 
would be notable and arbitrary for the Agency to pick some of the terms 
and not others. Quite simply, ``unjust discrimination'' and ``undue 
prejudices'' cannot be read but to include these widely accepted non-
discrimination terms.
---------------------------------------------------------------------------

    \93\ 9 CFR 203.12(f).
    \94\ USDA, Discrimination Financial Assistance Program, 
``Eligibility,'' https://22007apply.gov/eligibility.html (last 
accessed Oct. 2023) (``This program covers discrimination based on 
different treatment you experienced because of: Race, color, or 
national origin/ethnicity (including status as a member of an Indian 
Tribe); Sex, sexual orientation, or gender identity; Religion; Age; 
Marital status; Disability; Reprisal/retaliation for prior civil 
rights activity'').'')
    \95\ See, generally, DOJ, Civil Rights Division. The Attorney 
General's Annual Report to Congress on Fair Lending Enforcement 
(2021), available at https://www.justice.gov/d9/pages/attachments/2022/11/14/ecoa_report_2021_final_0.pdf (In 2001 to 2021, there were 
496 fair lending referrals to DOJ, of which 163 were on the basis of 
race and national origin. Other noted referrals, and then cases, in 
2019 and 2020 were discrimination based on age and gender.)
---------------------------------------------------------------------------

    Accordingly, to achieve the same goal that the Agency set forth in 
the proposed rule through both MVI and the alternative formulation, AMS 
is now adopting the alternative formulation: race, color, religion, 
national origin, sex (including sexual orientation and gender 
identity), disability, marital status, or age of the covered producer; 
or because of the covered producer's status as a cooperative.

B. Prohibited Actions Taken on a Prejudicial Basis

    In Sec.  201.304(a)(2), AMS made three changes to the provisions 
regarding prohibited actions taken on a prejudicial basis. First, in 
paragraphs (a)(2)(i) through (iii), AMS proposed to prohibit offering 
contracts that are less favorable than those generally or ordinarily 
offered, refusing to deal, and differential contract performance or 
enforcement, when each occurred on a prohibited basis. AMS is revising 
each of these provisions to provide clarity and uniformity across this 
final rule with respect to a comparison to similarly situated producers 
and also to ensure parallel language with the retaliation adverse 
actions under Sec.  201.304(b)(3). Paragraph (a)(2)(i) is revised to 
read ``Offering contract terms that are less favorable than those 
generally or ordinarily offered to similarly situated producers; 
paragraph (a)(2)(ii) is revised to read ``Refusing to deal with a 
covered producer on terms generally or ordinarily offered to similarly 
situated covered producers''; and paragraph (a)(2)(iii) in the final 
rule is revised to read ``performing under or enforcing a contract 
differently than with similarly situated covered producers'' [emphasis 
added]. ``Similarly situated,'' is a phrase commonly used by commenters 
and by AMS in the proposed rule when discussing producer groups.\96\ 
Including this concept in the final regulation provides more context 
for a comparison of what differential performance or enforcement would 
look like, and therefore provides more specificity to the regulation. 
This revision also mirrors a revision made to language in a similar 
provision in the retaliation section (Sec.  201.304(b)(3)(ii) and 
(iv)). The addition of ``with a covered producer'' in paragraph 
(a)(2)(ii)--Refusal to deal, is similarly designed to align with the 
parallel provision for paragraph (b)(3)(iv) as was set out in the 
proposed rule and retained in the final rule. The final rule adds ``on 
terms generally or ordinarily offered to similarly situated producers'' 
as well, in response to comments (as discussed below) to provide 
similar clarity of application that refusal to deal is not simply an 
absolute boycott or making a sham or nominal offer, but includes 
failure to bid, negotiate, and otherwise make a reasonable attempt to 
contract on terms generally or ordinarily offered to similarly situated 
producers when done on the prohibited basis.
---------------------------------------------------------------------------

    \96\ See also Central Railroad Co. of New Jersey v. United 
States, 257 U.S. 247 (1921) (``They can be held jointly and 
severally responsible for unjust discrimination only if each carrier 
has participated in some way in that which causes the unjust 
discrimination, as where a lower joint rate is given to one locality 
than to another similarly situated'').
---------------------------------------------------------------------------

    Second, AMS is adding a new paragraph (a)(2)(iv), which prohibits--
when it occurs on a prohibited basis--``requiring a contract 
modification or renewal on terms less favorable than similarly situated 
covered producers.'' \97\ The new provision expands on the concept 
encompassed in paragraph (a)(2)(i), which prohibits ``offering contract 
terms that are less favorable than those generally or ordinarily 
offered to similarly situated covered producers.'' The new provision 
prohibits regulated entities from making contract terms less favorable 
for producers once they are under contract and have incurred financial 
obligations because of that contract. The new provision mirrors a new 
provision

[[Page 16115]]

added to the retaliation section (Sec.  201.304(b)(3)(iii)) in response 
to public comment on the proposed retaliation regulations. AMS also 
uses a similar approach in the retaliation section on refusing to deal 
(Sec.  201.304(b)(3)(iv)), as requested by public commenters, by adding 
``with a covered producer on terms generally or ordinarily offered to 
similarly situated covered producers'' after ``deal,'' for the same 
reasons--this language helps prevent evasion. Commenters requested that 
AMS provide more protection so that regulated entities cannot formulate 
new ways of harming producers in contracting--a crucial component of a 
producer's financial well-being. Commenters suggested an additional 
provision regarding specific contract terms, including contract 
modification, be added to the regulations. While AMS did not adopt the 
suggested provision in whole, AMS recognizes the importance of 
specifically prohibiting unfavorable contract modifications or renewals 
that occur on a prohibited basis, considering the detrimental financial 
impact this can have on producers already under contract. In making 
these changes, the final rule provides a greater degree of specificity 
regarding the type of conduct the rule prohibits. AMS will review the 
facts and circumstances of each case and the regulated entity's 
justifications for any modification or renewal to determine whether the 
regulated entity has violated this rule.
---------------------------------------------------------------------------

    \97\ Proposed paragraph (a)(2)(iv), which prohibited termination 
or non-renewal of a contract on a prohibited basis, is renumbered in 
the final rule as paragraph (a)(2)(v).
---------------------------------------------------------------------------

    Third, AMS is adding a new paragraph (a)(2)(vi), which prohibits 
regulated entities from taking ``any other action that a reasonable 
covered producer would find materially adverse.'' This provision 
represents a logical outgrowth from the proposed rule, which had 
indicated that the ``prejudice or disadvantage with respect to 
paragraph (a)(1) of this section includes the following actions.'' As 
AMS explained in the proposed rule, AMS believes that the type of harm 
to a producer will not be difficult to identify when it occurs based 
upon the facts and circumstances, and thus provided an exemplary list 
to aid in identification and enforcement under the rule. Such a list 
was not intended to be all encompassing. However, in response to 
comments, AMS has recognized that such an open-ended approach may 
create too much uncertainty and undermine compliance and enforcement. 
AMS is replacing the use of ``includes'' with an additional, more 
flexible provision that provides a broader yet not unlimited range of 
possible harms. AMS's approach is in response to comments that adverse 
treatment of producers by regulated entities can occur outside the 
confines of the contractual relationship. Such conduct could include, 
for example, interference by a regulated entity into regulatory matters 
of significant material importance to producers. Several public 
commenters wanted more producer protections incorporated into Sec.  
201.304(a)(2). This provision provides a broad and flexible approach to 
these prohibitions and allows for ``material'' to be determined by the 
facts and circumstances of each case while staying within the scope of 
the proposed rule's intent around harms to producers under unjust 
discrimination and undue prejudice deriving from adverse actions.

C. Exceptions to the Prohibited Bases

    Commenters suggested that AMS include exceptions to the prohibition 
on undue prejudice and unjust discrimination. In response to these 
comments and the shift from MVI to identifying specific prohibited 
bases, AMS decided to provide specific exceptions from the prohibition 
in two circumstances. New Sec.  201.304(a)(3) states that the following 
actions by a regulated entity do not prejudice, disadvantage, inhibit 
market access, or constitute adverse action under Sec.  201.304(a)(1): 
(i) fulfilling a religious commitment relating to livestock, meats, 
meat food products, livestock products in unmanufactured form, or live 
poultry; (ii) a Federally-recognized Tribe, including its wholly or 
majority-owned entities, corporations, or Tribal organizations, 
performing its Tribal governmental functions.
    In shifting from MVI toward specific prohibited bases, AMS 
identified the need to provide certain exceptions from the prohibition. 
The proposed MVI was a flexible standard that permitted the Agency to 
evaluate the facts and circumstances of a particular case and whether 
the exclusion or disadvantageous contracting arrangement was based on 
the characteristics of the producer. Specifying delineated prohibited 
bases provides greater clarity, yet in doing so, it eliminates a degree 
of flexibility that could be valuable in a small set of circumstances. 
Accordingly, the Agency is adopting two specific exceptions to 
recognize circumstances that do not give rise to unjust discrimination. 
AMS asked questions about both areas in the proposed rule, highlighting 
to commenters that the Agency recognized the potential for additional 
adjustments to be made in those areas.
    First, AMS is providing a specific exception to recognize the 
important role ritual slaughter plays in certain religious traditions 
and ensure that religiously significant meats--such as kosher, halal, 
and Amish meats--are not impacted by the rule's prohibition on 
discrimination on the basis of the producer's religion. According to 
AMS subject matter experts, halal slaughterers, for example, express a 
legitimate, religiously grounded preference for livestock and poultry 
raised by operators of faith, e.g., the Muslim or the Amish Christian 
group, that maintain particular animal husbandry practices. In adopting 
its prohibition on prejudice on the basis of religion, AMS is 
principally focused on access to the broad livestock markets for 
persons where religion has no legitimate business purpose. In contrast, 
where religion is relevant to the livestock and meat itself, AMS is not 
seeking to disturb the religiously based determinations in what is a 
relatively discrete market segment. Therefore, when administering the 
Act, AMS must allow discriminatory conduct directed toward fulfilling 
religious commitments surrounding livestock care and meat production.
    To ensure clarity in its application, this rule respects 
longstanding jurisprudence surrounding Tribal sovereignty and the 
political relationship that a Tribe has with its members that secures 
the right for Tribal entities to preference Tribal members. To ensure 
that it is not read in contradiction with existing jurisprudence, the 
rule explicitly specifies that Tribal governments can engage in 
practices related to livestock, poultry, and meats with respect to non-
Tribal entities or non-Tribal descendants. The prohibition on 
discrimination on the basis of race or color would be read to protect a 
person from discrimination for being of Native American descent, but 
not on preferential treatment given to Tribal members based on their 
political classification. This matter was specifically raised by, and 
is responsive to, Tribal governments during the Tribal consultation 
that AMS conducted and is described below under ``VII.C.--Executive 
Order 13175--Consultation and Coordination with Indian Tribal 
Governments.''
    AMS recognizes that this rulemaking cannot foresee the range of 
unique or extenuating circumstances that may present in agricultural 
markets. Commenters stated that rapidly changing livestock and poultry 
markets may require an exception to the prohibition against undue 
prejudice or disadvantage on a protected basis. However, AMS did not 
identify, from the comments or based on its

[[Page 16116]]

experience, any other specific circumstances in the livestock and 
poultry industries where a prejudice against a producer on a prohibited 
basis was justified under the Act. To the extent that unforeseen 
circumstances could arise that would justify creating the need to allow 
for additional exceptions to this rule, AMS believes that those 
circumstances are likely to be rare and tailored to narrow 
circumstances. Accordingly, AMS believes that prosecutorial discretion 
will provide it with adequate flexibility to offer relief on a case-by-
case basis. Of course, if following implementation of this rule it 
becomes evident that additional exceptions should exist in regulation, 
AMS may amend this regulation through the ordinary rulemaking process.

D. Retaliation Provisions

    AMS proposed in Sec.  201.304(b)(1) to prohibit retaliation against 
a covered producer that occurs because of the covered producer's 
participation in protected activities ``to the extent that these 
activities are not otherwise prohibited by Federal or state law, 
including antitrust laws.'' In the final rule, AMS modified the 
language of this provision to move the exception for Federal or State 
law, including antitrust laws, to paragraph (b)(2) and to add Tribal 
law to the types of law identified in this exception. AMS is adding 
this language to make explicit the applicability of Tribal law in this 
circumstance. Additionally, AMS changed ``because of'' to ``based 
upon'' both in response to comments and to align with its approach in 
Sec.  201.304(a) and embodied in Sec.  201.304(c). AMS proposed ``based 
upon'' in Sec.  201.304(a) and ``by employing'' in Sec.  201.304(c) to 
capture actions where the prohibited bases form a material part of the 
action--discrimination or prejudice, or as part of the deceptive 
practice. Section 201.304(b) is designed to achieve the same goal. AMS 
also received comments recommending broad protections for covered 
producers from retaliatory actions, including where the retaliation was 
a part of the decision to take an adverse action. AMS further 
underscores that ``based upon the covered producer's participation in 
an activity . . .'' covers threats that would reasonably dissuade or 
chill a covered producer from participating in the activities.
    Under proposed Sec.  201.304(b)(2)(i), AMS proposed to establish as 
a protected activity a producer's communication with a government 
agency on matters related to livestock, meats, or live poultry or 
petitions for redress of grievances before a court, legislature, or 
government agency. Commenters requested that AMS clarify that this 
protection covers communication with any sector or level of government, 
including State governments. AMS intends for this regulation to include 
protections for communications with any level of government, including 
any government committee or official. In this final rule, AMS is 
aligning the use of the terms ``court, legislature, or government 
agency'' and simplifying the language to say, ``government entity or 
official.'' This change ensures that protected communications may occur 
with any of the three branches of government, any level of government, 
and with individual government officials, including committees and 
members of a legislature.
    AMS requested public comment on whether the final rule should 
protect producers who choose not to participate in protected 
activities. In response to public comment supporting this proposal, AMS 
has revised Sec.  201.304(b)(2)(ii) to protect a producer's right to 
refuse a regulated entity's request to engage in communication with a 
government entity or official that is not required by law, and Sec.  
201.304(b)(2)(iii) to protect a producer's right to form or join, or to 
refuse to form or join, a producer or grower association or 
organization. Proposed Sec.  201.304(b)(2)(ii), which protected a 
producer's assertion of any of the rights granted under the Act or this 
part, or assertion of contract rights, is renumbered as paragraph 
(b)(2)(vii) in the final rule.
    AMS proposed in Sec.  201.304(b)(2)(v) to protect producer 
communication or negotiation with a regulated entity for the purpose of 
exploring a business relationship. In response to public comment, AMS 
added in the final rule protection for communicating; negotiating; or 
contracting with a regulated entity, another covered producer, or with 
a commercial entity or consultant; for the purposes of exploring or 
entering into a business relationship. Commenters asserted that, as 
proposed, the protected activity was ``unreasonably narrow'' and that 
expanding this protection would ``help ensure that covered producers 
may explore all their business opportunities.'' \98\ The Act is 
intended to ensure an inclusive market to protect and promote the 
ability for covered producers to compete.\99\ Such competition may also 
take the form of exploring or entering into opportunities for enhanced 
price discovery through market intermediaries, such as listing cattle 
for competitive bidding on a publicly transparent exchange or selling 
at an auction barn or through a cooperative or other commercial entity 
that facilitates the marketing of livestock by the covered producer. 
The provision covers both the ability to negotiate or contract with the 
commercial entity or consultant serving as an intermediary or other 
facilitating the marketing or platform for marketing, such as the 
exchange or auction barn; and also the ability to negotiate or contract 
with other packers during the exchange or auction process. This is 
protected because both elements may be necessary parts of securing 
those opportunities to engage in price discovery and enhance the choice 
and competitive opportunities for covered producers to earn the full 
market value of their goods and services. The provision also covers 
consideration of alternative uses for farm property. As with all 
protected activities under this final rule, the regulated entity may 
not present an obstacle to engaging in these activities, whether 
written in a contract, verbally asserted, or otherwise, as those are 
impermissible under the Act.
---------------------------------------------------------------------------

    \98\ ``Comment on AMS-FTPP-21-0045: Inclusive Competition and 
Market Integrity Under the Packers and Stockyards Act,'' available 
at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.
    \99\ See, e.g., U.S. 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,'' Nov. 9, 2023, available at https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing.
---------------------------------------------------------------------------

    Under proposed Sec.  201.304(b)(3), AMS identified types of 
prohibited retaliatory conduct. Commenters expressed concern regarding 
the lack of clarity of these proposed prohibitions, with some saying 
the prohibitions were too broad, some arguing that the rule should 
provide even more flexibility, and some supporting the introduction of 
a ``catch-all clause'' to provide additional protection against 
retaliatory behavior. The final rule adds language to paragraph 
(b)(3)(ii) to prohibit performing under or enforcing a contract 
differently than with similarly situated producers [emphasis added]. 
This language, ``similarly situated,'' was commonly used by commenters 
and AMS in the proposed rule when discussing producer groups. The 
addition of ``similarly situated'' language provides greater 
specificity regarding the scope of the regulation by providing more 
context for a comparison of what differential

[[Page 16117]]

performance or enforcement would look like.
    The final rule also revises the provision prohibiting a regulated 
entity from refusing to deal with a covered producer by adding the 
language, ``on terms generally or ordinarily offered to similarly 
situated covered producers'' (paragraph (b)(3)(iv) in the final rule). 
In response to comments, AMS agrees that the rule as proposed provided 
too great a latitude for a regulated entity to engage in retaliation 
because a regulated entity could, for example, satisfy the proposed 
rule by simply offering highly unfavorable terms to the covered 
producer. AMS believes that this revision provides broader coverage 
regarding the most common circumstances that producers may encounter in 
their business dealings in which regulated entities may attempt to 
exact retaliation. It would also cover circumstances where the 
``similarly situated producer'' was the covered producer's own prior 
status quo circumstance with the regulated entity before the covered 
producer engaged in the protected activity. AMS is also aligning 
refusal to deal under paragraph (a)(2)(ii) to address the similar risk 
of evasion.
    Similarly, commenters requested that AMS add a regulation regarding 
contract modification, or contract renewal. AMS has amended proposed 
Sec.  201.304(b)(3) to add a new paragraph (b)(3)(iii) to clarify that 
requiring a contract modification or a renewal on terms less favorable 
than for similarly situated producers is covered.\100\ This provision 
covers any adverse change to the covered producer's contract terms if 
they are done in retaliation to a producer's engaging in protected 
activities. Additionally, in response to comments requesting AMS 
clarify that prohibited adverse actions ``includes but is not limited 
to'' the list in proposed Sec.  201.304(b)(3), AMS has added a new 
paragraph (b)(3)(vi) to prohibit ``any other action that a reasonable 
covered producer would find materially adverse.'' AMS designed this 
rule to protect producers broadly from adverse actions based upon the 
rule's prohibitions. The regulatory text of the proposed rule set forth 
an exemplary list, specifically denoting that ``retaliation includes 
the following actions'' (paragraph (b)(2). Several public commenters 
wanted more producer protections, such as discriminatory conduct 
against producers by regulated entities through means outside of 
contractual devices. AMS agrees that adverse, retaliatory treatment of 
producers by regulated entities can occur through a wide range of 
means, including outside the confines of contractual devices, or 
through contractual means that are not easily delineated in a specific 
list. Such conduct could, for example, include interference by a 
regulated entity into regulatory matters of significant material 
importance to producers. Based on AMS's regulatory experience, 
regulated entities may interfere in covered producers' water rights, 
which are exemplary of harms that would be considered retaliation even 
if they occur outside the confines of contractual relationships. Or, 
conduct could include retaliation during the contracting process for 
protected activities that occurred prior to the covered producer's 
attempt to form a business relationship with the regulated entity. Such 
examples might not be clearly covered under Sec. Sec.  201.304(b)(3)(i) 
through (v) of the proposed rule's protections relating to contracts 
but were covered within the scope of the proposed rule's intent around 
broad-ranging adverse actions that harm producers. AMS also intends the 
list of retaliatory activities to be broad enough to capture the 
fullest range of materially adverse harms encompassed under unjust 
discrimination and undue prejudice--including in comparison to either 
their prior circumstances or to similarly situated producers--and 
threats of such harms that are designed to deter or punish producers 
from participating in the activities protected by this final rule. 
Therefore, Sec.  201.304 (b)(3)(vi) has been added to the final rule to 
cover other types of adverse treatment. This provision provides a broad 
and flexible approach to these prohibitions and allows for ``material'' 
to be determined by the facts and circumstances of each case.
---------------------------------------------------------------------------

    \100\ Proposed paragraphs (b)(3)(iii) and (iv) are accordingly 
renumbered as paragraphs (b)(3)(iv) and (v) in the final rule.
---------------------------------------------------------------------------

    In making these changes, the final rule provides a greater degree 
of specificity regarding the type of conduct the rule prohibits. AMS is 
not, however, providing the degree of specificity requested by 
commenters regarding unfavorable contract terms because it is 
impractical to name every action a malicious actor could use to 
retaliate against a producer, and providing this level of detail is not 
necessary to enforce the rule.

E. Technical Changes

    AMS made editorial changes to the text of several proposed 
regulations to improve clarity and readability. For instance, in the 
definition of livestock producer, AMS revised the proposed definition 
by removing multiple prepositions, so that the definition in the final 
rule reads more simply: from ``Livestock producer means any person 
engaged in the raising and caring for livestock by the producer or 
another person, whether the livestock is owned by the producer or by 
another person, but not an employee of the owner of the livestock'' to 
``Livestock producer means any person, except an employee of the 
livestock owner, engaged in the raising of and caring for livestock.'' 
Additionally, AMS revised the syntax of several proposed regulations. 
For example, in Sec.  201.304(b)(3)(i), which lists prohibited 
retaliatory actions, AMS revised the phrasing of the prohibition from 
``Termination of contracts or non-renewal of contracts'' to 
``Terminating or not renewing a contract'' to place emphasis on the 
action being prohibited rather than the subject of that action.
    AMS also made several non-substantive clarifying changes to the 
wording of prohibited contractual deceptive practices in paragraphs (b) 
and (c) of Sec.  201.306--Deceptive practices. These changes are 
identical under contract formation, performance, and termination and 
include the removal of the phrase ``pretext'' and ``fact'' and the 
inclusion of the term ``information'' in place of ``fact.'' The term 
``pretext'' was removed because it is not needed to accomplish the 
objectives of Sec.  201.306. The conduct this rule aims to prohibit is 
more directly defined through use of the following language: ``false or 
misleading statement or representation, or omission of material 
information.'' By changing the term ``fact'' to ``information'' certain 
conduct that may not be considered or defined as ``factual'' under the 
Act, yet is still deceptive, will be covered.
    Lastly, AMS made a technical change to the table of contents for 
subpart O. To avoid confusion, AMS is including Sec. Sec.  201.303 and 
201.305 in the table of contents as reserved sections to indicate the 
gaps between Sec. Sec.  201.302, 304, and 306 are deliberate and that 
sections have not been inadvertently omitted.

VI. Provisions of the Final Rule

    Under the authority of the Act, this rule adds a new subpart O to 
AMS's regulations in 9 CFR 201, titled ``Competition and Market 
Integrity,'' and consisting of Sec. Sec.  201.300 through 201.390. This 
section summarizes the substantive provisions of the new subpart.

A. Definitions (Sec.  201.302)

    Section 201.302 defines three terms for subpart O: covered 
producer, livestock producer, and regulated entity.

[[Page 16118]]

A covered producer is defined as a livestock producer (as defined in 
Sec.  201.302) or swine production contract grower or poultry grower as 
defined in section 2(a) of the P&S Act (7 U.S.C. 182(8), (14)). Under 
section 2(a) of the Act, swine production contract grower means any 
person engaged in the business of raising and caring for swine in 
accordance with the instructions of another person. A live poultry 
grower is defined under section 2(a) of the Act as any person engaged 
in the business of raising and caring for live poultry for slaughter by 
another, whether the poultry is owned by such person or by another, but 
not an employee of the owner of such poultry. AMS is adopting this 
definition to facilitate a focus in this rule on protecting livestock 
producers (and other parties included in the definition of covered 
producer) because the harms of discrimination, retaliation, and 
deception that are addressed in this rule are directed toward and 
experienced by those persons. Therefore, even though the Act does not 
contain a definition for livestock producers, AMS has included 
livestock producers under the definition of covered producer; and 
provided a definition for the term livestock producer in this section.
    Livestock producer is defined for the purposes of subpart O as 
being any person, except an employee of the livestock owner, engaged in 
the raising of and caring for livestock. AMS aligned its definition of 
the term livestock producer with phrasing used in the Act for the terms 
poultry grower and swine production contract grower. In response to 
comment to the proposed rule, AMS revised its definition by removing 
unnecessary and potentially confusing phrasing. Employees are 
specifically excluded as they typically lack direct financial interest 
in the livestock themselves.
    AMS defines regulated entity as a swine contractor or live poultry 
dealer as defined in section 2(a) of the Act (7 U.S.C. 182(8)) or a 
packer as defined in section 201 of the Act (7 U.S.C. 191). A swine 
contractor is defined in the Act as any person engaged in the business 
of obtaining swine under a swine production contract for the purpose of 
slaughtering the swine or selling the swine for slaughter, if (a) the 
swine is obtained by the person in commerce or (b) the swine (including 
products from the swine) obtained by the person is sold or shipped in 
commerce. Live poultry dealers, the vast majority of whom are organized 
in a vertical structure with common ownership interest in inputs, often 
referred to as poultry integrators, are defined in the Act as any 
person engaged in the business of obtaining live poultry by purchase or 
under a poultry growing arrangement for the purpose of either 
slaughtering it or selling it for slaughter by another, if poultry is 
obtained by such person in commerce, or if poultry obtained by such 
person is sold or shipped in commerce, or if poultry products from 
poultry obtained by such person are sold or shipped in commerce. A 
packer is defined in the Act as any person engaged in the business (a) 
of buying livestock in commerce for purposes of slaughter; or (b) of 
manufacturing or preparing meats or meat food products for sale or 
shipment in commerce; or (c) of marketing meats, meat food products, or 
livestock products in an unmanufactured form acting as a wholesale 
broker, dealer, or distributor in commerce.

B. Undue Prejudice and Unjust Discrimination (Sec.  201.304(a))

    Section 201.304(a) addresses the unique and often difficult to 
prove discriminatory conduct that has long existed in the agricultural 
sector by prohibiting specific bases of prejudicial action. Paragraph 
(a) also lists prohibited actions taken on a prejudicial basis and 
provides clarification on the types of actions that do not constitute 
prohibited action taken on a prejudicial basis. In doing so, AMS is 
clarifying the application of the Act, better empowering producers to 
protect themselves, and encouraging companies to adopt more robust 
compliance practices to snuff out conduct prohibited by the Act in its 
incipiency, before it can distort markets in the aggregate. In 
particular, this rule addresses the longstanding and often difficult to 
counter forms of exclusion that have plagued the agricultural sector 
for decades. AMS intends for this rule to support positive trends 
toward inclusivity in the marketplace. Prejudices and disadvantages 
based upon the producer's protected characteristics or status as a 
producers' cooperative have no place in today's modern agricultural 
markets.
    The Act, through section 202(a) and (b), broadly prohibits certain 
practices or devices, including undue or unreasonable prejudices and 
disadvantages and unjust discrimination. Section 202(a) and (b) of the 
Act identifies several prohibited actions with respect to livestock, 
meats, meat food products, or livestock products in unmanufactured 
form, or for any live poultry dealer with respect to live poultry. In 
this rule, AMS is prohibiting specific undue and unreasonable 
prejudices and disadvantages, and unjust discrimination against any 
covered producer on the basis of certain categories of characteristics 
or attributes broadly and firmly established as unjust in a modern 
economy. This regulatory action implements Congress's intent, expressed 
through the Act, to stop unjust discrimination and undue prejudice by 
packers and live poultry dealers against livestock producers and 
poultry growers.
    In enacting the Act, Congress cast a wide net to capture all acts 
of unjust discrimination and undue or unreasonable prejudice against 
any particular person. There is no indication that Congress intended to 
exempt any discriminatory conduct taken by regulated entities against 
producers covered under the Act.\101\ The Act's prohibition of unjustly 
discriminatory or unreasonably prejudicial actions against a particular 
person was not a new statutory concept, as the Interstate Commerce Act 
of 1887 (or ICA) also banned unreasonable prejudices and unjust 
discriminatory practices well before the enactment of the Act. While 
the ICA does not define the scope of the Act, the comparison is 
nevertheless useful, especially with respect to the structure and 
design of provisions governing undue prejudices. A comparison is 
provided in Table 4 below.
---------------------------------------------------------------------------

    \101\ See 7 U.S.C. 193. C.f. Mitchell v. United States, 313 U.S. 
80, 94 (1941).
---------------------------------------------------------------------------

    In Mitchell v. United States,\102\ the Supreme Court of the United 
States held that the ICA prohibited discrimination based on race; such 
discrimination was ``essentially unjust.'' The Court held that ``it is 
apparent from the legislative history of the ICA that not only was the 
evil of discrimination the principal thing aimed at, but that there is 
no basis for the contention that Congress intended to exempt any 
discriminatory action or practice of interstate carriers affecting 
interstate commerce which it had authority to reach.'' \103\ Further, 
the Court isolated a section of the ICA and noted that, ``Paragraph 1 
of Section 3 of the Act says explicitly that it shall be unlawful for 
any common carrier subject to the Act `to subject any particular person 
to any undue or unreasonable prejudice or disadvantage in any respect 
whatsoever.' '' \104\ The Court found that unreasonable prejudice 
against an individual based on race was a violation and concluded that, 
``the Interstate Commerce Act expressly

[[Page 16119]]

extends its prohibitions to the subjecting of `any particular person' 
to unreasonable discriminations.'' \105\
---------------------------------------------------------------------------

    \102\ 313 U.S. at 94.
    \103\ Id. at 94.
    \104\ Id. at 95 (emphasis added).
    \105\ Id. at 97.
---------------------------------------------------------------------------

    The Act contains similar, but broader, language than sec. 3 of the 
ICA. Section 202 of the Act reads, ``It shall be unlawful for any 
packer or swine contractor with respect to livestock, meats, meat food 
products, or livestock products in unmanufactured form, or for any live 
poultry dealer with respect to live poultry, to: (a) Engage in or use 
any unfair, unjustly discriminatory, or deceptive practice or device; 
or (b) Make or give any undue or unreasonable preference or advantage 
to any particular person or locality in any respect, or subject any 
particular person or locality to any undue or unreasonable prejudice or 
disadvantage in any respect . . .'' [emphasis added]. Table 4 
illustrates where the text between the two acts is similar, and also 
how the Act is broader.\106\
---------------------------------------------------------------------------

    \106\ For more on the relationship between the Interstate 
Commerce Act and the Act in this area, see Michael Kades, 
``Protecting Livestock Producers and Chicken Growers,'' Washington 
Center for Equitable Growth, at 66 (May 2022) discussing Wheeler v. 
Pilgrim's Pride Corp., 591 F.3d 355, 368-369 (5th Cir 2009) (en 
banc) (J. Jones concurring): ``In all the cases discussed by the 
concurrence dealing with both terms [under the ICA], the defendant 
faced charges that it treated customers differently. According to 
the court, `railway companies are only bound to give the same terms 
to all persons alike under the same conditions.' If the conditions 
are different, then different treatment is merited. Further, 
`competition between rival routes is one of the matters which may 
lawfully be considered in making rates.' Differential treatment 
driven by competitive forces is not a violation. Acknowledging that 
competition can justify differential treatment of customers is 
different than requiring the plaintiff to prove anticompetitive harm 
to establish a violation.''
    \107\ Bolded text highlights where the ICC and Act use similar 
language. Italicized text identifies areas where the language of 
both statutes is the same.
[GRAPHIC] [TIFF OMITTED] TR06MR24.011

    As shown in Table 4, unlike the ICA, the Act in secs. 202(a) and 
(b) prohibits undue or unreasonable prejudices or disadvantages as well 
as deception or unjust discrimination (without limitation to 
discrimination in rates and charges in particular). In this rulemaking, 
AMS applies the language from sec. 202 to prohibit acts of unreasonable 
prejudice and to prevent unjust discrimination including, but not 
limited to, the race discrimination that the Court found to be 
violative of the ICA in Mitchell.
    This rule sets forth specific prohibitions on prejudicial or 
discriminatory acts or practices against individuals that are 
sufficient to demonstrate violation of the Act without the need to 
further establish broad-based, market-wide prejudicial or 
discriminatory outcomes or harms. The prohibitions in this rule on 
regulated entities adversely treating individual producers address the 
types of harms the Act is intended to prevent. AMS finds that adverse 
acts on these bases are essentially unjust and unduly prejudicial, and 
actionable at the individual level. Moreover, AMS

[[Page 16120]]

believes that preventing broad-based exclusion, and therefore promoting 
competitive markets, is most effectively enforced at the individual 
producer level when the conduct is in its incipiency.\108\ To further 
allow for effective enforcement of the statute, AMS is also including a 
recordkeeping requirement to support evaluation of regulated entity 
compliance.
---------------------------------------------------------------------------

    \108\ ``[T]he purpose of the Act is to halt unfair trade 
practices in their incipiency, before harm has been suffered.'' See 
Farrow v. U.S. Dep't of Agr., 760 F.2d 211, 215 (8th Cir. 1985) 
(citing De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329, 
1336-37 (9th Cir. 1980); Swift & Co. v. United States, 393 F.2d 247, 
252 (7th Cir. 1968); Armour and Company v. United States, 402 F.2d 
712, 723 n. 12 (7th Cir.1968).
---------------------------------------------------------------------------

    In determining the bases for protection against discrimination 
under the Act, AMS drew insight initially from the Statement of General 
Policy Under the Packers and Stockyards Act published by the Secretary 
in 1968 (Statement of General Policy) (9 CFR 203.12(a)), which states 
that the Act provides that all stockyard services furnished at a 
stockyard ``shall be reasonable and nondiscriminatory and stockyard 
services which are furnished shall not be refused on any basis that is 
unreasonable or unjustly discriminatory.'' \109\ Additionally, AMS 
interprets the Act consistently with the regulations governing USDA-
conducted programs; ECOA, which is enforced in part by AMS under the 
Act; a series of statutes identifying producers that Congress has 
determined face special disadvantages, are underserved, or are 
otherwise more vulnerable to prejudices; and the Agricultural Fair 
Practices Act (AFPA) of 1967.
---------------------------------------------------------------------------

    \109\ Statement of General Policy Under the Packers and 
Stockyards Act. U.S. Department of Agriculture: Washington, DC, 
1968.
---------------------------------------------------------------------------

    The Statement of General Policy reflects the current USDA policy on 
the enforcement of the Act. The Statement of General Policy provides in 
part that it is a violation of secs. 304, 307, and 312(a) of the Act 
for a stockyard owner or market agency to discriminate, in the 
furnishing of stockyard services or facilities or in establishing rules 
or regulations at the stockyard, because of race, religion, color, or 
national origin of those persons using the stockyard services or 
facilities. Such services and facilities include, but are not limited 
to, the restaurant, restrooms, drinking fountains, lounge 
accommodations, those furnished for the selling, weighing, or other 
handling of the livestock, and facilities for observing such services.
    While this part of the Statement of General Policy applies to 
violations of secs. 304, 307, and 312(a) of the Act (related to the 
provision of services and facilities at stockyards on an unreasonable 
and discriminatory basis), almost identical prohibitive language is 
used in sec. 202 of the Act. Section 202 pertains to packers, swine 
contractors, and live poultry dealers. Section 202(a) of the Act 
prohibits any unjustly discriminatory practice or device with respect 
to livestock, meats, meat food products or livestock products in 
manufactured form, or live poultry.
    AMS also considered USDA's general regulatory prohibition against 
discrimination in USDA programs, which governs how USDA provides 
services to producers. In 1964, USDA prohibited discrimination on the 
basis of race, color, and national origin in its Federally conducted 
activities by adopting Title VI principles.\110\ USDA then expanded the 
protected bases for its conducted programs to include religion, sex, 
age, marital status, familial status, sexual orientation, disability, 
and whether any portion of a person's income is derived from public 
assistance programs.\111\ Most recently updated in 2014, the general 
regulatory prohibition offers a more current interpretation of 
antidiscrimination standards.\112\ The 2014 rule aimed to ``strengthen 
USDA's ability to ensure that all USDA customers receive fair and 
consistent treatment, and align the regulations with USDA's civil 
rights goals.'' \113\ The relevant provision provides that no agency, 
officer, or employee of the USDA shall, on the grounds of race, color, 
national origin, religion, sex, sexual orientation, disability, age, 
marital status, family/parental status, income derived from a public 
assistance program, political beliefs, or gender identity, exclude from 
participation in, deny the benefits of, or subject to discrimination 
any person in the United States under any program or activity conducted 
by the USDA. In that rulemaking, USDA identified areas where 
discrimination against a producer is an unacceptable denial of access 
to USDA's services. This prior rulemaking provides a helpful reference 
to what constitutes unjust discrimination under the Packers and 
Stockyards Act.
---------------------------------------------------------------------------

    \110\ https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture (See 29 FR 16966, creating 7 
CFR part 15, subpart b, referring to nondiscrimination in direct 
USDA programs and activities, now found at 7 CFR part 15d). 
(assessed 01-30-2024)
    \111\ https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture (assessed 01/30/2024)
    \112\ 7 CFR 15d.3; U.S. Department of Agriculture, 
``Nondiscrimination in Programs or Activities Conducted by the 
United States Department of Agriculture,'' 79 FR 41406, July 16, 
2014, available at https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture (last 
accessed 8/9/2022).
    \113\ USDA. 2014. 7 CFR part 15d RIN 0503-AA52 Nondiscrimination 
in Programs or Activities Conducted by the United States Department 
of Agriculture, p. 41407. 2014-16325.pdf (govinfo.gov) (assessed 02/
01/2024).
---------------------------------------------------------------------------

    AMS interprets the Act in light of legislative mandates that 
emerged over the last 30 years directing USDA to make extra efforts to 
ensure that members of the aforementioned groups have equal access to 
USDA's services and agricultural markets generally.\114\ Congress 
adopted numerous statutes seeking to remedy market exclusion on the 
basis of prejudices across a wide range of areas, including: 7 U.S.C. 
8711 (base acres); 7 U.S.C. 2003 (target participation rates); 7 U.S.C. 
7333 (Administration and operation of noninsured crop assistance 
program); 7 U.S.C. 1932 (Assistance for rural entities); 16 U.S.C. 
2202a, 3801, 3835, 3839aa-2, 3841, and 3844 (conservation); 7 U.S.C. 
8111 (Biomass Crop Assistance Program); 7 U.S.C. 1508 (Federal crop 
insurance, covering underserved producers defined as new, beginning, 
and socially disadvantaged farmers or ranchers and including members of 
an Indian Tribe); and 16 U.S.C. 3871e(d) (conservation, covering 
historically underserved producers defined as being veteran, socially 
disadvantaged, and limited-resource farmers and ranchers). In 25 U.S.C. 
4301(a) and elsewhere, Congress has clearly expressed its intent for 
the United States Government to encourage and foster Tribal commerce 
and economic development.\115\
---------------------------------------------------------------------------

    \114\ For background, see Congressional Research Service, 
Defining a Socially Disadvantaged Farmer or Rancher (SDFR): In Brief 
(March 19, 2021), available at https://crsreports.congress.gov/product/pdf/R/R46727/6.
    \115\ See, e.g., Native American Business Development Act, 25 
U.S.C. 4301(a).
---------------------------------------------------------------------------

    The definitions and coverage in these statutes vary to some extent. 
Some focus principally on members of groups that have experienced 
racial or ethnic prejudices, while others address gender prejudices. 
Overall, these statutes and Congressional deliberations provide useful 
reference for USDA to most effectively carry out the Act, which outlaws 
undue prejudice against any person in any respect. For example, in the 
congressional hearings preceding the Act's passage, opposing members 
argued against the Act because producers were already protected by the 
ICA, which guaranteed ``equal rights on the railroads to every man, 
woman and

[[Page 16121]]

child,'' and the ``enforcement of the antitrust act . . . give[s] every 
man a fair show.'' \116\ Most recently, Congress provided partial 
compensation for producers who suffered discrimination in USDA's 
programs, which USDA implemented on a set of protected bases similar to 
that in this final regulation.\117\
---------------------------------------------------------------------------

    \116\ See e.g., 61 Cong. Rec. H1872 (1921).
    \117\ Section 22007 of the Inflation Reduction Act (Pub. L. 117-
169). USDA implementation available at https://22007apply.gov/. This 
program covers discrimination based on different treatment an 
individual experienced because of race, color, or national origin/
ethnicity (including status as a member of an Indian Tribe); sex, 
sexual orientation, or gender identity; religion; age; marital 
status; disability; reprisal/retaliation for prior civil rights 
activity.
---------------------------------------------------------------------------

    Additionally, in crafting the final rule, AMS was informed by the 
provisions of two additional laws that fall under the enforcement of 
USDA with respect to livestock and poultry. The first is ECOA. ECOA 
prohibits a creditor from discriminating in the provision of credit on 
the basis of race, color, religion, national origin, sex (which 
includes sexual orientation and gender identity), marital status, or 
age, because the applicant's income derives all or in part from a 
public assistance program, or because the applicant has in good faith 
exercised any right under ECOA.\118\ The Secretary enforces ECOA under 
the Act, with respect to activities under the jurisdiction of the 
Act.\119\
---------------------------------------------------------------------------

    \118\ 15 U.S.C. 1691(a).
    \119\ 15 U.S.C. 1691c.
---------------------------------------------------------------------------

    Secondly, AFPA protects producers from retaliation by certain 
market intermediaries, defined as handlers, for being members of a 
cooperative or seeking to form a cooperative.\120\ The Secretary has 
delegated enforcement of the AFPA to AMS, which implements the law 
through the Packers and Stockyards Division. Congress has long 
protected the rights of agricultural cooperatives, acknowledging their 
important role in helping farmers meet the economic demands of the 
market. One year after the passage of the Act, Congress passed the 
Capper-Volstead Act (Pub. L. 67-146), which permits producer 
cooperatives to collectively process, prepare for market, handle, and 
market their products. In a decision related to an antitrust action 
against a nonprofit cooperative association whose members were involved 
in production and marketing of broiler chickens, the Supreme Court 
noted that farmers faced special challenges in the agricultural market 
and, therefore, cooperatives are afforded legal protections in helping 
them address those challenges.\121\
---------------------------------------------------------------------------

    \120\ 7 U.S.C. 2301 et seq.
    \121\ Nat'l Broiler Mktg. Ass'n v. United States, 436 U.S. 816, 
825-26 (1978) (``Farmers were perceived to be in a particularly 
harsh economic position. They were subject to the vagaries of market 
conditions that plague agriculture generally, and they had no means 
individually of responding to those conditions. Often the farmer had 
little choice about who his buyer would be and when he would sell. A 
large portion of an entire year's labor devoted to the production of 
a crop could be lost if the farmer were forced to bring his harvest 
to market at an unfavorable time. Few farmers, however, so long as 
they could act only individually, had sufficient economic power to 
wait out an unfavorable situation. Farmers were seen as being caught 
in the hands of processors and distributors who, because of their 
position in the market and their relative economic strength, were 
able to take from the farmer a good share of whatever profits might 
be available from agricultural production. By allowing farmers to 
join together in cooperatives, Congress hoped to bolster their 
market strength and to improve their ability to weather adverse 
economic periods and to deal with processors and distributors.'').
---------------------------------------------------------------------------

    AFPA provides enhanced protections to those seeking to form a 
cooperative. In particular, that statute prevents handlers from 
performing certain types of pricing and contract discrimination, 
coercion, and other practices that undermine cooperatives. As noted 
previously, the Act intended to improve the agricultural market and 
includes associations in the definition of ``person'' when referred to 
in the Act. The Act affords cooperative associations the same 
protections against discrimination as are afforded to all other covered 
producers.\122\ Thus, protections for cooperatives against 
discrimination were contemplated at the time of the Act's passage.\123\
---------------------------------------------------------------------------

    \122\ 7 U.S.C. 182(1).
    \123\ H.Rep. No. 85-1048, 1957.
---------------------------------------------------------------------------

    In interpreting the Act in light of the aforementioned policy 
direction, AMS has sought to stamp out market exclusion on prohibited 
bases. This final rule establishes a prohibition of undue prejudice or 
unjust discrimination against covered producers on the bases of race, 
color, religion, national origin, sex (including sexual orientation and 
gender identity), disability, marital status, or age; or because of the 
covered producer's status as a cooperative. Transitioning from the 
proposed rule's use of the more flexible ``market vulnerable 
individual'' to the more specific list of delineated terms, the final 
rule interprets the Act consistent with the antidiscrimination mandates 
in other related statutes, including the ECOA, which is already 
enforced by AMS for markets subject to the Act,\124\ and the AFPA. AMS 
also references the Equal Employment Opportunity Commission (EEOC) 
definitions (described below) for clarification regarding which 
characteristics a producer must possess to be considered a member of 
one or more protected classes. It is appropriate for the Secretary to 
consider these other authorities in effectuating the purposes of the 
Act as they effect a similar purpose to this final rule.\125\
---------------------------------------------------------------------------

    \124\ 15 U.S.C. 1691c(a)(5) (``(a) Enforcing Agencies. Subject 
to subtitle B of the Consumer Protection Financial Protection Act of 
2010withthe requirements imposed under this subchapter shall be 
enforced under:. . . (5) The Packers and Stockyards Act, 1921 [7 
U.S.C. 181 et seq.] (except as provided in section 406 of that Act 
[7 U.S.C. 226, 227]), by the Secretary of Agriculture with respect 
to any activities subject to that Act.'')
    \125\ Michael Kades, ``Protecting Livestock Producers and 
Chicken Growers,'' Washington Center for Equitable Growth (May 5, 
2022), available at https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
---------------------------------------------------------------------------

    The EEOC has described racial discrimination as discrimination 
based on an ``immutable characteristic associated with race, such as 
skin color, hair texture, or certain facial features.'' Although race 
and color may appear indistinguishable, they are not. According to the 
EEOC, ``color discrimination occurs when a person is discriminated 
against based on the lightness, darkness, or other color characteristic 
of the person.'' \126\ Race discrimination involves treating an 
individual differently because of his or her race. National origin as a 
protected class is defined as disparate treatment because an individual 
is ``from a particular country or part of the world, because of 
ethnicity or accent, or because they appear to be of a certain ethnic 
background (even if they are not).'' \127\ Ethnicity is covered under 
national origin.\128\ Religion as a protected basis is defined as 
discrimination based upon a person's religious beliefs. EEOC reports 
that the law protects people in recognized ``organized religions,'' but 
also those ``who have sincerely held religious, ethical or moral 
beliefs.'' \129\ Sex as a protected basis includes discrimination based 
upon a person's status as pregnant, one's sexual orientation, and one's 
gender identity.\130\ The EEOC

[[Page 16122]]

defines disability as follows: ``Has a physical or mental condition 
that substantially limits a major life activity;'' a ``history of 
disability,'' and ``is subject to an adverse employment action because 
of a physical or mental impairment the individual actually has or is 
perceived to have, except if it is transitory (lasting or expected to 
last six months or less) and minor.'' \131\
---------------------------------------------------------------------------

    \126\ U.S. Equal Employment Opportunity Commission (EEOC), No 
date, Facts about Race/Color Discrimination, available at https://www.eeoc.gov/fact-sheet/facts-about-racecolor-discrimination.
    \127\ U.S. Equal Employment Opportunity Commission (EEOC), 
National Origin Discrimination, available at https://www.eeoc.gov/national-origin-discrimination.
    \128\ Ibid.
    \129\ U.S, Equal Employment Opportunity Commission (EEOC), 
Religious Discrimination, available at https://www.eeoc.gov/religious-discrimination.
    \130\ U.S, Equal Employment Opportunity Commission (EEOC), Sex, 
available at https://www.eeoc.gov/youth/sex-
discrimination#:~:text=EEOC%20enforces%20two%20laws%20that,sexual%20o
rientation%2C%20and%20gender%20identity.
    \131\ U.S. Equal Employment Opportunity Commission (EEOC). No 
date. Disability Discrimination and Employment Decisions. Accessed 
at https://www.eeoc.gov/disability-discrimination-and-employment-decisions on November 15, 2023.
---------------------------------------------------------------------------

    ECOA defines marital status as the ``existence, absence, or 
likelihood of a marital relationship between the parties,'' and so 
marital discrimination would be upon those bases.\132\ Age 
discrimination is defined as discrimination against those individuals 
40 and older on the basis of their age.\133\ Cooperatives are described 
as ``producer and user-owned businesses that are controlled by, and 
operate for the benefit of, their members, rather than outside 
investors.'' \134\ As explained above, in formulating this rule, AMS 
principally drew on its expertise and comments gathered from market 
participants about how undue discrimination manifests in markets, and 
considered the relevant references that concern this type of 
discrimination. These include the above referenced EEOC, ECOA, and 
AFPA-related approaches because these approaches: first, align with the 
intent of the Act to prohibit all instances of unjust discrimination 
and undue prejudice; second, effectuate the purposes of the final rule 
to clearly prohibit that discrimination; and third, promote more 
inclusive competition by protecting the individuals who participate in 
the market.
---------------------------------------------------------------------------

    \132\ Equal Credit Opportunity Act (ECOA). No date. Access at 
https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/5/v-7-1.pdf.
    \133\ U.S. Equal Employment Opportunity Commission (EEOC). No 
date. Age Discrimination. Accessed at https://www.eeoc.gov/age-discrimination on 10-04-2023.
    \134\ Co-ops: A Key Part of Rural America, Co-ops: A Key Part of 
Rural America, USDA, available at https://www.usda.gov/topics/rural/co-ops-key-part-fabric-rural-america. See also AFPA Sec.  2301. 
Congressional findings and declaration of policy.
---------------------------------------------------------------------------

    Because of the Act's broad applicability (as discussed in section 
III--``Authority''); the similar language used in secs. 202, 304, 305, 
and 312 of the Act; and the series of statutes outlining a range of 
prejudices identified as being deserving of public policy efforts to 
ensure full market access; AMS concludes that producers who have been 
subjected to discrimination, prejudice, disadvantage, or exclusion on 
the specific bases set forth in this final rule should be covered by 
the prohibitions against undue prejudice or disadvantage and unjust 
discrimination as enumerated by sec. 202 of the Act.
    To stamp out unjustly discriminatory and unduly prejudicial conduct 
and support a more inclusive marketplace, AMS, in Sec.  201.304, lays 
out the protected bases against which undue prejudices or disadvantages 
and unjust discrimination are prohibited, and then describes the 
specific conduct that, when initiated against a producer belonging to 
one of the protected bases, is prohibited. Paragraph (a)(1) prohibits a 
regulated entity from prejudicing, disadvantaging, inhibiting market 
access, or otherwise taking an adverse action against a covered 
producer on the basis of the covered producer's (i) race, color, 
religion, national origin, sex (including sexual orientation and gender 
identity), disability, marital status, or age; or (ii) the covered 
producer's status as a cooperative. The sources of these bases are 
discussed above. Paragraph (a)(1)'s prohibition as ``based upon'' is 
intended to be broader than ``but for'' causation and so capture when 
the protected characteristics or status are a material, or non-trivial, 
element of the decision to take an adverse action against a covered 
producer. AMS expects that fact-finding tribunals will establish the 
necessary processes for proving these elements, with an eye toward the 
protections for covered producers and for open, inclusive markets that 
this rule is designed to provide.
    Though this regulation prohibits prejudice or disadvantage against 
a covered producer on the basis of the specified statuses, AMS notes 
that regulated entities may decline to do business with covered 
producers for justified economic reasons. For example, a regulated 
entity may refuse to contract with a cooperative of covered producers 
when the contract would not be cost-effective for the entity, 
regardless of the cooperative status of the producers. In this 
hypothetical example, the regulated entity would not be unduly 
prejudicing cooperatives of covered producers based on their status as 
a cooperative. Instead, the regulated entity would have a 
nonprejudicial basis for its business decision.
    Section 201.304(a)(2) describes the actions that prejudice, 
disadvantage, inhibit market access, or are otherwise adverse under 
paragraph (a)(1). These actions were chosen because they relate to 
fairness in contracting, which is a consistent concern among producers; 
and are actions that PSD has determined are a recurring problem in the 
industry, directly impacting producers' financial well-being. In 
response to the proposed rule, many commenters noted the financial 
repercussions of lack of fairness in contracting.\135\ Under Sec.  
201.304(a)(2), regulated entities may not prejudice or disadvantage 
covered producers on the basis of a protected status by: (i) offering 
contract terms that are less favorable than those generally or 
ordinarily offered to similarly situated covered producers; (ii) 
refusing to deal with a covered producer on terms generally or 
ordinarily offered to similarly situated covered producers; (iii) 
performing under or enforcing a contract differently than with 
similarly situated covered producers; (iv) requiring a contract 
modification or renewal on terms less favorable than similarly situated 
covered producers; (v) terminating or not renewing a contract with a 
covered producer; and (vi) any other action that a reasonable producer 
would find materially adverse.
---------------------------------------------------------------------------

    \135\ See e.g., ``Discrimination and retaliation mean big 
profits for companies at the farmer's expense. While meatpackers 
rake in record profits during the pandemic, farmers make less, and 
eaters are left paying more at the grocery store. Farmers who 
complain about their pay or the fairness of their contracts run the 
risk of losing their contracts, putting their homes and livelihoods 
at risk.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0051; see also, ``This rule is much needed so farmers 
can tell the truth about their contracts and so consumers can know 
what producers are actually doing to the earth, the animals, and the 
farmers.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0298.
---------------------------------------------------------------------------

    Paragraph (a)(2)(i) prohibits the offering of less favorable 
contract terms to covered producers on the basis of their status as 
members of a protected class. In the Agency's experience, offering less 
favorable contract terms than those generally or ordinarily offered to 
similarly situated covered producers is a means through which regulated 
entities can prejudice or disadvantage producers. For example, the 
Agency has received complaints that the bidding on livestock by 
regulated entities occurs at a less advantageous time for certain 
producers on the basis of the classes protected under this rule 
resulting in lower prices or less favorable delivery terms. Similarly, 
in the Agency's experience, poultry growers have complained about being 
offered less favorable growing terms on the basis of the classes 
protected under this rule. This rule does not prohibit ordinary 
contracting for different prices on the basis of differences in product

[[Page 16123]]

quality, service, transportation cost, or delivery terms.
    Paragraph (a)(2)(ii) prohibits regulated entities from refusing to 
deal with a covered producer on terms generally or ordinarily offered 
to similarly situated covered producers. This refers to situations in 
which a regulated entity makes no reasonable effort to deal, bid, or 
negotiate with a covered producer on the basis of the covered 
producer's status as a member of a protected class. Such refusal to 
deal has no connection with the service or quality of product offered, 
but rather is due, in material part, to the personal characteristics or 
status of the producer and restricts the producers' ability to obtain 
the fair market value of their products and services. In today's highly 
vertically integrated and concentrated markets, refusal to deal by one 
regulated entity will often leave a producer with very few, if any, 
parties to contract with, unduly inhibiting the competitive marketplace 
when performed on the bases prohibited by this final rule.
    Paragraph (a)(2)(iii) prohibits regulated entities from performing 
under or enforcing a contract differently than with similarly situated 
producers. A violation of this regulation would occur when a regulated 
entity--based upon the covered producer's protected characteristics--
inconsistently enforces its contracts as it would with similarly 
situated producers. For instance, a selective information disclosure 
would represent a selective performance of contract when a regulated 
entity withholds materially relevant information from one covered 
producer that the regulated entity generally or ordinarily provides to 
other covered producers. In these instances, information-deprived 
producers will have an incomplete picture of their business 
relationships with regulated entities, and therefore will operate at an 
unreasonable disadvantage relative to producers who receive the 
pertinent information. Similarly, the Agency has received complaints 
over the years with respect to differential performance under poultry 
growing arrangements, such as the delivery to affected growers of 
flocks that are sick or otherwise known to be likely to perform poorly 
owing to the age of the hens. Those sick or poor performing chicks are 
likely to result in lower performance for the grower in a poultry 
grower ranking system, which results in lower pay for the grower. While 
that may occur from time to time per natural cycles, a repeated or 
intentional delivery of underperforming flocks has been commonly 
reported by producers as a principal means of adversely affecting 
grower earnings. Similarly, a regulated entity withholding or delaying 
delivery of feed would result in lower performance and profit for a 
producer. Accordingly, AMS has incorporated differential contract 
performance to capture those contractual performance-based means to 
prejudice or disadvantage producers. By clarifying in its final rule 
that the Act prohibits such conduct, AMS seeks to better protect 
producers who suffer, or are at risk of suffering, this type of harm.
    Paragraph(a)(2)(iv) prohibits a regulated entity from, on the basis 
of a covered producer's protected status, requiring a contract 
modification or renewal on terms less favorable than those for 
similarly situated covered producers. The Agency has determined, based 
on producer complaints, that regulated entities sometimes prejudice or 
disadvantage growers by reducing numbers of flocks delivered, changing 
types of birds raised, or otherwise changing contract terms that result 
in lower incomes for growers. Poultry producers commonly experience 
these types of contract modifications. Livestock producers also 
experience modifications, such as a change from a cash negotiated 
contract to a negotiated grid contract or other purchase type that may 
be adverse from the perspective of the producer depending on the facts 
and circumstances. Therefore, in the final rule, AMS seeks to clarify 
that unfavorable contract modification or renewal by a regulated 
entity, on the basis of a protected class, amounts to a violation under 
the Act. This rule, by itself does not prohibit renegotiations or 
failure to renew a contract on the basis of changes in the market. 
However, while this rule does not distinguish modification for other 
reasons, many contract terms under the Act are not subject to 
modification during performance of the contract at all because any 
contract modification that serves to delay or reduce full payment is an 
unfair practice under sec. 202(a) of the Act.
    Paragraph (a)(2)(v) prohibits regulated entities from terminating 
or not renewing a contract with a covered producer on the basis of a 
covered producer's status as a protected class. Contract termination 
can have devastating consequences for producers that have invested 
substantial sums in infrastructure that only meets the requirements of 
a particular integrator.
    Paragraph (a)(2)(vi) prohibits regulated entities from any other 
action that a reasonable covered producer would find materially 
adverse. This provision provides a broad and flexible approach to these 
prohibitions and allows for ``material'' to be determined by the facts 
and circumstances of each case where producers were harmed.
    Finally, Sec.  201.304(a)(3) delineates two exceptions to the 
prohibition on prejudicial or discriminatory conduct against covered 
producers on a protected basis. In one, the regulated entity is 
fulfilling a religious commitment relating to livestock, meats, meat 
food products, livestock products in unmanufactured form, or live 
poultry; in the other, a Federally recognized Tribe, including its 
wholly or majority-owned entities, corporations, or Tribal 
organizations, is performing Tribal governmental functions. As 
discussed in Section V--Changes from the Proposed Rule, these 
exceptions were added in response to commenters' request that some 
exceptions be provided to the prohibition on undue prejudice and unjust 
discrimination. To safeguard the free exercise of religion, AMS has 
provided an exception to allow discriminatory conduct necessary to 
fulfill religious commitments surrounding livestock care and meat 
production. To conform with longstanding jurisprudence surrounding 
Tribal sovereignty, AMS has provided an exception to allow Tribal 
entities to preference their own Tribal members in the purchase and 
sale of livestock.

C. Retaliation (Sec.  201.304(b))

    Section 201.304(b) establishes protected activities for covered 
producers and prohibits regulated entities from engaging in retaliatory 
conduct based on those activities. As noted previously, sec. 202(a) of 
the Act prohibits unjust discrimination. This regulation is designed to 
protect the essential activities producers must engage in to bargain 
effectively and exercise their economic rights, and in doing so obtain 
the full value of their livestock or poultry products or services. As a 
result, retaliation against producers because they have engaged in 
protected activities is disparate treatment that the Act intended to 
prohibit.\136\ Retaliatory conduct is a way for regulated entities to 
exploit their market power. Increased concentration has facilitated the 
exercise of market power through various contracting practices. 
Moreover, because producers

[[Page 16124]]

have few processor choices in these markets, threats of retaliation and 
market exclusion take on heightened credibility.
---------------------------------------------------------------------------

    \136\ See e.g., 61 Cong. Rec. H1860 (1921): ``However, their 
[packers] very organization has given them a power for evil as well 
as good, and evil practices should always be condemned.'' and ``. . 
. the right thing to do is to devise a law which, while maintaining 
and getting the advantage for the people of all of the fine workings 
of these great organizations, at the same time control them in such 
a way as to destroy the abuses that are connected with their 
operation.''
---------------------------------------------------------------------------

    AMS determined the protected activities to include in Sec.  
201.304(b)(2) based on commonly recorded complaints from the industry, 
case law, USDA/DOJ workshops, conversations with AMS personnel, and a 
recently voiced concern from Congress. AMS also identified these types 
of activities because of their potential to mitigate certain ways that 
market power is exercised. The retaliatory conduct prohibited by this 
regulation covers a broad range of circumstances that AMS has 
determined occur commonly in connection with livestock, meats, meat 
food products, livestock products in unmanufactured form, or live 
poultry. Free exercise of the protected activities facilitates a 
competitive and transparent market, ensuring producers can capture the 
full value of their livestock or growing services.
    Section 201.304(b)(1) establishes that a regulated entity may not 
retaliate or otherwise take an adverse action against a covered 
producer based upon the covered producer's participation in protected 
activities. As described in Section V--Changes from the Proposed 
Rule,'' paragraph (b)(1)'s prohibition as ``based upon'' is intended to 
be broader than ``but for'' causation and so capture when the protected 
characteristics or status are a material, or non-trivial, element of 
the decision to take an adverse action against a covered producer. AMS 
expects that fact-finding tribunals will establish the necessary 
processes for proving these elements, with an eye toward the 
protections for covered producers and for open, inclusive markets that 
this rule is designed to provide.
    Section 201.304(b)(2) lists the activities that are protected. 
Paragraph (b)(2) also provides a caveat that the protected activities 
must not otherwise be prohibited by Federal, Tribal, or State law, 
including antitrust laws. As outlined in the following paragraphs, 
these activities form an essential foundation for producers to receive 
the benefit of their bargained for exchange and the protections 
afforded under the Act itself. Acts of retaliation to chill or curtail 
these protected activities offer no competitive benefits to the market. 
Commenters to the proposed rule echoed these concerns.\137\ The Act was 
designed to address market abuses and business practices that inhibit 
producers' ability to obtain the full value of their products and 
services.\138\ Covered producers have complained to AMS over the years 
of having suffered retaliation or fearing retaliation for engaging in 
the conduct identified in this paragraph.
---------------------------------------------------------------------------

    \137\ See e.g., ``Farmers should be able to participate in 
producer organizations and associations. Farmers have expressed 
concern that associations, organizations and the farmers who join 
them have repeatedly been targets of retaliatory behavior by meat 
companies. When farmers participate in these organizations it helps 
fill in the information gap for their business and keeps our 
economic markets competitive.
    Farmers and Ranchers should be able safely participate as 
witnesses in any proceeding relating to violations of the Packers 
and Stockyards Act. Unfortunately, there are recent examples of 
cattle rancher witnesses who were threatened and intimidated so much 
that they decided not to testify before Congress at a hearing about 
cattle markets. The ability to testify without fear of retaliation 
is essential to promoting fair and competitive markets in the 
livestock and poultry industries.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0299; see also, ``The 
ability to express an opinion and testify without fear of 
retaliation is essential to promoting healthy, fair and competitive 
markets in the livestock and poultry industries, as it is in all 
aspects of a free and fair democracy.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0297.
    \138\ See e.g., 61 Cong. Rec. H1860 (1921).
---------------------------------------------------------------------------

    Specifically, paragraph (b)(2)(i) protects a covered producer's 
ability to communicate with a government entity or official or to 
petition a government entity or official for redress of grievances with 
respect to livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry. A covered producer must be able 
to freely seek redress of grievances to ensure the protections afforded 
by the Act and its regulations have their intended effect. Government 
regulators must also have the ability to fully appreciate the views of 
market participants to ensure that the rules and regulations--and 
enforcement of those laws and regulations--are sufficiently responsive 
to market realities and divergent interests and business practices in 
the marketplace. Hindering the free flow of market information creates 
risks of market distortions and will impair the ability for those with 
less economic power to operate in the marketplace.
    In paragraph (b)(2)(ii), AMS adds a new protection for a covered 
producer to refuse a regulated entity's request that the producer 
communicate with a government entity or official when that 
communication is not required by law. Just as covered producers have 
the right to communicate with government entities or officials to 
ensure their rights are protected, so too do they have the right to 
decide when and under what circumstances they engage in such 
communication. Based on its experience regulating the livestock sector, 
AMS is aware that regulated entities may coerce covered producers to 
contact the government on regulatory and policy matters and to espouse 
positions that the covered producers disagree with. AMS has received 
reports frequently in the past, and including within the last two 
years, of regulated entities pressuring producers to oppose regulations 
that the producers support, and covered producers reported similar 
concerns to AMS during earlier rulemaking initiatives as well. Indeed, 
regulated entities should not punish a covered producer for the 
producer's decision to talk to government agencies or not, regardless 
of the producer's reasons.
    The lack of clarity around prohibitions on retaliation in 
agricultural markets--clarity which this rule aims to provide--impairs 
AMS's ability to investigate potential violations and effectively 
enforce the Act. Accordingly, AMS has added Sec.  201.304(b)(2)(ii) to 
clarify that the rule protects a covered producer from retaliation if 
the covered producer decides not to engage in a communication with a 
government entity or official that is not required by law.
    Paragraph (b)(2)(iii) protects a covered producer asserting the 
right to formor join--or to refuse to form or join--aproducer or grower 
association or organization, or cooperative, or the right to 
collectively process, prepare for market, handle, or market livestock 
or poultry. ``Asserting the right'' includes the preparatory steps 
necessary to form or join an association or cooperative. This provision 
protects two forms of producer interactions: cooperative and non-
cooperative associations. The formulation ``to collectively process, 
prepare for market, handle, or market livestock or poultry'' refers to 
forming or joining a cooperative, tracking the language of the Capper 
Volstead Act.\139\ Impeding the formation of cooperatives through 
retaliation harms competition as individual producers are deprived of 
the chance to mitigate market power abuse by bargaining collectively. 
The Agricultural Fair Practices Act explicitly protects the right of 
individual farmers to join cooperative organizations to preserve their 
marketing and bargaining position, stating that ``[i]nterference with 
this right is contrary to the public interest and adversely affects the 
free and orderly flow of goods'' (7 U.S.C. 2301).
---------------------------------------------------------------------------

    \139\ 7 U.S.C. 291.
---------------------------------------------------------------------------

    Non-cooperative associations and organizations are also core 
activities under the Act deserving of protection

[[Page 16125]]

against regulated entity coercion because they afford covered producers 
the opportunity to combine their resources to potentially counteract 
market imbalances and capture opportunities at scale. For example, they 
provide a means for covered producers to share information regarding 
the production of poultry and livestock (within permissible scope of 
the Federal antitrust laws) even when a cooperative is not feasible. 
They also enable producers to potentially uncover and address 
problematic practices in the industry, including through working 
together to reduce the risk of seeking redress of grievances, among 
other benefits. Some producer associations also provide means for 
producers to obtain lower cost inputs, such as gasoline. AMS believes 
that retaliating against producers for engaging in these activities 
hinders the free flow of information and hampers producers' ability to 
fairly compete in the market and realize full value of their livestock 
and poultry. An assertion of rights in both these contexts may involve 
expressing interest or intent to engage in these activities or engaging 
in these activities.
    Paragraph (b)(2)(iii) also protects a covered producer's right to 
refuse to join a producer or grower association or organization. AMS 
added protection for refusing to form or join a producer or grower 
association or organization in response to public comment on the 
proposed rule, as commenters noted that producers have experienced 
pressures from regulated entities to join certain organizations that 
may express views or interests in the livestock or poultry industry 
that are contrary or not fully reflective of the producer's views 
regarding their own interests.
    Paragraph (b)(2)(iv) protects a covered producer's ability to 
communicate or cooperate with a person for the purposes of improving 
production or marketing of livestock or poultry. ``A person'' is 
intended to be broad, and includes USDA's Extension and other academic 
experts, businesses and associations, advisors and associates of the 
covered producer, other covered producers, including someone under 
contract with the same regulated entity. This regulation protects a 
covered producer's ability to communicate or cooperate with other 
persons, including efforts to obtain higher or otherwise more 
appropriate compensation from regulated entities, to the extent 
permissible under Federal antitrust laws and cooperative laws. 
Protecting such communications enables the producer to obtain help to 
enhance their ability to compete in the market. Such communication may 
include, for example, communication with extension programs or with 
independent veterinarians and animal health experts. It would also 
include communications with persons--including other producers--
relating to potential illegal market abuses, anticompetitive conduct, 
or otherwise illegal conduct by regulated entities, as that conduct 
would obstruct the covered producer's ability to secure the full value 
of their livestock or poultry product or services. AMS notes that 
communications on these matters when with the government would be 
protected by paragraph (b)(2)(i), and would include but not be limited 
to communications with: USDA; the U.S. Department of Justice; the 
Federal Trade Commission; a State or Tribal attorney general or 
agriculture department; or a Federal, State, or Tribal legislative 
office or committee or judicial tribunal.
    Paragraph (b)(2)(v) protects a covered producer's ability to 
communicate, negotiate, or contract with a regulated entity, another 
covered producer, a commercial entity, or a consultant for the purpose 
of exploring or entering into a business relationship. The purpose of 
the provision is to preserve and promote the competitive position of 
the covered producer and ensure that a regulated entity's retaliation 
does not discourage a covered producer from seeking competitive 
alternatives. It affords producers the opportunity to realize the full 
market potential of their products and services and participate in the 
market fully, including through price discovery and competition between 
multiple regulated entities. For example, a covered producer may want 
to seek information from a regulated entity with which they do not 
currently have a business relationship regarding the possibility of a 
future business relationship, such as entering into a contract. Or, a 
covered producer may enter into a contract to sell livestock in the 
market or through an auction or exchange. Protecting these activities 
allows covered producers to freely compare potential business 
relationships and choose between several regulated entities, 
encouraging competition. As also discussed in Section V--Changes from 
the Proposed Rule, communications of this type can improve production 
efficiency and price discovery mechanisms. Restricting participation in 
these activities forecloses full market participation by producers.
    Paragraph (b)(2)(vi) protects a covered producer's ability to 
support or participate as a witness in any proceeding under the Act or 
any proceeding that relates to an alleged violation of any law by a 
regulated entity. Because of the close-knit and concentrated markets in 
which covered producers operate, AMS believes that protecting some 
covered producers as witnesses may enable other covered producers to 
effectuate their rights under the Act and related laws, which would 
improve market integrity in the markets governed by the Act. Without 
such protections, enforcement of the Act may be frustrated overall.
    Finally, paragraph (b)(2)(vii) protects a covered producer's 
ability to assert any of the rights granted under the Act or the 
regulations in 9 CFR 201, or to assert rights afforded by their 
contract. These rights include, for example, producers' rights to view 
the weighing of flocks, which is legally protected but which producers 
have complained is not practically enforceable. In the 2010 USDA-DOJ 
public workshop on the poultry market, a grower said he was retaliated 
against for asserting his right to view his flock being weighed; the 
integrator ``cut me off from growing business and cost me hundreds of 
thousands of dollars.'' \140\ Although these rights are ostensibly 
protected by laws, regulations, or legal contracts, they lose their 
efficacy if covered producers suffer repercussions for asserting them.
---------------------------------------------------------------------------

    \140\ Accessed at https://www.justice.gov/media/1244676/ on 10/
03/2023.
---------------------------------------------------------------------------

    Section 201.304(b)(3) enumerates the actions that are retaliation 
or an otherwise adverse action under paragraph (b)(1) of this section. 
The final rule intends to capture the widest range of conduct harmful 
to producers, where such harms are based upon activities protected by 
the rule. The focus in any inquiry under this final rule is whether the 
regulated entity has engaged in harmful conduct in whole or material 
part because a covered producer engaged in any protected activity. To 
provide examples of what activities are materially harmful to a 
reasonable covered producer, paragraph (b)(3) sets out that regulated 
entities are prohibited from (i) terminating or not renewing a contract 
with a covered producer; (ii) performing under or enforcing a contract 
differently than with similarly situated covered producers; (iii) 
requiring a contract modification or a renewal on terms less favorable 
than those for similarly situated covered producers; (iv) refusing to 
deal with a covered producer on terms generally or ordinarily offered 
to similarly situated covered producers; (v) interfering in farm real 
estate transactions or contracts with third

[[Page 16126]]

parties; (vi) taking any other action that a reasonable covered 
producer would find materially adverse.
    Paragraph (b)(3)(i) prohibits terminating or not renewing a 
contract with a covered producer because the covered producer has 
engaged in protected activities. This practice can have devastating 
consequences for producers that have invested substantial sums in 
infrastructure that only meets the requirements of a particular 
regulated entity. Furthermore, in concentrated markets, losing a 
contract may put a producer out of business as the producer has few, if 
any, other livestock or poultry buyers to whom they can sell livestock 
or poultry.
    Paragraph (b)(3)(ii) prohibits performance under or enforcement of 
a contract differently as compared to performance under or enforcement 
of contracts for similarly situated covered producers as retaliation 
for engaging in protected activity. Depending on the facts and 
circumstances of the case, the ``similarly situated producer'' could be 
the covered producer's own status quo prior to engaging in the 
protected activity. A violation of this regulation would occur when a 
regulated entity, in response to a producer engaging in protected 
activities, inconsistently enforces its contracts compared with 
contract enforcement for similarly situated producers. For instance, 
the Agency has received complaints over the years with respect to 
differential performance under poultry growing arrangements, such as 
the delivery to affected growers of flocks that are sick or otherwise 
known to be likely to perform poorly owing to the age of the hens, 
differential delivery of feed, or other differential treatment such as 
early or delayed harvest of birds. Those actions are likely to result 
in lower performance for the grower in a poultry grower ranking system, 
which results in lower pay for the grower. While that may occur from 
time to time per natural cycles, a repeated or intentional delivery of 
underperforming flocks has been commonly reported as a principal means 
of adversely affecting grower earnings. Accordingly, AMS has 
incorporated differential contract performance to capture those 
contractual performance-based means that a regulated entity may use to 
retaliate against producers for engaging in protected activities.
    Paragraph (b)(3)(iii) prohibits requiring a contract modification 
or a renewal on terms less favorable than those for similarly situated 
covered producers as retaliation for engaging in protected activity. 
Depending on the facts and circumstances of the case, the similarly 
situated producer could be the covered producer's own status quo prior 
to engaging in the protected activity. In this final rule AMS seeks to 
clarify that unfavorable contract modification or renewal by a 
regulated entity, if it's the result of a producer engaging in a 
protected activity, is retaliatory conduct and amounts to a violation 
under the Act. This behavior is a common way for regulated entities to 
retaliate against producers by, for example, reducing the number of 
flocks or their density, changing types of birds raised, or otherwise 
changing contract terms that result in lower incomes for growers. As 
another example, if a regulated entity requires a capital investment 
from a covered producer as part of a contract modification or contract 
renewal that the regulated entity is not requiring of similarly 
situated producers, this requirement would be a violation of paragraph 
(b)(3)(iii) if the regulated entity is requiring the capital investment 
in retaliation for the covered producer's participation in a protected 
activity.
    Paragraph (b)(3)(iv) prohibits refusing to deal with a covered 
producer on terms generally or ordinarily offered to similarly situated 
covered producers. A violation of this regulation could occur if a 
regulated entity makes no reasonable effort to bid or negotiate or 
fails to reasonably attempt to contract in good faith with a covered 
producer, due in whole or material part to a producer's prior, or 
current, participation in protected activities. In this context, the 
regulated entity's refusal to deal is not connected with the service or 
quality of the product offered, but rather is material in part due to 
the producer exercising his or her rights to engage in protected 
activities. A similarly situated producer may, depending on the facts 
and circumstances, be the producer's own prior status quo with the 
regulated entity before the producer engaged in a protected activity. 
This provision includes scenarios in which cattle producers operate in 
the cash market for livestock. While some cattle producers may only be 
in the cash market a few times a year, others may be in the cash market 
weekly. In the latter case, this provision would cover certain types of 
retaliation. If a producer sells cattle to a particular packer every 
week, and then one week the packer refuses to buy the producer's cattle 
or offers significantly less favorable terms after the producer engaged 
in a protected activity, this would constitute retaliation under this 
rule absent evidence of changed business conditions necessitating the 
packer's refusal to deal. AMS believes that retaliating against a 
producer in this way is conduct the Act seeks to remedy because it 
raises a barrier to competitive entry to the market by decreasing the 
number of parties a producer can do business with, which in effect is a 
market failure.
    Paragraph (b)(3)(v)'s prohibition on interfering with a covered 
producer's farm real estate transactions or with their contracts with 
third parties is a prohibition against conduct that a regulated entity 
may engage in due to the unequal power dynamic that exists between 
producers and the few firms available for them to contract with. This 
conduct may take several forms but has been observed most commonly to 
occur when a producer attempts to sell its farm to a third party and in 
doing so must terminate or fail to renew their existing contract with a 
regulated entity. In these situations, the regulated entity may choose 
not to guarantee a similar contract, or any contract at all, to the 
prospective buyer. Without this guarantee, banks and prospective buyers 
are unlikely to enter the farm real estate transaction because the land 
is of little use to them without a contract to grow livestock or 
poultry. This is often seen in the poultry sector, where it is alleged 
that regulated entities use the potential transfer of farm real estate 
as an opportunity to require growers to make capital improvements in 
exchange for their guarantee to contract with the new grower. This 
becomes retaliatory because the unreasonable refusal to guarantee a 
future contract with a prospective landowner or operator dramatically 
lowers the value of the farm operation, to the point of obstructing the 
transfer of the real property by the landowner, and yet the debt burden 
on the farm is commonly incurred in response to the regulated entity's 
requests for additional capital investments. The seller of farm real 
estate faces an unjust extraction, or else they are unable to sell 
land, as the cost of capital improvements required by the regulated 
entity in exchange for a guarantee to contract with a new owner or 
operator is not a freely-determined agreement. Farm sales transactions 
are not, however, the only circumstance where a regulated entity can 
retaliate against a covered producer through contracts with third 
parties. For example, covered producers have sought to develop new 
marketing opportunities for their livestock and poultry through 
collectively processing their product. If the regulated entity sought 
to obstruct the sale of the meat or poultry products through 
distribution or retail chains as retaliation against a

[[Page 16127]]

covered producer with a material interest in the meat or poultry sales 
organization, that interference would be covered by this rule.
    Paragraph (b)(3)(vi) prohibits any other action that a reasonable 
covered producer would find materially adverse. This regulation is 
designed to account for a broader scope of actions that are considered 
retaliatory. Under this provision any conduct would be considered 
prohibited retaliation if such conduct caused material harm to the 
covered producer relative to the covered producer's situation prior to 
the allegedly retaliatory conduct, or relative to conduct toward 
similarly situated producers. This provision provides a broad and 
flexible approach to these prohibitions and allows for ``material'' to 
be determined by the facts and circumstances of each case. As discussed 
under Section V--Changes from the Proposed Rule, some retaliatory 
activities may occur outside the confines of contractual relationship, 
for example, a regulated entity's interference in a covered producers' 
water rights. The provision also covers the act of making a threat to 
engage in an action where the threat can reasonably be foreseen to 
change the producer's conduct or where the threat delivers a reasonable 
possibility of material harm.
    When regulated entities punish covered producers or deny them 
opportunities afforded to other covered producers for engaging in 
certain activities, it is an unjustly discriminatory practice. Not only 
do retaliatory practices harm individual covered producers; recurrent 
instances and patterns of retaliation erode market integrity and 
discourage fairness and competition in the livestock and poultry 
markets. Under Sec.  201.304(b), AMS is providing greater clarity, 
specificity, and certainty as to how the Act applies with respect to 
retaliatory behavior. This will facilitate higher levels of compliance 
by regulated entities, enable AMS to better enforce the Act, and 
position producers to better assert their rights under the Act.

D. Recordkeeping (Sec.  201.304(c))

    Paragraph (c)(1) of Sec.  201.304 requires that a regulated entity 
retain all records relevant to its compliance with the prohibitions on 
discriminatory behavior contained in paragraphs (a) and (b) of this 
section. Records must be retained for no less than five years from the 
date of record creation. Paragraph (c)(2) states that relevant records 
may include policies and procedures, staff training materials, 
materials informing covered producers regarding reporting mechanisms 
and protections, compliance testing, board of directors' oversight 
materials, and the number and nature of complaints received relevant to 
this section.
    Recordkeeping is a commonly used regulatory compliance and 
monitoring mechanism among market regulators.\141\ The recordkeeping 
requirement in this rule is not new. AMS currently has the authority to 
require regulated entities to create, maintain, release to AMS, and 
dispose of records through the Act and its regulations, including sec. 
401 of the Act and 9 CFR 201.94, 201.95, and 203.4. Section 401 of the 
Act requires regulated entities to keep ``such accounts, records, and 
memoranda as fully and correctly disclose all transactions involved in 
his business . . .'' (7 U.S.C. 221). Such records may include details 
of a single transaction, such as the name of the owner of the livestock 
or poultry, date, weight of livestock or poultry, number of head of 
livestock, and unit price; all elements necessary to recreate the total 
sum paid to the producer or grower by the regulated entity. Existing 
regulations under 9 CFR 201 require regulated entities to give the 
Secretary ``any information concerning the business . . .'' (Sec.  
201.94) and provide authorized representatives of the Secretary access 
to their place of business to examine records pertaining to the 
business (Sec.  201.95). Section 203.4 is another relevant existing 
regulation with respect to the types of records to be kept by regulated 
entities and the timelines for disposal of these records by the 
regulated entities.
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    \141\ See, e.g., generally, Board of Governors of the Federal 
Reserve System, ``Federal Trade Commission Act, Section 5: Unfair or 
Deceptive Acts or Practices,'' Consumer Compliance Handbook, 
available at https://www.federalreserve.gov/boarddocs/supmanual/cch/ftca.pdf (last accessed June 2022).
---------------------------------------------------------------------------

    Existing gaps in both generally applicable agricultural and PSD-
specific data collection make addressing widespread reports of 
discriminatory behavior difficult. Access to the types of records 
required by Sec.  201.304(c) will assist AMS in assessing the 
effectiveness of a regulated entity's compliance with Sec.  201.304(a) 
and (b). Therefore, this recordkeeping requirement is critical for AMS 
to fulfill its duties to prevent, and if necessary secure enforcement 
against, undue and unreasonable prejudice and unjust discrimination.
    AMS believes that this recordkeeping approach--at both the 
regulated entity policy and procedural level, as well as at the 
transactional level--will enable the Agency to monitor and facilitate a 
regulated entity's approach to compliance. Recordkeeping will encourage 
regulated entities to adopt more robust compliance practices to stamp 
out conduct prohibited by the Act in its incipiency. It will also 
enable AMS to uncover conduct that violates the rule in any 
investigation--a deterrent which will also strengthen compliance. AMS 
underscores that the tone and compliance practices set by senior 
executives play a vital role in establishing a corporate culture of 
compliance, which is a critical first step toward more inclusive market 
practices. Thus, relevant records may include those at the highest 
levels, such as relevant accountability practices of the board of 
directors. In addition to the importance of policies and procedures in 
developing a corporate culture of compliance, this rule maintains that 
transactional records, where decision-making occurs, are also important 
records to keep and to help AMS understand why an adverse action was 
taken against a producer or grower by a regulated entity. These records 
may include the number and nature of complaints received relevant to 
this section; in addition to records already required to be retained 
under Sec.  203.4, such as buyers' estimates; buying or selling pricing 
instructions and price lists; correspondence; telegrams; or teletype 
communications and memoranda relating to matters other than contracts, 
agreements, purchase or sales invoices, or claims or credit 
memoranda.\142\
---------------------------------------------------------------------------

    \142\ eCFR: 9 CFR part 203--Statements of General Policy Under 
the Packers and Stockyards Act.
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    AMS is requiring that records be retained for five years from their 
creation date to provide a broader ability to monitor the evolution of 
compliance practices over time in this area, and to ensure that records 
are available for what may be complex evidentiary cases. While 
providing the authority for regulated entities to keep certain records, 
sec. 401 of the Act does not provide guidance on when records can be 
disposed. Existing regulation at 9 CFR 203.4 provides for a disposal 
date of two years, with an exception for certain records that may be 
disposed of after one year. This rule extends the disposal date of most 
records from two years to five years to promote efficient USDA 
monitoring efforts. For some records, the current disposal date is one 
year, which could be extended to five years under this rule if they are 
deemed relevant to showing compliance with this rule. Most records, 
such as specified in sec. 401, ``such accounts, records, and memoranda 
as fully and

[[Page 16128]]

correctly disclose all transactions involved in his business . . .'' 
are currently kept for two years and will be extended to five years. 
Other particular records that, if kept, will be required to be kept 
five years instead of the current one year, including, for example, 
buyers' estimates; buying or selling pricing instructions and price 
lists; correspondence; telegrams; or teletype communications and 
memoranda relating to matters other than contracts, agreements, 
purchase or sales invoices, or claims or credit memoranda.

E. Deceptive Practices (Sec.  201.306)

    Section 201.306 is designed to broadly address deceptive practices 
in the marketplace by establishing four categories where deceptive 
practices commonly occur: contract formation, contract performance, 
contract termination, and contract refusal. Overall, the final rule 
addresses areas of concern regarding deception in contracting but does 
not exhaustively identify all deceptive practices that violate sec. 
202(a) of the Act. Through this rule AMS aims to promote a marketplace 
that is free from the type of injury the Act was designed to prevent. 
False or misleading statements, or omissions of material information, 
during the contracting process or operation or termination of that 
contract, are prohibited deceptive practices because they prevent or 
mislead sellers or buyers from making informed decisions concerning 
their livestock or poultry operations. Deception puts honest businesses 
at a competitive disadvantage; and may even cause them to adopt 
deceptive practices.\143\ To capture a range of longstanding approaches 
to deception that USDA has taken under the Act, AMS is prohibiting the 
use of false or misleading statements, or omission of material 
information during contract formation, performance (including 
enforcement or not enforcement of the contract), and termination. This 
rule also prohibits regulated entities from providing false or 
misleading information to a covered producer or a producer association 
concerning a refusal to contract. During this rulemaking process, AMS 
also considered the FTC's interpretation of sec. 5 of the FTC Act 
regarding deceptive acts or practices, ``FTC Policy Statement on 
Deception.'' \144\ Like sec. 202(a) of the Act, sec. 5 of the Federal 
Trade Commission (FTC) Act also prohibits deceptive practices. In 1983, 
the FTC adopted the aforementioned policy statement summarizing its 
longstanding approach to deception cases.\145\ In this final rule, AMS 
references that policy statement because it offers useful guidance 
owing to the similarity of the statutory provision and case law 
history. In addition, AMS recognizes the benefits to the practical 
application of this final rule by grounding it on the well-understood 
principles of deception identified in the FTC policy statement.\146\
---------------------------------------------------------------------------

    \143\ FTC v. Winsted Hosiery Co., 258 U.S. 483 (1922) See also, 
``Businesses that accurately represent the total amount consumers 
will pay up front are at a competitive disadvantage to those that do 
not,'' from FTC-2022-0069-6095 (describing harm to competition and 
honest businesses through price obfuscation). p. 77432, https://www.federalregister.gov/documents/2023/11/09/2023-24234/trade-regulation-rule-on-unfair-or-deceptive-fees.
    \144\ FTC Policy Statement on Deception, 1983. Available at 
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.
    \145\ Ibid.
    \146\ Kades, Michael. ``Protecting Livestock Producers and 
Chicken Growers,'' Washington Center for Equitable Growth, May 2022, 
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
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    More than 100 years of history illustrate the types of conduct 
prohibited as deceptive by the Act, which provides a foundation for 
some of the specific deceptions that this rulemaking addresses. The 
regulations implemented by this rulemaking are not the first to 
prohibit deception. Current regulations under the Act require honesty 
in weighing (9 CFR 201.49 and 201.71), price reporting (Sec.  201.53), 
fees (Sec.  201.98), and business relationships (Sec.  201.67). Even 
when considering whether termination of a contract violated the Act, 
AMS currently considers the quality of the communication, and therefore 
considers its honesty (see Sec.  201.217). Past cases indicate that 
USDA's approach, generally, is to view representations, omissions, and 
practices from the perspective of a reasonable party receiving them and 
determine if those deceptions affect the conduct or decision of the 
recipient. As the court explained in Gerace v. Utica Veal Co.,\147\ a 
regulated entity is liable to anyone for the damages its deceptive 
practices cause, even if the entity is not a direct party to the 
transaction.
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    \147\ 580 F. Supp. 1465, 1469 (N.D.N.Y. 1984).
---------------------------------------------------------------------------

    AMS aims to have regulated entities be truthful and 
straightforward--that is, not misleading--in their dealings with 
producers. With Sec.  201.306, AMS seeks to uncover the true motive for 
a regulated entity's treatment of a producer with whom they are forming 
or have a contractual relationship. Whether contract language was clear 
and written in a language the producer understands will be part of any 
evaluation to determine whether a statement (including any omission) 
was false or misleading; that determination will be dependent on the 
particular facts and circumstances of the contract. Violations of the 
Act that would constitute deceptive practices include false statements 
or omissions that are material in that they prevent sellers or buyers 
from making an informed business decision.\148\ Thus, obvious 
falsehoods, such as false weighing and false accounting, have always 
been considered deceptive practices under sec. 202(a) of the Act. 
Another obvious falsehood--delivering checks drawn on accounts with 
insufficient funds, whether for livestock or meat--is also deceptive. 
Moreover, the Act requires honest dealing, so misleading omissions of 
material information necessary to make a statement not false or 
misleading are also prohibited. Prohibited omissions include failure to 
tell a business partner that the regulated entity was receiving a 
commission from a competitor,\149\ sales records that omit relevant 
information,\150\ or failure to have the required bond.\151\ And 
finally, where regulated entities have close business relationships, 
kickbacks and bribes undermine the ability of producers and consumers 
to rely on an honest market and are therefore deceptive.\152\
---------------------------------------------------------------------------

    \148\ FTC Policy Statement on Deception, 1983. Available at 
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf. (``Third, the representation, omission, or 
practice must be a ``material'' one. The basic question is whether 
the act or practice is likely to affect the consumer's conduct or 
decision with regard to a product or service.'').
    \149\ 9 CFR 201.61.
    \150\ 9 CFR 201.43; 9 CFR 201.99.
    \151\ 9 CFR 201.29.
    \152\ 9 CFR 201.56; 9 CFR 201.67; 9 CFR 201.71.
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    Producers should not be misled with respect to their business 
decision-making with regulated entities. Deception can prevent 
producers from obtaining the full value of their products and services. 
In markets pervaded by deception, formerly honest businesses may be 
compelled to adopt deceptive practices if they are to remain 
competitive.\153\ Moreover, in a concentrated market, if producers are 
misled regarding why regulated entities take certain actions, in 
particular refusing to deal with them, they cannot

[[Page 16129]]

plan or mitigate the risks they may face. For these reasons, this final 
rule establishes a robust regulatory framework prohibiting deceptive 
practices in a range of contracting circumstances. Such a framework 
should provide a broad, although non-exhaustive, set of prohibitions to 
provide greater certainty for producers and regulated entities alike in 
the integrity of business dealings in the livestock and poultry 
markets.
---------------------------------------------------------------------------

    \153\ Michael Kades, ``Protecting livestock producers and 
chicken growers,'' Washington Center for Equitable Growth (May 
2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf (``Subversion of normal market 
forces by fraud, deception, unfair conduct, or market manipulation 
undermines the integrity of the market and deprives producers of the 
true value of their livestock,'' p. 55.)
---------------------------------------------------------------------------

    Paragraph (a) of this section sets forth the scope of the 
prohibition on deceptive practices by establishing that the 
prohibitions contained in paragraphs (b) through (e) of Sec.  201.306 
apply to livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry. This phrasing, which has been 
used in previous rules under the Act, points to the broadest possible 
interpretation of the Act's jurisdiction over regulated entities' 
conduct.
    Section 201.306(b) prohibits a regulated entity from making or 
modifying a contract with a covered producer by employing a false or 
misleading statement, or omission of material information necessary to 
make a statement not false or misleading. Preventing false or 
misleading representations, express or implied, or failing to provide 
the necessary information necessary to make a representation not 
misleading during the contracting process, are some of the most basic 
protections of the integrity of the marketplace. ``By employing'' 
captures the materiality of the false or misleading representation in 
that the representation formed a material part of the action under 
making or modifying the contract. Case law applying the Act illustrates 
some of the forms of deception that regulated entities may take during 
the offering or formation of a contract with producers. While some 
consumer-focused cases under the Act have addressed false advertising--
specifically bait-and-switch advertising that occurs through 
advertising on price when, in fact, the customer has to pay a higher 
price at the point of sale,\154\ a regulated entity's failure to 
disclose information to a covered producer has also been held to be 
deceptive under certain circumstances. The Act's purposes include 
protecting farmers and ranchers from receiving less than fair market 
value for their livestock and protecting consumers from unfair 
practices. Among the means employed to accomplish this purpose is the 
use of surety bonds. Sellers of livestock are entitled to the 
protection of a packer, dealer, or market agency's surety bond securing 
its obligations. Failure to maintain an adequate bond is therefore a 
deceptive practice.\155\ When a packer fails to maintain a bond, the 
seller does not know that the sale is unsecured, and therefore the 
seller is at greater risk of nonpayment.
---------------------------------------------------------------------------

    \154\ In re: Larry W. Peterman, d/b/a Meat Masters, 42 Agric. 
Dec. 1848 (1983), aff'd Peterman v. United States Dep't of Agric, 
770 F.2d 888 (10th Cir. 1985).
    \155\ United States v. Hulings, 484 F. Supp. 562, 567 (D. Kan. 
1980). See also In Re: Mid-W. Veal Distributors, 43 Agric. Dec. 
1124, 1139-40 (1984), citing In re: Norwich Veal and Beef, Inc., 38 
Agric. Dec. 214 (1979), In Re: Raskin Packing Co., 37 Agric. Dec. 
1890, 1894-6 (1978).
---------------------------------------------------------------------------

    Deception in contract formation is not limited to false statements 
and omissions with respect to regulatory requirements. The Act includes 
affirmative duties to be truthful. For instance, in Schumacher v. Tyson 
Fresh Meats, Inc., the court recognized that the Act prohibits a 
regulated entity from negotiating by using published prices it knows 
are inaccurate because using incorrect prices deceives the livestock 
seller. In Schumacher, the packer failed to disclose to sellers 
inaccurately reported boxed beef prices when it negotiated the purchase 
of cattle based on those prices. The court found that those deceptive 
practices violate the Act.\156\ Likewise, Bruhn's Freezer Meats of 
Chicago, Inc. v. U.S. Dept. of Agriculture, affirmed that a variety of 
deceptive practices violate the Act, including short weighing, 
misrepresenting grades and cuts of meat, and false advertising in the 
selling of meat to customers.\157\ The Agency's regulation with respect 
to deceptive practices in contract formation prohibits all these types 
of deception.
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    \156\ Schumacher v. Tyson Fresh Meats, Inc., 434 F.Supp.2d 748 
(Dist. S.D. 2006).
    \157\ Bruhn's Freezer Meats, 438 F.3d 1337 (8th Cir. 1971).
---------------------------------------------------------------------------

    Section 201.306(c) prohibits a regulated entity from performing 
under or enforcing a contract with a covered producer by employing a 
false or misleading statement, or omission of material information 
necessary to make a statement not false or misleading. It is 
fundamental to the integrity of the marketplace and critical during the 
performance or enforcement of contracts that regulated entities are 
prohibited from making false or misleading representations--express or 
implied--and that they are prohibited from failing to provide the 
necessary fact or information necessary to make a representation not 
misleading. ``By employing'' captures the materiality of the false or 
misleading representation in that the representation formed a material 
part of the action under performing or enforcing the contract.
    Deceptive practices take many forms throughout the operation of a 
contract. USDA and the courts have recognized these forms in a variety 
of administrative and Federal enforcement actions, including false 
weighing, false or deceptive grading (including failure to disclose the 
formulas for determining payment), failure to pay for purchases, and 
pretextual refusals to deal.
    False or inaccurate weighing has long been recognized as deceptive 
under secs. 202(a) and 312 of the Act.\158\ False weighing can occur in 
various ways. In some cases, the regulated entity records inaccurate 
weights using an improperly calibrated scale. In other cases, a 
regulated entity uses the scale improperly. In all these cases, false 
weighing is a plain and straightforward instance of a false statement 
that is material to the reasonable producer. Even if a regulated entity 
does not intentionally set out to deceive with respect to the weight of 
livestock, the Act does not require proof of a particularized 
intent.\159\ Short weighing alone is enough to be an unfair and 
deceptive practice under the Act, without regard to the competitive 
injury the short weighing causes.\160\
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    \158\ See Bruhn's Freezer Meats, 438 F.3d 1337 (8th Cir. 1971); 
Solomon Valley Feedlot, 557 F.2d at 717; Gerace v. Utica Veal Co., 
580 F. Supp. 1465, 1470 (N.D.N.Y. 1984).
    \159\ Parchman v. U.S. Dep't of Agric., 852 F.2d 858, 864 (6th 
Cir. 1988) (interpreting sec. 312 of the Act).
    \160\ Garace, 580 F. Supp. At 1470.
---------------------------------------------------------------------------

    False or inaccurate grading has the same effect as false weighing 
because deceptive grading prevents the seller from receiving the full 
value of their livestock or poultry. A USDA Judicial Officer found a 
deceptive practice when a packer failed to inform hog producers of a 
change in the formula it used to estimate lean percent in hogs. Lean 
percent was one factor used in determining price when the packer 
purchased hogs on a carcass merit basis. USDA determined that nearly 
twenty thousand lots of hogs were purchased under the changed formula 
without notice to producers, resulting in payment of $1.8 million less 
than they would have received under the previous formula.\161\ This 
type of deceptive practice harms honest competitors because ``[h]ad hog 
producers been alerted to the change, they could have shopped their 
hogs to other packers.'' \162\
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    \161\ In re: Excel Corporation, 63 Agric. Dec. 317 (2004), aff'd 
Excel Corp. v. United States Dep't of Agric., 397 F.3d 1285, 1293 
(10th Cir. 2005).
    \162\ 397 F.3d at 1291.
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    Payment violations can also be deceptive, especially issuance of

[[Page 16130]]

insufficient funds checks. For example, regulated entities may withhold 
payment to prevent producers from commencing legal action or reporting 
otherwise unrelated violations to authorities.\163\ Failing to pay for 
meat has also been found to be deceptive in numerous instances.\164\ 
Under the similar language of secs. 312 of the Act, the Eighth Circuit 
explained that lack of timely payment was unfair and deceptive even 
prior to the enactment of sec. 409 of the Act: ``Timely payment in a 
livestock purchase prevents the seller from being forced, in effect, to 
finance the transaction.'' \165\
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    \163\ See, e.g., In Re: Mid-W. Veal Distributors, d/b/a Nagle 
Packing Co., & Milton Nagle, 43 Agric. Dec. 1124, 1140 (1984).
    \164\ See, e.g. Milton Abeles, Inc. v. Creekstone Farms Premium 
Beef, LLC, No. 06-CV-3893(JFB)(AKT), 2009 WL 875553, at *19 
(E.D.N.Y. Mar. 30, 2009) (citing Liberty Mutual Ins. Co. v. Bankers 
Trust Co., 758 F.Supp. 890, 896 n. 7 (S.D.N.Y.1991); In re FLA 
Packing & Provision, Inc., and C. Elliot Kane, P & S Docket No. D-
95-0062, 1997 WL 809036, at *6 n. 1 (1997); In re: Central Packing 
Co., Inc. d/b/a Plat-Central Food Services Co., Inc., a/k/a Plat-
Central Food Service Supply Co., and Albert Brust, an individual, 48 
Agric. Dec. 290, 297-99 (1989)); see also In Re: Ampex Meats Corp. & 
Laurence B. Greenburg., 47 Agric. Dec. 1123, 1125 (1988) (citing In 
Re: Rotches Pork Packers, Inc. & David A. Rotches., 46 Agric. Dec. 
573, 579-80 (U.S.D.A. Apr. 13, 1987) In Re: George Ash, 22 Agric. 
Dec. 889 (1963); In re Goldring Packing Co., 21 Agric. Dec. 26 
(1962); In Re: Eastern Meats, Inc., 21 Agric. Dec. 580 134 (1962)).
    \165\ Van Wyk v. Bergland, 570 F.2d 701, 704 (8th Cir. 1978).
---------------------------------------------------------------------------

    Section 201.306(d) prohibits a regulated entity from terminating a 
contract with a covered producer by employing a false or misleading 
statement, or omission of material information necessary to make a 
statement not false or misleading. Employing false or misleading 
representations, express or implied, or failing to provide the 
necessary fact or information necessary to make a representation not 
misleading--critical protections during the performance or enforcement 
of contracts--are similarly fundamental to the integrity of the 
marketplace. ``By employing'' captures the materiality of the false or 
misleading representation in that the representation formed a material 
part of the action under performing or enforcing the contract. AMS 
draws on its experience in establishing the need for this prohibition. 
AMS notes, for example, that poultry growers complain of companies 
terminating their broiler production contracts based on pretext or for 
a deceptive reason. Contract termination puts the grower at severe risk 
of significant economic loss. The potential loss includes not only the 
loss of production income but also a grower's farm or family home, 
since a production broiler house construction is often financed with 
mortgages on those assets. Pretextual cancellation, in the form of 
false or misleading representations or material omissions, may also 
make even the sale or transfer of the broiler production house 
impossible because purchasers may be unable to determine if the broiler 
houses have value.
    AMS included the prohibition against false or misleading 
information or material omissions in paragraphs (b) through (d) to 
protect producers from conduct that employs deceit to disguise a 
regulated entity's genuine motive. A poultry producer stated in a 
public workshop that he relied upon cash flow statements provided by 
the integrator to secure a loan for his operation only to find out 
later ``that the document wasn't accurate from the first flock that I 
placed and set. The capital investment of these facilities, while they 
may be greatly benefiting the integrator, are not returning any value 
to us whatsoever.'' \166\ In another public comment, a poultry producer 
asserted that he is ``not given a clear picture of the integrator's 
operating procedures until after a contract has been signed. The 
contracts are very biased and one-sided, giving the bulk of control and 
authority to the initiator of the contract and then, only after you 
have committed to playing their game you are then given the rule 
book.'' \167\ The producer further stated that, ``the practices of the 
integrators are very calculated to ensure the integrators are protected 
legally while entrapping the farmer into modern day indentured 
servitude.'' \168\
---------------------------------------------------------------------------

    \166\ United States Department of Justice, United States 
Department of Agriculture. May 2010. Public Workshops Exploring 
Competition in Agriculture, Poultry. Accessed at https://www.justice.gov/media/1244676/dl?inline on 10/03/2023. p. 366.
    \167\ Rural Advancement Foundation International (RAFI), 
``Comment on AMS-FTPP-21-0045: Inclusive Competition and Market 
Integrity Under the Packers and Stockyards Act,'' available at 
Regulations.gov.
    \168\ Ibid.
---------------------------------------------------------------------------

    Section 201.306(e) prohibits a regulated entity from providing 
false information to a covered producer or association of covered 
producers concerning a refusal to contract. Deception related to 
refusal to contract is an unlawful practice designed to exclude 
producers from livestock and poultry markets. For example, if a 
producer association is asking on behalf of its members why a regulated 
entity is not executing any deals in the cash market and the entity 
lies about why it is avoiding the cash market, this could impede market 
entry for the association's members. Owing to the risk of retaliation, 
even with this final rule in place, a covered producer may depend upon 
a producer association to obtain the necessary understanding why the 
regulated entity is engaging in certain practices in the market, such 
as refusing to contract with covered producers.
    A regulated entity that refuses to contract on unlawful grounds may 
well choose to hide their motives with misleading or deceptive 
statements. This regulation recognizes false and misleading statements 
made as justification of a refusal to enter into a contract as 
``deceptive'' within the meaning of the Act. However, when refusing to 
enter into a contract, a regulated entity is not required to explain 
its reasoning so long as it does not offer a false or misleading 
statement to a covered producer.
    Producers and consumers cannot make rational decisions in a 
dishonest market, and honest competitors cannot compete when regulated 
entities deceive. With this rulemaking, AMS is adding Sec.  201.306 to 
its existing deception regulations under the Act to provide a broad 
array of coverage regarding the general circumstances that encourage 
the provision of false or misleading information in contracting. This 
regulation does not provide an exhaustive list of instances of 
deceptive practices; rather, it establishes four categories where 
deceptive practices commonly occur. The intent is to provide guidance 
to covered producers on how to effectuate their rights under section 
202(a) of the Act and to promote a marketplace that is free from the 
type of injury section 202(a) was designed to prevent. AMS will 
investigate any alleged violations of this regulation and its 
determination will depend on the facts and circumstances of each case.

F. Severability (Sec.  201.390)

    AMS is adding Sec.  201.390, ``Severability,'' to new subpart O to 
confirm that if any provision of subpart O, or any component of any 
provision, is declared invalid or if the applicability thereof to any 
person or circumstances is held invalid, it is AMS's intention that the 
validity of the remainder of this subpart or the applicability thereof 
to other persons or circumstances shall not be affected thereby with 
the remaining provision, or component of any provision, to continue in 
effect. Such a provision is typical in AMS regulations that cover 
several different topics and is included here as a matter of 
housekeeping.
    This rule aims to address concerns around unduly prejudicial, 
unjustly discriminatory, retaliatory, and deceptive conduct in the 
livestock and

[[Page 16131]]

poultry industry to the broadest jurisdiction of the Act. This new 
subpart has two sections that prohibit unduly prejudicial, unjustly 
discriminatory, and deceptive practices. This regulation is intended to 
take a series of regulatory actions, within this rulemaking, to address 
several different harms on the same or similar subjects but not 
prohibit identical conduct. The wrongful conduct addressed in the undue 
prejudice and discrimination, retaliation, and deception provisions are 
each different--the first focusing on adverse action on the basis of a 
personal characteristics or status of the producer, the second on 
certain protected actions by the covered producer, and the third 
focused on deception in contracting. AMS included these provisions 
based on the likelihood that conduct falling within one or more of 
these sections will stifle honest competition or exclude independent 
livestock producers, poultry growers, and swine contractors from the 
marketplace. Each provision could, however, have been implemented on a 
stand-alone basis without the others. Conduct that violates one 
provision is not dependent on protections put in place in other 
sections. For example, if a regulated entity discriminates against a 
producer on the basis of a protected class in an unduly prejudicial 
manner, AMS may enforce the regulation without alleging violations of 
retaliation or deception. These new provisions are written so that they 
are not mutually exclusive. Furthermore, the benefits of each provision 
of this rule are not diminished by the absence of a different 
provision. For example, the benefits of protecting producers against 
retaliation are not lost if the rule is held to fail to protect against 
deception or discrimination.
    AMS intends that the severability provision operate to the fullest 
extent possible. AMS recognizes that--to a limited extent--not all the 
language of the rule is severable. For example, to find undue 
prejudicial discrimination under ``race, color, religion, national 
origin, sex (including sexual orientation and gender identity), 
disability, or marital status, or age of the covered producer,'' the 
prejudicial conduct must be ``on the basis of'' one of the specified 
protected bases. AMS recognizes that this causation requirement is not 
severable as it is integral to that specific provision of the rule.
    However, AMS intends that all other portions and components of the 
rule may be severable without affecting the remaining portions of the 
rule, and that the rule remains workable and continues to serve the 
interests of the agency's policy goals. For instance, AMS intends that 
the invalidity or unenforceability of one of the rule's prohibited 
bases does not render the others invalid or unenforceable. The 
protected bases have different reasons for their appearance in the 
rule. For example, if the protected base of religion were found invalid 
or unenforceable, this does not negate the benefits of including 
protections for another protected base, like sex. Also, to further 
follow this example, the language in Sec.  201.304(a)(1)(i) is 
severable from those included in the retaliation (Sec.  201.304(b)) and 
deception (Sec.  201.306) sections. Therefore, one or more provisions 
might be unenforceable as to an individual or a specific case, but AMS 
intends that the remaining provisions would still be enforced. Finally, 
if determining the necessity of an individual provision to the 
enforceability of its entire section, and the benefits of that section 
are still intact without an unenforceable provision, AMS would intend 
to retain the enforceable provisions.

VII. Comment Analysis

    AMS received 446 public submissions in response to the proposed 
rule. Numerous comments to the proposed rule expressed concerns that 
concentrated, vertically integrated markets expose producers to 
exclusion from the market on bases unrelated to the quality of their 
products or services and that the markets in which the commenters 
operate lack sufficient honesty, integrity, and fair dealing. In 
addition, numerous comments stated that, except for very narrow 
justified circumstances, there are no competitive benefits to these 
practices when operating within a market where producers are less able 
to compare, negotiate, or change business relationships.
    Other commenters were critical of the proposed rule. Some 
commenters expressed disagreement with the need for the proposed rule, 
arguing that it is duplicative of the Act and existing regulations, 
while other commenters stated that the proposed rule's vagueness would 
make compliance a challenge. Other commenters argued that the proposed 
rule would result in costly litigation and recordkeeping burdens and 
exceeded AMS's authority under the Act.
    The public comments are summarized by topic below and include AMS's 
responses.

A. Definitions (Sec.  201.302)

    AMS proposed to add definitions in Sec.  201.302 for covered 
producer, livestock producer, market vulnerable individual, and 
regulated entity. AMS received comments about the proposed definitions 
of livestock producer and market vulnerable individual. Comments about 
the latter are addressed below in Section VII.C.i--Market vulnerable 
individual approach.
    In Sec.  201.302, AMS proposed to define livestock producer as any 
person engaged in the raising and caring for livestock by the producer 
or another person, whether the livestock is owned by the producer or by 
another person, but not an employee of the owner of the livestock. AMS 
proposed to add a new definition of covered producer to encompass 
livestock producers as defined in this section, along with swine 
production contract growers and poultry growers as defined in sec. 2(a) 
of the Act.
    Comment: Several commenters noted the proposed definition of 
livestock producer could include individuals only tangentially related 
to livestock production, such as accountants working for feed yards, 
truck drivers hauling livestock owned by others, veterinarians, 
nutritionists, or consultants. The commenters contended the proposal 
opens the definition of livestock producer to an unlimited number of 
litigants beyond the scope of the Act.
    Similarly, a meat industry trade association said AMS should 
withdraw or amend the definition of livestock producer because its 
vagueness potentially adds so many individuals to the covered producer 
umbrella as to be unworkable. Another association noted its confusion 
when reading the definition, given that the definition's wording 
explicitly excludes employees of the owner of livestock, but includes 
anyone who is not an employee of the owner of livestock that is engaged 
in raising or caring for livestock.
    AMS Response: AMS is revising the definition of livestock producer. 
AMS intended that the term livestock producer be defined in a manner 
similar to other terms in the Act, so that the protections of the rule 
would fit violations that are described in this rulemaking. Under the 
final rule, livestock producer is defined as any person--except an 
employee of the livestock owner--engaged in the raising of and caring 
for livestock. As commenters noted, the proposed definition was vague 
and potentially confusing. The revised definition provides clarity by 
removing unnecessary and potentially confusing phrasing. In response to 
commenters' concerns that the term encompasses individuals only 
tangentially related to livestock production, AMS has revised

[[Page 16132]]

the proposed definition to focus this final rule on the Agency's 
traditional role in protecting the producer to the fullest extent 
possible under the Act--including but not limited to production and 
marketing. To the extent that the producer is harmed through acts that 
the regulated entity takes against an employee acting as agent for the 
producer or another entity that the covered producer utilizes or relies 
on for production or marketing, the producer could still fully benefit 
from the protections of this final rule. Whether the non-producer 
parties could benefit from the protections of the Act may depend upon 
particular facts and circumstances.

B. Applicability

    AMS proposed in Sec. Sec.  201.304 and 201.306 to apply its 
prohibitions on undue prejudice, retaliation, and deceptive practices 
to swine contractors and live poultry dealers as defined in sec. 2(a) 
of the Act and to packers as defined in sec. 201 of the Act. Proposed 
Sec.  201.304(a)(1) would prohibit prejudice, disadvantage, or the 
denial or reduction of market access by regulated entities against 
covered producers based on their status as ``market vulnerable'' 
producers. AMS requested comment on whether the prejudicial 
discrimination and retaliation provisions should be extended to all 
persons buying or selling meat and meat food products, including 
poultry, in markets subject to the Act.
    Comment: An agricultural advocacy organization expressed support 
for AMS's proposal to extend protections to all covered producers who 
experience retaliation by regulated entities.
    An agricultural advocacy organization said that if AMS adds aspects 
of regional concentration and aspects of contract growing arrangements, 
such as high debt load, to the definition of a market vulnerable 
individual, then the proposal to provide protection based on market 
vulnerable individual status is appropriate. This commenter noted that 
AMS's question regarding extension of the prejudicial discrimination 
and retaliation provisions highlights the need for a separate rule 
addressing enforcement of the Act's prohibition on undue preferences. 
According to this commenter, if AMS makes it clear that it intends to 
enforce the Act to stop companies from giving undue preferences to some 
sellers, everyone participating in these markets will have adequate 
protection.
    AMS Response: AMS appreciates the comments regarding a broader 
definition of MVI to include all those impacted by the abusive 
conditions aggravated by market concentration. AMS recognizes that 
producers face challenges because of consolidated market power, 
including from types of conduct this rule aims to address. One of the 
purposes of this rule is to address adverse impacts of concentrated 
markets by ensuring inclusive competition free of unjust discrimination 
on the basis of race, color, religion, national origin, sex, 
disability, or marital status, or age or because of the covered 
producer's status as a cooperative, as well as to protect against 
retaliation and deception.
    AMS underscores that the protections for cooperatives are intended, 
in part, to help producers gain market leverage in the face of 
concentrated markets. In 1922 Congress passed the Capper-Volstead Act 
providing legal protections for producers to collectively process, 
prepare for market, handle and market their products. Cooperatives 
enable smaller, disparate producers to band together, coordinate in 
ways that otherwise may not be permissible under the antitrust laws 
outside of a single company, and otherwise work together to obtain a 
better bargain from market counterparties with larger economic 
footprints. AMS will continue to work toward addressing problems 
associated with concentration through subsequent rulemaking. USDA is 
also utilizing other tools to address undesirable business practices 
born from market concentration that adversely impacts producers. USDA 
is investing $1 billion to support greater choice for producers through 
expanded local and regional processing capacity in meat and poultry. 
USDA has also announced enhancements to its antitrust enforcement 
partnerships, including investing in partnerships with DOJ through 
farmerfairness.gov and with more than 32 State attorneys general, 
updates to its meat and poultry labels that will better guard against 
misbranding that damages the signals that flow from consumers to 
producers, as well as other agency actions intended to address 
unfavorable behavior by regulated entities facilitated by concentration 
in the livestock industry.
    However, addressing unjust discrimination solely on the basis of 
the size or indebtedness of the producer is outside the scope of this 
rule, and because of the complex economic implications of volume 
preferences and efficiencies, would be more appropriately considered in 
the context of a future update to undue preferences rules. In contrast, 
undue and unreasonable prejudice or disadvantage on the basis of the 
prohibited bases and protected activities adversely affects allocative 
efficiency and offers no competitive benefits. That is true 
irrespective of whether the unlawful conduct occurs in a concentrated 
market or not.
    AMS has shifted away from its market vulnerable approach and has 
adopted a well-established standard in line with existing economic, 
civil rights, and other regulatory regimes that rely on protected bases 
for discrimination. Producers with high debt loads are not included in 
those well-established protections; therefore, AMS will not include 
them in its final rule.

C. Undue Prejudices and Unjust Discrimination (Sec.  201.304(a))

    AMS proposed new provisions in Sec.  201.304(a) that would prohibit 
regulated entities from prejudicing, disadvantaging, or inhibiting 
market access, or otherwise taking adverse action against a livestock 
producer, swine production contract grower, or poultry grower based on 
the producer's status as a ``market vulnerable individual'' or as a 
cooperative.
i. Market Vulnerable Individual Approach
    AMS proposed to prohibit prejudicing, disadvantaging, inhibiting 
market access, or otherwise taking adverse action against covered 
producers based on their status as a market vulnerable individual 
(MVI). It proposed to define that term as a person who is a member, or 
who a regulated entity perceives to be a member, of a group whose 
members have been subjected to, or are at heightened risk of, adverse 
treatment because of their identity as a member or perceived member of 
the group without regard to their individual qualities. A market 
vulnerable individual would include a company or organization where one 
or more of the principal owners, executives, or members would otherwise 
be a market vulnerable individual. When defining market vulnerable 
individual in its proposal, AMS listed a non-exhaustive list of 
protected classes that would be considered market vulnerable such as 
race, ethnicity, or sex or gender prejudices (including discrimination 
against an individual for being lesbian, gay, transgender, or queer), 
religion, disability, or age.
    AMS requested comment on whether the regulatory protections 
provided by the prohibition on undue prejudices for market vulnerable 
individuals and cooperatives would assist those producers in overcoming 
barriers to reasonable treatment, or otherwise address prejudices or 
threats of prejudice in the marketplace. It further requested comment 
on whether specific

[[Page 16133]]

groups should be named as market vulnerable individuals, whether AMS 
should identify defined protected classes, or whether AMS should use a 
``market vulnerable producer'' approach, which extends broad 
antidiscrimination protections to any producer belonging to a group 
subjected to or at heightened risk of adverse treatment. In addition, 
it requested comment on whether it should delineate specific examples 
of groups that are market vulnerable, as well as supportive evidence 
regarding historical adverse treatment of such groups. Finally, it 
requested comment on whether the undue prejudices provision of the 
proposed rule provides sufficient protection regardless of the covered 
producer's type of business organization.
    Comment: Several commenters indicated proposed Sec.  201.304(a) 
would provide necessary protections, consistent with the Act, against 
packers and processors who leverage their market power to injure 
marginalized farmers. Farm bureaus and other agricultural advocacy 
organizations also indicated the rule would protect producers from 
certain prejudices, unjust discrimination, retaliation, and deceptive 
practices.
    Several commenters stated they preferred the market vulnerable 
producer approach to fighting discrimination over the traditional 
protected classes approach because it would allow for flexibility to 
address different markets and different forms of prejudice and 
discrimination that may develop. An agricultural and environmental 
organization stated the market vulnerable producer approach not only 
covers instances of discrimination based on protected characteristics 
such as race, national origin, sex, religion, gender identity, and 
disability, but can also apply to other forms of discrimination unique 
to livestock and poultry markets. This commenter said this approach is 
consistent with the Act, which prohibits ``any'' unjust discrimination, 
and ``any'' undue prejudice or disadvantage ``in any respect 
whatsoever.'' Several State attorneys general suggested that the 
proposed definition was preferable as proposed, without specifying 
traditional protected classes, because it would allow for flexibility 
among different markets and forms of prejudice or discrimination that 
may develop over time.
    Several agricultural advocacy organizations said poultry and cattle 
producers operating in regions with monopsony or oligopsony conditions 
should qualify as market-vulnerable individuals. Similarly, an academic 
or research institution sought to add producers operating in monopsony 
conditions to the definition. A commenter suggested AMS use the 
regional Herfindahl-Hirschman index to indicate the market vulnerable 
status of producers in a region. Some commenters cited heightened risk 
of adverse treatment as a rationale for considering these groups to be 
market vulnerable or noted that monopsony power has been legally 
relevant in cases under the Act and there is judicial precedent for 
acknowledging monopsonist power as a factor in adverse impacts to 
competition, while others said these groups meet the criteria laid out 
by AMS in the preamble to the proposed rule explaining why historically 
marginalized groups are likely to be vulnerable to market abuses.\169\ 
The latter commenter provided detailed evidence that these groups met 
each of the criteria AMS identified: their relative ``size, sales, and 
incomes;'' their ``exposure to concentrated market forces;'' their 
having ``fewer economic resources'' to ``counteract'' adverse market 
structures; and their ``isolation'' from economic networks such as 
sources of supply, other producers, and distribution.
---------------------------------------------------------------------------

    \169\ 87 FR 60020-21, October 3, 2022.
---------------------------------------------------------------------------

    Several commenters seeking protections for producers that are at 
increased risk of being disadvantaged due to highly concentrated 
regional markets cited Colorado cattle producers as an example, given 
the USDA has not publicly reported the State's fed cattle prices for 
several years because there are too few packers purchasing fed cattle 
in Colorado to overcome USDA confidentiality guidelines. Commenters 
noted, with few packers in the region, sellers in the region are 
vulnerable to unfair practices.
    An agricultural advocacy association recommended that AMS expand 
the MVI definition to include covered producers whose geographic 
locations restrict their ability or willingness to sell and transport 
their livestock to two or fewer regulated entities. This commenter also 
said that it would be helpful for AMS to expand on and provide more 
``definite form'' to the four socioeconomic factors presented in the 
rulemaking notice. The association reasoned that if producers can 
proactively demonstrate their status as market vulnerable, it would 
avoid the need for ad hoc microeconomic analyses or expert witnesses to 
make assessments on individual bases.
    Several State attorneys general suggested AMS specifically address 
the vulnerability that small, rural farmers encounter due to their 
location or production size. The commenters stated small, rural farmers 
do not have enough local processors, and those processors give 
preference to packer-owned and contract livestock for the limited 
packing plant capacity available. An agricultural advocacy organization 
also said small, independent cattle producers meet many of the criteria 
for being considered market vulnerable, arguing for example that they 
are exposed to concentrated market forces because they do not receive 
forward contracting arrangements from packers; they are denied 
favorable bonus, financing, and risk sharing terms common with other 
arrangements; and they are required to sell their cattle to packers on 
at-will cash markets for lower aggregate compensation. Agricultural 
advocacy organizations also said independent cattle producers operating 
in cash-negotiated spot markets should be considered vulnerable because 
of their independent status. Other commenters recommended AMS expand 
market vulnerable individual status to include non-English speakers, 
people with limited education, producers in markets with limited 
buyers, and immigrant farmers.
    Agricultural advocacy organizations recommended the definition of 
market vulnerable individual explicitly include, but not be limited to, 
race, color, national origin, religion, sex, sexual orientation, 
disability, age, marital status, family or parental status, income 
derived from a public assistance program, political beliefs, or gender 
identity. Commenters asserted individuals in each of these groups 
should not have to continually prove discrimination and prejudice 
against them based on the characteristic that makes them vulnerable in 
the market.
    Agricultural advocacy organizations expressed support for including 
cooperatives in the prohibited bases under proposed Sec.  201.304. 
These commenters recommended that AMS explain in the preamble to the 
final rule the relationship between the producer association 
protections under the Agricultural Fair Practices Act and the proposed 
new protections under the Act, noting regulated entities have unjustly 
discriminated against covered producers based on their membership in 
these cooperatives due to the increased market leverage these 
cooperatives or other producer associations provide.
    An individual commenter urged AMS to explicitly prohibit 
discrimination based on sexual orientation and gender identity for 
those who voluntarily disclose such status. The commenter

[[Page 16134]]

stressed AMS should not require LGBTQ producers to disclose their 
sexual orientation or gender identity in conducting business, citing 
privacy, and security concerns. Other commenters noted sexual 
orientation is different from gender identity, so both should be listed 
individually in the rule.
    Some agricultural and environmental advocacy organizations 
expressed support for AMS's flexible ``market vulnerable individual'' 
approach, but also expressed concern that the proposed rule would 
impose a difficult burden of proof on covered producers, requiring, for 
example, a producer alleging discrimination based on their status as a 
member of a historically marginalized group (e.g., a racial minority) 
to also demonstrate their status as a market vulnerable individual ``in 
relevant markets.'' Commenters indicated producers should not have to 
continually prove they are being discriminated against if they are 
members of a protected class or qualify as a market vulnerable 
individual. These commenters urged AMS to clarify the Act directly 
prohibits discrimination based on protected class status and to provide 
producers with guidance on how to demonstrate their market vulnerable 
status. Commenters recommended that AMS include in Sec.  201.304 a non-
exhaustive list of factors covered producers can rely on to demonstrate 
their market vulnerable status.
    Similarly, agricultural advocacy groups recommended that AMS 
clearly identify the types of individuals the agency would consider to 
be market vulnerable, and the methodology AMS will use to make this 
determination. A commenter specified producers who derive a substantial 
percentage of their income from their livestock or poultry operation 
are more vulnerable to unjust practices than those who derive a small 
percentage of their income from those operations. A commenter suggested 
that AMS develop a method to assess regional concentration levels using 
information regarding market share, Herfindahl-Hirschman index, and 
price reporting systems to allow producers to show they operate in a 
region that qualifies them as market vulnerable individuals.
    An organization urged AMS to revise proposed Sec.  201.304(a)(1) to 
clarify that the rule bans discriminatory conduct based on disparate 
treatment or disparate impact, not just discriminatory intent. 
According to the commenter, while secs. 202(a) and (b) of the Act 
clearly establish that the determinative factor for whether conduct 
constitutes a violation is its purpose or effects, the proposed 
language in Sec.  201.304(a)(1) potentially requires a covered producer 
to prove discriminatory intent. The commenter said that, by describing 
prohibited conduct using the verb forms of ``prejudice,'' 
``disadvantage,'' ``inhibit market access,'' and ``take adverse 
action,'' this language suggests the proposed rule would only prohibit 
actions motivated by a prohibited basis. Therefore, the commenter 
recommended that AMS revise this section to use language that parallels 
the text of sects. 202(a) and (b) in clearly distinguishing the actions 
of regulated entities from their discriminatory nature or effects.
    Some commenters who supported AMS's market vulnerable producer 
approach expressed concern that the proposed rule could place a heavy 
burden on producers to establish an intentional discrimination claim 
based on market vulnerable status, citing the DOJ, among others, in 
noting that successfully showing discriminatory intent can be extremely 
difficult.\170\ According to the commenters, producers would have 
evidence of differential treatment, but they would not likely have 
evidence to show they were subject to adverse treatment because of 
their status as market vulnerable individuals. Therefore, these 
commenters urged AMS to require regulated entities to rebut a 
presumption of discriminatory intent once a producer demonstrates 
differential treatment. Specifically, the commenters recommended the 
final rule include provisions clarifying that, to prove an unlawful 
violation of Sec.  201.304(a), producers must demonstrate that they 
meet the definition of a ``market vulnerable individual'' or are a 
member of a protected class, and that they were personally subject to 
disparate and adverse treatment. One commenter also said producers' 
burden here should include showing circumstantial facts plausibly 
suggesting a causal connection between their group identity and the 
treatment they received. The burden would then shift to the regulated 
entity to show that the producer's market-vulnerable status was not a 
motivating factor for its presumptively discriminatory conduct, and the 
same decision would have been made regardless of the producer's market 
vulnerable status. The commenters cited case law in asserting this 
burden-shifting approach is consistent with other antitrust and civil 
rights evidentiary frameworks developed by the courts to reduce the 
burden of proving discriminatory intent.\171\
---------------------------------------------------------------------------

    \170\ U.S. Department of Justice, Civil Rights Division, Title 
VI Legal Manual, 5. See also Price Waterhouse v. Hopkins, 490 U.S. 
228, 271 (1989) (``[D]irect evidence of intentional discrimination 
is hard to come by.'').
    \171\ See Impax Labs., Inc. v. Fed. Trade Comm'n, 994 F.3d 484, 
497-500 (5th Cir. 2021); McDonnell Douglas Corp. v. Green, 411 U.S. 
792 (1973).
---------------------------------------------------------------------------

    A commenter also asked AMS to establish a separate liability 
standard and burden-shifting framework for discriminatory-effects 
claims. The commenter said AMS should introduce a framework analogous 
to the Department of Housing and Urban Development's (HUD) 
Discriminatory Effects Standard,\172\ under which a covered producer 
would have the initial burden of demonstrating that a regulated 
entity's policy or practice causes or predictably will cause a 
discriminatory effect. The commenter said the burden should then shift 
to the regulated entity to show that the challenged practice is 
necessary to achieve a substantial, legitimate, and nondiscriminatory 
interest which could not be served by another practice with a less 
discriminatory effect. The commenter also provided further details 
about what would constitute a discriminatory effect or a legitimate 
interest under this standard.
---------------------------------------------------------------------------

    \172\ Reinstatement of HUD's Discriminatory Effects Standard, 86 
FR 33590, June 25, 2021 (to be codified at 24 CFR part 100).
---------------------------------------------------------------------------

    A plant worker offered three factors to consider when determining 
market-vulnerable groups. These factors included being a member of any 
``socially disadvantaged group'' as defined by the USDA Farm Bill,\173\ 
working for a small producer (no formal definition of ``small 
producers'' was offered), or being in geographic areas with an ``ultra-
high'' concentration of buyers that leads to increased buyer market 
power and reduced prices paid to producers.\174\
---------------------------------------------------------------------------

    \173\ According to the commenter: ``A group whose members have 
been subjected to racial or ethnic prejudice because of their 
identity as members of a group without regard to their individual 
qualities.''
    \174\ Matthew C. Weinberg et al., ``Buyer Power in the Beef 
Industry,'' https://equitablegrowth.org/grants/buyer-power-in-the-beef-industry.
---------------------------------------------------------------------------

    Some commenters expressed opposition to the proposed definition of 
market vulnerable individual on the basis that it was too vague. An 
association asserted the definition is ``so vague that neither party 
may be able to figure out whether the contract grower is indeed a 
`market vulnerable individual.' '' Commenters said the proposed 
definition implicates the Due Process Clause, with commenters saying 
the definition as drafted is so open-

[[Page 16135]]

ended that it could potentially include any producer, thus giving 
processors inadequate notice of when they might be in danger of 
violating the proposed rule. Commenters suggested AMS intends for 
courts to flesh out the specifics on who the rule covers, noting this 
approach would lead to more uncertainty and confusion. Commenters also 
said the definition is vague because it incorporates inherently 
subjective concepts, such as whether a producer is a member of a group 
``whose members are at heightened risk of adverse treatment.'' 
Commenters questioned what amount of risk constitutes ``heightened 
risk.''
    Two cattle industry trade associations and a live poultry dealer 
contended that the ambiguity of the definition would create uncertainty 
for regulated entities when making market vulnerable-status 
determinations on a case-by-case basis, which could disincentivize 
bringing on new producers in the future. They argued that AMS could 
avoid this uncertainty if it introduced codified standards based on 
consistent immutable traits, such as protected classes.
    Some commenters were opposed to explicitly including protected 
classes in the definition. A meat industry trade association noted that 
it can be difficult or impossible for regulated entities to ascertain 
all the demographic information for every producer they do business 
with to determine whether the producer they are contracting with is in 
a protected class and thus a market vulnerable individual. An 
agricultural association noted that regulated entities soliciting such 
demographic information could in and of itself give the appearance of 
discriminatory behavior.
    Lastly, some commenters opposed the market vulnerable individual 
definition because they thought it would be too limiting. Two farm 
bureaus argued that it would create uncertainty for producers who do 
not meet the definition, and that protections should be available for 
anyone participating in the marketing of livestock. Other farm bureaus 
also suggested that market vulnerable individual be defined solely by 
economic factors, rather than social factors, to be consistent with the 
objectives of the Act.
    AMS Response: AMS, in response to these comments, has decided not 
to use market vulnerable individual as the basis for the rule's 
prohibition on discrimination or undue or unreasonable prejudicial or 
disadvantageous action. AMS agrees that the term MVI may be too vague, 
ambiguous, and overly broad to serve as the prohibited basis for undue 
or unreasonable prejudice. Instead, this rule uses protected classes 
largely as defined by ECOA, plus disability and status as a 
cooperative, as the bases against which unjust discrimination or undue 
prejudice is prohibited because, as explained above in Section VI--
Provisions of the Final Rule, this regulation incorporates the ECOA 
terms with respect to discrimination in the extension of credit because 
those terms reflect USDA policy against discrimination in conducted 
programs.\175\ Protections against discrimination on these protected 
bases extend to all producers. AMS, incorporating feedback from 
producers and other stakeholders, decided to create its protected bases 
on the well-established ECOA standards, with some additions. Regarding 
the commenter's concern that regulated entities may not be aware of the 
demographic information of producers with whom they conduct business, 
in such cases AMS would not be able to prove discriminatory conduct 
because any adverse action taken against that producer could not have 
been on the basis of their status as a protected class.
---------------------------------------------------------------------------

    \175\ 15 U.S.C. 1691c(a)(5).
---------------------------------------------------------------------------

    AMS adopted several suggestions by commenters regarding the 
specific bases for protection against unjust discrimination. 
Principally, AMS's authority to clarify the protected bases stems from 
sec. 407 of the Act, which authorizes the Secretary to ``make such 
rules, regulations and prescribed orders as may be necessary to carry 
out the provisions of this Act.'' \176\ The Act has incorporated 
provisions of other law (such as the FTC Act and the Clayton Act). The 
Act is a remedial statute that prohibits unlawful discrimination. To 
inform the scope and bases of unlawful discrimination and prejudice 
under the Act in this rulemaking, AMS has looked to other civil rights 
laws, which aid in determining the scope of discrimination and 
prejudice that is unjust and undue. AMS concludes here that 
discrimination and prejudice on the bases set forth under this final 
rule inhibit the ability of all to participate in the market, and that 
the clarifications set forth in this final rule are necessary to 
protect all market participants from unjust discrimination and undue 
prejudice. Furthermore, AMS has considered available relevant 
references to support the determination. These include USDA's Statement 
on Conducted Programs \177\ and evidence of a general congressional 
policy found in ECOA that prohibits discrimination on the bases of 
race, color, religion, national origin, sex (including sexual 
orientation and gender identity), marital status, age, or disability. 
Additionally, AMS is including status of a covered producer as a 
cooperative as a prohibited basis of discrimination because Congress, 
through passage of the Capper-Volstead Act, has provided clear 
statutory support for cooperatives as an organizational form that 
allows farmers to achieve scale through coordination and thereby more 
effectively compete in agricultural markets and engage with other 
market participants. AMS is adopting the aforementioned specific bases, 
as opposed to MVI, because the specific prohibited bases offer clearer, 
more workable standards that will facilitate compliance by regulated 
entities and better enable producers to exercise their rights under the 
Act.
---------------------------------------------------------------------------

    \176\ Packers and Stockyards. Act, 1921. Packers and Stockyards. 
Act, 1921 (Aug. 15, 1921, ch. 64, title I, Sec.  1, 42 Stat. 159.) 
Section 407.
    \177\ USDA's Statement on Conducted Programs, accessed 1/30/
2024.
---------------------------------------------------------------------------

    The use of those terms comes with well-established jurisprudence in 
other contexts, such as ECOA, which incorporates the Act's enforcement 
provisions, appropriately applied in the context of livestock and 
poultry markets. Additionally, the status of covered producer as a 
cooperative was added to the list of protected classes against which 
discrimination is prohibited. The prohibition on discrimination covers 
cooperatives consistent with and in furtherance of the Agricultural 
Fair Practices Act. Cooperatives enable smaller producers' ability to 
balance concentrated economic power through their ability to coordinate 
and negotiate.
    AMS will not include degrees of market concentration within 
particular geographic locations in its list of protected bases. Doing 
so would give rise to difficult questions around whether the government 
should restrict the ability of regulated entities to seek efficiency 
based on production volume, which is outside of the scope of this rule.
    Additionally, AMS will not include in its list of protected bases a 
size component for the same reasons that it is not incorporating market 
concentration or geographic location. Nor is AMS including a 
prohibition against discrimination in markets with limited buyers. In 
both cases, such a prohibition would likely result in an all-
encompassing rule that would swallow this rule's intent to protect 
specific well-established classes and activities which are widely 
utilized across multiple

[[Page 16136]]

economic and civil rights regulatory regimes to stop market exclusion 
and enable producers to realize the full value of their animals. AMS 
underscores that the agency is aware of and sensitive to the concerns 
that smaller producers face greater challenges in the face of 
concentrated markets, where, as commenters suggested, small rural farms 
are at a disadvantage when competing with larger operations in their 
sale of livestock to a limited number of packers.
    In this rule, AMS does not address questions of discrimination 
based on the type of contract a producer has with a regulated entity 
for the sale of their livestock. Considerations raised in that type of 
discrimination, revolving around how livestock is marketed, are 
different from the considerations undertaken in this rule around 
whether the producer's personal characteristics are a prohibited basis 
of unjust discrimination. Nonetheless, AMS is aware that some producers 
may be under pressure to enter forward contacts or AMAs and that this 
may limit their access to markets. AMS is considering other rules that 
may be more appropriate for addressing those concerns.
    Additionally, AMS intends for non-English-speaking producers and 
immigrant producers to be covered under the prohibition on 
discrimination on the basis of national origin or, in some cases, race 
if they are facing discrimination on those bases. Therefore, AMS need 
not expressly include non-English speaking producers in this rule. 
However, people with limited education are not included as protected 
bases because enforcement of such discrimination offers certain 
practical challenges and is not well defined in other areas of law.
    In this final rule, AMS has expressly prohibited discrimination 
based on sexual orientation by adding that term as well as gender 
identity to the prohibited basis of sex. The Supreme Court in Bostock 
v. Clayton County recognized that to discriminate against a person 
based on sexual orientation or transgender status is to discriminate 
against that individual based on sex.\178\ AMS has included the term 
sex as part of its prohibition on discrimination. By expressly adding 
``including sexual orientation and gender identity'' to the rule text, 
AMS confirms that sex includes those forms of discrimination. 
Therefore, sexual orientation and transgender status are covered.
---------------------------------------------------------------------------

    \178\ Bostock v. Clayton County, 140 S. Ct. 1731 (2020).
---------------------------------------------------------------------------

    Nor is disclosure a requirement for discrimination based on sex. If 
a regulated entity takes adverse action that amounts to undue prejudice 
against a person on the basis of sex, it is immaterial whether the 
decision is based on an accurate or inaccurate assessment of the actual 
gender or sexual orientation of the covered producer. In either 
instance, this prejudice is undue under the regulation.
    In terms of concerns raised by commenters about the burden to 
establish a claim, producers will not have to prove their status as a 
market vulnerable individual as originally proposed as the bases of 
discrimination are now based on discrete types of protected classes. 
Therefore, as suggested by commenters responding to the proposed rule, 
AMS does not need to provide a non-exhaustive list of factors for 
covered producers to demonstrate their market vulnerable status.
    Furthermore, because market vulnerability is no longer a 
consideration when assessing violative conduct, AMS is not using market 
vulnerability as a basis for assessing whether unjust discrimination 
has occurred in violation of the Act. As noted above, this final rule 
will not address discrimination on the basis of geographical location, 
regional concentration, or size of a producer's operation because this 
rule is focused on prohibiting adverse actions on bases for which there 
are no pro-competitive benefits. Differences in treatment based on 
geographic location, regional concentration, or size of the producer's 
operation all raise more challenging tradeoffs with respect to 
competitive benefits. To the extent that a covered producer suffers 
discrimination on those bases, AMS encourages the covered producer to 
report the concern to PSD, including through the tips and complaints 
portal farmerfairness.gov, for consideration on a case-by-case basis 
under the Act.
    AMS is not establishing a formal burden-shifting framework in this 
rule, nor one specifically focused on discriminatory effects such as an 
analysis of disparate impact. Rather, AMS will leave the development of 
evidentiary proof to the facts and circumstances of specific cases and 
to the tribunals' processes and burdens for producing evidence. AMS has 
investigatory and enforcement capabilities to determine whether 
violative conduct has occurred under the Act. AMS's investigative 
powers are extensive and include the ability to examine regulated 
entities' records and compel testimony. AMS may investigate to 
determine whether a regulated entity's disparate treatment of a 
producer was on the basis of a protected class as specified in this 
regulation.
    Moreover, as described in Section V--Changes from the Proposed 
Rule, subsection D--Retaliation Provisions, AMS changed ``because of'' 
to ``based upon.'' Paragraph (b)(1)'s prohibition as ``based upon'' is 
intended to be broader than ``but for'' causation and so capture when 
the protected characteristics or status are a material, or non-trivial, 
element of the decision to take an adverse action against a covered 
producer. AMS expects that fact-finding tribunals will establish the 
necessary processes for proving these elements, with an eye toward the 
protections for covered producers and for open, inclusive markets that 
this rule is designed to provide. AMS underscores that discriminatory 
intent is not an element of this final rule and need not be shown to 
establish a violation, for example, where the regulated entity cannot 
proffer a non-discriminatory business reason that fully justifies the 
adverse action, or where the producer can show that such reason offered 
was pretextual, a sham, or otherwise does not negate the presence of 
the prohibited bases as a material element of the action.
    Comment: An academic institution expressed support for AMS's 
efforts to protect historically disadvantaged groups within the 
stockyard and packing industries but suggested it may be more effective 
to address the barriers to entry these groups face related to the 
specialized education and training required by these industries. The 
commenter recommended that AMS make agricultural and industry-specific 
training and education more accessible to minority populations.
    AMS Response: This rule is designed to strengthen the regulatory 
protections afforded to producers by the Act. AMS intends to conduct 
education and outreach to producers to help them understand their 
rights under these acts. Additionally, greater access to specialized 
training and education could be helpful to stopping market exclusion of 
underserved producers. AMS and other USDA agencies conduct a range of 
programs to support producer education, with the goal of remedying 
market exclusion of underserved producers. However, providing 
specialized training oriented toward enabling members of historically 
disadvantaged groups to become more effective livestock producers is 
outside the scope of this rulemaking.

[[Page 16137]]

ii. Proposed Rule Is Unnecessary
    Comment: Several industry associations contended the proposed rule 
is duplicative and therefore not necessary. According to these 
commenters, the conduct addressed in the proposed rule is already 
prohibited under the Act and existing regulations, citing the ``Undue 
and Unreasonable Preferences and Advantages Under the Packers and 
Stockyard Act'' final rule (the 2020 Rule).\179\ The commenters 
explained the 2020 Rule identifies factors for determining whether 
disparate treatment of similarly situated producers is justified. If 
the disparate treatment is not justified, it is likely to be deemed an 
undue or unreasonable preference. Commenters noted the proposed rule 
would prohibit several forms of disparate treatment of covered 
individuals, indicating proposed Sec.  201.304(a)(2) would make it a 
violation for a regulated entity, in dealings with covered producers, 
to prejudice, disadvantage, inhibit market access, or otherwise take 
adverse action. Examples of prejudice or disadvantage specified in the 
proposed rule include offering less favorable contract terms than are 
customarily offered; refusing to deal; differential contract 
performance or enforcement; or termination or non-renewal of a 
contract. According to the commenters, these actions are already 
prohibited under Sec.  201.211 because they are not justified based on 
cost savings, based on meeting a competitor's terms, or as a business 
decision.
---------------------------------------------------------------------------

    \179\ 85 FR 79779, December 11, 2020.
---------------------------------------------------------------------------

    An industry association asserted establishing antidiscrimination 
law under the proposed rule is unnecessary because civil rights laws 
already are well-established. The commenter also contended the proposed 
rule would not address the market inequities faced by producers not 
included in the protected classes, and the vague proposed definition of 
market vulnerable individual would likely result in litigation creating 
additional hardship for the individuals the rule seeks to protect.
    An individual indicated the proposed rule would not be effective in 
addressing prejudices or threats of prejudice in the marketplace and 
instead recommended AMS take action to create more packers, which would 
facilitate greater market access.
    AMS Response: AMS agrees with the commenters that the conduct at 
issue is prohibited under the Act and, in some circumstances, could be 
enforceable under existing rules and regulations. However, AMS 
disagrees with commenters who said this rule is duplicative of the 2020 
Rule. In response to the proposed rulemaking that preceded the 2020 
Rule,\180\ AMS received numerous comments raising concerns regarding 
discriminatory and retaliatory practices; however, AMS stated that the 
2020 Rule was published for the narrow purpose of establishing criteria 
to consider when assessing whether a violation of sec. 202(b)'s 
prohibition against undue preferences or unreasonable advantages 
occurred.
---------------------------------------------------------------------------

    \180\ 85 FR 1771.
---------------------------------------------------------------------------

    The 2020 Rule established four criteria the Secretary 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 set forth in 
the rule itself, the criteria are not exhaustive and not determinative. 
The rule offers limited guidance regarding how it is to be applied.
    The 2020 Rule did not include the prohibited bases of 
discrimination set forth in this rule because it asserted that they 
were undue prejudices, rather than undue preferences, which are 
distinct prohibitions in the statutory text.\181\ Specifically, the 
2020 Rule's preamble noted that discrimination on the basis of race, 
gender, and other such protected bases was unlawful and would be 
addressed under the Act's prohibition against undue prejudices.\182\ In 
August 2021, AMS reiterated this policy in a series of Frequently Asked 
Questions (FAQs).\183\ This final rule affirms that approach, in that 
the 2020 Rule clarifies undue preference while this rule clarifies 
undue prejudice. Moreover, this rule provides clarity, specificity, and 
certainty in the application of the Act, which will facilitate 
compliance and enforcement by regulated entities and better inform 
covered producers of their protections under the Act.
---------------------------------------------------------------------------

    \181\ Montclair v. Ramsdell, 107 U.S. 147, 152 (1883) (Courts 
should ``give effect, if possible, to every clause and word of a 
statute, avoiding, if it may be, any construction which implies that 
the legislature was ignorant of the meaning of the language it 
employed'').
    \182\ 85 FR 79787.
    \183\ USDA, Agricultural Marketing Service, ``Frequently Asked 
Questions on the Enforcement of Undue and Unreasonable Preferences 
under the Packers and Stockyards Act,'' August 2021, https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq.
---------------------------------------------------------------------------

    AMS is not aware of a separate Federal law or rule that would cover 
the circumstances outlined in this final rule. This rule sets forth how 
certain adverse actions by regulated entities give rise to unjust 
discrimination and prejudice that, on their face, are unjust and undue 
and undermine a competitive market. This rule addresses the unique and 
often difficult-to-prove discriminatory conduct that has long existed 
in the agricultural sector by prohibiting specific bases of prejudicial 
action. In doing so, AMS is clarifying the application of the Act, 
better empowering producers to protect themselves, and encouraging 
companies to adopt more robust compliance practices to snuff out 
prohibited conduct prohibited by the Act in its incipiency, before, in 
the aggregate, it can distort markets. In particular, this rule 
addresses the longstanding and often difficult-to-counter forms of 
exclusion that have plagued the agricultural sector for decades. AMS 
intends for this rule to support positive trends toward inclusivity in 
the marketplace. As noted above, all commenters, including industry 
commenters, affirmed that prejudices on the basis of race, color, 
religion, national origin, sex, age, disability, and similar bases have 
no place in today's modern agricultural markets.
    Demographic information is seldom recorded in agricultural 
transactions; therefore, it is difficult to quantify discrimination, 
unlike in other sectors such as housing and banking. Furthermore, in 
highly concentrated agricultural markets with few minority 
participants, further defining the Act to include a list of prohibited 
bases of unjust discrimination helps ensure fair competition for all 
farmers. This rule will help all producers better understand their 
rights under the law and come forward when they recognize instances of 
unjust discrimination. This rule will help USDA to better enforce the 
Act. In addition, as AMS has determined not to use the market 
vulnerable individual approach in the final rule, commenter concerns 
that the definition for market vulnerable individual will lead to 
litigation are moot.
    AMS acknowledges one commenter's recommendation that AMS take 
action to reduce concentration in the meatpacking industry and create 
more packers, with the goal of facilitating greater market access for 
livestock and poultry operations. This recommendation was made out of 
skepticism that the rule would change

[[Page 16138]]

conduct by regulated entities and substantially enhance market access 
for covered producers. While not directly addressing this specific 
recommendation, AMS is including a recordkeeping requirement to support 
evaluation of regulated entity compliance and thus facilitate effective 
enforcement of the statute. The USDA has also taken a number of steps 
to support small meat processors, including through hundreds of 
millions of dollars invested to support competition in the processing 
market.
iii. Specific Challenges or Burdens Regulated Entities May Face in 
Complying With Proposed Undue Prejudices Provisions
    AMS asked about specific challenges or burdens regulated entities 
may face in complying with the undue prejudice provisions of the 
proposed rule. It also requested comment on how the undue prejudices 
provisions differ from existing policies, procedures, and practices of 
regulated entities.
    Comment: Industry commenters said the vague terms in the proposed 
rule present an additional challenge for compliance. Commenters cited 
unclearly defined terms such as ``inhibit market access'' and ``adverse 
action,'' saying they make it impossible for regulated entities to 
determine what constitutes a violation and how to comply with the 
proposed regulations. Similarly, commenters noted it is not clear how 
the regulated entity would determine whether contract terms are ``less 
favorable,'' or how contracts executed at different times, in different 
regions, or in different economic conditions would be compared.
    AMS Response: ``Inhibit market access'' means excluding producers 
from livestock and poultry markets outright or erecting barriers to 
market access that prevent producers from earning the full value of 
their animals. AMS rejects the need to define ``adverse action'' 
because this would too greatly constrain the application of the 
regulation. Based on its regulatory experience, AMS believes regulated 
entities are fully aware of when their economic interactions with 
covered producers, including contracting, the operation of contracts, 
termination of contracts, or refusing to deal, result in adverse 
economic outcomes for producers. However, to provide greater clarity, 
the final rule provides greater specificity with respect to prohibited 
actions as set forth in Sec.  201.304(a)(2), as described earlier.
    The scope of prohibited conduct regarding adverse actions is 
clarified by the shift from market vulnerable individual to membership 
in a protected class as the prohibited bases of unjust discrimination; 
the focus of the inquiry should be on those bases. If a regulated 
entity offers a covered producer less favorable contract terms 
principally or substantially because the covered producer belonged to 
one of the protected classes, it violates the law and this rule.
iv. Sufficient Addressing of Concerns Regarding Tribal Members, Tribes, 
and Tribal Government Entities That Sponsor or Manage Regulated 
Entities
    AMS requested comment on whether the provisions on undue prejudice 
adequately address concerns regarding inequitable market access for 
Tribal members and Tribes. It also requested comment on how it should 
handle Tribal government entities that sponsor or manage regulated 
entities. AMS asked whether it should permit compliance with proposed 
Sec.  201.304(a) to be substituted for compliance with Tribal 
government rules, policies, or guidance governing equitable market 
access.
    Comment: Commenters urged AMS to consult with Tribal organizations 
engaged in agricultural policy and livestock production projects, such 
as the Intertribal Agricultural Council and the Native Farm Bill 
Coalition.
    AMS Response: AMS engaged in an extensive Tribal Consultation 
pursuant to USDA and Federal treaties governing U.S. relations with 
Indian Tribes. AMS's principal conclusion was that Tribal governments 
have important duties to serve their members that may require them to 
treat non-Tribal members less favorably. Accordingly, AMS has 
established a legitimate business justification as an exception to the 
prohibition of unjust discrimination against covered producers on the 
bases of protected classes (race, color, religion, national origin, sex 
(including sexual orientation and gender identity), disability, marital 
status, age of the covered producer or the covered producer's status as 
a cooperative) when the regulated entity is a Federally-recognized 
Tribe, including its wholly or majority-owned entities, corporations, 
or Tribal organizations, that is performing Tribal governmental 
functions. The agency describes its rationale for creating this 
exception in greater detail above, as well as below under the Tribal 
Consultation section.
v. Treatment of Private Industry Programs Aimed at Establishing 
Preferences Intended To Address Systemic Inequality
    AMS requested comment related to private industry programs aimed at 
establishing preferences intended to address systemic inequality by 
partnering with Black producers or similar programs designed to address 
socially inclusive supply chains. It asked whether, if such programs 
were present in livestock and poultry markets, it should evaluate them 
and determine them to be undue preferences pursuant to the criteria in 
9 CFR 201.211. It also requested suggestions on ways to address 
relevant concerns.
    Comment: Agricultural advocacy organizations indicated this 
question relates to what is considered an ``undue'' preference. The 
commenters noted a program, practice, or policy that provides 
opportunities to producers who have been vulnerable to unfair market 
practices in the past may be a justified form of preference rather than 
an undue preference.
    AMS Response: AMS takes note of the commenters' belief that a 
justified preference would likely apply in those circumstances and that 
this rule governs undue or unreasonable prejudices or disadvantages. As 
discussed above, the 2020 Rule establishes criteria for the Secretary 
to consider when assessing whether a preference is undue. To the extent 
that there may be situations where the 2020 Rule and this final rule 
would arguably both apply, AMS would take a facts-and-circumstances 
approach to decide which rule applies. Accordingly, AMS makes no 
change.
vi. Appropriateness of Proposed Rule's Protection for Cooperatives
    AMS requested comment on whether the proposed regulation would 
provide appropriate protection for cooperatives, particularly with 
respect to the fact that their structure and organization varies across 
livestock and poultry markets.
    Comment: A group of State attorneys general and an academic 
institution expressed support for the proposed protection for 
cooperatives, noting these protections will ensure small farmers can 
continue to compete in the market. Agricultural advocacy organizations 
recommended AMS revise the reference to ``cooperative'' in proposed 
Sec.  201.304(a)(1) to refer to ``cooperatives or other association of 
producers'' because many producer associations designed to give covered 
producers more leverage in the market are not structured as 
cooperatives, noting this recommended change is consistent with

[[Page 16139]]

the producer association definitions related to the protections 
provided in the Agricultural Fair Practices Act.\184\
---------------------------------------------------------------------------

    \184\ 7 U.S.C. 2302(2).
---------------------------------------------------------------------------

    AMS Response: AMS has included cooperatives as a class protected 
against prejudice or unjust discrimination because cooperatives are an 
important tool for smaller producers to countervail the market power of 
regulated entities, whether due to market concentration or the inherent 
power imbalance that exists in livestock supply chains between a small 
number of processors and a much larger number of producers. This 
inclusion of cooperatives as a protected class reaffirms the strong 
statutory authority Congress has provided cooperatives in agricultural 
markets, as manifested by its passage in of the Capper-Volstead Act, 
which permits producer cooperatives to collectively process, prepare 
for market, handle, and market their products.
    Adverse treatment at the hands of a regulated entity based on a 
grower exercising their right to join such an organization, including a 
cooperative or an association, is the exact conduct this provision 
addresses. However, the prohibition of regulated entities prejudicing a 
cooperative focuses on the cooperative's market interactions with the 
regulated entity compared to entities that are not cooperatives, and 
not on the formation or association of the cooperative itself.
    Collectively, members of cooperatives are better able to gain 
access to markets, leverage negotiating power when dealing with 
regulated entities, and meet volume demands based on their ability to 
pool outputs. The rule supports covered producers in using 
procompetitive cooperatives to their fullest extent. This rule aims to 
ensure equal treatment of covered producers by regulated entities, 
regardless of whether or not a grower has exercised its right to join a 
grower organization or association. For these reasons, AMS has not 
changed Sec.  201.304(a) to include ``or other association of 
producers.''
    AMS notes that many producer associations are designed to give 
their members certain benefits, including some ability to negotiate 
with regulated entities around certain outcomes in the market. However, 
cooperatives are the only group of agricultural producers with explicit 
ability to cooperate and contract collectively with regulated entities, 
which includes Federal antitrust law exemptions not enjoyed by other 
types of associations. Nonetheless, AMS notes the importance of covered 
producers forming associations that may offer benefits to their members 
outside of collective contracting. To that end, the final rule in Sec.  
201.304(b)(2)(iii) provides important new protections against 
retaliation for forming or joining an association.

D. Specific Actions Constituting Prejudice or Disadvantage (Sec.  
201.304(a)(2))

    AMS proposed a non-exhaustive list of prejudicial actions that the 
regulation would prohibit, including offering less favorable contract 
terms, refusing to deal, differential contract enforcement, and 
contract termination or non-renewal.
i. Appropriateness of Specific Prejudicial Acts in Proposed Sec.  
201.304(a)(2)
    AMS requested comment on the appropriateness of the specific 
prejudicial acts in proposed Sec.  201.304(a)(2), as well as whether it 
should include any other forms of prejudicial conduct.
a. Offering Contract Terms Less Favorable Than Those Generally or 
Ordinarily Offered
    AMS requested comment on whether offering contract terms less 
favorable than those generally or ordinarily offered should be 
considered a specific prejudicial or disadvantageous action against 
covered producers.
    Comment: A cattle industry trade association and an agricultural 
advocacy organization proposed amending the prohibition of offering 
contract terms ``less favorable than those generally or ordinarily 
offered'' to reflect the fact that little is known about terms 
contained in forward contracts. They noted that it is unclear if the 
terms of forward contracts should be considered ``generally or 
ordinarily offered'' because, for example, atypical bonuses can be 
offered to a select number of preferred feedlots. If these bonuses are 
rarely offered, they may fall outside of the scope of ``generally or 
ordinarily offered,'' but would still disadvantage the other feedlots 
(market vulnerable individuals) that do not receive them. The 
commenters suggested AMS should instead compare specific terms of 
individual purchase agreements or contracts to determine violations.
    AMS Response: Given the unique contract types in the cattle 
industry, AMS recognizes that certain premiums, discounts, and bonuses 
may not be ``generally or ordinarily'' offered. In this final rule, AMS 
is preserving the ability of regulated entities to be flexible in the 
types of contracts they offer to producers, with different producers 
having different contracts based on the particular quality and type of 
service provided for in the contract. Whether terms are generally or 
ordinarily offered is specific to the facts and circumstances of each 
case, including in comparison to similarly situated producers--a 
clarification which the final rule establishes. ``Generally or 
ordinarily offered to similarly situated producers'' is a fact-specific 
inquiry which looks to the contracting practices of the regulated 
entity, including how the regulated entity contracts for similar 
products or services with similar producers. While the rule does not 
guarantee any producer any particular contract terms, AMS underscores 
that the purpose of the rule is to prevent an adverse action based upon 
an unlawful basis. A refusal to offer a contract term based upon the 
producer's race, color, religion, national origin, sex (including 
sexual orientation and gender identity), disability, or marital status, 
or age would weigh heavily in any analysis, as it inherently implies 
that the regulated entity is in the market to contract with those terms 
by others in the market. Such a circumstance is different than refusing 
to offer a contract because the producer is unable to meet special 
contract requirements.
    AMS recognizes the existence of information asymmetry between 
regulated entities and covered producers, including in relation to what 
contract terms are commonly offered or not. AMS notes the availability 
of other tools to address that challenge, including new initiatives 
such as AMS's Cattle Contract Library Pilot, which provides disclosure 
into contract terms offered by packers with greater than 5 percent of 
the national market share, including disclosure of any contract 
specifications on financing, risk-sharing, and profit-sharing.\185\ AMS 
also operates a Swine Contract Library, which provides transparency 
into contract terms in the swine sector.\186\ When in doubt, AMS 
encourages covered producers to contact PSD. AMS is making no changes 
to the regulation as

[[Page 16140]]

proposed in response to these comments.
---------------------------------------------------------------------------

    \185\ Final Rule, ``Cattle Contract Library Pilot Program,'' 
Agricultural Marketing Services, December 2022, 87 FR 74951. For 
more information, see also Agricultural Marketing Service, Cattle 
Contract Library Pilot, at https://www.ams.usda.gov/market-news/livestock-poultry-grain/cattle-contracts-library (last accessed Dec. 
2023). Note, as of the date of publication of the Pilot in January 
2023, no covered packers reported to AMS contract specifications 
with financing, risk-sharing, or profit-sharing.
    \186\ Agricultural Marketing Service, Swine Contract Library 
Information, at https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/regulated-entities/swine-contract-library (last 
accessed Dec. 2023).
---------------------------------------------------------------------------

b. Refusing To Deal
    AMS requested comment on whether refusing to deal should be 
considered a specific prejudicial or disadvantageous action against 
covered producers.
    Comment: A cattle industry trade association and an agricultural 
advocacy organization recommended including in the prohibition on 
``refusing to deal'' instances where a producer who ordinarily markets 
their livestock in the cash market is denied a bid unless they enter a 
forward contract with the regulated entity.
    AMS Response: AMS is aware that market concentration in the cattle 
industry has had a negative effect on negotiated cash markets and on 
the ranchers who choose to deal exclusively in those markets, but the 
impact of thinning cash livestock markets on the ability of producers 
to use cash markets and freely enter forward contracts with regulated 
entities is outside the scope of this rulemaking. AMS will further 
consider the commenters' recommendations in the context of other 
rulemaking initiatives such as rules focused on particular species of 
livestock and evidentiary patterns of abusive conduct. AMS is making no 
further changes to the regulation as proposed in response to these 
comments.
c. Other Comments on Appropriateness of Specific Prejudicial Acts
    Comment: Two farmers unions and several organizations generally 
supported the appropriateness of the list of specific prejudicial acts, 
but also recommended adding the phrase ``including, but not limited 
to'' to provide flexibility in evaluating future acts of discrimination 
or prejudice. An academic institution also endorsed the non-exhaustive 
list of specific actions provided in this section, suggesting the 
listed actions would reduce uncertainty in the industry and make this 
section of the rule easier to enforce.
    AMS Response: This rule is not intended to limit AMS's ability to 
enforce the Act. Instead, the rule aims to better define the Agency's 
enforcement authority so that enforcement actions are more successful. 
AMS agrees with the commenters that listing specific prohibited 
prejudicial acts will aid enforcement efforts. The agency also agrees 
that such a list is meant to be exemplary, not exhaustive. To this end, 
``any other action that a reasonable covered producer would find 
materially adverse'' has been added to Sec.  201.204(a)(2) to indicate 
that a variety of other adverse actions done on a prohibited basis 
against covered producers may violate this section. The facts and 
circumstances of each case will be assessed in light of these 
provisions when determining whether the conduct in question violates 
the Act.
    Comment: A swine industry trade association said that the specific 
``prejudicial or disadvantaging'' acts listed, as well as the proposed 
rule's intimation that the list is ``non-exhaustive,'' would result in 
a vague and overbroad definition of prejudicial conduct. The commenter 
argued that terms such as ``favorable'' and ``generally or ordinarily 
offered'' vary with market conditions over time and would have to be 
ironed out in courts through costly litigation.
    AMS Response: AMS has adequately described the type of conduct 
prohibited under this rule by expressly stating that undue prejudice 
and unjust discrimination on specified prohibited bases constitutes a 
violation under the Act.
    AMS addressed concerns of vagueness by further defining conduct 
that is prejudicial or disadvantageous to producers in the final rule 
(as described in section V--Changes from the Proposed Rule). In 
particular, AMS has made a number of changes to provide additional 
clarity, specificity, and certainty to market participants relating to 
the list of adverse actions set forth in Sec.  201.304(a)(2). In 
response to the commenter's concern that ``generally or ordinarily 
offered'' is a concept that may vary with market conditions over time, 
AMS revised the regulation to state ``generally or ordinarily offered 
to similarly situated covered producers.'' Including this phrase in the 
final regulations provides more specificity with respect to the current 
market context in which the regulation would be applicable. Paragraph 
(a)(2)(vi) was added to limit the list to any other adverse action that 
a reasonable covered producer would find materially adverse. The final 
rule also adds two exceptions to the rule in new paragraph (a)(3), 
which provides further specificity to the rule by defining specific 
actions which are not considered prejudicial conduct under this rule.
    Nevertheless, AMS reads the statutory term ``prejudicial'' to be a 
broad term, that covers all acts that cause harm to covered producers 
on a prohibited basis with respect to livestock, meats, meat food 
products, livestock products in unmanufactured form, or live poultry. 
While the term ``prejudicial'' encompasses a broad range of conduct, it 
is not vague. This rule does not prohibit all harms that may be 
inflicted on covered producers by regulated entities, rather, only 
those prejudicial acts related to livestock, meat and poultry that 
occur on a prohibited basis.
    Comment: A cattle industry trade association said AMS should not 
prohibit the specific acts outlined in the rule because they are 
important tools that allow the free market to function. The commenter 
suggested that, while less favorable terms or contract terminations are 
unfavorable results for producers that experience them, they are 
important outcomes that incentivize producer innovation. If these 
specific acts are prohibited, the trade association argued, regulated 
entities would need to resort to ``vanilla'' standardized contracts 
that would degrade consumer outcomes and impair superior producers' 
profit opportunities.
    AMS Response: AMS rejects the argument that discrimination on the 
basis of race, color, religion, national origin, sex (including sexual 
orientation and gender identity), disability, marital status, age of 
the covered producer, or the covered producer's status as a 
cooperative, or retaliation is a free market value. Engaging in that 
unjust discriminatory conduct would exclude participants from the 
market, rather than encourage them.
    Moreover, the members of the trade association were mistaken even 
with respect to the original proposal protecting market vulnerable 
individuals. Regulated entities are free to use contracting tools to 
develop incentives. But a tool used to unduly prejudice the vulnerable 
does not incentivize; it oppresses. Any other conclusion is contrary to 
the plain meaning of the Act. This rule aims to create an inclusive, 
fair, and equal environment for farmers and ranchers to conduct 
business by preventing instances of unjust discrimination and undue 
prejudice. The key concept here is that there shall be no 
discrimination on the protected bases regarding the offering of 
``general and ordinary'' contract terms. AMS concludes that the 
benefits of protecting farmers and ranchers from plainly unjustly 
discriminatory treatment outweigh the hypothetical prediction that such 
regulations will hamper efficiency or innovation. Inclusive markets 
breed innovation and efficiencies; they do not undermine them.
ii. Additional Forms of Prejudicial Conduct To Include
    AMS requested comment on whether the four specific prejudicial acts 
are appropriate as proposed, or whether there are other forms of 
prejudicial

[[Page 16141]]

conduct that should be specified. Where other specific conduct is 
identified, AMS sought examples of how these actions have been used to 
target market vulnerable individuals or cooperatives.
    Comment: An academic or research institution proposed adding a new 
specific action that would encompass ``information disclosure.'' The 
commenter defined information disclosure as failing to provide 
information materially relevant to a producer's operation while 
providing that information to one or more other producers. The 
commenter highlighted information asymmetry as a major fairness issue 
in livestock markets and suggested such asymmetry can heighten 
monopsony or oligopsony conditions. The commenter also cited the former 
Grain Inspection, Packers and Stockyards Administration's (GIPSA's) 
inclusion of information asymmetry in a 2010 proposed rule (the 2010 
GIPSA Rule),\187\ which defined undue or unreasonable prejudice or 
disadvantage as ``whether information regarding acquiring, handling, 
processing, and quality of livestock is disclosed to all producers when 
it is disclosed to one or more producers.'' The commenter encouraged 
AMS to use similar language in its final rule.
---------------------------------------------------------------------------

    \187\ Implementation of Regulations Required Under Title XI of 
the Food, Conservation and Energy Act of 2008; Conduct in Violation 
of the Act, 75 FR 35338, 35352, June 22, 2010.
---------------------------------------------------------------------------

    AMS Response: AMS is concerned about the negative impact 
information asymmetry, and the subsequent lack of transparency, has on 
producers. Information asymmetry could very well be used as a means of 
unjust discrimination if regulated entities preference certain 
producers over others through the information they choose to disclose. 
Such selective disclosure of information could cause those producers 
from whom information was withheld by regulated entities to lose out 
economically to those producers that received the information.
    In the final rule, AMS has added paragraph (a)(2)(vi) to address 
any other action that a reasonably covered producer would find 
materially adverse. If a covered producer can show they are materially 
harmed by information asymmetry, they will have a recourse under this 
rule. Additionally, the prejudicial act of differential contract 
performance or enforcement (Sec.  204(a)(2)(iii)) covers selective 
information disclosure in many circumstances. Withholding materially 
relevant information from a contractee that it previously made 
available to the contractee or which it makes generally or ordinarily 
available as part of its contract performance to other contractees is 
de facto differential contract performance or enforcement. A producer 
is likely to operate in a less-than-optimal manner regarding financial 
renumeration when the regulated entity it is contracting with has 
withheld materially relevant information that has been disclosed to 
other contractees. Such behavior will thus lead to differential 
contract performance or enforcement.
    AMS has not adopted the wide-ranging proposal on information 
asymmetry from the 2010 GIPSA Rule because it could inhibit the ability 
for regulated entities to select trusted partners with whom to engage 
in more complex, value-added production that may require specialized 
cooperation and information sharing.
    Addressing information asymmetry and improving transparency in 
interactions between covered producers and regulated entities is a 
focus of AMS and will continue to be a priority in rulemaking. AMS made 
no further changes to the provisions regarding undue prejudices in 
response to this comment.
iii. Different Types of Purchase Arrangements That Could Be Employed in 
a Prejudicial Manner
    AMS sought comment on whether there are other types of purchase 
agreements (outside of those generally or ordinarily offered), such as 
forward contracts, formula contracts, AMAs, or cash market purchases, 
that could be used in a prejudicial manner. AMS requested 
identification of these types and examples of how they have been used 
to target vulnerable individuals or cooperatives.
    Comment: Several commenters argued that AMAs are predatory and 
should be prohibited under any name. An agricultural advocacy 
organization said that market vulnerable individuals are often excluded 
from participating in these agreements and bear negative market 
consequences from this exclusion. The individuals suggested that a firm 
base price for covered producers should be established instead.
    AMS Response: This rule prohibits regulated entities from denying 
covered producers access to the purchase or sale of livestock on 
equitable terms, including through AMAs, on account of one of the 
rule's protected bases. AMS does not take a position in this rule on 
whether AMAs on principle are unfair or anticompetitive as such 
concerns are outside the scope of this rule.\188\ AMS made no further 
changes in responses to the comment.
---------------------------------------------------------------------------

    \188\ See, generally, https://www.afpc.tamu.edu/research/publications/710/cattle.pdf. However, see also: https://www.antitrustinstitute.org/work-product/aai-senior-fellow-peter-carstensen-responds-to-economic-research-on-marketing-of-beef-cattle-says-it-fails-to-address-market-power-and-buying-methods/.
---------------------------------------------------------------------------

iv. Include Other Differential Contract Terms
    AMS requested comment on whether other differential contract terms 
not listed in the proposed rule should be included when defining 
contract terms that are less favorable than those generally or 
ordinarily offered.
    Comment: A cattle industry trade association urged AMS to consider 
three additions to differential contract terms:
    1. Bonuses offered to select producers, which would disadvantage 
other producers who do not receive bonuses.
    2. ``Cost-sharing.''
    3. ``Cost-plus contracts'' where a regulated entity agrees to pay 
all the costs associated with purchasing and growing livestock, which 
disadvantages producers who do not receive cost-plus contracts.
    AMS Response: This rule addresses undue prejudices that can exclude 
covered producers from the marketplace. As such, the rule focuses on 
terms that a regulated entity offers which are less favorable to those 
generally or ordinarily offered. To the extent that a regulated entity 
generally, commonly, or ordinarily offers bonuses, cost-sharing, and 
cost-plus contracts, then the denial of those terms to covered 
producers on the grounds of belonging to a protected class is covered 
by this rule as forms of differential contract terms. It is not, 
however, AMS's experience that those terms are generally, commonly, or 
ordinarily offered to producers, and based on the reporting in AMS's 
Cattle Contracts Library Pilot, are rarely if ever offered.\189\ The 
rule does not prevent regulated entities from offering preferences to 
some producers, in particular for reasons relating to their choices in 
types of business relationships or how they incentivize quality of 
products or services delivered to them. This rule does not take a 
position on whether bonuses, cost-sharing, and cost-plus contracts may 
give rise to concerns of unfairness, undue preferences, or other 
concerns that are outside the scope of this rule.

[[Page 16142]]

Accordingly, AMS made no change in response to this comment.
---------------------------------------------------------------------------

    \189\ See Agricultural Marketing Service, Cattle Contract 
Library Pilot, available at https://www.ams.usda.gov/market-news/livestock-poultry-grain/cattle-contracts-library (2023).
---------------------------------------------------------------------------

v. Include the Action of Offering Less Favorable Price Terms, Contract 
Terms, and Other Less Favorable Treatment in the Course of Business 
Dealings
    AMS requested comment on whether AMS should include among the 
prejudices the action of offering less favorable price terms, contract 
terms, and other less favorable treatment in the course of business 
dealings than those generally offered to similarly situated producers.
    Comment: A plant worker said AMS should avoid evaluating less 
favorable price or contract terms because each contract is based on 
varying circumstances that will inevitably result in different prices 
or terms. The commenter suggested that evaluating differential terms 
for discrimination will hamper regulated entities and producers' 
ability to bargain or negotiate for appropriate contract terms.
    AMS Response: AMS agrees that contract prices commonly reflect a 
range of differences in circumstances between the contracting parties. 
To the extent that those prices reflect differences in product quality 
or service being provided, including transportation and delivery, 
parties are free to set prices in contracts as they wish. This rule 
focuses on exclusion or adverse actions on only the enumerated 
prohibited bases. Accordingly, AMS made no changes to the rule based on 
the comment.
vi. Allowance for Offering Less Favorable Price Terms, Contract Terms, 
and Other Less Favorable Treatment in the Course of Business Dealings 
for Legitimate Business Reasons
    AMS requested comment on whether an allowance be made for offering 
less favorable price or contract terms, or other less favorable 
treatment due to legitimate business reasons.
    Comment: A cattle industry trade association and agricultural 
advocacy organizations argued that legitimate business reason defenses 
should not be allowed because it would weaken the Act's purpose and 
allow continued harm to producers. A swine industry trade association 
and an industry company argued that exceptions should be provided for 
legitimate business reasons, and that AMS should: (1) provide clear 
examples delineating between legitimate and illegitimate forms of 
differential treatments, and (2) provide clarity on whose burden it is 
to prove that an act meets the legitimate business reason exception. 
The company asserted that without such an exception there would be 
frivolous litigation where regulated entities would have to defend 
legitimate behavior such as canceling contracts with producers who are 
found to have animal welfare violations. A plant worker agreed that 
legitimate business exceptions should apply, and pointed to California 
employment law's affirmative defense, which serves as a complete 
defense if a policy alleged to cause a disparate impact is found to be 
efficient for the business.
    Commenters expressed concern that the proposed rule did not define 
legitimate business justification. Commenters expressed concern that 
the proposed rule fails to provide the industry with specific 
exceptions or justifications for disparate treatment of producers, 
stating there are multiple reasons why different (less favorable) terms 
may be offered to certain producers and not others, and that these 
reasons are not insidious in nature but instead a result of market 
forces and other nondiscriminatory factors. Additionally, several 
poultry industry commenters noted that AMS suggests in the preamble a 
legitimate business reason may justify disparate treatment, yet it 
never explains what constitutes a legitimate business reason. Several 
poultry industry commenters provided examples of reasonable business 
decisions that would result in differential treatment and may violate 
the proposed rule as written despite their reasonableness. These 
commenters urged AMS to add regulatory text similar to that in Sec.  
201.211 to expressly protect reasonable business conduct and specify 
how a company would demonstrate that an action was based on a 
reasonable business decision. The commenters also said that, due to the 
complicated nature of business relationships, business decisions should 
be presumed reasonable unless proven otherwise. A poultry industry 
trade association provided examples of complex fact patterns and asked, 
given each situation, how the regulated entity could demonstrate 
actions were taken for appropriate reasons.
    An industry association contended proposed Sec.  201.304(a) would 
eliminate the statutory requirement in 7 U.S.C. 192 that adverse 
actions against a market vulnerable individual are only prohibited if 
they are undue or unreasonable. The commenter noted the statute only 
prohibits ``undue or unreasonable'' advantages and disadvantages, 
meaning advantages or disadvantages that lack a reasonable business 
purpose. However, the commenter pointed out that, under the proposed 
rule, if the action is ``adverse'' and it impacts a market vulnerable 
individual, even if it was based on a legitimate business reason, the 
regulated entity would be in violation of the regulations. The 
commenter also noted that enforcing contract rights is often ``adverse 
against'' the other party, but ``adverse'' does not mean inappropriate 
or unfair. Commenters cautioned the proposed rule may result in 
regulated entities giving all producers the same contract terms to 
avoid litigation, which would eliminate the market competition the Act 
was intended to protect.
    AMS Response: AMS agrees with commenters that legitimate business 
justifications exist for disparate treatment of producers. AMS does not 
agree, however, that there are many legitimate business justifications 
for prejudice or disadvantage on the basis of race, color, religion, 
national origin, sex (including sexual orientation and gender 
identity), disability, or marital status, or age of the covered 
producer. The rule seeks to prevent regulated entities from 
discriminating against producers on specific prohibited bases, 
retaliating against producers for exercising certain protected rights, 
and deceiving producers in the procurement of livestock. It does not 
limit the ability of regulated entities to make other business 
decisions, as long as they comply with the Act in that they are not 
unduly prejudicial or unjustly discriminatory. This includes 
terminating contracts for violating contractual provisions such as 
animal welfare policies. To clarify what types of conduct are allowed, 
the final rule delineates two specific legitimate justifications for 
discriminatory action by regulated entities against producers. 
Discriminatory conduct by a regulated entity falling in one of these 
categories is not prejudicial: (1) the regulated entity is fulfilling a 
religious commitment related to livestock, meats, meat food products, 
livestock products in unmanufactured form, or live poultry, and (2) a 
Federally-recognized Tribe, including its wholly or majority-owned 
entities, corporations, or Tribal organizations, that is performing 
Tribal governmental functions.
    AMS is adopting the religious exception to recognize the important 
role ritual slaughter plays in certain religious traditions. AMS is 
also recognizing the important roles that Tribes play as governmental 
units and operators of economic enterprises. In those governmental 
activities, as interpreted by the Supreme Court as well as Federal laws 
governing Tribal affairs, Tribes may require the flexibility to only 
purchase livestock from or sell meat to their members. AMS believes 
that actions following these two

[[Page 16143]]

principles do not amount to undue or unreasonable prejudice, 
disadvantage, inhibition of market access, or adverse action. Through 
its review of public comments and based on its experience, AMS finds 
these are the only two appropriate exemptions from the rule's broad 
prohibition against undue and unreasonable prejudices and 
disadvantages.
    AMS underscores that, in this rule, legitimate justification only 
applies to whether adverse actions against covered producers on a 
prohibited basis are still permissible. Where the adverse action is not 
on a prohibited basis or was not differential in its treatment of 
producers on the prohibited basis, then the question of there being a 
legitimate justification is not relevant.
    AMS disagrees with the comment that Sec.  201.304(a) would 
eliminate the statutory requirement that a prohibited prejudice, 
disadvantage, or discrimination is undue, unreasonable, or unjust. To 
the contrary, AMS finds that prejudice, disadvantage, or discrimination 
on the prohibited bases set forth in this final rule to be per se 
unjust, undue, and unreasonable. As commenters to this rule have 
acknowledged prejudicial treatment on the prohibited bases has no place 
in the market.

E. Retaliation (Sec.  201.304(b))

    AMS proposed addressing retaliation by outlining protected 
activities that a covered producer may engage in but that a regulated 
entity may not use as grounds for unjust discrimination or undue 
prejudice or disadvantage. The proposed regulations would have 
prohibited regulated entities from retaliating against covered 
producers for participating in a protected activity by terminating 
contracts, adversely differential performance or enforcement of a 
contract, refusing to renew contracts, offering more unfavorable 
contract terms than those generally or ordinarily offered, refusing to 
deal, interfering with third-party contracts, or other actions with 
adverse impact to covered producers. These proposed regulations are 
adopted in this final rule.
i. Usefulness of Regulatory Protections To Protect Producers From 
Retaliation
    AMS requested comment on whether the proposed prohibition on 
retaliation would assist producers in avoiding unjust market 
discrimination, accessing markets, obtaining meaningful price 
discovery, or preventing anticompetitive practices.
    Comment: Several organizations and an academic institution 
expressed support for the proposed rule's retaliation provisions, 
saying that poultry and meat companies take advantage of unbalanced 
power to create a climate in which farmers and ranchers fear 
retaliation for exposing unfair industry practices. One organization 
cited a recent anonymous survey of contract growers it had conducted, 
in which multiple respondents described experiencing retaliation from 
integrators and said integrators regularly terminate the contracts of 
farmers who engage in whistleblowing activities, leaving them with 
substantial debt tied up in specialized, single-use structures built as 
a condition of their contractual agreements.
    An agricultural advocacy organization said Sec.  201.304(b) as 
proposed fits easily within the scope of the Act's prohibitions on 
undue prejudice and unjust discrimination, closes a key enforcement 
gap, and represents a solid first step toward prohibiting unfair 
retaliation. An agricultural and environmental organization expressed 
support for the proposed provision but urged AMS to strengthen the 
final version. The commenter said regulated entities have deeply 
embedded retaliation into their business practices, leaving producers 
too intimidated to expose industry abuses. The commenter also cautioned 
that meat processors and live poultry dealers may attempt to find novel 
ways to retaliate against producers that do not directly violate the 
proposed rule, suggesting AMS broaden the range of protected producer 
activities and of prohibited retaliatory behavior.
    A poultry grower expressed support for the protections, saying 
integrators had taken measures, such as delivering poor inputs and 
imposing extended timeouts on flock placements, against him and other 
growers who spoke up against abusive integrator practices. This 
commenter also said cattle and pork producers take similar actions 
against producers who expose problematic practices. A meat industry 
trade association said the proposed rule would ensure that farmers and 
ranchers have access to a public forum necessary for open, transparent 
communication. Numerous individuals indicated support for the proposed 
rule's protections against retaliation, with many saying the proposed 
rule would allow farmers to engage in whistleblowing actions without 
facing repercussions and would thus promote consumer, environmental, 
and animal welfare concerns.
    AMS Response: AMS takes note of the commenters' support for the 
usefulness of the provisions. AMS designed the provision on retaliation 
to cover the core activities of being a producer--that is, activities 
are essential or unavoidable for producers in terms of their abilities 
to enjoy the full extent of their bargain and protect their economic 
rights. AMS notes that the provision that protects a covered producer 
who communicates or cooperates ``with a person for the purposes of 
improving production or marketing of livestock or poultry'' is broad. 
This covers many different scenarios not specifically named in this 
rule. AMS expects the retaliation provision of this rule to provide a 
significant measure of protection to covered producers against 
prohibited conduct, and likewise provide opportunity for redress, both 
to stop particularized harmful conduct, and keep it from persisting and 
causing greater harm. AMS chose this list of prohibited retaliatory 
practices based on conduct the agency identified as most commonly 
relevant to regulated entities' practices that exclude or penalize 
producers. This list is based on AMS's experience fielding complaints 
from producers, from its expertise in the operation of the livestock 
and poultry markets and practices of market participants, as well as 
the numerous comments to this rule that identified similar practices. 
AMS acknowledges there may be other forms of retaliation that would 
violate the Act that are not specifically delineated under this 
rulemaking. Prosecutorial discretion will determine what conduct is in 
fact retaliatory based on the facts and circumstances of each case. AMS 
made no further changes in response to these comments.
    Comment: An agricultural advocacy organization suggested AMS 
consider further developing the enforcement procedures for the 
retaliation provisions, as well as the evidentiary burdens associated 
with complainants and defendants. The commenter specifically 
recommended that AMS establish a burden-shifting approach which would 
establish that, once a complainant has made a prima facie showing that 
a covered producer was subjected to retaliation after engaging in 
protected activities, the regulated entity would have to show by clear 
and convincing evidence that they would have taken the same action in 
the absence of the producer's participation in protected activities. 
Shifting the burden to the regulated entity (who has the best access to 
proof about the underlying facts) once the complainant has met an 
initial threshold would reflect a public policy position against

[[Page 16144]]

retaliation. The commenter said this approach would track with that 
used in other Federal whistleblower protection regimes, such as the 
Criminal Antitrust Anti-Retaliation Act \190\ and the Whistleblower 
Protection Act applicable to the Federal civil service,\191\ and would 
draw on a key element of Title VII discrimination law that allows 
complainants to initiate proceedings without being forced to prove the 
respondents' state of mind.\192\
---------------------------------------------------------------------------

    \190\ See 15 U.S.C. 7a-3(b)(2)(C).
    \191\ See 5 U.S.C. 1221(e)(2).
    \192\ See, e.g., Young v. United Parcel Service, Inc., 575 U.S. 
206, 206-07, 228-30 (2015)
---------------------------------------------------------------------------

    AMS Response: As described in Section V--Changes from the Proposed 
Rule, subsection D--Retaliation Provisions, AMS changed ``because of'' 
to ``based upon.'' Paragraph (b)(1)'s prohibition as ``based upon'' is 
intended to be broader than ``but for'' causation and so capture when 
the protected characteristics or status are a material, or non-trivial, 
element of the decision to take an adverse action against a covered 
producer. AMS expects that fact-finding tribunals will establish the 
necessary processes for proving these elements. Moreover, AMS expects 
that evidentiary presentation may often follow those approaches to 
proving retaliation in other contexts as a function of the natural 
course of any litigation. AMS underscores that the rule is designed to 
protect producers' ability to engage in such covered activities, with 
the clarity provided by the rule specifically designed to assist 
producers in identifying and acting in a manner to effectuate their 
rights. AMS further notes that the prohibition on adverse actions taken 
on pretext are prohibited under 9 CFR 201.306 as established by this 
rule.
    Comment: An organization said the proposed anti-retaliation 
provisions should cover violation disclosures made within the chain of 
command or as part of the producer's job duties because farmers and 
ranchers often report issues internally as a first step in drawing 
attention to them before reporting them to regulators or going public 
with them.
    AMS Response: The rule as written protects covered producers from 
retaliation for protected activities, which include the assertion of 
contractual rights. Violation disclosures made within the chain of 
command or as part of the covered producer's contractual duties fall 
within the operation of the contract between the covered producer and 
the regulated entity, and as such may be expected to be covered by the 
rule. Accordingly, AMS made no change to the rule.
    Comment: Several industry trade associations said the retaliation 
provisions are not necessary because the ``conduct'' at issue is 
already prohibited by existing laws, such as 9 CFR 201.211 identifying 
the criteria used to determine whether an action is an undue or 
unreasonable preference or advantage.
    AMS Response: AMS agrees with the commenters that the retaliatory 
conduct at issue is prohibited under the Act and could be enforceable 
under existing rules and regulations, including criteria set forth in 9 
CFR 201.211.\193\ Compared to general criteria and interpretive 
guidance, this rule provides greater clarity, specificity, and 
certainty to how the Act applies, which will facilitate higher levels 
of compliance by regulated entities with the Act, broader enforcement 
of its provisions by AMS, and more informed producers, who will be in a 
better position to assert their rights established by the Act. 
Additionally, unlike Sec.  201.211, this rule focuses on preventing 
undue prejudices and disadvantages and does not focus on preferential 
treatment that is not discriminatory. Accordingly, AMS made no change 
to the rule.
---------------------------------------------------------------------------

    \193\ USDA, Agricultural Marketing Service, ``Frequently Asked 
Questions on the Enforcement of Undue and Unreasonable Preferences 
under the Packers and Stockyards Act,'' August 2021, https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq.
---------------------------------------------------------------------------

ii. Appropriateness of Specific Acts of Retaliation Listed in Proposed 
Sec.  201.304(b)(3)
    AMS requested comment on whether the specific retaliation acts 
listed in the proposed rule are appropriate. AMS also sought comment on 
whether there are other forms of retaliatory conduct that should be 
specified.
a. Termination or Non-Renewal of Contracts
    AMS requested comment on whether termination or non-renewal of 
contracts is appropriate as a specific retaliation act listed in the 
proposed rule. It noted that covered producers have expressed fear of 
this type of retaliation through communication with AMS personnel and 
in comments on previous related rulemakings.
    Comment: Numerous individuals said they are concerned about the 
prospect of farmers losing their contracts and their livelihoods if 
they raise issues with their treatment by poultry and meat companies.
    AMS Response: AMS takes note of the commenters' support for the 
usefulness of the provisions. AMS made a range of adjustments in the 
final rule to enhance the final rule's protections for covered 
producers.
b. Interference in Farm Real Estate Transactions or Contracts With 
Third Parties
    AMS requested comment on whether interference in farm real estate 
transactions or contracts with third parties is appropriate as a 
specific retaliation act listed in the proposed rule.
    Comment: A swine industry trade association said the proposed rule 
describes the retaliatory conduct too vaguely, making it difficult for 
a regulated entity to determine whether its actions would be 
prohibited.
    AMS Response: AMS believes that some degree of generality is 
necessary to capture the range of conduct that could give rise to a 
violation of the rule. However, the rule is not designed to prohibit 
every instance where a regulated entity's contracting decisions are 
unfavorable to a covered producer. For example, the rule would not 
apply where a regulated entity was engaged in unrelated business around 
the purchase or sale of farmland, or where a regulated entity chose for 
unrelated reasons not to continue a contract in the course of a covered 
producer's attempts to sell its farm. AMS believes that the wording of 
proposed Sec.  201.304(b)(3)(iv)--``[i]nterference in farm sale 
transactions or contracts with third parties''--is appropriately 
specific to prohibit regulated entities from retaliating against 
covered producers for engaging in protected activities. This is because 
the focus of an AMS inquiry would be to determine the reason for the 
interference. AMS would determine whether a regulated entity interfered 
in a farm sale or third party contracting; if such interference 
occurred, whether it was harmful to the covered producer; and whether 
the interference occurred because the covered producer engaged in 
protected activity. Additionally, in response to this comment, AMS has 
included explanatory language in the retaliation section (Section 
VI.C--Provisions of the Final Rule, Retaliation) discussing the adverse 
effects that interference with the transfer of farm real estate by a 
regulated entity has on producers.
iii. Delineation of Additional Forms of Retaliatory Conduct
    AMS requested comment on whether the specific acts of retaliation 
in the proposed rule are appropriate, and whether there are other forms 
of retaliatory conduct that should be specified.

[[Page 16145]]

    Comment: Several commenters, including a farmers' union, a group of 
State attorneys general, and several other organizations urged AMS to 
explicitly state that the list of specific prohibited acts of 
retaliation is not meant to be exhaustive, with several commenters 
suggesting AMS add the phrase ``including, but not limited to'' to the 
introductory clause of Sec.  201.304(b)(3). Commenters said 
establishing that prohibited activities are not limited to those listed 
would allow for future flexibility in addressing specific acts of 
retaliation that may arise.
    AMS Response: As explained in Section V--Changes from the Proposed 
Rule, subsection D--Retaliation Provisions, in response to these 
comments, AMS has added a new paragraph (b)(3)(vi) to prohibit ``any 
other action that a reasonable covered producer would find materially 
adverse.''
    Comment: A non-profit or other organization said the final rule 
should prohibit regulated entities from retaliating against any covered 
producers for any form of association, broadly defined, because 
allowing farmers to freely associate and to use a range of different 
communications platforms is necessary for the sector to flourish. An 
organization said the final rule should prohibit the offering of 
contract terms that are less favorable than those generally or 
ordinarily offered.
    AMS Response: Proposed Sec.  201.204(b)(2)(iii) provided broad 
protection against retaliation for a producer to form or join a 
producer or grower association and would cover all aspects of 
associations and cooperatives relevant to the business of livestock and 
poultry. Further, AMS acknowledges the importance of the freedom of 
association generally but underscores that the protections of the Act 
have limits. The Act is designed to protect covered producers in the 
business of livestock and poultry. AMS is not in a position to know or 
evaluate the full range of associations that individuals who are 
producers may join, and it would not be appropriate for AMS to be 
involved in encouraging or discouraging such associational activities, 
including whether regulated entities should be required to do business 
with covered producers that engage in those activities. Some 
associational activities unrelated to the business of livestock and 
poultry may expose regulated entities to reputational or other risks in 
the marketplace.
    Comment: An academic institution recommended that AMS include 
language making it clear that the prohibited retaliatory activities 
would encompass coercion or intimidation, such as threats to take one 
of the prohibited actions.
    AMS Response: This rule is intended to establish broad prohibitions 
against retaliatory activities that in AMS's experience have 
significantly inhibited producers' ability to freely compete and secure 
the full value of their products and services. AMS agrees that 
intimidation or coercion that would dissuade or coerce covered 
producers from engaging in the prohibited activities are covered under 
``retaliate or otherwise take an adverse action against a covered 
producer.'' In particular, intimidating or coercive conduct that 
credibly threatens retaliation prohibited by this rule would rise to 
the level of actionable adverse conduct under by this rule--which the 
Agency underscores further through its addition of Paragraph 
(b)(3)(iii) and (v) under the list of adverse actions. For example, if 
a regulated entity were to communicate to a producer stating, ``if we 
were you, we would not report to the government'' with the implication 
that the regulated entity might not renew their contract on favorable 
terms, AMS views this as a form of prohibited retaliatory conduct in 
its incipiency that this rule is intended to stop.
iv. Protection of Producers Who Choose Not To Participate in Protected 
Activities
    AMS requested comment on whether prohibitions on retaliation should 
protect producers who choose not to participate in protected 
activities. AMS provided the example of whether the provision should 
prohibit giving premiums or discounts for joining or not joining 
livestock or poultry associations.
    Comment: A cattle industry trade association said these 
prohibitions should expressly protect producers from coercive conduct 
that directs them to either join or not join a particular producer 
association. An agricultural advocacy organization said the retaliation 
provisions should cover circumstances in which regulated entities 
reward producers who do not join a producer association. An 
agricultural advocacy organization noted that the freedom to refrain 
from associating is as important as the freedom to associate and 
represents the other side of the same coin.
    AMS Response: AMS agrees that protected activities include the 
decision not to participate in such an activity. Based on its 
experience regulating the livestock sector, covered producers may be 
coerced by regulated entities to participate in associational 
activities or contact the government on regulatory and policy matters 
even when they may not agree. As recently as AMS's proposal on 
``Transparency in Poultry Growing Contracts and Tournaments,'' covered 
producers reported to AMS potentially coercive pressure by regulated 
entities on poultry growers to oppose the regulation. AMS also notes 
commenter statements that regulated entities have pressured and may 
continue to pressure covered producers to join associations to support 
industry stances with which they disagree. Accordingly, AMS has added 
Sec.  201.304(b)(2)(ii) and revised Sec.  201.304(b)(2)(iii) to clarify 
that the decision not to participate in the protected activities, 
respectively, of engaging in a voluntary communication with the 
government or of forming or joining an association are also covered by 
the rule's protections against retaliation.
v. Appropriateness of Bases of Protected Activities
    AMS requested comment on whether the bases of protected activities 
were appropriate, including the criteria for selection and application 
of those criteria. It further sought comment on whether the bases of 
protected activities are too broad, are too narrow, or should be 
changed in any other way. Comments received in response to this general 
inquiry are outlined below.
a. Communication With a Government Agency With Respect to Matters 
Related to Livestock, Meats, or Live Poultry or Petitions for Redress 
of Grievances
    Comment: AMS requested comment on whether communication with a 
government agency on matters related to livestock, meats, or live 
poultry or petitions for redress of grievances is appropriate to 
include as a protected activity under Sec.  201.304(b)(2).
    Several agricultural advocacy organizations said AMS should make 
clear that the proposed rule would protect producer communication with 
any sector or level of government by including all three branches of 
government in this provision, with one commenter also recommending AMS 
specify this provision applies to both State and Federal government.
    Several commenters recommended revised text as follows:

    ``(i) A covered producer communicates with a government agency, 
court, or legislature with respect to any matter related to 
livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry or petitions for redress of

[[Page 16146]]

grievances before a court, legislature, or government agency.''

    AMS Response: AMS agrees with the commenter and intends that the 
rule should include protections for communications with any of those 
entities, including any committee or member official of those entities. 
In this final rule, AMS is aligning the use of the terms ``government 
agency, court, or legislature'' and simplifying the language to 
``government entity or official.'' This change ensures that protected 
communications may occur with any of the three branches of governments 
and with individual government officials, including committees and 
members of a legislature. As proposed, the rule did not limit its 
protection to communication with the Federal government. By using the 
words ``government entity or official,'' the rule's plain language 
applies equally to communications with all levels of government--
Federal, State, Tribal, and local--with respect to the matters 
indicated.
b. Assertion of Rights Granted Under the Act, 9 CFR Part 201, or 
Contract Rights
    AMS requested comment on whether assertion of rights granted under 
the Act, 9 CFR part 201, or contract rights is appropriate to include 
as a protected activity under Sec.  201.304(b)(2).
    Comment: A group of State attorneys general said the proposed rule 
may inadvertently leave out protections for farmers who communicate 
their concerns directly to regulated entities, suggesting AMS target 
this gap by expanding Sec.  201.304(b)(2)(vii) (Sec.  201.304(b)(2)(ii) 
in the proposed rule) to include notification by a producer to the 
regulated entity of a potential breach of contract. An academic 
institution said protected activities should include the assertion of 
any civil right held by the producer, to the full extent feasible 
within the scope of AMS's authority. The attorneys general said that, 
while the proposed rule covers rights granted under the Act, the 
proposed rule, and contract rights, it does not encompass other rights 
a producer may have, such as whistleblower or other rights conferred by 
Federal or State law. An organization said the proposed rule should 
clarify, given the imbalance of power in contracting, that producers 
cannot waive the rights covered by this provision by any agreement, 
policy form, or condition of employment, including by a pre-dispute 
arbitration agreement.
    AMS Response: With respect to the suggestion that AMS revise Sec.  
201.304(b)(2)(vii) to include notification by a producer to the 
regulated entity of a potential breach of contract, the regulation as 
proposed protects producers' right to assert their contract rights, 
their rights under 9 CFR 201, and their rights under the Act. The 
language of this protection necessarily encompasses the act of 
communicating with regulated entities, including to prevent a potential 
breach of contract; otherwise, a producer would be unable to exercise 
their contract rights. Accordingly, there is no need to add further 
notifications by the producer to the regulated entities to the list of 
protected activities in Sec.  201.304(b)(2).
    With respect to the assertion of any civil right, the protected 
activities enumerated in Sec.  201.304(b)(2) were chosen because of 
their nexus to the business relationship between regulated entities and 
covered producers with respect to livestock, meats, meat food products, 
livestock products in unmanufactured form, or live poultry. To the 
extent that a contract between a regulated entity and a covered 
producer includes representations and warranties, including implied 
ones, relating to either party's compliance with other Federal or State 
laws, such as labor, health, and safety practices, this provision would 
extend to communications relating thereto. AMS notes that the 
protection afforded in Sec.  201.304(b)(2)(vi) covers supporting or 
participating as a witness in any proceeding with the regulated entity. 
The rule does not change any additional protections that may be 
provided under other Federal or State anti-retaliation laws.
    With respect to the request that AMS revise the rule to clarify 
that producers cannot waive rights covered by the rule, AMS believes 
that the commentors are mistaken about the structure of the Act and its 
regulations. AMS enforces this rule. Irrespective of any agreement 
between the contracting parties, AMS does not waive its 
responsibilities to enforce the Act. The Act and regulatory scheme are 
designed to vindicate the public interest in fair and honest markets. 
Thus, AMS regularly brings its own enforcement actions to sanction 
companies that violate the provisions of the Act, irrespective of the 
contracting parties' waivers of liability. A regulated entity that 
seeks a waiver from a producer through undue prejudice, retaliation or 
deception still violates the general provisions of the Act by using a 
deceptive, unfair, or unjustly discriminatory practice.
    To the extent that individuals waive their rights, AMS points the 
commenter to existing regulations at 9 CFR 201.218, which limit the use 
of mandatory arbitration clauses, as mandated by Congress in the 2008 
Farm Bill (Pub. L. 110-246). Specifically, those regulations require 
that the regulated entity offer the producer or grower a specific 
disclosure regarding the ability to decline a mandatory arbitration 
clause and indicate that failure to accept or decline the arbitration 
clause will be treated as if the clause is declined. Additionally, the 
regulation sets out criteria governing the reasonableness of the 
arbitration clause. Arbitration is a procedural forum that some parties 
may utilize to adjudicate substantive rights; arbitration clauses 
cannot waive substantive rights under contracts or the Act.
    Accordingly, AMS is making no changes to the rule in response to 
these comments.
    Comment: A swine industry trade association said the broad language 
of this provision could be read to mean that the proposed rule extends 
to the point that carrying out the terms of a contract is considered a 
protected activity.
    AMS Response: AMS agrees with the comment. The assertion of rights 
under a contract includes the covered producer's ability to assert 
contract performance. Accordingly, AMS is making no changes to the rule 
in response to this comment. However, as the commenter notes, asserting 
rights under a contract is not a protected activity under the Act and 
it is not the intention of AMS to incorrectly assert this false 
presumption through this rulemaking.
c. Assertion of Right To Form or Join a Producer Association or 
Collectively Process, Prepare for Market, Handle, or Market Livestock 
or Poultry
    AMS requested comment on whether assertion of the right to form or 
join a producer association or collectively process, prepare for 
market, handle, or market livestock or poultry is appropriate to 
include as a protected activity under Sec.  201.304(b)(2).
    Comment: An academic institution said the proposed rule should 
extend its protection of communications associated with asserting the 
rights named in proposed Sec.  201.304(b)(2)(iii) to also cover 
producers engaging in talks about these activities. The commenter said 
this change would ensure that retaliation protections clearly include 
the initial communications and negotiation process for producers taking 
steps to form or join a producer association or collectively process, 
prepare for market, handle, or market livestock or poultry.
    A whistleblower advocacy organization said it supported the

[[Page 16147]]

proposed rule's protection of the right to associate because 
retaliation would limit producers' ability to exchange information and 
engage in pro-competitive collaboration.
    Multiple individuals said participation in producer organizations 
and associations helps provide farmers with more access to information 
relevant to their businesses and promotes competition by enabling the 
production of better-quality products. A former trade association CEO 
said the social and informational benefits of association membership 
are especially important in the farming industry because of its 
potential for isolation. This commenter further suggested large 
agricultural companies would do well to appreciate the benefits of 
producer participation in such organizations, such as opportunities to 
make progress on solving problems, develop industry consensuses for 
presenting to government, and hear the perspectives of members with 
opposing views. An individual said producer organizations often act as 
a barrier between individual producers and consumers, and the proposed 
rule would prevent producer organizations from retaliating against 
producers who try to change this behavior and provide truthful 
information about the conditions under which their products are grown 
or raised. The commenter said this would protect farmers' right to 
organize to improve their pay and working conditions.
    AMS Response: AMS believes that the act of forming or joining an 
association clearly encompasses the act of communicating about the 
formation or joining, including examining the decision whether to form 
or join an association. All such activities are covered by the final 
rule. Therefore, AMS does not make any changes to the rule on those 
grounds.
    Additionally, AMS appreciates that producer organizations may at 
times be at odds with their producer members. However, producer 
organizations are not considered regulated entities under this 
rulemaking, and thus retaliatory conduct at the hands of such 
organizations is not covered. Producers have the choice to join or 
separate from such organizations based on their individual feelings 
surrounding the costs and benefits such membership brings. If producers 
feel as though their membership of an organization is serving as a 
barrier between them and consumers, thus preventing transparency 
regarding growing conditions, producers may find it advantageous to 
disassociate. Often producers do not have this luxury in their 
relationship with packers and integrators due to their reliance on 
these regulated entities and the absence of alternative buyers due to 
regional concentration.
    Comment: A swine industry trade association said Sec.  
201.304(b)(2)(iii) is overly broad, arguing that any covered producer 
that joins an industry association or seeks to do so would then have 
the means--based on that membership--to make a claim against a 
regulated entity for engaging in perceived retaliatory behavior.
    AMS Response: AMS disagrees with the commenter's assertion. The 
regulation protects the covered producer from retaliation for forming 
or joining an association or choosing not to join an association. It 
does not protect the covered producer from other acts that the 
association may take. This rule does not condone, for example, 
associational behaviors that violate the Sherman Act. Nor does this 
rule otherwise restrict the relationship between regulated entities and 
covered producers, whether the association may support or condemn 
particular acts or practices. Nor, additionally, does it suggest that 
the mere fact of forming or joining an association garner absolute 
protection from adverse actions by the regulated entity which are 
unrelated to forming or joining an association. Therefore, AMS has made 
no changes to the regulation as proposed.
d. Communication or Cooperation for Purposes of Improving Production or 
Marketing of Livestock or Poultry
    AMS requested comment on whether communication or cooperation for 
purposes of improving production or marketing of livestock or poultry 
is appropriate to include as a protected activity under Sec.  
201.304(b)(2).
    Comment: A swine industry trade association said this provision is 
too broad because it could be read to mean that many communications 
related to a producer's business are protected.
    AMS Response: AMS fully intends to protect many of the 
communications a producer makes in the ordinary course of business, so 
that the producer may freely operate in the market without fear of 
retaliation. Therefore, the regulation protects lawful communications 
and cannot, and does not seek to, absolve covered producers from 
unlawful communications. Section 201.304(b)(2) makes this clear by 
underscoring that the producers' activities are protected from 
retaliation only to the extent they are not otherwise in violation of 
Federal antitrust and other relevant laws. Furthermore, to find a 
violation of Sec.  201.304(b)(2) there must be a causal connection 
between the regulated entity's behavior and a producer's protected 
communications, including where a regulated entity makes a threat that 
would reasonably dissuade the covered producer from engaging in the 
protected activity. AMS made no changes in response to this comment.
e. Supporting or Participating as a Witness in any Proceeding Under the 
Act or a Proceeding Relating to an Alleged Violation of Law by a 
Regulated Entity
    AMS requested comment on whether supporting or participating as a 
witness in any proceeding under the Act or a proceeding relating to an 
alleged violation of law by a regulated entity is appropriate to 
include as a protected activity under Sec.  201.304(b)(2).
    Comment: An organization and several individuals indicated support 
for this protection, saying the ability to testify without fear of 
retaliation is crucial for promotion of fair and competitive livestock 
and poultry markets. Some of these commenters mentioned the example of 
cattle ranchers who declined to testify before Congress after facing 
threats and retaliation. The organization urged AMS to extend this 
protection to participation, assistance with, or intent to participate 
in any investigation of a possible violation of the Act.
    AMS Response: The regulation already extends this far. The proposed 
regulation protected any communication with a governmental entity, 
including a governmental agency, legislature, or court, with respect to 
livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry. This protection encompasses 
participation, assistance, or intent to participate in any 
investigation of a possible violation of the Act. AMS provided an 
additional protection with respect to serving as a witness because of 
the different and more public nature of such communication. 
Furthermore, to underscore the importance of respecting the independent 
functioning of the judicial process, the provision covers the covered 
producer's ability to serve as a witness in any proceeding against a 
regulated entity. AMS made no changes in response to this comment.
f. Other Comments on Appropriateness of Bases of Protected Activities
    Comment: A number of commenters urged AMS to expand the list of 
protected activities. An agricultural and environmental organization 
said AMS should disavow the proposed rule's position that adverse 
activities not tied

[[Page 16148]]

to the proposed list of protected activities would not receive 
protection under the rule, arguing that retaliation of any kind against 
producers exercising their lawful rights qualifies as unjust 
discrimination and an unreasonable prejudice under the plain meaning of 
the Act. The commenter urged AMS to instead include the following 
catch-all provision to protect covered producers from retaliation 
against other lawful conduct in service of livestock production and 
marketing:
    ``(viii) A covered producer engages in any lawful conduct for the 
purpose of improving production or marketing of livestock or poultry.''
    A farmers union said AMS should broaden the grievance-sharing 
activities producers can participate in to give producers more 
protection from retaliation.
    An agricultural advocacy organization said AMS should protect the 
ability of producers to freely associate with other farmers and other 
organizations, including using social media or other communication 
platforms.
    An agricultural and environmental organization said AMS should 
expand the list of protected activities to include situations in which 
producers maintain their status as independent participants on open 
markets, refusing to enter into forward contracts or other contractual 
agreements that set future price or performance at the regulated 
entity's request. According to the commenter, producers who resist 
entering into forward contracts and AMAs often face retaliation, and 
therefore the final rule should protect them. The commenter recommended 
AMS add another paragraph to Sec.  201.304(b)(2) as follows:
    (vii) A covered producer refuses to sell livestock or poultry 
through forward contracts, AMAs, or similar contractual arrangements, 
opting instead to engage in open market sales.
    An organization said lawful communications protected under the 
proposed rule should also include situations where a complainant 
provides information regarding conduct that they reasonably believe 
violates the Act or is about to do so. The commenter said that, because 
most people are not experts on their rights under the Act, the proposed 
rule should establish that complainants do not need to mention specific 
violations and that, as with similar corporate anti-retaliation 
measures, they do not need more than a subjective, good faith belief 
that the conduct at issue violates the Act. The commenter also said AMS 
should allow these complaints in any language and by means including in 
person, in writing, and by email.
    An academic institution said the protected activities listed in the 
proposed rule are all important in empowering producers to assert their 
rights and promote fair markets.
    AMS Response: AMS appreciates and shares the commenters' viewpoint 
that retaliation is a serious concern in the livestock and poultry 
industry. AMS has attempted to craft this regulation to respond to the 
most common and clearly defined forms of retaliation in the form of 
prohibited unjust discrimination on the basis of protected activities. 
The regulation does not seek to define every prohibited activity, as 
the Act may limit unjust discrimination in circumstances not foreseen 
by this final rule. If covered producers believe they have suffered a 
form of unjust discrimination that is prohibited by the Act, they 
should report that to AMS.
    AMS notes that communication with other producers for the purposes 
of improving the production or growing of livestock or poultry is 
already protected by the proposed regulation. Such communication may 
include sharing grievances over practices by regulated entities or 
others as such communications relates to covered producers' desire to 
overcome obstacles to improving or marketing their livestock or 
poultry.
    AMS acknowledges a commenter's concern regarding some covered 
producers' interest in not utilizing forward contracting for the sale 
of livestock. However, regulating whether covered producers have a 
right to any particular form of livestock sales transaction is outside 
the scope of this rule.
    AMS underscores that, to obtain the protection of this regulation, 
the producer need not engage in any particular form of the activity, 
such as quoting a precise regulatory section to assert an Act right. 
The focus will be on the substance of the producer's activities, and a 
good faith effort to assert an Act or contractual right is still 
protected from retaliation on the basis of that assertion regardless of 
the precision, imprecision, or even good faith inaccuracy of the legal 
or contractual right being asserted by the producer.
    Accordingly, AMS did not make any changes in response to the 
comments.
vi. Limiting of Protected Activities Relating to Communication and 
Cooperation, Beyond Government Entities, to USDA Extension and USDA 
Supported Non-Profit Entities
    AMS asked for input regarding whether protected activities related 
to communication and cooperation should be limited to USDA extension 
and USDA-supported non-profit entities, beyond government entities.
    Comment: Several commenters supported expanded protections for 
activities related to communication and cooperation. An agricultural 
advocacy organization said AMS should not limit these protections to 
USDA extension and USDA supported non-profit entities because producers 
may have concerns about their industry that extend past the 
department's jurisdiction, giving examples such as concerns about 
managing animal waste that fall under State and Federal environmental 
regulations or issues relating to veterinary drugs or animal feed that 
are regulated by the Food and Drug Administration.
    An academic or research institution and several organizations said, 
given the information asymmetry and lack of transparency in livestock 
and poultry production markets, AMS should extend protection to more 
types of communications that producers may want or need to pursue in 
preventing market exclusion and asserting their rights and protections. 
Commenters suggested AMS should protect producer social media posts 
about unfair integrator treatment, as well as producer communications 
with relevant third parties, such as lawyers and legal aid 
organizations, veterinarians and others doing work related to animal 
welfare, producer advocacy organizations, and the media.
    Several commenters said AMS should introduce this provision in a 
new Sec.  201.304(b)(2)(ii), with other commenters providing the 
following variations on recommended regulatory text:

    (ii) A covered producer takes an action through a non-
governmental third party that causes the producer's grievances 
against a regulated entity or a group of regulated entities to be 
known.
    and
    (ii) A covered producer communicates with a reporter, private 
investigator, public interest organization, or the general public 
through traditional media or social media with respect to any 
matters related to livestock, meats, meat food products, livestock 
products in unmanufactured form, or live poultry; so long as such 
communication does not expose a trade secret a regulated entity has 
reasonably and clearly identified in writing as a sensitive and 
confidential trade secret. A regulated entity's claim that any 
communicated information is a sensitive and confidential trade 
secret is not reasonable if the information is publicly available, 
shared by the regulated entity to any third party that is authorized 
to disseminate the information, or exposes standard industry 
practices common

[[Page 16149]]

among more than one regulated entity in the relevant market.

    AMS Response: AMS takes note of the commenters' recommendations of 
expanded protections for activities related to communication and 
cooperation. AMS believes that the commentators' concerns are largely 
addressed in the rule, which protects lawful communications with 
government agencies or other persons for the purpose of improving the 
production or marketing of livestock or poultry, exploring a possible 
business relationship, or supporting proceedings under the Act against 
a regulated entity, among other protected activities. The regulatory 
text provides broad coverage for these activities in Sec.  
201.304(b)(2)(iv) through (vi), without limitation. These 
communications are protected because they enhance producers' ability to 
receive protection under existing laws, improve the production process, 
and facilitate enforcement of contracts in ensuring producers receive 
their bargain for exchange. Communications unrelated to those purposes 
are outside the scope of this regulation.
    Whether social media communications are covered will depend on the 
protected activity in question and the particulars of the social media 
forum in question. Whether a public post by a covered producer about 
treatment by a regulated entity that the covered producer asserts to be 
in violation of the Act or is otherwise harmful to the producer may 
depend on the facts and circumstances of the post. For example, to the 
extent that the producer is testifying to Congress or courts regarding 
unfair treatment and the social media post simply refers to the 
testimony or describes the same material, then, for example, such a 
post would likely be protected, depending on the full scope of the 
facts and circumstances.
    Similarly, if the social media post is part of an effort to share 
information with other producers for the improvement of production or 
marketing or is part of an effort to form an association or engage in 
cooperative activities, that would likely be protected under this rule 
as well since the rule is agnostic as to the form of the communications 
between producers. However, AMS notes that the activities protected 
under this rule are covered to the extent that these activities are not 
otherwise prohibited by Federal, State, or Tribal law. For example, the 
rule does not provide an exemption from defamation laws.
    Nor does this rule attempt to preempt freedoms of the press. 
Whether a communication with a reporter or public investigation 
organization is covered will depend upon the facts and circumstances. 
The inquiry would need to balance the important role that freedom of 
the press plays in maintaining market integrity with legitimate 
expectations by a regulated entity of good faith behavior by a producer 
under a contract. Relevant questions include whether the communication 
was part of a factual effort to assist the reporter in understanding 
and reporting on asserted violations of law and regulation and whether 
the producer provided any confidential business information to the 
investigator or otherwise exposed the regulated entity to commercial 
risk or reputational damage unrelated to the violation in question. 
Also potentially relevant, in some circumstances, may be whether the 
producer has exhausted other avenues for resolving any dispute and also 
the extent to which the regulated entity has a reputation recognized in 
the market for retaliation which would otherwise place the producer in 
fear of asserting rights even with the presence of this rule.
    The rule does not provide unlimited license for producers to damage 
the reputation of regulated entities. A social media post principally 
functioning as a threatening or coercive public communication is 
unlikely to be covered, absent other extenuating facts and 
circumstances. AMS underscores that the rule is intended to facilitate 
lawful communication and the exercise of lawful economic rights by 
covered producers, and the promotion of competitive markets and markets 
with integrity. That goal is most effectively served by enabling 
producers to exercise contractual and legal freedoms, communicate with 
government, other producers, and competitor firms for the purposes set 
forth in this rule. Therefore, AMS makes no changes to the rule in 
response to these comments.
vii. Sufficiency of Proposed Anti-Retaliation Provision's Protection 
Regardless of Covered Producer's Type of Business Organization
    AMS requested comment on whether the proposed anti-retaliation 
provision provides sufficient protection for all types of covered 
producer business organizations.
    Comment: An agricultural advocacy organization indicated that this 
provision provides sufficient protection regardless of the covered 
producer's type of business organization.
    AMS Response: AMS made no changes in response to this comment.
viii. Extension of Protections for Exploring a Business Relationship to 
Such Activities With any Person, Rather Than Solely Regulated Entities
    AMS requested comments on whether protections for exploring a 
business relationship with a regulated entity are sufficient, or 
whether such protections should extend to exploring business 
relationships with any person, in addition to regulated entities.
    Comment: Several organizations asked AMS to broaden these 
protections to include communications and negotiations with any entity 
for the purpose of exploring a business relationship or alternative 
business model. According to these commenters, producers may want to 
explore alternative uses for industry livestock or poultry-raising 
infrastructure or add an additional type of agriculture to their 
operation. Several commenters said that while they recognize that 
producers who transition outside of the industry would no longer be 
covered under the Act or subject to many of the retaliatory actions 
covered by the proposed rule, they believe extending this protection is 
necessary so producers can fully explore all potential business 
opportunities without worrying about punishment if they do decide to 
retain their current business relationship.
    Several commenters recommended the following revisions to Sec.  
201.304(b)(2)(v):

    (v) A covered producer communicates or negotiates with a 
regulated entity, other commercial entity, or relevant consultant 
for the purpose of exploring a business relationship or alternative 
use or application of their property.

    AMS Response: The purpose of the provision is to preserve and 
promote the competitive position of the covered producer, and as such 
to ensure that the covered producer is not discouraged from seeking 
competitive alternatives by a regulated entity's retaliation. Paragraph 
(b)(2)(v) protects a covered producer's ability to communicate, 
negotiate, or contract with a regulated entity, another covered 
producer, another commercial entity, or consultant, for the purposes of 
exploring or entering into a business relationship. The Act is intended 
to ensure maximal competitive flexibility for covered producers. It may 
be the case that producers wish to explore a business opportunity by 
communicating, negotiating, or contracting with a consultant about 
forming a cooperative or, with a commercial intermediary such as an 
exchange or auction, or with another covered producer or commercial 
entity that may not yet be

[[Page 16150]]

a regulated entity but intends to engage in meat or poultry processing. 
It may also be the case that producers wish to negotiate with other 
covered producers for the purpose of jointly investing in a business 
venture such as a slaughter facility. Accordingly, AMS has amended the 
regulation to indicate that the final rule provides protection for a 
covered producer who communicates, negotiates, or contracts with a 
regulated entity, another commercial entity, another covered producer, 
or a relevant consultant, for the purpose of exploring a business 
relationship. AMS concludes that a consultant either works to benefit 
another commercial entity or works to benefit the covered producer, and 
so would be covered by the provision.
ix. Include Catch-All Clause in Proposed List of Regulatory Actions To 
Cover Offering of Less Favorable Contract Terms
    AMS requested comment on whether the proposed list of retaliatory 
actions should include a catch-all clause, such as ``offering contract 
terms that are less favorable than those generally or ordinarily 
offered.''
    Comment: Several organizations indicated support for a catch-all 
provision. The commenters said they would be in favor of prohibiting 
the retaliatory offering of less favorable contract terms as AMS 
suggested in the preamble to the proposed rule. Commenters said this 
addition would recognize the importance of contracts as a retaliatory 
weapon because of their effect on producers' financial well-being and 
would avoid a potential loophole for the proposed rule's prohibition on 
retaliatory termination or non-renewal of contracts and refusals to 
deal. One commenter suggested that AMS include a new provision saying 
``offering unfavorable contract terms that otherwise affect reprisal'' 
or ``offering contract terms that are less favorable than those 
generally or ordinarily offered'' is a prohibited action. However, 
several commenters recommended that AMS also introduce a second, 
broader catch-all provision to ensure that regulated entities cannot 
simply formulate new ways to retaliate against producers for engaging 
in protected activities. These commenters suggested that AMS add the 
following regulatory text to Sec.  201.304(b)(3) to achieve both aims:

    (v) Offering unfavorable contract terms in contract formation, 
contract modification, or contract renewal that affect reprisal.
    (vi) Any other action that adversely impacts a covered 
producer's financial or reputational interests or may result in 
diminished contract performance with the regulated entity.

    Unfavorable contract terms include, but are not limited to: price 
terms, including any base or formula price; formulas used for premiums 
or discounts related to grade, yield, quality, or specific 
characteristics of the animals or meat; the duration of the commitment 
to purchase or to contract for the production of animals; 
transportation requirements; delivery location requirements; delivery 
date and time requirements; terms related to who determines date of 
delivery; the required number of animals to be delivered; layout 
periods in production contracts; financing, risk-sharing, and profit-
sharing; or terms related to the companies' provision of inputs or 
services, grower compensation, or capital investment requirements under 
production contracts.
    AMS Response: AMS elected not to introduce a provision prohibiting 
the ``offering of contract terms that are less favorable than those 
generally or ordinarily offered'' to its list of prohibited retaliatory 
actions as requested by a commenter because retaliation is principally 
focused on protecting producers from adverse actions by regulated 
entities in which they already have establish or recurring contractual 
relationships. The list of adverse actions in paragraph (b)(3) was 
designed to provide examples of the most common forms of retaliation as 
discrimination addressed by this rule. However, the proposed rule was 
intended and drafted broadly so as to ensure producers can engage in 
protected activities at all times and with all regulated entities in 
the marketplace. As described in Section V--Changes from the Proposed 
Rule, the final rule provides more specificity. Yet the final rule 
would still protect a producer against adverse treatment by a regulated 
entity which may be seeking to chill those activities across the 
marketplace--such as forming a producer association or asserting rights 
under the Act with other regulated entities--through the clarification 
that other actions that a reasonable covered producers would find 
materially adverse.
    Additionally, AMS accepts the commenters' critique that the 
proposed regulatory text was insufficiently specific to provide clarity 
regarding when regulated entities could and could not take adverse 
actions against covered producers. In particular, AMS is concerned that 
the proposed contours regarding refusals to deal and non-renewals offer 
regulated entities too great a latitude to engage in retaliation, 
because a regulated entity could, in theory, satisfy the proposed rule 
by simply offering highly unfavorable terms to the covered producer--
which it could not do if the agency prohibited ``offering of contract 
terms that are less favorable than those generally or ordinarily 
offered.'' That is not, however, the intent of the regulation. Rather, 
it is to ensure that covered producers, in whatever circumstance they 
enjoy, do not suffer retaliation for effectuating their rights under 
the Act.
    Accordingly, in the final rule, AMS has amended the provision to 
add several clarifying details. First, the final rule clarifies that 
requiring modifications or only offering to renew contracts on terms 
less favorable than those enjoyed by the covered producer is a 
violation where it occurs because the covered producer engaged in 
protected activities. This provision covers any adverse change to the 
covered producer's terms to provide maximum flexibility to the covered 
producer to exercise protected rights regardless of the particular 
circumstances. Second, the final rule clarifies that a refusal to deal 
with covered producers would be triggered where the regulated entity 
fails to offer terms generally or ordinarily offered to other similarly 
situated covered producers. This provision does not guarantee the 
covered producer the most favorable contract terms in the market, but 
simply those that the covered producer would generally or ordinarily 
offer to other similarly situated covered producers that had not 
engaged in protected activities, which could include the situation 
previously enjoyed by the covered producer prior to having engaged in 
the protected activity. Such a provision is necessary because covered 
producers may enter or exit the market at different times, and during 
that period may engage in protected activities for which a regulated 
entity may attempt to retaliate. Together, AMS believes that these 
modifications cover the most common circumstances that covered 
producers may encounter in their business dealings in which regulated 
entities may attempt to exact retaliation.
    AMS is not including the level of detail sought by some commenters 
regarding the specific form of retaliation. This rule is intended to 
provide protections for adverse actions against a covered producer 
based upon the protected activity (including threats intended to chill 
engaging in that activity). Any inquiry should focus on those bases, 
rather than on the particular form of the discriminatory harm. AMS 
recognizes that unfavorable

[[Page 16151]]

contractual terms can cover a wide range of elements of a contractual 
relationship, such as prices, formulas, premiums or discounts, 
transportation provisions, delivery dates, duration, the required 
number of animals, arrangements such as financing, investment 
requirements or incentives, and other contractual specifications, among 
other terms and conditions. Such unfavorable terms may have direct 
financial impacts but may also have indirect financial impacts, such as 
reputational impacts which adversely affect the covered producer's 
ability to conduct business in the marketplace. Providing further 
detail in the regulatory text is not necessary to enforce the rule. It 
is not practical to name all the different ways a malicious actor could 
find to retaliate. The rule is intended to capture as fully as possible 
the difference between a serious contract offer and an offer that has 
the practical intent to retaliate.
    Additionally, AMS confirms that when a regulated entity claims that 
modification or renewal of a contract on less favorable terms is common 
with similarly situated producers for reasons unrelated to any exercise 
of protected activities, AMS will not automatically consider the less 
favorable modification or renewal a violation of this particular rule. 
AMS will, however, review modification and renewal and will carefully 
examine the regulated entity's justifications. Even outside of 
retaliation, unilateral modification of existing contracts has been a 
violation of the Act. The Act considers it an unfair and deceptive 
practice to modify an existing contract to either extend the time for 
payment or reduce the full price agreed upon at delivery. Moreover, 
contract modification has been a deceptive practice where the terms 
offered publicly were privately disavowed.
x. Include Other Contract Terms That Could Affect Reprisal
    AMS requested comment on whether other contract terms should be 
included as part of including a non-exhaustive list of contract terms 
that could affect reprisal.
    Comment: An organization said AMS should provide examples of 
adverse actions that could constitute retaliation to help regulated 
entities comply with the Act. The commenter said that, for example, 
adverse actions for speaking out might include negative performance 
reviews; denial of bonuses; harassment or assault; reduced input 
quality; or increased scrutiny. The commenter said the proposed rule 
should cover adverse actions in contract terms such as impacts on price 
terms; formulas used for premiums or discounts related to grade or 
other characteristics of the animals or meat; duration of commitment to 
purchase or contract for the production of animals; transportation or 
delivery requirements; or terms related to companies' provision of 
inputs or services, grower compensation, or capital investment 
requirements under production contracts.
    AMS Response: AMS recognizes that unfavorable contractual terms can 
cover a wide range of elements of a contractual relationship, such as 
prices, formulas, premiums or discounts, transportation provisions, 
delivery dates, duration, the required number of animals, arrangements 
such as financing, investment requirements or incentives, and other 
contractual specifications, among other terms and conditions. Such 
unfavorable terms may have direct financial impacts but may also have 
indirect financial impacts, such as reputational impacts which 
adversely affect the covered producer's ability to conduct business in 
the marketplace. In the final rule, AMS has added paragraph (b)(3)(iv) 
to address any other adverse action that a reasonable covered producer 
would find materially adverse. This is intended to focus on material 
harms to covered producers, including threats, based on the protected 
activities. However, AMS is not including the level of detail sought by 
some commenters regarding the specific forms of retaliation, because 
providing further detail in the regulatory text is not necessary to 
enforce the rule. There are too many possibilities to encompass every 
possible retaliatory action in a single rulemaking. The Agency prefers 
the general prohibitions because their simplicity reaches a broad array 
of unlawful retaliatory activities, including the ones the commenter 
raises.
xi. Specific Challenges or Burdens Regulated Entities Might Face in 
Complying With Anti-Retaliation Provisions of Proposed Rule
    AMS requested comment on what challenges or burdens regulated 
entities may face in complying with the proposed rule's anti-
retaliation provisions.
    Comment: Multiple industry groups argued the retaliation provisions 
are overly broad and vague, leading to compliance uncertainties and the 
threat of litigation.
    A cattle industry trade association said that AMS's decision to 
allow violations of the proposed rule's retaliation provisions without 
demonstrating harm to competition, along with ambiguous definitions 
letting a wide range of parties qualify as potential complainants, puts 
the cattle industry in danger of a huge wave of lawsuits that could 
thwart innovation. A swine industry trade association said the 
prohibited forms of retaliation listed in Sec.  201.304(b)(3) include a 
broad range of activities that a regulated entity may have legitimate 
business reasons to carry out. According to the commenter, these 
prohibitions would restrict the rights of regulated entities to freely 
deal and require them to treat every producer the same, putting the 
proposed rule in conflict with the Act and with antitrust law. A 
poultry industry trade association and several live poultry dealers 
said that the list of activities that constitute retaliation is not 
exhaustive, so regulated entities have no way to know what activities 
they must avoid to comply with the rule.
    AMS Response: In this final rule, AMS has made a number of changes, 
outlined above in Section V--Changes from the Proposed Rule, to provide 
additional clarity, specificity, and certainty to market participants. 
These include switching prohibited conduct in Sec.  201.304(b)(3) from 
an exemplary list to a specific list of covered items. AMS rejects the 
general assertion that the provisions on retaliation are vague, 
ambiguous, or non-exhaustive. To the contrary, the final rule sets 
forth specific activities that are protected (Sec.  201.304(b)(2)) and 
specific conduct (Sec.  201.304(b)(3)) that would constitute 
retaliation if it were done because of the producer engaging the 
protected activities. As described above under Section V--Changes from 
the Proposed Rule, these included a range of further clarifications to 
the specific conduct. Notably, the inexhaustive list under paragraph 
(b)(3) has been refined, with paragraph (b)(3)(v) added to limit the 
list to any other adverse action that a reasonable covered producer 
would find materially adverse.
    The activities protected by this final rule each constitute an 
exercise of basic freedoms necessary and essential to maintain a free 
and competitive market--freedoms such as exercising contractual and 
legal rights, seeking recourse through governmental channels, forming 
cooperatives or associations relating to the business of livestock and 
poultry, and being a witness in court. Most regulated entities assert 
that retaliation for engaging in these types of activities is not a 
common practice in the industry. AMS finds that factually questionable, 
given the level of complaints and concerns expressed by producers over 
the years, including

[[Page 16152]]

experience in response to producers' participation in hearings on 
competition by USDA and the DOJ in 2010. But to the extent that 
regulated entities stand by that position, then there should be little 
risk to regulated entities from litigation on the grounds of the 
activities protected in this rule. Regardless, AMS can identify no 
competitive benefits to adverse actions against covered producers for 
engaging in the activities protected by this final rule and can 
identify no genuine risks to contractual freedoms or ability to 
legitimately innovate from the activities protected by this final rule.
    AMS has further responded to the question of the costs and risks of 
litigation below.
    Comment: A swine industry trade association said that the 
retaliation provisions provide no guidance on legitimate business 
reasons to engage in the activities deemed as retaliatory conduct or on 
whose shoulders the burden of proving that a regulated entity's conduct 
was ``because of'' the producer's activity rather than based on a 
legitimate reason. A poultry industry trade association and several 
live poultry dealers said the proposed rule also does not clarify how 
to establish that a live poultry dealer, and the specific employees 
involved in grower contracting, knew that a grower had engaged in one 
of the protected activities.
    AMS Response: AMS has not identified any competitive benefits to 
adverse actions against covered producers for their having engaged in 
any of the protected activities set forth in this final rule. 
Accordingly, AMS has not provided any exemptions to the prohibition on 
retaliation against covered producers. If a regulated entity claims it 
has taken an adverse action against a covered producer for reasons 
unrelated to the producer's exercise of rights protected by this final 
rule, it becomes a factual question of proof. The agency has the burden 
of showing that the regulated entity violated the rule by taking 
covered adverse actions against a producer or grower wholly or in part 
because of the producer's or grower's exercise of a protected right 
under the rule. Any such determination will turn heavily on the 
particular facts and circumstances of any claim. This factual 
determination is not a question of whether a legitimate business reason 
existed to engage in the retaliation; rather it is a question of 
whether a violation occurred at all. In some cases, it may be possible 
that the regulated entity, including in the form of its agent 
interacting with the covered producer, is genuinely not aware of the 
protected activity by the covered producer (including not having 
constructive knowledge, being willfully blind, or grossly negligent in 
its affairs), the adverse action would not constitute a violation. AMS 
does not expect, and indeed does not encourage, the regulated entity to 
engage in any monitoring activities to attempt to make itself aware of 
when covered producers may be engaging in these activities. In fact, 
the purpose of the rule is the opposite, and were AMS to identify a 
regulated entity engaging in any such monitoring program, it would 
likely view such activities as being in violation of this regulation 
owing to their likely effect of intimidating producers.
    Comment: A swine industry trade association said the proposed rule 
would allow producers who engage in common conduct, such as joining a 
cooperative or asserting their rights under a contract, to claim that a 
regulated entity engaged in retaliation by terminating a contract or 
giving differential treatment to a producer. A poultry industry trade 
association and several live poultry dealers said the retaliation 
provisions create a presumption that all grower protected activities 
are legitimate, which could open the door to strategically planned 
actions by poor performing growers designed to trigger these 
protections and would lead to especially severe risks if a grower has 
committed animal welfare violations.
    AMS Response: AMS rejects the assertion that the rule would permit 
or encourage gaming by producers to avoid accountability for poor 
performance or violations of animal welfare guidelines. This final rule 
clearly specifies that the adverse action must be taken based on the 
producer participating in such protected activities. The mere 
coincidence, or correlation, between a producer joining an association 
or reporting to the government and then experiencing an adverse action 
is not enough for a violation. There must be evidence showing the 
adverse action taken by a regulated entity was in response to the 
producer engaging in a protected activity for a violation to be exist.
    Additionally, AMS rejects the comment that the regulated entity 
would face a burden because it would not know which protected 
activities the producer has engaged in. The purpose of the rule is for 
the regulated entity to not adversely treat producers based on their 
participation in protected activities.
    Comment: A poultry industry trade association and several live 
poultry dealers said the proposed rule also does not provide clarity 
regarding cooperative activity: live poultry dealers would still need 
to select which specific growers to contract with, choose where to 
place birds, and evaluate and approve housing and other grow-out 
specifications even if growers form cooperatives, but the proposed rule 
does not provide guidance on whether a regulated entity making these 
decisions might be considered to be engaging in retaliation.
    AMS Response: A cooperative is a well understood legal status under 
the Co-Operative Marketing Associations (Capper-Volstead) Act of 1922 
(Pub. L. 67-146) and protected by the Agricultural Fair Practice Act of 
1967, which the proposed and final rule have both referenced. 
Generally, a cooperative is an organization established by individuals 
to provide themselves with goods and services or to produce and dispose 
of the products of their labor. The property of a cooperative, 
including the means of production and distribution, are typically owned 
in common. The final rule covers activities inherent in the planning 
and organization of a cooperative.
    AMS also rejects the comment that live poultry dealers would still 
need to determine how to treat particular growers when dealing with a 
cooperative. Cooperatives are independent entities, and the live 
poultry dealer would enter in a contract with the cooperative as a 
whole, rather than with any individual grower. The terms of the general 
contract would govern the relationship between the live poultry dealer 
and the cooperative. Generally, a cooperative is an organization 
established by individuals to provide themselves with goods and 
services or to produce and dispose of the products of their labor. The 
property of a cooperative, including the means of production and 
distribution, are typically owned in common. This rule prohibits live 
poultry dealers from discrimination against a cooperative because it is 
a cooperative or from retaliating against producers for forming a 
cooperative. Because a cooperative is an entity, a regulated entity 
cannot assert that they are dealing with a cooperative but then limit 
the agreement to individuals.
    Comment: A poultry industry trade association and several live 
poultry dealers urged AMS to introduce exceptions to the proposed 
rule's protection of information sharing activities under Sec.  
201.304(b)(2)(iv) and (v) that would cover confidential or proprietary 
information, saying that the

[[Page 16153]]

unauthorized release of confidential business information can harm 
businesses substantially and irreparably and therefore companies act 
legitimately in exercising their contractual rights to protect this 
information.
    AMS Response: This rule will not create exceptions to existing laws 
governing the sharing of information between members of associations 
and cooperatives. Information sharing by associations remains governed 
by the Federal antitrust laws and other relevant laws. Certain conduct 
by cooperatives is exempt from the Federal antitrust laws. This rule 
does not change whether these activities are lawful and protected, or 
prohibited, under Federal law. AMS makes no changes in response to this 
comment.
xii. Other Comments on Retaliation
    Comment: A whistleblower advocacy organization suggested several 
changes to expand the proposed rule's coverage. First, it recommended 
AMS extend the proposed rule's anti-retaliation protection to all 
natural or legal persons who provide information they reasonably 
believe is evidence of a violation of the Act or who refuse to take 
action they reasonably believe would violate the Act. According to the 
commenter, protected persons should include, but not be limited to, 
employees of meatpackers and integrators reporting violations of the 
Act; employees, contractors, and subcontractors of protected farmers or 
ranchers; and associates and relatives of protected persons or 
entities. Second, the commenter said that AMS should clarify language 
in the proposed rule stating that it does not protect farmers and 
ranchers acting in contravention of the Act from retaliation. According 
to the commenter, the final rule should exclude from protection only 
individuals acting without express or implied direction from the 
covered entity or its agent, and who deliberately and willfully cause a 
violation of any requirement relating to any violation or alleged 
violation under the Act. The commenter said this clarification would 
ensure that live poultry dealers cannot use this provision to attack 
farmers under broiler production contracts who engage in 
whistleblowing. According to this commenter, these contractors are 
subject to extreme corporate control that denies them the right to act 
under their own agency, so it would not be fair to exclude them from 
the protections against retaliation based on actions they could not 
control.
    This commenter also said that, because farmers are often unfamiliar 
with protections that apply to their exposure of industry wrongdoing, 
USDA must make efforts to share information about producer rights and 
company responsibilities at the beginning of the contractual 
relationship as well as throughout the engagement. The commenter 
suggested that AMS host educational programming about rights under the 
Act and develop language-appropriate educational material. The 
commenter urged USDA and DOJ to continue to offer anonymous protected 
disclosures through their joint portal and be transparent about 
subsequent regulatory and enforcement activity, saying most producers 
prefer to make reports anonymously or through another party to avoid 
retaliation.
    AMS Response: In this rule, AMS is principally focused on providing 
robust protections for covered producers participating in the market. 
Accordingly, AMS has not amended the regulatory text to extend the 
rule's coverage to all natural or legal persons who provide information 
regarding perceived violations of the Act or who refuse to take action 
they believe would violate the Act. AMS has, however, revised the 
regulatory text of Sec.  201.304(b)(2)(i) to extend the coverage from a 
covered producer's communication ``with a government agency'' to 
communication ``with a government entity or official'' and from 
``petitions for redress of grievances before a court, legislature, or 
government agency'' to ``petitioning a government entity or official 
for redress of grievances.'' AMS believes that this change ensures that 
protected communications may occur with any of the three branches of 
the Federal government and with individual government officials, 
including committees or members of a legislature. The regulation 
applies equally to communications with all levels of government--
Federal, State, and local--with respect to the matters indicated.
    Furthermore, AMS is sympathetic to and broadly in agreement with 
the commenter's perspective that covered producers should not be 
required to understand the precise contours of the Act to exert their 
protected activity rights, and that they should be enjoyed heightened 
protection when acting at the express or implied direction of a 
regulated entity. Regulated entities have no motive to purposefully 
induce producers to commit unlawful acts. If a regulated entity induces 
criminal activity, irrespective of retaliation, this inducement may be 
deceptive within the meaning of the Act.
    AMS appreciates the commenter's advocacy regarding the need for 
continuing USDA-sponsored education regarding producer rights and 
company responsibilities under the Act. AMS is taking steps to increase 
producer education and outreach, including, for example, establishing 
the farmerfairness.gov portal to facilitate ease of access for 
submitting complaints. AMS intends to expand education and outreach 
regarding this rule and other regulatory requirements.

F. Recordkeeping (Sec.  201.304(c))

    AMS proposed a recordkeeping requirement that records related to 
compliance with this rule be kept for a period of five years from the 
date of record creation. These records include policies and procedures, 
staff training materials, materials informing covered producers about 
reporting mechanisms and protections, compliance testing, board of 
directors' oversight materials, and records about the nature of 
complaints received relevant to prejudice and retaliation. AMS stated 
the purpose of this proposal was to reduce the threat of retaliation 
and to enhance AMS's ability to investigate and secure enforcement 
against undue prejudice and unjust discrimination.
i. Appropriateness of Proposed Regulation's Recordkeeping Obligations 
To Permit AMS To Monitor Regulated Entities for Compliance
    AMS requested comment on whether the proposed recordkeeping 
obligations were appropriate to allow AMS to monitor regulated entities 
for compliance.
    Comment: A group of State attorneys general and several 
organizations generally supported the proposed recordkeeping 
obligations in order to enhance compliance by regulated entities and 
enhance AMS's ability to monitor them for discriminatory treatment.
    Other commenters supported the proposed recordkeeping requirements, 
but suggested AMS should require regulated entities to maintain 
additional specific records. A cattle industry trade association said 
AMS should require retention of any records that include specific terms 
(including prices paid) of purchase agreements or contracts, as well as 
any methodologies used to calculate premiums or discounts paid to 
producers. This commenter argued that such records would enable AMS to 
evaluate differential treatment. An agricultural advocacy organization 
made a similar suggestion for regulated entities to maintain income/
payment formulas and pre-contract discussions with producers as part of 
their recordkeeping obligations.

[[Page 16154]]

    AMS Response: AMS takes note of the commenters' support for the 
usefulness of the provisions. With respect to the request that AMS 
revise the rule to identify specific records that regulated entities 
must retain, AMS notes that the regulation as proposed provides 
flexibility for a regulated entity to retain any records relevant to 
its compliance with Sec.  201.304(c), including records not 
specifically referenced in the regulation. Under sec. 401 of the Act, 
regulated entities are already required to maintain the accounts, 
records, and memoranda necessary to fully and correctly disclose all 
transactions involved in their business. USDA's implementing 
regulations can be found at 9 CFR 201.94, 201.95, and 203.4. Existing 
regulations under part 201 require regulated entities to give the 
Secretary ``any information concerning the business . . .'' (Sec.  
201.94) and provide authorized representatives of the Secretary access 
to their place of business to examine records pertaining to the 
business (Sec.  201.95). Section 203.4 regulates the types of records 
that must be kept by regulated entities and the timelines for disposal 
of these records. As part of its enforcement capabilities under sec. 
401 of the Act, AMS can inspect the records of regulated entities to 
review detailed information related to purchases and ensure that 
regulated entities are in compliance. Because these records are already 
required under existing law, AMS made no further changes in response to 
the comments.
    Comment: A poultry industry trade association argued that the 
proposed recordkeeping regulation--as written--is not appropriate 
because it is vague and does not make clear that it only requires 
integrators to maintain records relevant to proposed Sec.  201.304(a) 
and (b). The trade association contended that the rule should make 
explicit that, if a regulated entity does not maintain records relevant 
to those respective proposals, no recordkeeping is required. The 
commenter also recommended exempting privileged communications or 
attorney work product from the recordkeeping requirement.
    AMS Response: AMS disagrees with the commenter's view that the 
regulation as proposed does not make clear that regulated entities are 
only required to maintain records relevant to proposed Sec.  201.304(a) 
and (b): the regulation as proposed specifically stated that a 
regulated entity ``shall retain all records relevant to its compliance 
with paragraphs (a) and (b) of this section.'' Further, AMS does not 
believe it necessary to specify that certain records do not need to be 
retained if they are irrelevant because the regulatory text states 
explicitly that the recordkeeping requirement applies only to records 
relevant to a regulated entity's compliance with this section. Under 
the Act and existing PSD regulations, regulated entities are required 
to keep records pertaining to their business. To comply with the 
proposed regulation, a regulated entity must retain all records 
relevant to its compliance with Sec.  201.304(a) and (b) for no less 
than five years from the date of record creation. Lastly, AMS does not 
believe that adding an exemption for privileged communication, such as 
attorney work product, is necessary because attorney work product is 
already protected from disclosure under current law. Therefore, AMS 
makes no changes to the rule in response to this comment.
ii. Requirements for Regulated Entities To Produce and Maintain 
Specific Policies, Compliance Practices, or Disclosures To Help Ensure 
Compliance With Undue Prejudice and Anti-Retaliation Provisions
    AMS requested comment on whether the proposal should require 
regulated entities to produce and maintain their specific policies and 
procedures, compliance practices or certifications, or disclosures to 
ensure compliance with the undue prejudices and provisions and anti-
retaliation provisions in the proposed rule.
    Comment: Several commenters expressed concern that the proposed 
recordkeeping requirement would not be sufficient to ensure compliance. 
One organization argued that AMS should require regulated entities to 
proactively identify and record the basis of differential treatment 
(e.g., differences in prices paid) among producers. An academic or 
research institution concurred, suggesting that any differential 
treatment in price or contract terms should be justified by regulated 
entities in their records.
    An agricultural and environmental organization proposed regulated 
entities should be subject to an Annual Compliance Report to AMS that 
requires a detailed list of all their transactions. This list would 
include, specifically: (1) an anonymized list of producers the 
regulated entity did business with; (2) terms offered to producer 
during contract negotiations; (3) terms entered with producer and 
whether these terms differ with similarly situated producers; (4) 
prices paid to producers and methodology for the price; (5) whether 
AMAs were used; and 6) accounts of all instances of the regulated 
entity's refusal to deal with a producer and justification for the 
refusal. The commenter argued that it will be difficult for producers 
or AMS to prove violations of proposed Sec.  201.304(a) without these 
detailed disclosures.
    An agricultural advocacy organization proposed requiring regulated 
entities to report to AMS the contract terms and payments made to 
producers, as well as producer demographic information necessary to 
determine which producers are market vulnerable individuals. The 
commenter argued this was necessary to put the burden of enforcement of 
the new rule on AMS and regulated entities rather than covered 
producers. This commenter also suggested requiring regulated entities 
to use a uniform recordkeeping system that tracks and reports 
``relevant data'' to allow AMS to monitor for potential differential 
treatment or discrimination. This commenter likened the proposed system 
to the Home Mortgage Disclosure Act, which allows regulators to use 
data from regulated entities to ensure compliance with fair housing 
laws.
    AMS Response: AMS is making no changes to the rule as proposed 
based on this comment. AMS believes that the regulation as proposed 
permits flexibility for regulated entities to determine which records 
best demonstrate compliance with Sec.  201.304. Such an approach is 
appropriate, given that this rule regulates the poultry, cattle, and 
swine industries, and that regulated entities vary in size and in the 
nature of their business operations. Regulated entities may have an 
existing recordkeeping system in place that is suited to their 
industry, size, or business operation. The proposed regulation's 
flexibility regarding the types of records that must be kept will 
ensure that the array of regulated entities covered by this rule can 
choose the method of compliance most relevant to their circumstances; 
the proposed regulation's specification that a regulated entity must 
retain all records relevant to their compliance with Sec.  201.304(a) 
and (b) will aid in PSD's enforcement of paragraphs (a) and (b). As 
noted above, under sec. 401 of the Act, AMS is authorized to conduct 
compliance inspections, which may include examination of information 
related to differences in purchases and prices. AMS also has the power 
under sec. 6 of the FTC Act to require reports from corporations on a 
case-by-case basis. The additional reporting requirements suggested by 
commenters are outside the scope of this rulemaking, but AMS reserves 
the right to consider those approaches in future rulemakings.
    Comment: A poultry industry trade association and several live 
poultry dealers said AMS should identify

[[Page 16155]]

specific records that need to be kept or generated, arguing that 
without specific guidance regulated entities will be left guessing 
which records are relevant to its compliance obligations.
    AMS Response: As noted in the response above, this rule regulates a 
wide array of entities. Regulated entities may have an existing 
recordkeeping system in place that is suited to their industry, size, 
or business operation. Also as noted above, existing regulations and 
the Act require regulated entities to keep records of their business 
operations, subject to AMS compliance investigations. The regulation as 
proposed provides the flexibility for regulated entities to keep the 
types of records they deem appropriate to demonstrate their compliance 
with Sec.  201.304, rather than requiring all regulated entities to 
keep the same set of records that may not be relevant to how they run 
their businesses. Paragraph (c)(2) provides a non-exhaustive list of 
examples of the types of records that may be relevant for a regulated 
entity to demonstrate compliance with Sec.  201.304(a) and (b). AMS is 
making no changes to the rule as proposed based on this comment.
iii. Specific Challenges or Burdens Regulated Entities Might Face in 
Complying With Recordkeeping Duties of Proposed Rule
    AMS sought comment on what specific challenges regulated entities 
may face in complying with the recordkeeping duties of the proposed 
rule.
    Comment: A poultry industry trade association and several live 
poultry dealers said that the proposed recordkeeping rule was overly 
broad, such that regulated entities would need to document and maintain 
every document related to interactions with producers (such as emails, 
visits, or notes from calls or meetings). The commenters raised 
concerns that this obligation would impose an overwhelming 
administrative burden and exorbitant compliance costs on regulated 
entities, which would be compounded by the 5-year record maintenance 
requirement. They suggested reducing the requirement period to two 
years. An agricultural association shared these concerns, in particular 
around the possibility that communications with any person about 
potentially entering into a contract may be deemed relevant under the 
rule and that, as such communications could be directed at any 
employee, a regulated entity could have to maintain records of all 
communications with its employees for a period of five years. This 
commenter said, if USDA interprets the recordkeeping requirements in 
this broad manner, would impose a particular burden on smaller entities 
subject to the recordkeeping requirement since these entities lack the 
administrative or IT infrastructure necessary to comply. A legal 
foundation also posited that the recordkeeping proposal would impose 
significant costs on regulated entities and--to reduce their burden--
urged AMS to impose a warrant requirement before requiring disclosure 
of records.
    AMS Response: AMS is making no changes to the regulation as 
proposed. The recordkeeping requirement in this rule is not new. PSD 
currently has recordkeeping authority through the Act and its existing 
regulations, including sec. 401 of the Act, and 9 CFR 201.94, 201.95, 
and 203.4. Further, AMS subject matter experts--economists and 
supervisors with years of experience in AMS's PSD conducting 
inspections and compliance reviews--have estimated the recordkeeping 
costs associated with this rule to be relatively low. They have 
estimated that recordkeeping costs would be correlated with the size of 
the regulated entity, with the assumption that the hour burden would be 
highest for the largest entities. Therefore, at the highest end of the 
spectrum, AMS has estimated that annual recordkeeping compliance costs 
for the largest regulated entities would average of 4 hours of 
administrative assistant time and 1.5 hours of time each for managers, 
attorneys, and information technology staff in the first year. 
Thereafter, for the largest entities, annual recordkeeping compliance 
costs would average 3 hours per year of administrative assistant time, 
1.5 hours per year of manager and attorney time, and 1.00 hour of time 
from information technology staff. As stated previously, AMS estimates 
that the hour burden would decrease proportionate to the size of the 
entity. AMS also notes that some firms might not have any records to 
store, while other firms may already store relevant records and may 
have no new costs associated with this rule. It also notes that the 
list of suggested records in Sec.  201.304(c)(2) is illustrative and 
that regulated entities are not required to document and maintain all 
of these records. Therefore, AMS estimates that the compliance costs 
associated with this rule will be relatively low and, as these costs 
are likely to vary in proportion to the size of the regulated entity, 
smaller entities are unlikely to face particular burdens. The objective 
of the recordkeeping requirement is to support USDA monitoring efforts 
as well as to preserve the flexibility of allowing regulated entities 
to decide how best to comply with the rule. It is incumbent upon 
regulated entities to decide which records are relevant for rule 
compliance.
    AMS is also declining to revise the regulation to limit the record 
retention requirement to two years. AMS believes that requiring that 
records be retained for five years from their creation date will enable 
the agency to monitor the evolution of compliance practices over time 
in this area and will ensure that records are available for what may be 
complex evidentiary cases. AMS will not be adding a warrant requirement 
to the rule at this time because the Agency already has jurisdiction 
under the Act to request documents concerning a regulated entity's 
business and therefore no warrant is required to do so under governing 
law.\194\
---------------------------------------------------------------------------

    \194\ Section 201.94 of the regulations requires regulated 
entities to give the Secretary ``any information concerning the 
business . . .'' Section 201.95 of the regulations requires that 
regulated entities provide authorized representatives of the 
Secretary access to their plaice of business to examine records 
pertaining to the business.
---------------------------------------------------------------------------

iv. Ways in Which Recordkeeping Duties Differ From Existing Policies, 
Procedures, and Practices of Regulated Entities
    AMS requested comment on how the proposed recordkeeping duties may 
differ from the current policies, procedures, or practices of regulated 
entities.
    Comment: A poultry industry trade association and several live 
poultry dealers argued that the proposal to include board of directors 
and other corporate governance materials as a matter of routine 
compliance with the Act is not typical of compliance records 
maintenance. The commenters suggested that these materials would not be 
helpful in demonstrating violations of the proposed rule, and their 
inclusion may be an attempt to create liability for executives or board 
members for everyday regulatory requirements.
    AMS Response: AMS is making no changes to the rule as proposed 
based on this comment. The rule does not require regulated entities to 
maintain board of directors' materials. These materials are referenced 
in the rule as an example of the types of records that may be relevant 
for a regulated entity to demonstrate that it has complied with Sec.  
201.304(a) and (b). Therefore, regulated entities are not required to 
retain these materials. However, AMS notes that the conduct of 
executives and board members is a critical component in establishing a 
corporate culture of

[[Page 16156]]

compliance. As noted previously, a culture of compliance is a critical 
tool for preventing legal and regulatory violations and a first step 
toward more inclusive market practices.

G. Deceptive Practices (Sec.  201.306)

    AMS proposed to prohibit regulated entities from participating in 
several types of deceptive practices with respect to livestock, meats, 
meat food products, livestock products in unmanufactured form, or live 
poultry. These relate to contract formation, performance, termination, 
and refusal.
i. Accuracy and Adequacy of Proposed Regulations in Identifying 
Recurrent Deceptive Practices in Livestock and Poultry Industries
    AMS requested comment on whether the proposed regulations 
accurately and adequately identify recurrent deceptive practices in the 
livestock and poultry industries, as well as whether any areas of 
deception may be missing.
    Comment: Commenters including a group of State attorneys general, 
several organizations, and an academic institution indicated support 
for the deceptive practices provisions, with one commenter saying the 
provisions would clarify the duties of regulated entities to engage in 
honesty and market integrity.
    Two agricultural advocacy organizations recommended that, in 
addition to the four broad prohibitions on behavior enumerated under 
proposed Sec.  201.306, AMS should provide a non-exhaustive list of 
prohibited conduct known to harm producers, saying this measure would 
provide clear guardrails and foster quicker termination of abusive 
practices against producers. These commenters also said the deception 
provisions of the proposed rule fall well within AMS's authority under 
the Act, noting that Congress gave USDA broad powers under the Act with 
the intention of halting unfair trade practices against producers 
before producers suffer actual harm.
    AMS Response: AMS is making no changes to the rule as proposed. AMS 
appreciates the views expressed by commenters but believes specifying 
the duties of regulated entities to engage honestly and itemizing 
prohibited deceptive practices adds unnecessary complexity. Firstly, 
specific guidance as to what constitutes deceptive practices can be 
taken from existing regulations in 9 CFR part 201, such as: Sec. Sec.  
201.49 and 201.71 (requiring honesty in weighing); Sec.  201.53 
(requiring honesty in representation of market conditions or prices); 
Sec.  201.98 (requiring honesty in collection of fees); Sec.  201.67 
(prohibiting deception regarding the nature of packer and selling 
agency business relationships); and Sec.  201.217 (requiring 
transparency regarding breach of contract determinations). Secondly, in 
the event deception occurs in ways actionable under sec. 202(a) of the 
Act, yet that violation is not specifically covered by this rule, AMS 
will look to the legislative history and case law of the Act to guide 
its handling of these matters. For example, obvious falsehoods, such as 
false weighing and false accounting have always been considered 
deceptive practices under sec. 202(a) of the Act. Therefore, AMS 
believes it is not necessary to itemize such practices in this 
particular section. Lastly, AMS underscores that this rule is intended 
to provide a broad array of coverage regarding the general 
circumstances that encourage the provision of false or misleading 
information. Facts and circumstances are unique to every case and may 
vary significantly; therefore, AMS has determined to retain the four 
broad prohibitions on behavior under Sec.  201.306 as initially 
proposed.
    Comment: A poultry industry trade association said all actions 
prohibited under proposed Sec.  201.306 are already addressed in sec. 
202(a) of the Act, which prohibits regulated entities from engaging in 
unfair, unjustly discriminatory, or deceptive practices or devices.
    AMS Response: AMS is making no changes to the rule as proposed 
based on this comment. AMS agrees that the prohibitions established by 
this rule are well within the scope of sec. 202(a) of the Act. This 
rule is designed to help producers better understand what behavior 
constitutes a violation of sec. 202(a). Based on complaints and 
comments from stakeholders over the years, as well as in response to 
the proposed rule, AMS is aware that deceptive practices continue to 
harm producers and market integrity. Thus, AMS has determined it 
necessary to codify in its regulations deceptive practices prohibited 
under sec. 202(a) of the Act to better ensure that producers benefit 
from the protections intended by the passage of the Act.
ii. Specific Deceptive Practices
    AMS proposed prohibiting regulated entities from:
    <bullet> Making or modifying a contract by employing a pretext, a 
false or misleading statement, or an omission of a material fact 
necessary to make a statement not false or misleading (Sec.  
201.306(b)).
    <bullet> Performing under or enforcing a contract by employing a 
pretext, false or misleading statement, or omission of material fact 
necessary to make a statement not false or misleading (Sec.  
201.306(c)).
    <bullet> Terminating a contract or taking any other adverse action 
against a covered producer by employing a pretext, false or misleading 
statement, or omission of material fact necessary to make a statement 
not false or misleading (Sec.  201.306(d)).
    <bullet> Providing false or misleading information to a covered 
producer or association of covered producers concerning a refusal to 
contract (Sec.  201.306(e)).
    Comment: An agricultural advocacy organization suggested the final 
rule's explanatory text should clarify that deceptive practices related 
to contract formation also include the making of false or misleading 
statements to prospective producers on the benefits of a contractual 
relationship with a regulated entity. The commenter said that this 
clarification would, for example, better address circumstances such as 
representatives of live poultry dealers who make verbal claims to 
prospective growers about benefits not reflected in the actual contract 
the grower later receives to sign.
    AMS Response: AMS is not making the specific changes to proposed 
Sec.  201.306(b) requested in this comment but is making changes to 
this paragraph to clarify the range of deceptive conduct prohibited 
during contract formation. AMS agrees with the commenter regarding the 
harm of false statements in contract formation. AMS formulated Sec.  
201.306(b) specifically to address the making of false statements in 
contract formation. The revised regulation states that not only is a 
regulated entity prohibited from employing a ``false or misleading 
statement'' but it also may not omit ``material information necessary 
to make a statement not false or misleading.'' Therefore, AMS believes 
the regulation encompasses the protection against misleading statements 
requested by the commenter. AMS will address the specific circumstances 
raised by the commenter via other rulemakings.
    Comment: An agricultural advocacy organization pointed out a 
potential discrepancy, saying the range of deceptive behavior in 
contract formation, performance, and termination covered in Sec.  
201.306(b) through (d) of the proposed rule as drafted appears narrower 
than that contemplated in the proposed rule's preamble. The commenter 
noted that the preamble said USDA generally approaches deceptive 
practices from the perspective of a reasonable party

[[Page 16157]]

receiving them and asks whether they would affect the conduct or 
decision of a reasonable recipient of these practices and asserts that 
the Act reaches beyond common-law fraud to affirmatively require honest 
dealing and truthfulness in the marketplace.\195\ The commenter said 
that, if AMS intended the description in the preamble to encompass a 
broader range of deceptive behavior than that in the proposed rule's 
current language, it should broaden the language in Sec.  201.306(b) 
through (d) of the proposed rule to prohibit any practices likely to 
mislead a covered producer, acting reasonably under the circumstances, 
to the producer's detriment.
---------------------------------------------------------------------------

    \195\ 87 FR 60010, 60032, 60034, October 3, 2022.
---------------------------------------------------------------------------

    AMS Response: There is not a contradiction or discrepancy between 
the preamble and the proposed regulation. The preamble discusses 
deception more generally, providing background on AMS's approach to 
implementing the prohibition on deceptive practices and its legal 
authority to do so under sec. 202(a) of the Act. The regulatory text is 
designed to provide example prohibited deceptions under the Act. It is 
not designed to enumerate every circumstance that may be a prohibited 
deceptive practice under the Act. There are circumstances where a 
deceptive practice could be covered under sec. 202(a)'s prohibition on 
deceptive practices even if that practice is not expressly addressed by 
this final rule. AMS chose not to provide an exhaustive coverage of 
every possible circumstance that could be a deceptive practice because 
such an effort would be unwieldly as a matter of rulemaking and likely 
offer little benefit to producers in terms of making the protections of 
the Act concrete and understandable. Such an effort would require such 
breadth of coverage and flexibility in application as to effectively 
replicate the interpretive process that is needed to analyze deceptive 
practices under the Act, which may vary significantly depending on the 
facts and circumstances of each case. In this rule, AMS has instead 
chosen to strike a balance, and is offering clear protection for a 
broad range of commonly encountered circumstances. AMS notes that the 
regulatory text in paragraphs (b) through (d) does include a 
prohibition on employing a ``false or misleading statement.'' 
Therefore, AMS is making no changes to the regulation as proposed.
    Comment: Agricultural advocacy organizations urged AMS to expand 
and clarify the proposed rule's prohibition on deceptive conduct during 
contract refusal, saying regulated entities can use this tactic to 
manipulate producers, as they may do with contract termination. The 
commenters gave the example of a dominant buyer who only wants to 
purchase cattle from producers locked into AMAs, rather than those 
selling on a negotiated cash market, so it can pay lower than fair 
market value. If this buyer simply tells producers on the open cash 
market that it does not need their cattle, this statement may not 
necessarily be false or misleading, but it would be a pretextual 
justification for refusing to deal with them. A cattle industry trade 
association also urged AMS to ban the practice of refusing to buy a 
producer's cattle in the negotiated cash market unless the producer 
agrees to enter a forward contract, saying this practice is so 
widespread that it is common knowledge among cattle producers that 
packers who say they do not need their cattle are tacitly providing 
them with an ultimatum.
    Several commenters recommended the following amended regulatory 
text, with changes in bold:
    ``(e) Contract refusal. A regulated entity may not rely on a 
pretext or provide false or misleading information to a covered 
producer or association of covered producers concerning a refusal to 
contract.''
    AMS Response: AMS has designed the prohibition on deceptive 
practices in refusal to contract differently than the prohibition for 
other circumstances because the relationship between a regulated entity 
and a covered producer differs in this circumstance. During contract 
formation, performance, or termination, there is a high degree of 
reliance by the covered producer on the regulated entity, owing to the 
existence of the contract. In a refusal-to-contract circumstance, 
however, the reliance is limited principally to the denial of the 
opportunity to transact. In general, regulated entities may refuse to 
contract with a covered producer for any reason or no reason at all, 
unless the reason is impermissible under the Act. This final rule's 
prohibition on deception seeks to ensure that any reasons provided by 
the regulated entity to the producer are truthful and not misleading. 
Failure to provide such truthfulness is deceptive because, given the 
high levels of vertical integration and horizonal concentration, 
producers lack marketing options and thus heavily depend on regulated 
entities for market integrity and, ultimately, the information needed 
to compete effectively. Producers are harmed when they cannot evaluate 
their competitive opportunities in an honest, objective manner. While 
the USDA Extension Service and other third parties may assist producers 
in appreciating their competitive strengths and weaknesses, ultimately 
the signals sent by packers are critical for competitive opportunities.
    The final rule does not include ``pretext'' or ``omission of 
material fact necessary to make a statement not false or misleading'' 
in this refusal to contract provision because refusals to contract may 
occur for any number of reasons, and regulated entities may not always 
be in a position to reveal the reason for a refusal to contract. There 
may be economic, social, community, or even simply polite reasons for 
offering an incomplete, if not untruthful, reason for a refusal to 
contract. As long as a regulated entity is not providing false or 
misleading information to a covered producer or omitting material 
information, it will not run afoul of Sec.  201.306(e).
    AMS appreciates the commenter's concerns regarding the use of 
forward contracts. However, including a specific prohibition regarding 
this practice was not under consideration in the proposal. With this 
rulemaking, AMS is implementing regulations to provide a broad array of 
coverage against deceptive practices during various stages of the 
contracting process. Deceptive acts in contract refusal will be 
determined on a case-by-case basis based on the facts and circumstances 
of each individual case. In the example raised by the commenter, were a 
packer to refuse to purchase cattle in the cash market and state that 
its plant has acquired all the cattle it needs, the packer would not 
run afoul of the final rule if that statement was true. However, were 
the packer to make such a statement but would be willing--or attempt--
to purchase the cattle under a different marketing arrangement, that 
would suggest that the information provided was false or misleading and 
the packer would run afoul of the final rule. If the cattle were of a 
quality or type that the packer does not want and the packer has 
already acquired all the cattle it needs for a given week, the packer 
could state that it is full without telling the covered producer its 
real reason for refusing to purchase cattle--again, as long as the 
statement provided is truthful.
    Accordingly, AMS is not making any changes to the regulation as 
proposed in response to these comments.
iii. Recurrent Deceptive Practices Not Adequately Addressed by Proposed 
Regulations
    AMS asked whether there were recurrent deceptive practices not

[[Page 16158]]

adequately addressed by the proposed regulations.
    Comment: Several organizations recommended AMS add the clause ``but 
is not limited to'' to Sec.  201.306(a) to provide flexibility 
regarding other deceptive actions that may arise.
    AMS Response: AMS is not adopting the recommendation. ``Not limited 
to'' language is unnecessary, as paragraphs (b) through (e) of this 
section are not stated as being exhaustive. This regulation is not 
designed to, and should not be read to, create an exclusive or 
exhaustive set of instances of deceptive practices. This rulemaking is 
intended to provide guidance to covered producers for how to effectuate 
their rights under the Act by implementing regulations that provide a 
broad array of coverage against deceptive practices during various 
stages of the contracting process. Future rulemaking or enforcement 
actions would not be restricted to the conduct identified in Sec.  
201.306 when dealing with deception, as the Act's coverage is broader 
than this final rule.
    Comment: An agricultural advocacy organization recommended that AMS 
address common cattle contracting practices that enable regulated 
entities to consolidate their power, expand their profit margins, and 
shift their risks to producers, particularly those practices 
facilitated by increased use of AMAs. The commenter asserted AMAs, 
which are typically contracts for future delivery of cattle where the 
price paid at time of delivery is tied to a contemporaneous price such 
as that in the ``spot'' cash market for cattle, give packers ample 
opportunity to offload the risks of changes in the spot market onto 
producers by manipulating the prices they pay them at delivery. The 
commenter cited several ways in which the prevalence of AMAs shapes the 
market to packers' advantage. According to the commenter, animals under 
AMAs contribute, along with those directly owned by packers, to a large 
``captive supply'' of cattle for packers, which gives these regulated 
entities substantial control over the cash price of beef. In addition, 
the commenter said lack of participation in spot markets means they 
provide less reliable price signals for AMAs, allowing packers to 
easily conduct limited spot market sales at low prices, in turn 
lowering the prices they pay producers at time of delivery.
    The commenter argued that many of these packer practices relating 
to AMAs are deceptive because they can induce producers to enter into 
contracts in which they do not fully appreciate the extent to which 
packers control the applicable risks. At a minimum, the commenter urged 
AMS to clarify that the proposed rule's ban on deceptive practices 
extends to packer manipulation of spot market prices to lower the price 
paid to independent producers at time of delivery. The commenter also 
stressed that it would prefer AMS to introduce a comprehensive 
prohibition of deceptive practices associated with AMAs to avoid 
placing the burden of identifying manipulation on individual producers. 
Specifically, the commenter recommended that AMS require forward 
livestock contracts to include a firm and predictable base price, so 
packers have no room to manipulate prices, citing the recent Cargill 
case under which DOJ alleged that contracts executed by major poultry 
processor defendants under the tournament system violated the Act. The 
final judgment agreed to by the parties and entered by the Court 
requires that the defendant processors pay contract poultry growers a 
firm and predictable base price.\196\ The commenter also suggested AMS 
consider banning packer-owned cattle as well as captive supply 
arrangements that use formula or basis price forward contracts.
---------------------------------------------------------------------------

    \196\ See U.S. v Cargill Meat Solutions Corp., et al. at https://www.justice.gov/d9/2023-11/418169.pdf.
---------------------------------------------------------------------------

    AMS Response: AMS is aware that concerns exist around forward 
cattle contracts and AMAs, especially those linked to thin cash 
markets. AMS is not addressing in this rulemaking whether AMAs are 
inherently deceptive. Therefore, AMS will not include a blanket 
prohibition on such contracting in this rule.
    Likewise, AMS has determined it will not add the commenter's 
suggested ban on packer-owned cattle and captive supply arrangements 
that use formula or basis price forward contracts. AMS believes more 
analysis is needed to ensure such intervention is appropriate.
    Comment: An agricultural advocacy organization recommended that AMS 
add a provision to Sec.  201.306 establishing a standard for contract 
completeness and providing that use of contracts that do not meet these 
minimum standards constitutes an unlawful deceptive practice under the 
Act. The commenter argued this measure would help producers operating 
in monopolistic regional markets, saying integrators often take 
advantage of the lack of buyer-side competition by unilaterally 
dictating base prices, providing deceptive earnings claims, offering 
incomplete and one-sided contracts leaving out key terms such as the 
number of flocks a poultry grower can expect to receive, and coercing 
producers into taking on additional debt to upgrade their facilities. 
The commenter recommended that the proposed rule specify that complete 
contracts include the expectation that contracts clearly state a 
minimum price or rate of pay for products or services rendered; a 
detailed disclosure of potential expected capital investments necessary 
for a continued contractual relationship; and a minimum commitment of 
contract years, annual animal placements, and stocking density 
sufficient for the producer to maintain any contractually expected debt 
payments at the minimum guaranteed price or payment rate. The commenter 
also suggested AMS clarify that it would be unlawful retaliation for an 
integrator to coerce, intimidate, or break contract with a producer 
based on the producer's unwillingness to implement integrator-desired 
upgrades not previously detailed in a complete contract, as long as the 
producer's infrastructure is legally compliant and in good working 
order.
    AMS Response: AMS understands that in highly concentrated buyer 
markets, producers may have limited control over contract terms due to 
the limited availability of buyers; however, AMS will not be 
establishing minimum standards for contract completeness via this 
rulemaking. This rule is intended to address broad areas of specific 
concern, not exhaustively identify all deceptive practices that could 
violate sec. 202(a) of the Act. Deceptive acts in contracting will be 
determined on a case-by-case basis based on the facts and circumstances 
of each individual case. Similarly, AMS will not be amending the 
regulations prohibiting retaliation (Sec.  201.304(b)) to implement the 
commenter's specific circumstance regarding unwillingness to implement 
upgrades not previously detailed in a complete contract. This comment 
is outside the scope of this rulemaking and AMS is making no changes to 
the rule based on this comment.
    Comment: Agricultural advocacy organizations asked AMS to include a 
new paragraph enumerating a non-exhaustive list of prohibited conduct, 
saying this addition would clarify that the Act explicitly prohibits 
certain conduct known to harm producers and market integrity. The 
commenters further said AMS should include any other specific types of 
harmful conduct producers currently face and stress that all other 
conduct known to harm producers or market integrity is prohibited even 
if not directly listed. The commenters provided the following

[[Page 16159]]

recommended regulatory text to incorporate these suggested changes:

    (f) Specific deceptive practices prohibited.\197\ In addition to 
any other conduct prohibited by subsections (b) through (e), a 
regulated entity may not engage in the following conduct during 
contract formation, performance, or termination or when refusing to 
contract:
---------------------------------------------------------------------------

    \197\ The commenters noted that, if AMS adopts this addition, it 
must also revise Sec.  201.306(a) to include paragraph (f): ``A 
regulated entity may not engage in the specific deceptive practices 
prohibited in paragraphs (b) through (f) of this section.''
---------------------------------------------------------------------------

    (1) Demanding capital investments as a condition of contract 
renewal if such capital investment demands were not previously 
agreed to in writing between the covered producer and regulated 
entity.
    (2) Demanding capital investments by a covered producer without 
commensurate and enforceable obligations on the part of the 
regulated entity that will reasonably allow the covered producer to 
recover the demanded capital costs plus a reasonable return.
    (3) Refusing to deal because the livestock producer is selling 
livestock on the cash market rather than through a contract 
arrangement and the livestock is otherwise marketable.
    (4) Failing to provide a guaranteed base pay in Alternative 
Marketing Agreements, production contracts, or other similar 
arrangements.
    (5) Inequitably distributing inputs such as animal placements, 
feed, veterinary care, or other inputs controlled by a regulated 
entity that can impact a covered producers' performance or 
compensation.
    (6) Shifting environmental compliance costs or responsibilities 
exclusively to a covered producer when the regulated entity 
exercises substantial operational control, through contract or 
otherwise, over the producer through an ownership interest in the 
livestock or poultry, land or other capital, or control of a covered 
producers' activities, inputs, management and waste management 
practices, or capital investments.

    AMS Response: AMS is making no changes to the rule based on this 
comment. The commenters' proposed specific prohibitions are outside the 
scope of the deceptive practices AMS intended to address in this rule.
    Comment: Agricultural advocacy organizations suggested AMS look to 
the poultry transparency proposed rule \198\ and the advance notice of 
proposed rulemaking regarding fairness and related concerns in poultry 
grower tournament systems,\199\ saying AMS should ensure that the 
deceptive practices identified in these rulemakings, such as unfounded 
claims about potential earnings made to prospective contract growers, 
lack of transparency in explaining tournament results, and inconsistent 
input quality, are also incorporated into this rule.
---------------------------------------------------------------------------

    \198\ Agricultural Marketing Service, ``Transparency in Poultry 
Grower Contracting and Tournaments,'' Proposed Rule (87 FR 34980, 
June 8, 2022), available at https://www.federalregister.gov/documents/2022/06/08/2022-11997/transparency-in-poultry-grower-contracting-and-tournaments.
    \199\ Agricultural Marketing Service, ``Poultry Growing 
Tournament Systems: Fairness and Related Concerns,'' Request for 
Comments (87 FR 34814, June 8, 2022), available at https://www.federalregister.gov/documents/2022/06/08/2022-11998/poultry-growing-tournament-systems-fairness-and-related-concerns.
---------------------------------------------------------------------------

    AMS Response: AMS is making no changes to the rule based on this 
comment. This final rule seeks to provide a broad set of protections 
for all producers. Other rules that AMS may propose or finalize, 
including rules relating to poultry grower ranking systems, are 
separate and distinct.
iv. Approach to Governance and Structuring of Deception and Employing 
False or Misleading Statements
    AMS requested comment on whether deception in contract refusal 
should be governed by the categorial approach as proposed, or whether 
it should be governed by a single statement setting out one standard 
for contract formation, performance, and termination. It also requested 
comment on whether it should structure deception around prohibiting the 
deceptive pretext, statement, or omission, rather than prohibiting the 
contractual activity based on the deceptive statement or omission as 
proposed. In addition, it requested comment on whether the prohibitions 
on ``employing'' certain false or misleading statements, pretexts, and 
omissions in the formation, operation, etc., of a contract 
appropriately capture the importance or effect of the misleading 
statement, such as its material or relevance to the producer or the 
formation, operation, etc., of the contract. Alternatively, it asked 
whether it should prohibit a regulated entity from employing any 
pretext, false or misleading statement, or omission of material facts 
necessary to make a statement not false or misleading, in connection 
with making, enforcing, or cancelling a contract. AMS also asked if 
there was a better way to approach the issue, such as using elements or 
defenses.
    Comment: An agricultural advocacy organization said the categorical 
approach to governance in the rule as proposed is appropriate because 
itemizing the likely deceptive actions more effectively draws attention 
to the various deceptive actions potentially used by regulated 
entities. This commenter indicated that either approach to structuring 
would be effective but said the structure as proposed would better make 
current producers and prospective aware of the types of potential 
deception they may encounter. It also indicated support for the 
approach to employing of false or misleading statements, pretexts, or 
omissions AMS took in the proposed rule.
    AMS Response: AMS takes note of the commenter's support for the 
usefulness of the provisions. AMS made no changes to the rule in 
response to this comment; however, as discussed in Section V--Changes 
from the Proposed Rule, AMS made several changes to the verbiage of 
Sec.  201.306(b) through (d), including removing the word ``pretext'' 
and replacing the phrase ``omission of material fact'' with ``omission 
of material information.''
v. Other Elements To Explicitly Consider in Rule on Deception
    AMS requested comment on whether there are other elements, such as 
the reasonableness of the recipient, that it should explicitly consider 
in a rule on deception.
    Comment: An agricultural advocacy organization said AMS should 
consider whether the contract language was clear and written in a 
language the producer understands when evaluating if a regulated entity 
used deceptive practices. The commenter also said the proposed rule on 
transparency in tournament systems addressed disclosure-related issues 
that AMS should consider in establishing when contract terms should be 
considered deceptive.
    AMS Response: Whether the contract language was clear and written 
in a language the producer understands would be part of any evaluation 
to determine whether a statement (including any omission of material 
information) was false or misleading and that determination would be 
dependent on the particular facts and circumstances of the contract. 
This rule is intended to cover not only the poultry industry, but the 
swine and cattle industries. As such, it focuses on general 
circumstances that may give rise to the provision of false or 
misleading information. Therefore, AMS is making no changes to the rule 
based on this comment.
vi. Specific Challenges or Burdens Regulated Entities Might Face in 
Complying With Deceptive Practices Provisions of Proposed Rule
    AMS requested comment on specific challenges or burdens regulated 
entities might face in complying with the deceptive practices 
provisions of the

[[Page 16160]]

proposed rule and how they differ from existing policies, procedures, 
and practices of regulated entities.
    Comment: A poultry industry trade association and several live 
poultry dealers said the deceptive practices provisions of the proposed 
rule would discourage legitimate adverse actions by companies, making 
the system less efficient overall. First, the commenters said AMS does 
not provide guidance on how it defines ``pretext'' or how a regulated 
entity would demonstrate that an explanation is not pretextual, which 
raises uncertainties in terms of compliance and may dissuade companies 
from providing detailed explanations to producers to avoid the 
potential for second-guessing on motive. The commenters also said the 
proposed rule is unclear about whether regulated entities seeking to 
avoid a potential omission of material fact need to mention every 
business reason that contributed to a decision even if other factors 
were more relevant. In addition, the commenters said the proposed 
deception provision makes it more challenging to terminate 
relationships with contractors who perform poorly or mistreat animals, 
giving regulated entities incentive to keep these contracts in place 
rather than risk lawsuits over whether any communications leading up to 
the termination were deceptive and resulted in fewer opportunities for 
new entrants to the poultry industry.
    A swine industry trade association said the deceptive practices 
provisions would likely lead to costly litigation because the rule is 
overly broad and vague in its description of prohibited conduct. For 
example, according to the commenter, the proposed rule does not provide 
any definition or guidance on what constitutes a ``material'' fact, 
which is deceptive if omitted, and its ban on deceptive practices with 
respect to ``any matter'' related to livestock, meats, or live poultry 
does not clearly establish the scope of conduct at issue. In addition, 
the commenter said much of Sec.  201.306 is unnecessary because other 
laws already sufficiently restrict the conduct at issue.
    AMS Response: Section 201.306 is designed to address deceptive 
practices in the marketplace by establishing four categories in the 
contracting process where deceptive practices commonly occur. The aim 
is to promote a marketplace that is free from the type of injury the 
Act was designed to prevent. Such a framework is necessarily broad, as 
the commenters noted, however, this framework is not intended to, and 
should not, cripple regulated entities' decision-making or the system 
overall.
    AMS must help ensure that regulated entities are truthful in their 
dealings with producers. Under these rules, AMS would seek to uncover 
the real motive for a regulated entity's treatment of a producer with 
whom they are forming or have a contractual relationship. AMS is 
including a prohibition against false or misleading statements, or 
omission of material information necessary to make a statement not 
false or misleading (in paragraphs (b) through (d)) to protect 
producers from conduct that employs deceit to disguise a regulated 
entity's genuine motive. Over the years, producers have reported 
concerns regarding their inability to understand and appreciate the 
real reasons why regulated entities take certain actions against them, 
in particular with respect to certain actions such as reduced chick 
placement or contract termination. For example, producers have asserted 
that sometimes a regulated entity will suddenly enforce certain parts 
of a contract in a stricter manner--such as animal welfare guidelines--
even though the regulated entity had earlier found the producer's 
conduct under the contract acceptable. Producers assert that this is an 
example of a form of retaliation for actions by the producer or a 
deceptive practice to accommodate unrelated economic decision-making. 
Producers need to understand the real reasons for regulated entities' 
decision-making both to protect themselves from specific inappropriate 
adverse actions (such as undue prejudice or retaliation) and to be able 
to compete more effectively in a concentrated marketplace. If they 
cannot learn the real reasons why certain actions are taken against 
them, they cannot plan or mitigate the risks they may face. Therefore, 
AMS believes it is crucial to establish a regulatory framework 
prohibiting deceptive practices in contracting. AMS believes such a 
framework should provide broad, non-exhaustive prohibitions to provide 
better coverage for producers against deceptive practices in various 
stages of the contracting process. AMS may refine this framework via 
future rulemakings if the need arises.
    With respect to the commenters' view that AMS does not provide 
guidance on how it defines ``pretext'' or how a regulated entity would 
demonstrate that an explanation is not pretextual, AMS adopted 
clarifying language by withdrawing its use of ``pretext'' and relying 
on the prohibition against employing a ``false or misleading 
statement.''
    With respect to the commenters' critiques regarding the materiality 
standard, under the FTC's Policy Statement on Deception, ``material'' 
refers to information that would affect a consumer's--in this case, 
producer's--conduct or decision-making, from the perspective of a 
producer acting reasonably under the circumstances. Act precedent may 
not require AMS to follow FTC's precedent in all circumstances, but AMS 
has designed the rule to satisfy the approach set forth in the FTC 
Policy Statement on Deception in this set of deceptive practice 
prohibitions. AMS is not seeking to establish a ``but for'' standard; 
however, the materiality of the information is already embedded in the 
regulated entity's act of ``employing'' the omission on which the 
covered producer has relied on in the contracting activity under Sec.  
201.306. Commenters also expressed concern about Sec.  201.306's 
prohibition against the omission of material facts, questioning whether 
compliance would require that regulated entities mention every business 
reason that contributed to a decision even if other factors were more 
relevant. AMS notes that proposed Sec.  201.306(b) through (d) 
specified that the prohibition applies to the ``omission of material 
fact necessary to make a statement not false or misleading.'' If one of 
the factors that contributed to a regulated entity's business decision 
was not material or relevant, then the omission of that information 
would be unlikely to make a statement false or misleading from the 
perspective of a producer acting reasonably under the circumstances. 
AMS therefore made no changes to the proposed regulations in response 
to this comment; however, AMS notes that as discussed in Section V--
Changes from the Proposed Rule, AMS made several changes to the 
verbiage of Sec.  201.306(b) through (d), including replacing the 
phrase ``omission of material fact'' with ``omission of material 
information.''
    In response to commenters' concerns regarding the potential for 
increased litigation, AMS acknowledges that the provisions of Sec.  
201.306 could result in additional litigation because the regulations 
could provide producers new hope for relief from deceptive conduct in 
the contracting process. However, as discussed in more detail in this 
rule's Regulatory Impact Analysis in Section VIII.B., AMS does not 
expect large increases or decreases in litigation from this rule. 
Though commenters expressed concern that this regulation will lead to 
costly litigation because it is too broad and vague, AMS notes that in 
this final rule the Agency has provided additional clarity on the 
meaning of ``material'' in these

[[Page 16161]]

regulations and removed use of the word pretext. AMS also rejects the 
commenter's assertion that the rule is overly broad and vague in its 
ban on deceptive practices with respect to ``any matter'' related to 
livestock, meats, or live poultry because this assertion is inaccurate. 
This regulation does not ban any deceptive practice related livestock, 
meats, or live poultry: paragraph (a) establishes that the scope of 
Sec.  201.306 is prohibiting deceptive practices that occur in specific 
stages of the contracting process. These stages are then delineated in 
paragraphs (b) through (e). AMS notes, however, that it has removed the 
words ``any matter'' from Sec.  201.306(a).
    With respect to the commenter's view that Sec.  201.306 is 
unnecessary, AMS disagrees. AMS believes that, while USDA regulations 
prohibiting specific deceptive practices already exist, a regulatory 
framework prohibiting deception during the contracting process is 
necessary because this will provide much-needed certainty and 
predictability to the interpretation of this section of the Act.
vii. Specific Recordkeeping Provisions Relating to Deceptive Practices
    AMS requested comment on whether it should propose specific 
recordkeeping provisions relating to deceptive practices and what such 
practices should include.
    Comment: An agricultural advocacy organization recommended that AMS 
introduce a recordkeeping requirement related to deceptive practices to 
help it enforce these practices. Another agricultural advocacy 
organization suggested AMS require regulated entities to provide 
examples of contract terms as well as procedures related to tournament 
settlements and input quality, saying this requirement would help it 
identify deceptive practices.
    AMS Response: In response to commenters' suggestions, AMS notes 
that regulated entities are already required to maintain records 
pertaining to their business activities (see 9 CFR 201.95). In light of 
existing law, a specific recordkeeping requirement covering every 
statement or interaction that could amount to deception is not 
appropriate as it could be expensive and burdensome, while yielding 
little benefit in terms of usable, searchable information. AMS will 
monitor regulated entities' practices to evaluate whether additional 
requirements are necessary. AMS further notes that should specific 
problems emerge, heightened recordkeeping could be a requirement 
arising out of enforcement actions or adopted in future rulemaking.
    AMS is not adopting the commenter's suggestion regarding examples 
of contract terms and procedures related to tournament settlements and 
input quality because they are outside the scope of this rule. AMS made 
no further changes in response to the comments.
viii. Requirement That All Contracts be in Writing
    AMS requested comment on whether all contracts with respect to 
livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry should be in writing.
    Comment: Agricultural advocacy organizations said AMS should 
require all contracts to be in writing because doing so is necessary 
for enforcing the Act. These commenters said AMS should also require 
regulated entities to make all claims to prospective producers in 
writing to deter false or misleading statements designed to encourage 
signing of a contract.
    A plant worker indicated support for requiring all contracts to be 
in writing, while noting that some benefits would be limited. According 
to the commenter, introducing this type of requirement would help 
producers by providing a record of the transaction and an increase in 
transparency. However, the commenter also said such a requirement would 
be less likely to address packer pressure on producers to use formula 
market arrangements to incentivize cattle quality if the packers 
present these arrangements as take-it-or-leave-it offers, although it 
would at least help create an environment that is transparent about 
material terms. The commenter also said that many jurisdictions may 
already require contracts to be in writing to satisfy the statute of 
frauds, especially if they cover multiple years, thus making a 
provision requiring written contracts potentially redundant in some 
cases.
    AMS Response: AMS appreciates the commenters' views on the value of 
written contracts and agrees that written contracts have significant 
benefits for reducing deceptive practices and encouraging market 
integrity. Written contracts provide both parties clearer understanding 
of their positions and the opportunity for regulators to review and 
evaluate the functioning of the market. However, AMS also recognizes 
that it is a longstanding trade practice in the agricultural sector for 
many parties to negotiate and assent to contract terms orally, which 
holds the same weight under the law as a written contract. USDA has 
pursued many cases based on the violation of unwritten terms, and this 
will not change. Requiring that all contracts be in writing would more 
significantly affect cattle markets, as more of those markets remain 
cash-negotiated. Contract formation regarding the purchase and sale of 
livestock often occurs over the phone and quickly. Requiring written 
contracts would impede the ability of parties to conduct business 
expeditiously, which is often necessary in fluctuating commodity 
markets, especially for perishable products like meat. Vertically 
integrated contract growing arrangements, which are nearly universal in 
poultry and widespread in hogs, are more characterized by written 
contracts already. In this rule, AMS is choosing not to adopt a 
requirement for written contracts or claims in all circumstances. While 
AMS believes that written contracts are a good practice, especially in 
light of changes in technology (like email and electronic signatures), 
AMS believes additional study and consideration is needed and is 
deferring for future consideration whether a mandate is appropriate.
ix. Treatment of Failure To Continue To Buy in Cash Market Following 
Regular Pattern or Practice of Such Buying
    AMS requested comment on whether a failure to continue to buy in 
the cash market, following a regular or dependable pattern or practice 
of such buying, should be treated for the purposes of this proposed 
rule as more similar to termination of a contract, rather than as 
refusal to deal.
    Comment: An agricultural advocacy organization said it agreed with 
AMS that a decision or action on the part of a regulated entity to stop 
buying on the cash market is more analogous to a contract termination 
than a refusal to deal but notes that these decisions or actions also 
share key features with the latter. The commenter provided the example 
of a packer who refuses to buy cattle in the cash market from a covered 
producer who regularly sells on the cash market unless the producer 
agrees to enter a forward contract with a packer; this act would 
constitute both refusal to deal and termination of a contract, and 
would also be a form of prohibited retaliation.
    AMS Response: AMS agrees that a circumstance where a packer refuses 
to buy cattle in the cash market from a covered producer who regularly 
sells on the cash market to the regulated entity is analogous to a 
contract termination, as past court decisions have recognized a 
remedial duty under the Act to a make purchases in certain 
circumstances.\200\

[[Page 16162]]

AMS did not make any revisions to Sec.  201.306 in response to this 
comment; however, AMS is clarifying in Sec.  201.304(b)(3)(iv) of this 
final rule that refusing to deal with a covered producer refers to 
refusing to deal on terms generally or ordinarily offered to similarly 
situated covered producers, which would include the producer's prior 
status quo. This would address the case where a producer has a prior 
track record of regular sales to the packer but is cut off. AMS also 
added Sec.  201.304(b)(3)(vi) to further clarify that harm to a 
producer on the basis of protected activities is intended broadly to 
capture materially adverse retaliatory action that a packer may take 
against a producer.
---------------------------------------------------------------------------

    \200\ Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 
1968).
---------------------------------------------------------------------------

H. Severability (Sec.  201.390)

    AMS proposed adding a new provision to 9 CFR part 201 of the 
Packers and Stockyards regulations ensuring that if any provision--or 
applicability of any provision--of subpart O was declared invalid, the 
validity of the other provisions of subpart O would be unaffected. AMS 
noted this is to provide a reviewing court some guidance on the 
Agency's position on how the rule is intended to function.
    Comment: An agricultural advocacy organization indicated support 
for the severability provision, saying that, in the event of successful 
court challenges to specific provisions of the proposed rule, it would 
help ensure that the protections in the rest of the rule remain.
    AMS Response: AMS agrees that a severability clause is appropriate 
because the undue prejudice, retaliation, and deception sections of 
this rule can be enforced as stand-alone provisions. They are not 
interdependent, therefore the exclusion of one does not disqualify any 
of the others. For this reason, as discussed in more detail in Section 
VI.F--Provisions of the Final Rule, Severability, AMS has included 
under Sec.  201.390 a severability clause in its final rule.

I. Effective and Compliance Dates

    Comment: An industry company said AMS should consider what amount 
of time is necessary to implement changes resulting from its new rules, 
and recommended it provide one effective date for all regulatory 
changes required by updates to the Act.
    AMS Response: AMS agrees with commenters that the final rule should 
provide a clear effective date for implementation. The AMS Act final 
rule ``Undue and Unreasonable Preferences and Advantages Under the 
Packers and Stockyards Act'' was published on December 11, 2020, and 
became effective on January 11, 2021, providing a 30-day period. AMS 
believes that this rule presents a similar scope of rulemaking 
coverage, relating to basic principles that regulated entities 
themselves have acknowledged they already comply with. However, in 
response to requests from commenters for additional time, AMS will give 
60 days, which the Agency feels provides adequate time for regulated 
entities to become compliant with this rule given the low cost and 
minimal process changes required to do so. Accordingly, within 60 days 
of publication in the Federal Register, regulated entities are expected 
to comply with all components of new subpart O.

J. Regulatory Notices & Analysis & Executive Order Determinations

i. Costs and Benefits of Proposed Rule
    Pursuant to the requirements of Executive Order 12866, AMS 
conducted a cost-benefit analysis of the proposed rulemaking by 
considering three regulatory alternatives: (1) maintaining the status 
quo and not implementing the proposed rulemaking, (2) issuing the 
proposed rulemaking, or (3) issuing the proposed rulemaking but 
exempting small businesses from compliance with the recordkeeping 
requirement.
a. Costs of Proposed Rule
    Comment: Several live poultry dealers and trade associations took 
issue with the accuracy of cost estimates in the proposed rulemaking. A 
poultry industry trade association and several live poultry dealers 
contended that the Agency's first-year estimate of $504 per live 
poultry dealer to comply with the proposed rule is a drastic 
underestimate. They argued that the costs of physical filing cabinets 
to maintain the requisite paperwork alone would exceed the estimated 
first-year cost, and that recordkeeping and computer systems to 
digitally maintain records would be more costly. The commenters also 
contended that the AMS cost estimates overlooked significant labor 
costs that would be required to comply with the new rules, including 
legal services.
    AMS Response: AMS disagrees with commenters' assertions regarding 
the accuracy of its cost estimates. AMS subject matter experts 
calculated the estimated compliance and recordkeeping costs associated 
with this rule. These experts are economists and supervisors in AMS's 
PSD with many years of experience conducting investigations and 
compliance reviews. AMS stands behind their estimates. AMS believes 
that the costs associated with this rule will be minimal: the first-
year total cost is estimated to be $586,000, or 0.0002 percent of 
revenues, given that total sales of beef, pork, and broiler chicken was 
approximately $294.5 billion in 2022.\201\ This figure encompasses an 
estimate of the total value of the time required to review and learn 
the rule, review live poultry dealers' and packers' procurement 
policies and production contracts, make any necessary changes to ensure 
compliance with the new regulations, and maintain records to 
demonstrate compliance practices. AMS estimates that the total cost for 
each succeeding year would be $298,000, or 0.0001 percent of revenues.
---------------------------------------------------------------------------

    \201\ Total meat and poultry processing industry revenues. 
Source: https://www.ibisworld.com/industry-statistics/market-size/
meat-beef-poultry-processing-united-states/
#:~:text=The%20market%20size%2C%20measured%20by,industry%20increased%
200.2%25%20in%202022.
---------------------------------------------------------------------------

    With respect to commenters' assertion that AMS has neglected to 
account for labor costs, including legal services, AMS notes that in 
the proposed rule's Paperwork Reduction Act analysis, AMS provided a 
compliance cost breakdown for the hours required of attorneys, as well 
as administrative assistants, managers, and information technology 
staff. AMS does not expect large increases or decreases in litigation 
costs, and thus regulated entity legal services. The clarity provided 
by the rule encourages regulated entities to proactively avoid 
prejudicial, discriminatory, and deceptive practices that could 
otherwise lead to costly litigation. Likewise, the rule could also 
provide producers hope for relief from the courts for perceived 
prejudicial, discriminatory, and deceptive practices, which could, in 
turn, increase litigation but would return benefits to producers in 
reduced harms. In response to commenters' concerns regarding the 
costliness of the rule's recordkeeping requirements, AMS argues that 
the recordkeeping requirements were crafted to provide flexibility for 
regulated entities. The rule does not prescribe the manner in which 
records must be stored. If a regulated entity finds the cost of filing 
cabinets prohibitive, the entity may choose whichever means of file 
retention is most cost effective, including currently available 
computer filing systems, which most companies maintain in the normal 
course of business. Additionally, the rule provides regulated entities 
leeway to determine which records they choose to maintain. Because this 
rule applies to regulated entities across a

[[Page 16163]]

variety of industries and of varying sizes, AMS did not prescribe a set 
of records each entity must retain, regardless of their relevance to a 
particular entity's circumstances. Some firms might not have any 
records to store. Others may already store relevant records and may 
have no new costs. Therefore, the rule saves regulated entities from 
the burden of maintaining records irrelevant to their circumstances.
    Accordingly, AMS makes no changes to the rule in response to these 
comments.
    Comment: Many industry companies and trade associations argued that 
the cost estimates put forward in the proposed rule ignore significant 
litigation costs that would be inevitable under the proposed 
regulations. A cattle industry trade association disagreed with AMS's 
cost analysis that the rule could plausibly reduce litigation costs 
``if companies come into compliance without any enforcement action.'' 
The trade association argued that the rule contains vague standards and 
eliminates the requirement that a plaintiff must show competitive harm, 
both of which would lead to a proliferation of litigation. It asserted 
that the threat of litigation would cause packers to reduce their legal 
risk exposure by standardizing their contracts with producers, which 
could be costly for producers who benefit from contracts tailored to 
their individual needs or conditions (e.g., cattle weight targets based 
on geographic location and regional feedstuffs availability). Finally, 
it noted that AMS itself acknowledged that GIPSA declined finalizing 
the agency's proposed rule in 2016--the Farmer Fair Practices Rule--
because it contained ambiguous terms that would increase litigation 
between regulated entities and producers.
    A live poultry dealer echoed this concern, citing USDA's 
acknowledgement in the previously proposed 2016 Farmer Fair Practice 
Rule that rolling back the harm to competition requirement would 
``inevitably lead to more litigation in the livestock and poultry 
industries.'' \202\ The dealer also said that if the proposed rule is 
implemented, the company would no longer have incentive to contract 
with individuals due to litigation risk and would need to rely more 
heavily on company-owned farms to raise its poultry. It argued that the 
result would be decreased grower competition and thus decreased grower 
pay, resulting in another unmeasured cost of the proposed rule.
---------------------------------------------------------------------------

    \202\ Org. for Competitive Mkts. v. Dep't of Agriculture, 912 
F.3d 455, 459 (8th Cir. 2018) (quoting 82 FR 48594, 48597 (Oct. 18, 
2018)).
---------------------------------------------------------------------------

    An industry trade association suggested that millions of dollars 
per year would be required to litigate, define, and refine the terms of 
the new rule due to ambiguity. It said that frivolous litigation that 
misunderstands or capitalizes on vagueness in the rule would add 
significant litigation costs. The trade association estimated the cost 
of compliance with the new rule (including anticipated litigation) to 
be more than $100 million to the industry. It cited independent 
economic analyses of previous AMS rulemakings on similar topics that 
estimated economic impact costs exceeding $1 billion,\203\ arguing that 
AMS significantly underestimates cost estimates in the new proposed 
rule.
---------------------------------------------------------------------------

    \203\ Scope of Sec. Sec.  202(a) and (b) of the Packers and 
Stockyards Act, 81 FR 92566, 92576, December 20, 2016 (discussing 
cost estimates prepared by Thomas Elam and Informa Economics).
---------------------------------------------------------------------------

    AMS Response: Litigation is possible following the passage of any 
rule. The threat of such litigation does not preclude AMS from 
fulfilling its mandate to administer the Act. AMS believes that 
discriminatory, retaliatory, and deceptive practices only serve to 
exclude qualified producers from the market. Even if such conduct 
impacts a single producer, it can reasonably be inferred that, if 
unchecked, such conduct will proliferate and negatively impact other 
producers and the market. Therefore, it is the opinion of the Agency 
that such conduct must be stopped in its incipiency, or it will likely 
cause widespread harm.
    In response to commenters' complaint that AMS has overlooked 
significant litigation costs that would be inevitable under the 
proposed regulations, AMS does not expect large increases or decreases 
in litigation costs. The clarity provided by the rule encourages 
regulated entities to proactively avoid prejudicial, discriminatory, 
and deceptive practices that could otherwise lead to costly litigation. 
This effect would lead to a decrease in litigation costs. Likewise, the 
rule could also provide producers hope for relief from the courts for 
perceived prejudicial, discriminatory, and deceptive practices, which 
could, in turn, increase litigation costs but would return benefits to 
producers in reduced harms. AMS is uncertain as to which effect will 
dominate and to what extent and, therefore, does not estimate 
litigation costs in this analysis.
    With respect to the comments regarding compliance costs for the 
2016 Farmer Fair Practice Rule, commentors discussed that a trade 
association estimated the cost of compliance with rule (including 
anticipated litigation) to be more than $100 million to the industry. A 
commentor also noted that an independent economic analyses of previous 
AMS rulemakings on similar topics that estimated economic impact costs 
exceeding $1 billion. The 2016 Farmer Fair Practice Rule was a very 
different proposed rule with a much wider scope than this final rule, 
and AMS does not consider a comparison of the 2016 Farmer Fair Practice 
Rule and this final rule to be an accurate comparison. The costs of 
this final rule are much smaller than the estimated costs of the 2016 
Farmer Fair Practice Rule. GIPSA estimates the average litigation cost 
of the 2016 Farmer Fair Practice Rule to be less than $9 million in the 
first year. Given the scope of this final rule is smaller than the 2016 
Farmer Fair Practice Rule, AMS expects litigation to be smaller. This, 
combined with the offsetting effects of the increases and decreases in 
litigation, leads AMS to not consider adding litigation costs to the 
rule.
    The assertion that packers will be forced to standardize all 
contracts to ensure conformity with the rule is without basis. 
Standardizing contracts may be one way to ensure fair treatment of 
producers, however, this rule in no way mandates such a response from 
packers. Similarly, AMS disagrees with the assertion that fear of 
litigation would remove any incentive to contract with individual 
poultry growers. The aim of the rule is to discourage abuses of power 
in the marketplace to allow qualified producers to participate freely 
in the market and receive full value for their efforts. Reliance on 
individuals to raise poultry evolved as an economically advantageous 
way for integrators to bring poultry to the market. AMS does not 
believe that a greater focus on ensuring honest dealing and honest 
decision-making is incompatible with this model. Further, AMS disagrees 
with the assumption that a regulated entity would need to abstain from 
contracting with individuals to ensure that they are not abusing their 
market power by operating in prejudicial, retaliatory, or deceptive 
ways.
    With respect to the comments regarding rules previously published 
by GIPSA, AMS notes that GIPSA's withdrawal of its 2016 rules was 
justified in part due to the rules' lack of clarity regarding 
prohibited behavior and the agency's perception that such ambiguity 
would increase litigation costs. This rule differs from the GIPSA rules 
by more clearly and specifically laying out the types of conduct that 
will

[[Page 16164]]

be prohibited. Additionally, much has changed since the withdrawal of 
GIPSA's 2016 rules. In 2017, GIPSA merged with AMS. AMS now administers 
regulations under the Act and undertook this rulemaking to meet its 
statutory mandate. Also, in the years since the GIPSA rules were 
withdrawn, USDA has continued to receive complaints from producers 
regarding undue prejudice and unfair, unjustly discriminatory, and 
deceptive practices. When Congress, in April 2022, held hearings to 
discuss such concerns regarding the cattle and poultry markets, the 
hearings were marked by the absence of producers who chose to avoid 
public testimony for fear of retribution.\204\ Meanwhile, the market 
remains highly concentrated and vertically integrated, which enables 
market power abuses and unjust distortions of the competitive landscape 
and makes any harms from them more significant. Smaller producers are 
unable to freely compete and receive fair value for their goods because 
in highly concentrated markets they often have no option but to do 
business with regulated entities which, in AMS's experience, have 
caused producers to experience unjust and adverse treatment. AMS has 
not been able to effectively address these complaints, partly because 
of the lack of clarity regarding its regulations under the Act and the 
ability for individuals to bring cases based on specific instances of 
harm. Therefore, it is now the Agency's belief that the potential costs 
of increased litigation are outweighed by the benefits to the market as 
a whole.
---------------------------------------------------------------------------

    \204\ See House Chair David Scott D-GA, Opening remarks, U.S. 
House, Committee on Agriculture, ``An Examination of Price 
Discrepancies, Transparency, and Alleged Unfair Practices in Cattle 
Markets,'' April 27, 2022, (14 min: 24 sec), available at https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies--Transparency--and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk. See also U.S. Senate Committee on 
Agriculture, Nutrition, and Forestry, ``Legislative hearing to 
review S. 4030, the Cattle Price Discovery and Transparency Act of 
2022, and S. 3870, the Meat and Poultry Special Investigator Act of 
2022,'' April 26, 2022, (1 hour 39 min), available at https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022 
(Described fear of retaliation in livestock and poultry markets).
---------------------------------------------------------------------------

    With respect to the ``vague standards'' giving rise to increased 
litigation specifically, AMS has taken note and addressed clarity in 
this rule.
    Further, AMS will review the facts and circumstances of each case 
and the regulated entity's justifications for any alleged adverse 
treatment to determine whether the regulated entity has violated this 
rule. AMS is making no changes to the rule in response to these 
comments.
    Comment: A plant worker argued that--given the modest cost 
estimates AMS provided for regulated entities to administratively 
comply with the recordkeeping requirements ($231-$485 for first-year 
costs and less in succeeding years) of proposed Sec.  201.304(c)--
consideration of the third regulatory alternative put forth by AMS was 
unnecessary. The commenter reasoned that because over 95 percent of 
packers reporting to AMS are small businesses, exempting such a large 
part of the industry would not be conducive to creating a uniform 
standard of recordkeeping and reducing deceptive practices across the 
industry.
    AMS Response: AMS agrees with the commenter that the third 
regulatory alternative was not the best option. AMS opted to proceed 
under regulatory alternative two, the proposed alternative. AMS chose 
to publish its legal and economic analysis regarding the third 
alternative to provide better transparency to the public regarding the 
Agency's decision-making process. AMS is making no changes to the rule 
in response to this comment.
    AMS chose final Sec. Sec.  201.304 and 201.306 over the Small 
Business Exemption Alternative because AMS wishes to prevent the kind 
of undue prejudices and unjust discrimination described in the rule. 
AMS believes that keeping relevant records will help promote compliance 
with this rule, that all packers, live poultry dealers, and swine 
contractors cannot purchase livestock or enter into contracts for 
growing services with the kind of undue prejudices and unjust 
discrimination described in the rule. All packers, live poultry 
dealers, and swine contractors cannot purchase livestock or enter into 
contracts for growing services with the kind of undue prejudices and 
unjust discrimination described in the rule.
b. Other Comments on the Cost-Benefit Analysis
    Comment: An agricultural advocacy organization contended that AMS 
should clarify the role of litigation costs in its cost-benefit 
analysis. It argued that litigation resulting from proposed rulemaking 
should not be treated purely as a cost, since (1) changes in behavior 
by regulated entities to reduce violations of the Act and (2) 
compensatory awards to market participants that suffer from violations 
of the Act both result in benefits that AMS should weigh in calculating 
the net costs of the proposed regulation. The association said that the 
Act relies in part on private litigation to keep livestock markets 
competitive, and while AMS is right to be cognizant of litigation costs 
by providing clear and unambiguous language to forestall unnecessary 
legal proceedings, litigation in general should not be treated solely 
as an ancillary cost without considering the benefits it confers.
    AMS Response: AMS is making no changes to the rule in response to 
this comment. Rulemaking procedure regarding the calculation of costs 
and benefits requires the inclusion of specific costs. The benefits of 
litigation are harder to quantify, and thus were not specifically 
included in the proposed rule. However, AMS agrees with commenter that 
there are benefits of litigation in that producers will be better able 
to protect themselves from undue prejudice, retaliation, and deception, 
and thus that litigation does not result solely in negative costs. By 
adding private rights of action to the Act as recently as 1987, 
Congress has expressly recognized that private litigation, or the 
threat thereof, is a force that shapes conduct for the protection of 
producers. To the extent that the threat of private litigation 
pressures regulated entities into compliance and keeps their conduct 
fair, litigation risks can serve to ensure this rule's full potential 
is realized.

K. Comments on Legal Authority or Other Legal Issues

i. Statutory Authority Under the Act
    Comment: Several live poultry dealers, an industry company, 
industry associations, a legal foundation, and an individual argued the 
proposed rule exceeds AMS's authority because it unlawfully seeks to 
transform the Act from an antitrust statute into a civil rights law 
despite Congress's clear intention to address the type of harm to 
producers covered by the proposed rule via other statutory schemes 
rather than under the auspices of the Act. They argued that, if these 
laws still do not cover certain types of mistreatment producers may 
face, the correct course of action is for Congress to revise these 
statutes or pass new ones, not for AMS to attempt to address them via 
the Act. For example, a cattle industry trade association noted that 42 
U.S.C. 1981 already prohibits racial discrimination in private 
contracting in cases where the contractor cannot show harm to 
competition. The cattle industry trade association contended that, 
because Congress has never sought to expand the protections of section 
1981 to other protected categories, AMS lacks authority to use the Act 
to effectively do

[[Page 16165]]

so in the absence of enabling legislation. This commenter also noted 
that multiple other USDA statutes explicitly refer to socially 
disadvantaged groups and socially disadvantaged farmers or ranchers, 
saying the lack of such references in the Act itself indicates that 
Congress did not intend for issues relating to exclusion or 
disadvantage of covered producers to fall within its scope. A swine 
industry trade association said proposed Sec.  201.304(a) of the 
proposed rule covers conduct already prohibited by the Act itself as 
well as by other antitrust and anti-discrimination laws, such as the 
Civil Rights Act of 1964, the Agricultural Fair Practices act, and the 
Robinson-Patman Act. Industry trade associations and companies said 
other statutes such as the Agricultural Fair Practices Act, the Capper-
Volstead Act, and laws protecting farmers from retaliation if they act 
as witnesses in a Federal investigation already prohibit retaliation 
against essentially all covered activities under proposed Sec.  
201.304(b).
    AMS Response: Consistent with the Act, this rule protects inclusive 
competition and market integrity, and is designed to ensure that fair 
and competitive conditions prevail in livestock and poultry markets. 
While this rule may in some ways resemble certain civil rights laws, it 
is distinct as it draws its authority from the Act, which sets forth a 
general prohibition on unjust discrimination and undue prejudice that 
is broader than civil rights statutes that focus solely on 
discrimination on account of a protected status. AMS believes that 
discrimination on the basis of an individual's characteristics--in 
particular, the bases (as set forth in Sec.  201.304(a)) of race, 
color, religion, national origin, sex (including sexual orientation and 
gender identity), disability, or marital status, or age, and the 
producer's status as a cooperative)--has no place in the market for 
livestock and poultry. Prejudices, disadvantages, inhibitions on market 
access, or otherwise adverse actions against covered producers on these 
bases must fundamentally be viewed as unjust forms of discrimination, 
lest the word unjust be unmoored from its plain meaning. Moreover, this 
rule addresses the unique and often difficult-to-prove discriminatory 
conduct that has long existed in the agricultural sector. Demographic 
information is seldom recorded in agricultural transactions; therefore, 
it is difficult to quantify discrimination. However, as the preamble 
set forth, agricultural markets are not representative of the 
population as a whole, for reasons in part arising from a well-
established track record of unjust discrimination from USDA itself. 
Unjust discrimination on the bases set forth in this rule does not stem 
solely from USDA's actions, rather it was widespread across society. 
Discrimination and prejudice have not been eliminated from society, and 
heightened steps are appropriate to prevent unjust discrimination from 
coloring public or private decision-making. Such clarity is especially 
important in today's highly concentrated agricultural markets, with few 
minority participants, as the lack of competition means that failure of 
inclusion for all farmers gives rise to a competitive harm under the 
Act.
    AMS recognizes that section 1981 of the Civil Rights Act 
establishes that certain rights are to be guaranteed, and these rights 
are to be protected against impairment by nongovernment and state 
discrimination. This rule addresses prohibited conduct specifically in 
the agricultural sector and is not superseded by section 1981. By 
expressly stating prohibited conduct that is violative of the Act, this 
rule seeks to allow AMS to better enforce the Act. AMS acknowledges 
that multiple USDA-administered statutes explicitly refer to socially 
disadvantaged groups and socially disadvantaged farmers or ranchers but 
underscores that AMS has replaced the definition of ``market vulnerable 
individual'' (which was more closely aligned with the formulations 
under those laws) with a simpler set of prohibited bases. And for the 
reasons described above, AMS's interpretation of the Act is faithful to 
its text and purposes. AMS notes that comments indicated that the Act 
in fact does prohibit the conduct set forth in this rule, in which case 
the rule will function to clarify and explicate already prohibited 
conduct.
    AMS notes commenters' argument that Sec.  201.304(a) covers similar 
conduct as the Civil Rights Act of 1964, the Agricultural Fair 
Practices Act (AFPA), and the Robinson-Patman Act. However, the fact 
that such conduct is prohibited under those statutes does not mean that 
it is not also prohibited by the P&S Act, which is broader in scope 
than other antitrust laws.\205\ AMS believes it is appropriate to 
provide clarity regarding application of the Act because AMS has the 
authority to enforce the Act (and the AFPA), and not the Civil Rights 
Act of 1964 or the Robinson-Patman Act, with respect to livestock and 
poultry. The Act provides supplemental and parallel coverage to the 
AFPA, making its application appropriate and valuable to livestock 
producers and poultry growers who have, over the years, found it 
challenging to earn the full value of their animals in their dealings 
with packers and live poultry dealers.
---------------------------------------------------------------------------

    \205\ H.R. Rep. 67-77, at 2 (1921); see also Swift & Co. v. 
United States, 308 F.2d 849, 853 (7th Cir. 1962) (``The legislative 
history showed Congress understood the sections of the [P&S Act] 
under consideration were broader in scope than antecedent 
legislation such as the Sherman Antitrust Act, sec. 2 of the Clayton 
Act, 15 U.S.C. 13, sec. 5 of the Federal Trade Commission Act, 15 
U.S.C. 45 and sec. 3 of the Interstate Commerce Act, 49 U.S.C. 
3.'').
---------------------------------------------------------------------------

    Similarly, AMS disagrees with commenters' argument that Sec.  
201.304(b), which prohibits retaliation, is unnecessary because these 
protections are already afforded by the AFPA, the Capper-Volstead Act, 
and other laws which specifically protect farmers from retaliation for 
acting as a witness in a Federal investigation. USDA has continually 
received complaints from producers regarding retaliatory practices. 
Therefore, AMS concludes that promulgating these rules under the 
authority of the Act is necessary to address these concerns.
    Therefore, AMS makes no changes to the rule as proposed in response 
to these comments.
    Comment: A legal foundation and a cattle industry trade association 
claimed AMS's decision to broadly restrict discrimination against 
``market vulnerable'' individuals exceeds its statutory authority. One 
commenter said this decision, and its likely result of leaving courts 
to flesh out the vague definition to determine whom the proposed rule 
should protect, is inconsistent with Congress's longstanding and 
repeated choices to ban discrimination using an approach based on 
protected classifications. Another commenter said AMS acts beyond its 
authority in proposing a broad definition of ``market vulnerable'' 
individuals because its goal in taking such an approach is to ensure 
that the rule can address prejudice based on categories such as sexual 
orientation or gender identity. According to the commenter, AMS cannot 
redefine the meaning of the key terms ``undue prejudice'' and ``unjust 
discrimination'' under the Act to include protections based on these 
categories because the Congress that enacted the Act in 1921 would not 
have contemplated such protections. The commenter further critiqued 
AMS's citation of Bostock v. Clayton County \206\ to support its 
approach. According to the commenter, Bostock, which establishes that 
discriminating against an individual for being lesbian, gay, 
transgender, or

[[Page 16166]]

queer, constitutes discrimination on the basis of sex or gender 
prejudices, is in fact limited to an employment context and does not 
apply to contract arrangements.
---------------------------------------------------------------------------

    \206\ 140 S. Ct. 1731, 1741 (2020).
---------------------------------------------------------------------------

    AMS Response: AMS accepts the comment that it would be burdensome 
for the courts to flesh out the vague definition of ``market vulnerable 
individual'' to determine who the proposed rule should protect and that 
the approach is inconsistent with Congress's longstanding and repeated 
choices to ban unjust discrimination using an approach based on 
protected classifications. Accordingly, AMS is adopting specific 
prohibited bases in this final rule.
    AMS rejects the commenter's view that it is beyond the authority of 
the Act for AMS to address prejudice based on categories, such as 
sexual orientation or gender identity, because the Congress that 
enacted the Act in 1921 would not have contemplated such protections. 
The Act specifically addressed ``unjust discrimination'' and ``undue 
prejudice'' and left it to the Secretary to set out the scope of 
equitable terms such as ``unjust'' and ``undue,'' as well as 
``unfair.'' \207\ Moreover, ECOA prohibitions on discrimination in the 
extension of credit--which includes many of the protected bases covered 
by this final rule, including sex, shall be enforced under the P&S Act. 
Therefore, a violation of ECOA (if committed by a regulated entity) is 
also violation of the P&S Act.\208\ It is widely accepted, following 
Bostock v. Clayton Cnty \209\ and other cases, that the term ``sex'' 
covers sexual orientation and gender identity and the categorization as 
such is not limited to employment law.\210\ Moreover, since 2014, USDA 
has prohibited discrimination on those bases in all of USDA's Conducted 
Programs.\211\
---------------------------------------------------------------------------

    \207\ Section 407 of the Act (7 U.S.C. 228) provides that the 
Secretary ``may make such rules, regulations, and orders as may be 
necessary to carry out the provisions of this Act.''
    \208\ 15 U.S.C. 1691c(a)(5).
    \209\ 140 S. Ct. 1731, 1741 (2020).
    \210\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-clarifies-discrimination-by-lenders-on-basis-of-sexual-orientation-and-gender-identity-is-illegal/.
    \211\ https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture.
---------------------------------------------------------------------------

    Comment: Industry trade associations said proposed Sec.  201.304(a) 
inappropriately fails to incorporate the requirement from section 
202(b) of the Act that a prejudice or disadvantage be ``undue or 
unreasonable'' to constitute a violation. The commenters said this 
provision would go against precedent which has concluded that the Act, 
as well as the broader antitrust regime, allows actions such as refusal 
to deal or non-renewal of a contract when conducted reasonably. One 
commenter said AMS exceeds its authority in omitting this statutory 
requirement from the proposed rule.
    AMS Response: Under Act precedent, the Secretary is authorized to 
determine whether discriminatory conduct is ``undue'' or 
``unreasonable.'' \212\ The Secretary has in the past interpreted 
similar provisions governing stockyards to include prohibitions on 
discrimination on similar bases.\213\ Moreover, multiple precedents 
interpret the unfair practices provisions of sec. 5 of the FTC Act to 
incorporate discrimination on race, sex, and similar prohibited 
bases.\214\ The ICA's provisions barring unjust discrimination too, 
have been interpreted to bar discrimination on the protected 
bases.\215\ Therefore, this rule is within the Secretary's authority 
under secs. 202(a) and (b) of the Act. Under Act precedent, whether 
discriminatory conduct amounts to being ``undue'' or ``unreasonable'' 
is a determination that the statute provides broad discretion to the 
Secretary to determine. Advantages are not a component of this rule 
instead the rule focuses on prohibiting conduct that disadvantages 
producers based on characteristics unrelated to the quality of their 
products or services.
---------------------------------------------------------------------------

    \212\ Mahon v. Stowers, 416 U.S. 100, 112 (1974)). Section 407 
of the Act (7 U.S.C. 228) also provides that the Secretary ``may 
make such rules, regulations, and orders as may be necessary to 
carry out the provisions of this Act.''
    \213\ Statement of General Policy Under the Packers and 
Stockyards Act published by the Secretary of Agriculture in 1968 
(Statement of General Policy) (9 CFR 203.12(f)).
    \214\ See Federal Trade Commission v. Passport Automotive Group, 
Inc., No. 8:22-cv-02670 (D. Md. filed Oct. 18, 2022) (Settlement 
resulting from FTC allegations that Passport's discriminatory 
conduct, including charging Black and Latino customers interest-rate 
markups not tied to creditworthiness, violated the ``unfairness'' 
prong of Section 5 of the FTC Act); Michael Kades, ``Protecting 
Livestock Producers and Chicken Growers,'' Washington Center for 
Equitable Growth (May 5, 2022), available at Protecting livestock 
producers and chicken growers--Equitable Growth.
    \215\ See 7 U.S.C. 193. Cf. Mitchell v. United States, 313 U.S. 
80, 94 (1941)).
---------------------------------------------------------------------------

    Comment: Multiple industry companies and associations, another 
organization, and an individual contended that AMS unlawfully rejected 
precedent by asserting that discriminatory conduct can violate secs. 
202(a) or (b) of the Act without demonstrating injury, or likelihood of 
injury, to competition. The commenters cited legislative history and 
judicial precedent to argue that the Act is fundamentally an antitrust 
statute and is thus bound by the key antitrust principle of preventing 
harm to competition. Commenters said Congress's main concern in 
enacting the Act was preventing harm to competition from meatpacker 
monopolies and that, in drafting the Act, Congress used the basic 
blueprint of the Sherman Act and other existing antitrust statutes, 
which distinguish between fair competition and undesirable predatory 
competition. Commenters said interpreting secs. 202(a) and (b) to 
require plaintiffs to prove actual or likely harm to competition thus 
promotes the Act's main purpose of protecting healthy competition in 
the meatpacking industry. Commenters also cited numerous court cases 
holding that the Act requires a showing of injury to competition, 
including rulings spanning eight circuits.\216\ The commenters argued 
AMS's approach would open the door to baseless litigation and increased 
costs to industry. A commenter argued that, in the absence of the harm-
to-competition standard, courts will use a range of inconsistent means 
to establish violations of the Act, meaning individual cases will more 
likely require judicial resolution despite AMS's claim that its 
proposed approach will reduce litigation.
---------------------------------------------------------------------------

    \216\ Terry v. Tyson Farms, Inc., 604 F.3d 272, 276-79 (6th Cir. 
2010); Wheeler v. Pilgrim's Pride Corp., 591 F.3d 355 (5th Cir. 
2009) (en banc); Been v. O.K. Indus., Inc., 495 F.3d 1217, 1230 
(10th Cir. 2007); Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272, 
1280 (11th Cir. 2005), cert. denied, 547 U.S. 1040 (2006); London v. 
Fieldale Farms Corp., 410 F.3d 1295, 1303 (11th Cir.), cert. denied, 
546 U.S. 1034 (2005); IBP, Inc. v. Glickman, 187 F.3d 974, 977 (8th 
Cir. 1999); Philson v. Goldsboro Milling Co., 1998 WL 709324 at *4-5 
(4th Cir., Oct. 5, 1998); Jackson v. Swift Eckrich, Inc., 53 F.3d 
1452, 1458 (8th Cir. 1995); Farrow v. United States Dep't of Agric., 
760 F.2d 211, 215 (8th Cir. 1985); De Jong, 618 F.2d at 1336-37; 
Pac. Trading Co. v. Wilson & Co., 547 F.2d 367, 369-70 (7th Cir. 
1976); see also Armour & Co., 402 F.2d 712.
---------------------------------------------------------------------------

    AMS Response: Congress designed the Act to provide broader 
protections than existing antitrust laws such as the Clayton and 
Sherman Acts due to specific challenges in agricultural markets.\217\ 
The existence of the Act is proof that existing antitrust laws were not 
sufficient in protecting livestock producers and ensuring fair 
agricultural markets. It is well established that, to meet the needs of 
livestock producers more effectively, the Act provides broader 
protections than existing antitrust laws. The statutory text, case law, 
and legislative history make plain that the Act's protections extend 
beyond

[[Page 16167]]

antitrust laws.\218\ Accordingly, it has been the Agency's longstanding 
position that because the Act addresses more and different types of 
harmful conduct than antitrust laws, a showing of competitive injury is 
not required to establish violations of secs. 202(a) and 202(b). Market 
abuses such as deception, unjust discrimination, and retaliation are 
illegal per se under the act. Addressing the harmful conduct this rule 
aims to prevent is squarely within the authority of the Secretary and 
accords with Congressional intent.\219\ Moreover, the Secretary, 
exercising broad authority to define the scope of secs. 202(a) and (b), 
has determined that the prohibited practices are likely to exclude 
producers from the market, thereby lessening competition and causing 
widespread marketplace harm if not addressed in their incipiency, 
before competitive injury has occurred.
---------------------------------------------------------------------------

    \217\ See In re Pilgrim's Pride, 728 F.3d 457, 460 (5th Cir. 
2013) Been, 495 F.3d at 1231 Swift & Co. v. US, 393 F.3d 247, 253 
(7th Cir. 1968) Swift & Co. v. United States, 308 F.3d 849, 853 (7th 
Cir. 1962).
    \218\ See Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 
1961); Bowman v. USDA, 363 F.2d 81, 85 (5th Cir. 1966), Swift, 393 
F.3d at 253.
    \219\ Title 9, part 201 of the Code of Federal Regulations 
(CFR). Section 407 of the P&S Act (7 U.S.C. 228) provides that the 
Secretary ``may make such rules, regulations, and orders as may be 
necessary to carry out the provisions of this Act.
---------------------------------------------------------------------------

    Commenters cite several circuit court decisions that required a 
showing of harm to competition or a likely harm to competition 
establish a violation of sec. 202. These cases involved private claims 
and do not control the Agency's statutory authority to promulgate 
regulations. AMS is within its statutory authority to promulgate rules 
that ``assure fair competition and fair-trade practices, to safeguard 
farmers and ranchers . . . to protect consumers . . . and to protect 
members of the livestock, meat, and poultry industries from unfair, 
deceptive, unjustly discriminatory and monopolistic practices. . . .'' 
Congress granted the Secretary broad authority to determine the scope 
of coverage of terms such as ``unjust discrimination'' and ``undue 
prejudice'' or ``unreasonable disadvantage'' under secs. 202(a) and (b) 
of the Act.
    This rule aims to prevent market exclusion of producers who have 
been subjected to unjust discrimination on a prohibited basis or based 
on engaging in a protected activity, and to snuff out those harms at 
their incipiency. Based on its knowledge of the industry, AMS has 
determined that undue and unreasonable prejudice and unjust 
discrimination on the prohibited bases and the protected activities 
identified in the rule amount to conduct that negatively effects these 
markets, and therefore AMS is establishing these regulations to address 
that conduct at its incipiency, when it occurs against a single 
individual.
    Additionally, deceptive conduct violative of the Act has routinely 
been enforced on an individual basis absent a required showing of any 
particularized harm to competition since the very first administrative 
actions brought by the Department. Deceptive conduct often takes the 
form of unfair contract formation, enforcement, and termination and 
therefore most frequently occurs on an individual basis. To require a 
showing of harm to competition to prove deception violations under the 
Act would be contrary to longstanding enforcement standards and is 
adverse to the intent of the Act to protect farmers and ranchers from 
deception. Furthermore, the assertion from commenters that this rule 
will result in costly ``baseless'' litigation is contrary to the 
findings of AMS. AMS has determined that this rule will not increase 
litigation significantly due to the assertion by regulated entities, 
through their comments, that they do not engage in the conduct this 
rule aims to prohibit.
    Comment: Several advocacy organizations and a cattle industry trade 
association supported AMS's position that prohibited conduct under the 
Act need not lead to market-wide harm to competition, with some urging 
AMS to explicitly state that a showing of such harm is not required 
under the proposed rule. An agricultural and environmental organization 
cited E.O. 14036 on Promoting Competition in the American Economy,\220\ 
which called for a rule explicitly stating individuals should be able 
to prevail under the Act without proving market-wide harm. This 
commenter argued AMS needs to explicitly state its position to stop 
judicial confusion in the face of a Federal circuit court split on the 
competitive-harm issue. The commenter said that, since the proposed 
rule contains multiple references to both USDA's position on market-
wide harm to competition and E.O. 14036's explicit direction to 
incorporate this position into a final rule, amending the rule to 
clearly adopt this position would be a logical outgrowth of the 
proposed rule.
---------------------------------------------------------------------------

    \220\ 86 FR 36987, July 9, 2021.
---------------------------------------------------------------------------

    An agricultural advocacy organization contended the text, 
structure, and legislative history of the Act indicate that it 
prohibits discrimination based on market-vulnerable and protected-class 
status, giving AMS the legal authority to promulgate regulations based 
on this interpretation. The commenter argued the Act's prohibition of 
differential treatment on an ``unjust,'' ``undue,'' or ``unreasonable'' 
basis encompasses all forms of discrimination based on a producer's 
market vulnerability or protected classification because it includes 
all actions that adversely differentiate between producers without a 
legitimate basis. The commenter said that, in using such words in the 
Act, Congress clearly intended to invoke national values and policies 
related to fairness and equal treatment, including equal protection 
jurisprudence as it existed during enactment. According to the 
commenter, this jurisprudence was understood to prohibit essentially 
unjust or arbitrary discrimination between persons or corporations ``in 
a similar situation or condition.'' \221\
---------------------------------------------------------------------------

    \221\ See 14 Fletcher Cyc. L. Corps. section 6716 (2022). See 
also, e.g., Holden v. Hardy, 169 U.S. 366, 383 (1898)); Yick Wo, 118 
U.S. 356, 373-74; (1886); San Bernardino Cnty. v. S. Pac. R. Co., 
118 U.S. 417, 422-23 (1886) (Field, J., concurring); Barbier v. 
Connolly, 113 U.S. 27, 31 (1884); C.R. Cases, 109 U.S. 3, 25 (1883); 
In re State Freight Tax, 82 U.S. 232, 263 (1872).
---------------------------------------------------------------------------

    The commenter next looked at secs. 202(a) and (b) of the Act in the 
context of the statutory scheme, contrasting their broad reach with the 
more limited scope of secs. 202(c) through (f), which specifically 
target business practices with anticompetitive effects, and arguing 
this difference implies Congress intended for these first two sections 
to apply more expansively. This commenter further claimed, if unfair, 
discriminatory, prejudicial, or deceptive conduct always required proof 
of market-wide competitive injury, these paragraphs would be 
superfluous because paragraph (e), which prohibits ``any course of 
business'' or ``any act'' for the purpose or with the effect of causing 
competitive injury, would always apply. The commenter said this broad 
interpretation of secs. 202(a) and (b) to include discrimination based 
on protected-class or market-vulnerable status easily advances the 
Act's statutory purpose of ensuring fair competition and trade 
practices in livestock markets, noting that this type of discrimination 
reduces output and prevents efficient resource allocation by 
restricting certain producers' ability to enter and participate in 
markets. The commenter also said legislators enacting the Act sought to 
broadly address imbalances between buyers and sellers of livestock, 
referring in detail to the Act's legislative history for evidence that 
Congress intended for it to have an expansive scope, including coverage 
of a wide range of unfair and unjust practices.
    The commenter also argued that the prohibitions in secs. 202(a) and 
(b) do not merely include intentionally

[[Page 16168]]

discriminatory actions but also extend to actions with a disparate 
impact on covered producers based on their protected-class or market-
vulnerable status. To support this position, the commenter noted that 
sec. 202(a) prohibits regulated entities from engaging in practices or 
using devices that are ``unjustly discriminatory,'' rather than simply 
prohibiting them from actively discriminating, and that sec. 202(b) 
prohibits regulated entities from ``subject[ing]'' persons or 
localities to undue or unreasonable prejudices or disadvantages, 
arguing that both provisions specifically use language intended to 
encompass non-intentional actions.
    The commenter further argued that AMS holds authority to interpret 
the meaning of sec. 202 and identify practices that violate its 
prohibitions. The commenter said Congress modeled USDA's role under the 
Act on that of the Federal Trade Commission under the FTC Act, 
envisioning an authority with broad jurisdiction and power. According 
to the commenter, Congress even went beyond the FTC Act model in one 
respect in its grant of authority to USDA, with sec. 407 of the Act 
giving USDA unequivocal authority to promulgate rules as needed to 
carry out its provisions. The commenter also said many court decisions 
have given strong deference to USDA determinations on whether a 
practice violates the Act, relying on reasoning that the facts of 
individual cases determine the meaning of the Act's operative terms, 
and that USDA is responsible for efficiently regulating market agencies 
and packers. Finally, the commenter argued ``Chevron deference'' \222\ 
applies to USDA interpretations of the Act regarding differential 
treatment because these interpretations would be promulgated pursuant 
to express delegation of rulemaking authority as given in sec. 407, 
fill in the gaps Congress left in sec. 202, reflect a permissible 
construction of the statutory text that aligns with the statute's 
purpose, and take advantage of USDA expertise regarding the details of 
livestock production and marketing.
---------------------------------------------------------------------------

    \222\ Chevron U.S.A., Inc. v. Natural Resources Defense Council, 
Inc., 468 U.S. 837 (1984).
---------------------------------------------------------------------------

    One commenter recommended the following proposed regulatory text 
language to explicitly state violations of the proposed rule require no 
showing of competitive harm:

Sec.  201.308 No Requirement to Cause Market-Wide Harm

    Where a regulated entity commits conduct prohibited by Subpart 
201.302-201.306, such conduct violates Sec. Sec.  202(a) and (b) of 
the Act whether or not market-wide harm to competition results. The 
unfair, unjustly discriminatory, or deceptive treatment of one 
covered producer, the giving to one covered producer of an undue or 
unreasonable preference or advantage, or the subjection of one 
covered producer to an undue or unreasonable prejudice or 
disadvantage in any respect violates the Act.

    AMS Response: AMS notes and appreciates the comments, but made no 
further changes in response to the comments.
    AMS acknowledges the commentors' comments around a showing of harm 
to competition. The meaning of competition or harm to competition must 
be broader than its meaning under the antitrust laws.\223\ USDA 
maintains that this consistently held position is based on the 
language, structure, purpose, and legislative history of the Act, and 
USDA continues to adhere to this longstanding position, notwithstanding 
the disagreement of some courts as to the relationship between harm to 
competition and violations under the Act. Discrimination and undue 
prejudice on the bases set forth in this final rule are both 
essentially unjust and undue as forms of unacceptable personal 
discrimination under the Act (drawing on similar precedent from the ICA 
and from P&S Act implementation in stockyards), and also subvert normal 
market forces, undermine market integrity, and deprive producers of the 
true value of their products and services. AMS has not incorporated the 
suggested Sec.  201.308 provisions because the rule itself prohibits 
discrimination against an individual producer on the prohibited bases 
or protected activities. The proposed rule elaborated on the regulatory 
text, stating ``[t]his proposed regulation sets forth specific 
prohibitions on prejudicial or discriminatory acts or practices against 
individuals that are sufficient to demonstrate violation of the Act 
without the need to further establish broad-based, market-wide 
prejudicial or discriminatory outcomes or harms.'' \224\ AMS's position 
is that under the Act even a single instance of discriminatory or 
prejudicial conduct may violate the Act.\225\ The Act prohibits 
``essentially unjust'' discrimination and undue prejudice, which AMS 
has determined the provisions of this final rule to address. Moreover, 
discrimination on prohibited bases and retaliation on the basis of 
protected activities in livestock and poultry markets leads to economic 
inefficiency, and has no procompetitive justification. Undue prejudices 
or disadvantages and discriminatory practices in a concentrated 
livestock or poultry market inflict economic harm through a distortion 
of market signals such as a distortion of market prices and exclusion 
of market participants, which, in turn, can lead to disinvestments in 
the livestock and poultry markets and a misallocation of scarce 
resources. Deception deprives the seller of the benefits of the market, 
as competitors of the initial deceiving regulated entity may be induced 
to likewise engage in such practices. When market abuses become 
widespread, market success becomes less based on productive efficiency 
or quality and more on who can engage in the most abuses, leading to 
allocative inefficiencies and loss of social welfare.
---------------------------------------------------------------------------

    \223\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey 
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862; Peter Carstensen, The Packers and Stockyards Act: A History of 
Failure to Date, CPI Antitrust Journal 2-7 (April 2010) (``Congress 
sought to ensure that the practices of buyers and sellers in 
livestock (and later poultry) markets were fair, reasonable, and 
transparent. This goal can best be described as market facilitating 
regulation.''); Michael C. Stumo & Douglas J. O'Brien, ``Antitrust 
Unfairness vs. Equitable Unfairness in Farmer/Meat Packer 
Relationships,'' 8 Drake J. Agric. L. 91 (2003); Michael Kades, 
``Protecting livestock producers and chicken growers,'' Washington 
Center for Equitable Growth (May 2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf.
    \224\ 87 FR 60018.
    \225\ Extensively discussed in Michael Kades, ``Protecting 
livestock producers and chicken growers,'' Washington Center for 
Equitable Growth (May 2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf, among other 
articles referenced above.
---------------------------------------------------------------------------

    Comment: Commenters representing industry perspectives said 
proposed Sec.  201.306 on deceptive practices is outside the scope of 
the Act because it would require all tort or contract disputes under 
the Act to be addressed in Federal courts rather than as State matters. 
According to the commenters, Congress would have explicitly said so if 
it intended to give AMS wide-ranging authority to regulate the 
specifics of livestock industry contracts and business practices 
regardless of their effect on competition. According to commenters, 
further evidence that Congress did not intend to give the agency such 
authority includes its previous rejections of other proposals to expand 
the Act to cover contractual matters traditionally covered under State 
law, with Federal courts likewise holding that the Act does not cover 
these circumstances.
    A cattle industry trade association said this provision also 
exceeds the scope of the Act because AMS's contention that deception 
does not

[[Page 16169]]

require proof of a particularized intent contradicts the plain text of 
the statute as it would have been interpreted at enactment. According 
to the commenter, Congress at this time would have understood 
meatpacker conduct only to be deceptive when committed with the intent 
to deceive a producer. The commenter further stated that AMS's 
arguments that deceptive practices under sec. 202 of the Act do not 
necessarily require intent to deceive--based on analogy to developments 
in the law of deceptive marketing--do not provide sufficient support 
for its position. An organization asserted that the proposed rule 
attempts to undercut Federal court rulings, such as Jackson v. Swift 
Eckrich, Inc.,\226\ which hold that the Act is not intended to 
undermine traditional freedom-of-contract principles by exposing 
producers to Federal liability if they refuse to enter into certain 
contracts or exercise basic contract rights.
---------------------------------------------------------------------------

    \226\ 53 F.3d 1452, 1458 (8th Cir. 1995).
---------------------------------------------------------------------------

    AMS Response: This rule does not require all tort or contract 
disputes under the Act to be addressed in Federal courts rather than as 
State matters. It only addresses the specific prohibited conduct 
covered by the rule. Moreover, in secs. 202(a) and (b), Congress gave 
broad authority to the Secretary to establish the scope of Federal 
protections governing transactions in livestock and poultry, given the 
interstate nature of the industry.
    The Act does not require proof of a particularized intent to 
deceive.\227\ This rule does not inhibit freedom to contract by 
exposing producers to liability if they refuse to enter into a 
contract.\228\ It addresses undue prejudice, retaliation, and deception 
which may occur at various stages of the contracting process, including 
the stage when a refusal to deal may amount to discrimination on the 
bases of prohibited categories specified in the final rule or a 
deceptive practice when distorted owing to an untrue statement. 
Therefore, this rule does not contradict the holding in Jackson v. 
Swift Eckrich, Inc. Accordingly, AMS made no changes to the rule in 
response to these comments.
---------------------------------------------------------------------------

    \227\ See Parchman v. U.S. Dep't of Agric., 852 F.2d 858, 864 
(6th Cir. 1988).
    \228\ Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 
1968).
---------------------------------------------------------------------------

    Comment: Cattle industry trade associations argued the proposed 
rule also represents an inappropriate attempt to regulate commercial 
feed yards under the Act, saying AMS improperly cites Solomon Valley 
Feedlot Inc. v. Butz \229\--a case holding that feed yards are not 
regulated entities under the Act--to support its reference to surety 
bonds as one means to protect farmers and consumers from unfair 
practices under the Act. According to the commenters, AMS's citation in 
this context suggests commercial feed yards are required to post bonds 
despite the case holding that they are not regulated entities and thus 
do not need to do so. A commenter further said this inaccurate 
citation, combined with the proposed rule's overbroad definition of 
``livestock producer,'' suggests AMS is trying to regulate feed yards 
under the Act despite both Congressional intent and judicial precedent 
supporting their exclusion.
---------------------------------------------------------------------------

    \229\ 550 F. 2d 717 (10th Cir. 1977).
---------------------------------------------------------------------------

    AMS Response: AMS respectfully considers these comments to be 
outside the scope of this rulemaking. To be clear, AMS does not intend 
to refute the court's holding in Solomon Valley that feedlots are 
unregulated. Nor does the rule make any attempt to define ``regulated 
entities'' to include feedlots.
    This final rule prohibits regulated entities from engaging in 
deceptive practices. Regulated entities include packers, swine 
contractors, and live poultry dealers. The rule protects feedlots as 
livestock producers from undue prejudice, retaliation, and deception. 
AMS sees no reason for the commenter's argument that the definition of 
livestock producers should exclude feedlots, except to the extent that 
the feedlot is acting as a dealer under the Act. This rule does not 
attempt to regulate the behavior of livestock dealers or feedlots in 
any capacity. The Solomon Valley decision, which shows it is a 
deceptive practice for a regulated entity to fail to maintain a bond, 
was cited in the proposed rule to provide an example of what the court 
has found constitutes a deceptive practice.
ii. Congressional Direction
    Comment: Live poultry dealers and poultry industry trade 
associations said Congressional authority for AMS to issue the proposed 
rule has expired because the agency did not promulgate it within the 
deadline set by the 2008 Farm Bill. A commenter said this Farm Bill 
included language asking GIPSA, the agency formerly in charge of 
implementing the Act, to promulgate new regulations dealing with 
several sections of the Act. The commenter noted that section 11006 of 
the 2008 Farm Bill tasked AMS with writing new regulations establishing 
criteria to determine four issues, including whether an undue or 
unreasonable preference or advantage has occurred in violation of the 
Act. Section 11006 included a timeline, requiring AMS to promulgate 
these new regulations no later than two years after the Farm Bill's May 
22, 2008, enactment. However, AMS did not publish the proposed rule for 
comment until October 3, 2022, nearly 12 years after the Farm Bill 
deadline expired. According to the commenter, finalizing the proposed 
rule would therefore unconstitutionally exceed the scope of Congress's 
grant of authority to USDA.
    Likewise, a meat industry trade association argued that Congress 
referred to issues relating to socially disadvantaged farmers and 
ranchers in other parts of the 2008 Farm Bill but failed to do so in 
the context of its direction for rulemaking under the Act; therefore, 
it is reasonable to assume Congress did not seek to address such topics 
under the Act.
    AMS Response: AMS respectfully considers these comments to be 
outside the scope of this rule. The 2008 Farm Bill's directive that 
GIPSA promulgate rulemaking pertaining to the Act does not restrict 
USDA's and AMS's authority to conduct this rulemaking and thus 
effectuate the purposes of the Act.
    Further, as noted earlier, Executive Order 14036 directs the 
Secretary to address unfair treatment of farmers and improve conditions 
of competition in their markets by considering rulemaking to address, 
among other things, certain market abuses and anticompetitive practices 
in the livestock, poultry, and related markets, including unjustly 
discriminatory, unduly prejudicial, and deceptive practices--in 
particular retaliation. This final rule is responsive to the Executive 
Order.
    Comment: A cattle industry trade association and a live poultry 
dealer argued that, in addition to taking advantage of an expired grant 
of authority, the proposed rule also extends beyond the scope of the 
original Congressional authority to amend the Act. Commenters said 
issues not covered under the Farm Bill grant include the introduction 
of a vague and ambiguous definition of ``market vulnerable 
individual;'' a determination that proof of anticompetitive harm is no 
longer necessary to prevail under secs. 202(a) or (b) of the Act; and 
regulation of deceptive practices and of recordkeeping.
    AMS Response: As stated by Congress, the purpose of the Act is ``to 
assure fair competition and fair trade practices, to safeguard farmers 
and ranchers . . . to protect consumers . . .

[[Page 16170]]

and to protect members of the livestock, meat, and poultry industries 
from unfair, deceptive, unjustly discriminatory and monopolistic 
practices. . . .'' This regulation bans behavior that is unjustly 
discriminatory, unreasonably prejudicial and disadvantageous, and 
deceptive. AMS has addressed the other matters raised by the commenter 
in previous comment responses.
    Comment: Multiple industry commenters argued that the proposed rule 
triggers the major questions doctrine under West Virginia v. EPA, under 
which an agency lacks authority to take politically or economically 
significant regulatory actions without ``clear congressional 
authorization.'' \230\ Commenters said the Supreme Court has indicated 
particular concern where an agency fundamentally changes the regulatory 
scheme under a statute, seeks to adopt a rule Congress has clearly and 
repeatedly declined to enact, or claims broad authority for which there 
is a lack of historical precedent, arguing that the proposed rule 
raises all three of these issues.\231\ Commenters argued that the Act 
has long been understood to be grounded in antitrust principles and has 
never in its hundred-year history been used to broadly address the kind 
of discriminatory conduct covered in the proposed rule. The commenters 
further claim that the proposed rule's treatment of the Act as an 
antidiscrimination statute also unprecedently extends past the scope of 
other such laws by targeting discrimination against independent 
contractors rather than employees.\232\ They also note that, in 
addition to declining to apply the Act as an antidiscrimination 
statute, Congress has also declined to adopt any general prohibitions 
on discrimination in contracting extending beyond the ban on racial 
discrimination in 42 U.S.C. 1981. The commenters stressed that it would 
be the role of Congress, not AMS, to decide to apply the Act like an 
antidiscrimination statute. According to the commenters, specific 
aspects of the proposed rule that trigger this doctrine include the 
elimination of the harm-to-competition standard, the creation of a 
definition of ``market vulnerable individuals,'' the identification of 
conduct constituting deceptive conduct, and the 5-year document 
retention mandate for regulated entities.
---------------------------------------------------------------------------

    \230\ West Virginia v. EPA, 142 S. Ct. 2587, 2613-14 (2022).
    \231\ Id. at 2612, 2610; NFIB v. OSHA, 142 S. Ct. 661, 666 
(2022) (per curiam).
    \232\ 42 U.S.C. 2000e-2; E.E.O.C., Coverage, https://www.eeoc.gov/employers/coverage.cfm (last visited Jan. 1, 2023); see 
also Health Care Workers and the Americans with Disabilities Act, 
https://www.eeoc.gov/laws/guidance/health-care-workers-and-
americans-disabilitiesact#:~:text=While%20the%20ADA's%20protections%2
0apply,does%20not%20cover%20independent20contractors (last visited 
Jan. 1, 2023) (``While the ADA's protections apply to applicants and 
employees, the statute does not cover independent contractors.''); 
29 U.S.C. 623; E.E.O.C., Coverage, https://www.eeoc.gov/employers/
coverage-
0#:~:text=People%20who%20are%20not%20employed,by%20the%20anti%2Ddiscr
imination%20laws (last visited Jan. 1, 2023) (``People who are not 
employed by the employer, such as independent contractors, are not 
covered by the antidiscrimination laws.'').
---------------------------------------------------------------------------

    AMS Response: As discussed in the preamble to this final rule, 
Congress enacted the Act after many years of concern about farmers and 
ranchers being cheated and mistreated. In the Act, Congress gave the 
Secretary broad authority to regulate the meatpacking industry. 
Congress believed that existing antitrust and market regulatory laws, 
including the Sherman Act and Federal Trade Commission Act, did not 
sufficiently protect farmers and ranchers. In the Act, Congress gave 
the Secretary broad authority to regulate the meatpacking industry. The 
House of Representatives' report on the Act stated that it was the 
``most comprehensive measure and extends farther than any previous law 
in the regulation of private business, in time of peace, except 
possibly the interstate commerce act.'' \233\ The Conference Report on 
the Act stated that: ``Congress intends to exercise, in the bill, the 
fullest control of the packers and stockyards which the Constitution 
permits. . . .'' \234\ Congress considered this a power beyond the 
authority that of the FTC and the Interstate Commerce Commission.
---------------------------------------------------------------------------

    \233\ House Report No. 67-77, at 2 (1921).
    \234\ House Report No. 67-324, at 3 (1921).
---------------------------------------------------------------------------

    This rule's interpretations of unjust discrimination, undue and 
unreasonable prejudice, and retaliation are consistent with 
longstanding approaches to protecting producers under the Act, are 
consistent with interpretations of similar provisions of sec. 5 of the 
FTC Act and the ICA, and mirror congressional policy as reflected in 
ECOA. Moreover, Congress as recently as 2008 directed USDA to conduct 
rulemakings on sec. 202, which led to the 2020 Rule discussed above on 
undue preferences. The 2020 Rule wrestles with questions of undue 
prejudices which this final rule settles. Deception similarly follows a 
long line of cases and rules covering deceptive practices under the 
Act. Regarding issues raised by commenters around the major question 
doctrine, this rule does not address political matters, nor does it 
focus on fixing purely economic harms. This rule aims to increase 
protections for producers by clarifying that secs. 202 (a) and (b) of 
the Act prohibit discriminatory, retaliatory, and deceptive conduct by 
regulated entities.
iii. Legal Justification
    Comment: Live poultry dealers and industry associations argued that 
the administrative record for the proposed rule fails to support a 
rulemaking. Commenters contended AMS has failed to identify any actual 
harmful conduct that would justify the proposed rule. Several 
commenters criticized specific aspects of the record, saying the court 
cases providing examples of alleged violations of the Act seem to be 
``opportunistically selected'' and inaccurately cited, while the 
discussions of previous rulemaking efforts, many of which were 
withdrawn after Congressional objection, do not provide legitimacy. The 
commenters said, rather than basing its justification on facts, AMS 
instead acted arbitrarily and capriciously in supporting it with 
unverifiable anecdotal evidence and anonymous sources. A cattle 
industry trade association said that the proposed rule is too reliant 
on unexplained anecdotal evidence and suggested AMS has compounded this 
problem by encouraging commenters to respond anonymously.
    A commenter said AMS aggravates these issues by inviting more 
anonymous feedback in its request for comment on the proposed rule, 
making it difficult to assess commenters' credibility, encouraging more 
false or unverifiable anecdotes, and further weakening the evidentiary 
foundation of the eventual final rule. The commenter urged AMS to 
reopen the comment period after clarifying that it will not give 
anonymous anecdotes disproportionate weight. Another commenter said, as 
AMS explicitly left racially discriminatory practices off its list of 
criteria for finding undue or unreasonable preferences under the Act in 
promulgating the final rule codified at 9 CFR 201.211,\235\ it must 
explain its rationale for reversing its position to determine that the 
Act now covers protected-class discrimination.
---------------------------------------------------------------------------

    \235\ See 85 FR 79779.
---------------------------------------------------------------------------

    AMS Response: AMS disagrees with commenters' argument that the 
administrative record for the proposed rule fails to support this 
rulemaking. Section 407 of the Act (7 U.S.C. 228) provides that the 
Secretary ``may make such rules, regulations, and orders as may be 
necessary to carry out the provisions of this Act.'' Under the APA, an 
Agency may conduct rulemaking to

[[Page 16171]]

revise prior positions if it can show that there are ``good reasons'' 
for the change and that the ``new policy is permissible under the 
statute.'' \236\ AMS gathered evidence from livestock producer and 
poultry grower testimonies, Congressional testimonies, DOJ and USDA 
public workshops, case law, and economic data. AMS has gathered 
economic data on disparities between white farmers and ranchers and 
other racial and ethnic groups. This data is presented in Figure 5 and 
highlights the need for this rulemaking to provide fair access to 
markets for all producers. Preliminary empirical results indicate that 
there are some systemic differences in prices received across ethnic/
racial groups after accounting for regional fixed effects and marketing 
variables. Relative to White producers, historically underserved Black 
and American Indian groups receive lower cattle prices; Black groups 
receive lower contract broiler prices, and Black and American Indian 
groups receive lower hog prices.\237\
---------------------------------------------------------------------------

    \236\ FCC v. Fox Television Stations, 556 U.S. 502, 514 (2009).
    \237\ ``Competition and Discrimination--is there is a 
relationship between livestock prices received and whether the 
grower is in a historically underserved group?'' 2023 AAEA Annual 
Meeting, Washington, DC, July 23-July 25, 2023.
---------------------------------------------------------------------------

    The provisions in this rule are basic, fundamental protections 
against discrimination on prohibited bases as authorized by the Act and 
as consistent with congressional policy. The prohibition on retaliation 
protects the ability for producers to communicate with governmental 
entities, associate, cooperate, and compete. The prohibitions on 
deception are equally basic. These basic and fundamental provisions are 
justified with the record presented. Decades of complaints by 
producers, include public hearings with the Department of Justice, have 
catalogued how vertical integration and market concentration have left 
producers unable to avoid adverse treatment that tends to exclude them 
from the marketplace, including retaliation preventing them from even 
reporting these concerns to governmental authorities. The result has 
been producers unable to bargain effectively in the marketplace or 
fully obtain the benefits of their livestock production and poultry 
grow out services. Regulated entities consistently assert they do not 
engage in such practices; if so, then the burdens from adopting this 
rule are low.
    AMS is not reopening the comment period for this rule. Consistent 
with the Administrative Procedure Act, all interested persons had an 
opportunity to comment and the agency has considered all relevant 
matter received through the public comment process.
    AMS does not agree that it has reversed its position with respect 
to the rationale underpinning the rule promulgating Sec.  201.211. This 
final rule addresses undue and unreasonable prejudices and 
disadvantages and unjust discrimination. Conversely, the rule 
implementing Sec.  201.211 addressed undue and unreasonable preferences 
and advantages. AMS may return to the question of undue and 
unreasonable preferences and advantages in future rulemaking but does 
not have at this time any further information to offer with respect to 
how AMS would or would not apply the Act's prohibition on undue or 
unreasonable preferences or advantages. AMS is not making any further 
changes in response to this comment.
    Comment: A cattle industry association said AMS has provided no 
meaningful evidence of discrimination on grounds other than race, 
saying evidence of the latter is unnecessary because racial 
discrimination in private contracting is already prohibited. According 
to the commenter, AMS also has provided no evidence that would justify 
its proposal to establish a broad market vulnerable producer approach 
to discrimination. This commenter also criticized AMS's citation of 
disparities in farm size and income along racial and ethnic lines. It 
said the agency confuses correlation and causation by arguing that 
smaller minority-owned farms necessarily have a harder time competing 
because of race discrimination when it has merely shown that minority-
owned farms tend to be smaller and that any smaller farms tend to face 
competitive disadvantages compared to larger ones.
    AMS Response: The existence of the continued correlation suggests 
the continued persistence of problems, and accordingly the need for 
additional clarity regarding the enforcement of the Act. To the extent 
that the activities covered are already prohibited, then the clarity 
provided by this rule should place no new burdens on industry with 
respect to compliance. Additionally, AMS has adopted in its final rule 
a list of prohibited bases for undue and unreasonable prejudice and 
disadvantages instead of using the term ``market vulnerable,'' 
therefore addressing commenters' concerns around the term's broadness.
    Recent research conducted by the USDA's Office of the Chief 
Economist and presented at the American Association for Agricultural 
Economics \238\ suggests that certain ethnic or racial groups may be 
suffering currently from discrimination by packers in the establishment 
and/or performance of livestock and poultry contracts. Qualitatively, 
the research found consistent differences in prices received for 
livestock (cattle and hogs) and broiler products across ethnic or 
racial groups after controlling for variables such as farm size, 
regional differences, type of marketing contract or channel, organic 
certification status, distance to closest packer, and size of closest 
packer. Limitations of the study include that it is unable to control 
for all animal characteristics and cannot separate disparate economic 
outcomes arising from current racial discrimination from disparate 
economic outcomes due to historical discrimination.
---------------------------------------------------------------------------

    \238\ Breneman, V., Cooper, J. Nemec Boeme, R. and Kohl, M. 
``Competition and Discrimination--is there is a relationship between 
livestock prices received and whether the grower is in a 
historically underserved group?'' 2023 AAEA Annual Meeting, 
Washington, DC, July 23-July 25.
---------------------------------------------------------------------------

    Comment: A cattle industry association said the proposed rule is 
arbitrary and capricious because AMS has yet to release several related 
proposals dealing with rulemakings under the Act. The commenter notes 
that sec. 553(c) of the Administrative Procedure Act requires agencies 
to give interested parties a ``reasonable'' and ``meaningful'' 
opportunity to participate in the rulemaking, then argues that AMS's 
failure to disclose how this proposed rule will fit in with other 
related rules addressing poultry and livestock contractors under the 
Act does not meet this standard because it does not give parties a 
chance to respond to the rulemaking actions as a whole.
    AMS Response: That previous rulemaking efforts, such as those 
published in 2016, tied multiple rulemakings together with respect to 
certain assumptions in their cost-benefit analysis is not dispositive 
on how this set of rulemakings--which are entirely different and 
unconnected to the 2016 effort--should be designed or presented for 
public comment. This final rule is a logical outgrowth of the rule as 
proposed and does not in any way depend upon what AMS may or may not 
propose or finalize in any other rules. AMS made no changes to the rule 
based on this comment.
    Comment: A meat industry trade association expressed concern 
because AMS stated in the preamble to the proposed rule that 
retaliation may include activities other than those listed in the 
proposal. The commenter said the statement in the preamble, which says

[[Page 16172]]

the proposed rule is ``designed to prohibit all such actions with an 
adverse impact on a covered producer,'' \239\ conflicts with another 
statement in the preamble regarding Sec.  201.304(b), which says the 
proposed regulations are ``narrowly tailored, requiring the adverse 
action to be linked to specific protected activities,'' \240\ making 
the rule arbitrary and capricious in failing to give useful guidance on 
permissible activities.
---------------------------------------------------------------------------

    \239\ 87 FR 60026, October 3, 2022.
    \240\ Id. at 60024.
---------------------------------------------------------------------------

    AMS Response: The commenter confuses the design of the rule. The 
specific protected activities set forth under Sec.  201.304(b)(1) and 
(2) are narrowly tailored and limited to those delineated. In contrast, 
the forms of adverse conduct, as set forth in 201.304(b)(3), are 
inherently broader and more flexible. Additionally, the final rule 
provides greater specificity with respect to forms of adverse conduct, 
which are now delineated specifically and are no longer subject to 
open-ended addition.
    Therefore, AMS will not make changes to the final rule in response 
to this comment.
iv. Vagueness
    Comment: Commenters argued that multiple provisions of the proposed 
rule are so vague and open-ended they thwart processors' ability to 
determine how it may apply to their conduct. According to the 
commenters, these provisions raise issues under the Fifth Amendment's 
Due Process Clause, which requires rules of law to define unlawful 
conduct with enough specificity to let interested parties understand 
what conduct is prohibited and to prevent arbitrary or discriminatory 
application of the rule.\241\
---------------------------------------------------------------------------

    \241\ See Skilling v. United States, 130 S. Ct. 2896, 2927-28 
(2010).
---------------------------------------------------------------------------

    Live poultry dealers and a poultry industry trade association said 
the proposed rule is unconstitutionally vague because it includes a 
number of poorly defined or undefined terms for which failure to comply 
would result in a regulatory violation. The commenters said it provides 
only examples of behavior that would constitute a prohibited 
``prejudice or disadvantage'' or ``retaliation,'' rather than spelling 
out definitive lists or definitions that regulated entities can use to 
comply with the proposed rule. The commenters highlighted other terms 
raising vagueness issues, such as ``generally or ordinarily offered,'' 
``differential contract performance or enforcement,'' and ``tak[ing] an 
adverse action.'' These commenters said the rule also fails to spell 
out other concepts essential for identifying unlawful conduct, such as 
what would constitute a prohibited pretext or a legitimate explanation, 
how the recordkeeping requirements would be triggered, or what records 
must be kept. Commenters emphasized clear definitions are critical for 
companies to know what is and is not allowed under the rule.
    AMS Response: The Due Process Clause under the Fifth Amendment 
requires legal matters to be resolved according to established rules 
and principles. AMS has adequately described the type of conduct 
prohibited under this rule by expressly stating that prejudices on 
specified prohibited bases constitutes a violation under the Act. These 
prohibited bases expressly draw from ECOA and apply to the Act and are 
explained in this rule with the specificity required to give notice to 
interested parties as to what conduct is prohibited. Moreover, changes 
in this final rule more clearly delineate prohibited bases of 
discrimination in Sec.  201.304(a)(1), prohibited prejudicial conduct 
under Sec.  201.304(a)(2), prohibited retaliatory conduct under Sec.  
201.304(b)(3), and more. Concerns of vagueness are addressed by AMS 
further explaining terms in the final rule with the specificity needed 
to thwart claims of unconstitutional government action. The final rule 
also provides two new specific exceptions that address commenters' 
concerns regarding the proposed rule not including exceptions. 
Furthermore, as explained in response to earlier comments, the 
recordkeeping requirement is clear and specific in its explanation in 
requiring regulated entities to keep certain records pertaining to 
their business practices relating to activities subject to the 
jurisdiction of the Act.
    The terms used in this rule are intended to follow their plain 
language meaning, as applied to the livestock and poultry industries 
and within the legal framework regulating these industries. The 
following discussion demonstrates how these terms support the rule's 
prohibitions against undue prejudice, deception, and retaliation and in 
fact are quite specific.
    ``Retaliation'' is set forth in paragraph (b)(3) and encompasses 
actions taken by regulated entities against covered producers such as 
contract termination, refusal to renew a contract, offering of more 
unfavorable contract terms than those generally or ordinarily offered, 
refusal to deal, interference with third-party contracts, and 
modification of contracts on less favorable terms than those previously 
enjoyed in response to the producer's participation in a protective 
activity. What constitutes retaliation is clearly defined in the rule, 
and likewise the rule clearly lays out protected activities against 
which retaliation is prohibited.
    In this rule, ``generally or ordinarily offered'' terms are terms 
most producers would qualify for when contracting with a regulated 
entity. Whether terms are ``generally or ordinarily offered'' is an 
inquiry regarding specific facts and circumstances. Each case may vary 
by regulated entity and even for any given regulated entity may vary 
based on how the regulated entity would normally deal in the 
circumstances presented by the producer in question. However, 
``generally or ordinarily'' does not apply to special contract terms 
that some regulated entities may use with certain producers, whether to 
receive particular quality attributes or services or for other reasons 
that are not discrimination on prohibited bases. The purpose of the 
rule is to ensure that a covered producer is not denied contract terms 
on the basis of a protected class that an ``ordinary'' similarly 
situated producer could receive from the regulated entity.
    ``Performing under or forcing a contract differently than with 
similarly situated producers'' refers to situations where a regulated 
entity operates in such a way that it denies a grower the full benefits 
to which it is entitled under its contract with the regulated entity. A 
poultry grower may seek to enforce a production contract term that 
gives the grower the right to receive appropriate feed for the grower's 
flocks on a timely basis in the event the grower regularly or at 
critical times experiences insufficient, delayed, or inappropriate 
feed. If a regulated entity threatens to terminate a grower's contract 
in response to the grower's efforts to enforce a particular contract 
term (a protected activity), this retaliatory conduct would violate the 
Act. AMS notes that this violation would be separate from any violation 
of contract law that may also exist. Another example is selective 
information disclosures. These often take the form of a regulated 
entity withholding materially relevant information from one covered 
producer that the regulated entity generally or ordinarily provides to 
other covered producers. In these instances, information-deprived 
producers will have an incomplete picture of their business 
relationships with regulated entities, and therefore will operate at an 
unreasonable disadvantage relative to producers who receive the 
pertinent information.

[[Page 16173]]

Furthermore, this rule not only protects covered producers from such 
conduct in the form of retaliation. If a regulated entity engages in 
differential contract enforcement on the bases of a producer's 
protected class, this would constitute discriminatory conduct in 
violation of Sec.  201.304(a) of this regulation.
    ``Tak[ing] an adverse action'' encompasses a range of prejudicial, 
deceptive, or retaliatory actions that unjustly inhibit market access 
such as prejudice, disadvantage, retaliation, deception, or any action 
that inhibits market access to producers. A range of actions taken by 
producers on legitimate business grounds can be adverse to producer 
welfare. However, in the context of this rule, adverse actions are 
those actions taken by regulated entities against producers that either 
unfairly discriminate against producers on the basis of a protected 
class, deceive producers, or represent retaliation against producers 
for engaging in protected activities such as lawful communications, 
assertion of contract rights, associational participation, or 
participating as a witness in any proceeding under the Act.
v. Other Legal Issues
    Comment: A cattle industry trade association said the requirement 
to demonstrate harm to competition is crucial within its industry 
because packers differentiate cattle values using an array of different 
factors including production method, animal handling requirements, and 
program enrollment, meaning that seemingly similar lots of cattle may 
be valued substantially differently. The commenter expressed concern 
that the results of individual adjudications taking place under sec. 
202 of the Act without the threshold of a competitive-injury 
requirement would vary significantly, diminishing innovation and 
product differentiation, confusing market participants, and ultimately 
harming both producers and consumers. A poultry industry trade 
association said that, if AMS seeks to establish circumstances in which 
conduct can violate secs. 202(a) and (b) without a showing of 
competitive injury, a separate standalone rulemaking would be more 
suitable than inclusion in the proposed rule.
    AMS Response: This final rule solely addresses the prohibited 
conduct it covers--undue prejudice on prohibited bases, retaliation as 
unjust discrimination for engaging in protected activities, and certain 
forms of deception. It does not, beyond the specific prohibitions, 
interfere with the manner in which packers differentiate cattle values 
using an array of different factors including production method, animal 
handling requirements, and program enrollment, meaning that seemingly 
similar lots of cattle may be valued substantially differently. 
Individual adjudications with respect to the conduct covered by this 
proposed rule are essential to effectuate the prohibitions set forth in 
this rule, so as to eliminate in their incipiency occurrences of undue 
prejudice on prohibited bases and retaliation on protected 
activities.\242\ The Act empowers the Secretary to make the 
determinations around what conduct is unreasonable and undue prejudices 
and disadvantages and unjust discrimination. It is also well-
established that deception is a prohibition that can be enforced on the 
bases of each individual occurrence.
---------------------------------------------------------------------------

    \242\ Bowman v. United States Dep't of Agric., 363 F.2d 81, 85 
(5th Cir. 1966)
---------------------------------------------------------------------------

    Moreover, even where relevant, the meaning of competition or harm 
to competition must be broader than its meaning under the antitrust 
laws.\243\ USDA has previously explained that this consistently held 
position is based on the language, structure, purpose, and legislative 
history of the Act, and USDA continues to adhere to this longstanding 
position, despite the disagreement of some courts as to the 
relationship between harm to competition and violations under the Act. 
See Scope of Sections 202(a) and (b) of the Packers and Stockyards Act, 
82 FR 48596 (Oct. 18, 2017), (reaffirming that ``USDA has adhered to 
this interpretation of the P&S Act for decades'' and rejecting comments 
that this interpretation is not the USDA's longstanding position). 
Regardless, even if a showing of harm to competition were required for 
an undue prejudice or discrimination claim, the discriminatory 
practices prohibited in this rule would meet such a requirement. 
Discrimination and undue prejudice have no value or place in a 
competitive market, and in fact can lead to inefficiencies as personal 
characteristics, not production factors influence contracting 
decisions. Ultimately, the conduct at issue is squarely within the 
purposes of the Act. Where conduct ``prevents an honest give and take 
in the market,'' it ``deprives market participants of the benefits of 
competition'' and ``impedes . . . a well-functioning market.'' In its 
report on the 1958 amendments to the Act, the U.S. House of 
Representatives explained that the statute promotes both ``fair 
competition and fair trade'' and is designed to guard ``against 
[producers] receiving less than the true market value of their 
livestock.'' Discrimination and undue prejudice on the bases set forth 
in this final rule are both essentially unjust and undue as forms of 
unacceptable personal discrimination under the Act (drawing on similar 
precedent from the ICA and from P&S Act implementation in stockyards), 
and also subvert normal market forces, undermine market integrity, and 
deprive producers of the true value of their products and services.
---------------------------------------------------------------------------

    \243\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey 
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862; Peter Carstensen, The Packers and Stockyards Act: A History of 
Failure to Date, CPI Antitrust Journal 2-7 (April 2010) (``Congress 
sought to ensure that the practices of buyers and sellers in 
livestock (and later poultry) markets were fair, reasonable, and 
transparent. This goal can best be described as market facilitating 
regulation.''); Michael C. Stumo & Douglas J. O'Brien, ``Antitrust 
Unfairness vs. Equitable Unfairness in Farmer/Meat Packer 
Relationships,'' 8 Drake J. Agric. L. 91 (2003); Michael Kades, 
``Protecting livestock producers and chicken growers,'' Washington 
Center for Equitable Growth (May 2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf.
---------------------------------------------------------------------------

    Comment: A legal foundation said the introduction of a 
recordkeeping requirement for processors may violate the due process 
clause by imposing unreasonable burdens on them and may exceed the 
limits of Federal enumerated powers under the Constitution. The 
commenter said that, although the Supreme Court upheld a recordkeeping 
requirement for banks against a due process challenge, the ruling was 
specific to entities receiving public funds and does not apply to 
regulated entities under the proposed rule. The commenter also 
contended such recordkeeping requirements generally lead to warrantless 
searches of businesses, and that these types of searches are only 
authorized for pervasively regulated, inherently hazardous industries, 
which likely does not apply to the meat or poultry industries.
    AMS Response: AMS has authority under the Act to regulate certain 
entities and to promulgate rulemaking accordingly. The inclusion of a 
recordkeeping requirements serves the legitimate purpose to ensure 
compliance with this rule. Recordkeeping is regularly a component of 
rulemaking to ensure compliance and allow the regulating agency to 
better monitor impacts of the Rule. Regulated entities are already 
subject to a range of oversight by AMS subject to the longstanding 
application of the Act. Indeed, the Act already requires recordkeeping 
that fully and completely discloses the transactions by regulated 
entities of their poultry growing arrangements and transactions in

[[Page 16174]]

livestock, meat, live poultry, etc.\244\ The recordkeeping addressed by 
this rule is to keep records already kept, and is within the scope of 
AMS's authority under the Act.\245\
---------------------------------------------------------------------------

    \244\ Section 401 of the Act requires regulated entities to keep 
``such accounts, records, and memoranda as fully and correctly 
disclose all transactions involved in his business . . .'' Section 
201.94 of the regulations requires regulated entities to give the 
Secretary ``any information concerning the business . . .'' Section 
201.95 of the regulations requires that regulated entities provide 
authorized representatives of the Secretary access to their plaice 
of business to examine records pertaining to the business. Section 
203.4 of the regulations is a Statement of General Policy regarding 
disposition of records by regulated entities that records be 
retained for a period of two full years. We have interpreted this to 
mean that records should be maintained for the current year to date, 
plus the prior two full years (Jan-Dec). This regulation also 
provides that longer retention periods may be required upon notice 
by the Administrator.
    \245\ Id.
---------------------------------------------------------------------------

    Comment: A cattle industry trade association said AMS failed to 
clarify the causation standards for proving a violation of its new 
discrimination rule. The commenter suggested AMS should confirm that 
the default causation rule under tort law applies, meaning a violation 
would require impermissible discrimination to be the but-for cause of a 
packer's contracting decision.
    AMS Response: Although pervasive unjust discrimination has in the 
past kept outstanding producers from achieving their potential, AMS 
recognizes that adverse actions against producers commonly have several 
elements mixed in, some of which may include the discrimination or 
retaliation covered by this rule. AMS has set forth a standard 
causation standard: ``because'' and ``on the basis of.'' Further cause 
will be determined in the specific facts and circumstances of any 
enforcement matter. Those facts will determine whether AMS brings any 
particular matters and AMS expects unjust discrimination and 
retaliation to be the principal, or at least substantial, part of any 
decision by the regulated entity. Moreover, AMS is choosing not to 
require ``sole'' causation because doing so would undermine the 
effectiveness of the rule and encourage after-the-fact revisions of 
causation. Rather, AMS believes that regulated entities should have a 
heightened duty to eliminate unjust discrimination on the protected 
basis and retaliation for engaging in protected activities. To do so, 
boards of directors and chief executive officers may wish to establish 
clear corporate policies, adopt procedures to provide for heightened 
managerial supervision for circumstances where a close call may arise, 
and implement training across the corporate structure. ``Tone at the 
top'' should direct employees such that undue prejudice and retaliation 
are not acceptable forms of conduct, and when close calls arise, the 
regulated entity has taken every step reasonably possible to ensure 
that its conduct is focused solely on the merits of the producer's 
performance and the other competitive factors that the regulated entity 
must take into account when running its business. AMS made no changes 
to the final rule based on this comment.

L. Other Comments Related to the Proposed Rule

    Comment: A cattle industry trade association said that AMS has not 
yet made available its proposal for an additional related rule 
concerning section 202 of the Act, which must be considered alongside 
the current proposal. A meat industry trade association likewise cited 
AMS's anticipation of a ``suite of major actions [. . .] to create 
fairer marketplaces for poultry, livestock and hog producers'' and 
argued that AMS should withdraw the current proposal until the entire 
suite of proposals can be submitted holistically. Live poultry dealers 
and industry companies, a poultry industry trade association, and a 
swine industry trade association concurred that piecemeal updates to 
the Act would create challenges and confusion for regulated entities 
and producers. They suggested updating regulations collectively at one 
time.
    AMS Response: AMS made no changes to the proposed regulations based 
on this comment. AMS appreciates the comments regarding the desire to 
view the rules holistically. However, AMS is under no obligation to 
make all potential rules available to the public simultaneously, 
regardless of their potential connection to components of this 
rulemaking. AMS is addressing issues in the livestock and poultry 
sector through its statutorily defined authority to administer the Act. 
Federal agencies commonly use separate rulemakings to address specific 
issues under their regulatory authority. As stated elsewhere, the 
authority or effect of this rule does not in any way depend upon the 
proposal or adoption of any other rules, proposed or not yet proposed. 
Accordingly, AMS made no changes based on this comment.
    Comment: A cattle industry trade association noted that the 
proposed rule's preamble implied a strong relationship between 
concentration in the meatpacking industry and declining use of 
negotiated cash trades, with the further implication that the use of 
AMAs in place of cash trades has negatively impacted the market and 
rural economies. The commenter said that AMAs are not germane to the 
proposed rule and requested information on whether AMS intends the 
proposed rule to limit the ability of cattle producers to use AMAs. It 
argued that AMAs are critical to funding production of more sustainable 
and climate-friendly cattle production. In defense of AMAs, the trade 
association cited a 2021 Texas A&M study finding that AMAs do not 
change underlying supply-and-demand fundamentals and so do not create 
market power \246\ and a 2007 GIPSA Livestock and Meat Marketing Study 
finding a negative effect on producer and consumer surplus measures in 
response to reducing AMA use.\247\ Another cattle industry trade 
association agreed that AMAs benefit producers and cautioned against 
any attempts to standardize agreements between producers and regulated 
entities through new rules.
---------------------------------------------------------------------------

    \246\ Fischer, Bart, L., Joe L. Outlaw, and David P. Anderson, 
eds. The U.S. Beef Supply Chain: Issues and Challenges. Texas A&M 
University (June 2021) available at https://www.afpc.tamu.edu/research/publications/710/cattle.pdf.
    \247\ GIPSA Livestock and Meat Marketing Study, Vol. 1, ES-8 
(January 2007).
---------------------------------------------------------------------------

    AMS Response: AMS acknowledges the commenters' concerns over the 
relationship between this rulemaking and the use of AMAs in the cattle 
industry. According to some in the industry, the growth of these 
vertical contracting relationships in the context of highly 
concentrated markets has led to concerns that firms have greater 
control over producers and thus have more ability to abuse their market 
power, impede producer choices, exclude some market participants, and 
coerce producers unwittingly into inefficient farm decisions. This rule 
prohibits prejudices on certain protected bases that tend to exclude or 
disadvantage covered producers in those markets; identifies retaliatory 
practices that interfere with lawful communications, assertion of 
rights, and associational participation, among other protected 
activities, as unjust discrimination prohibited by the law; and 
identifies deceptive practices that violate the Act with respect to 
contract formation, contract performance, contract termination, and 
contract refusal. AMS sees no manner in which this regulation affects 
the general existence or use of AMAs. Therefore, AMS has made no 
changes to the regulations in response to this comment.
    Comment: An industry company rejected any implication that food 
companies are withholding critical business information from producers

[[Page 16175]]

and argued that producers are already provided critical information 
required to make informed business decisions. It suggested that, in 
lieu of new rules to require greater information disclosure, AMS should 
consider dedicated producer education resources or outreach programs to 
raise producer awareness.
    AMS Response: AMS appreciates this commenter's suggestion to 
further educate producers and will take this under consideration as 
additional support AMS may offer to producers. This rulemaking action 
clarifies that if regulated entities make omission of material 
information necessary to make a statement or representation not false 
or misleading (as defined in the rule) against a covered producer, such 
conduct amounts to deception and is a violation of the Act. The 
codification of these regulations stems from existing law that aims to 
prohibit deception in Act-regulated markets. The new regulations do not 
create any specific disclosure of information requirements. To the 
extent that regulated entities identify the need to provide additional 
information to producers, the facts and circumstances of the 
transaction will determine whether the information is in violation of 
the rule. AMS agrees that producer education and outreach are valuable 
to protecting producers and effectuating the purpose of the Act and 
intends to conduct more of such activities in the immediate term. AMS 
is making no changes to the regulations as proposed in response to this 
comment.

VIII. Regulatory Analysis

A. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. chapter 35), an agency may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. This final rule includes a new collection of 
information contained in new Sec.  201.304(c), ``Recordkeeping of 
compliance practices.'' The proposed rule requested comment on the 
estimated recordkeeping burden. All comments received on this 
information collection are summarized and included in the final request 
for OMB approval. Under the final rule, there are no new regulatory 
text changes that would change the proposed rule costs and benefits 
analyses. The burden estimates under the final rule are updated to 
reflect the most recent data available, updates in regulated entity 
wages, and the number of regulated entities. The estimated burden for 
the recordkeeping requirement imposed by this final rule is as follows:
    OMB Number: 0581-NEW.
    Expiration Date of Approval: This is a NEW collection.
    Type of Request: Approval of a New Information Collection.
    Abstract: Section 201.304(c) will require live poultry dealers, 
swine contractors, and packers to retain all relevant records relating 
to their compliance with Sec.  201.304(a) and (b) for no less than five 
years. This recordkeeping requirement is necessary to evaluate 
compliance with Sec.  201.304(a) and (b) and to facilitate 
investigations and enforcements based on producer and grower 
complaints. This recordkeeping requirement will bolster AMS's ability 
to review the records of regulated entities during compliance reviews 
and investigations based on complaints of undue prejudices, unjust 
discrimination, and retaliation in the livestock and poultry industries 
in accordance with the purposes of the Act. Costs of recordkeeping 
include maintaining and updating records by regulated entities and will 
be discussed and quantified below.
Live Poultry Dealer, Swine Contractor, and Packer Recordkeeping Costs
    Estimate of Burden: The burden for maintaining records for this 
information collection is estimated to average 4.25 hours per 
respondent in the first year, and 3.50 hours annually thereafter.
    Respondents: Live poultry dealers, swine contractors, and packers.
    Estimated Number of Respondents: 1,030.
    Estimated Total Annual Burden on Respondents: 4,377 hours in the 
first year and 3,605 hours annually thereafter.
    Information Collection and Recordkeeping Costs of Sec.  201.304(c): 
Costs to comply with the recordkeeping are likely relatively low. This 
rule extends the disposal date of most records, if already kept, from 2 
years to five years to promote efficient USDA monitoring efforts. For 
some records, the current disposal date is 1 year, which could be 
extended to five years under this rule if they are deemed relevant to 
showing compliance with this rule. Costs of recordkeeping include 
regulated entities maintaining and updating compliance records they 
already keep. From the perspective of the regulated entity, 
recordkeeping is a direct cost. Some smaller regulated entities that 
currently do not maintain records may voluntarily decide to develop 
formal policies, procedures, training, etc., to comply with the rule 
and will then have records to maintain.
    AMS expects the recordkeeping costs will be comprised of the time 
required by regulated entities to store and maintain records they 
already keep. AMS expects that the costs will be relatively small 
because some packers, live poultry dealers, and swine contractors may 
currently have few records concerning policies and procedures, staff 
training materials, materials informing covered producers regarding 
reporting mechanisms and protections, compliance testing, board of 
directors' oversight materials, and the number and nature of complaints 
received related to unduly prejudicial and unjustly discriminatory 
treatment. Some firms might not have any records to store. Others 
already store the records and may have no new costs.
    The amount of time required to keep records was estimated by AMS 
subject matter experts. These experts were auditors and supervisors 
with many years of experience in AMS's PSD conducting investigations 
and compliance reviews of regulated entities. AMS used the May 2022 
U.S. Bureau of Labor Statistics (BLS) Occupational Employment and Wage 
Statistics for the time values in this analysis.\248\ BLS estimated an 
average hourly wage for general and operations managers in animal 
slaughtering and processing to be $61.24. The average hourly wage for 
lawyers in food manufacturing was $103.81. In applying the cost 
estimates, AMS marked-up the wages by 41.79 percent to account for 
fringe benefits.
---------------------------------------------------------------------------

    \248\ Estimates are available at U.S. Bureau of Labor 
Statistics. Occupational Employment and Wage Statistics, available 
at https://www.bls.gov/oes/special-requests/oesm22all.zip (accessed 
7/14/2023). Featured OES Searchable Databases: U.S. Bureau of Labor 
Statistics (bls.gov) (accessed July 2023).
---------------------------------------------------------------------------

    AMS expects that recordkeeping costs will be correlated with the 
size of the firms. AMS ranked packers, live poultry dealers, and swine 
contractors by size and grouped them into quartiles, estimating more 
recordkeeping time for the largest entities in the first quartile than 
for the smallest entities in the fourth quartile. The first quartile 
contains the largest 25 percent of entities, and the fourth quartile 
contains the smallest 25 percent of entities. AMS estimated that Sec.  
201.304(c) will require an average of 4.00 hours of administrative 
assistant time, 1.50 hours of time each from managers, attorneys, and 
information technology staff for packers, live poultry dealers, and 
swine contractors in the first quartile to setup and maintain the 
required records in the

[[Page 16176]]

first year. AMS expects the packers, live poultry dealers, and swine 
contractors in the second quartile will require an average of 2.00 
hours of administrative assistant time, 0.75 hours of time each from 
managers, attorneys, and information technology staff for first year 
costs. The third quartile will require 1.33 hours of administrative 
assistant time, 0.50 hours of time each from managers, attorneys, and 
information technology staff for first year costs, and the fourth 
quartile will require 0.67 hours of administrative assistant time, 0.25 
hours of time each from managers, attorneys, and information technology 
staff.
    AMS also expects that packers, live poultry dealers, and swine 
contractors will incur continuing recordkeeping costs in each 
successive year. AMS estimated that Sec.  201.304(c) will require an 
average of 3.00 hours of administrative assistant time, 1.50 hours of 
time each from managers, attorneys, and 1.00 hour of time from 
information technology staff for packers, live poultry dealers, and 
swine contractors in the first quartile to setup and maintain the 
required records in each succeeding year. AMS expects that packers, 
live poultry dealers, and swine contractors in the second quartile will 
require an average of 1.50 hours of administrative assistant time, 0.75 
hours of time each from managers, attorneys, and 0.50 hours of time 
from information technology staff in each succeeding year. The third 
quartile will require 1.00 hour of administrative assistant time, 0.50 
hours of time each from managers, attorneys, and 0.33 hours of time 
from information technology staff in each succeeding year, and the 
fourth quartile will require 0.50 hours of administrative assistant 
time, 0.25 hours of time each from managers, and attorneys, and 0.17 
hours from information technology staff.
    Estimated first-year costs for recordkeeping requirements in Sec.  
201.304(c) totaled $30,000 for live poultry dealers,\249\ $193,000 for 
swine contractors,\250\ and $122,000 for packers.\251\ Estimated yearly 
continuing costs for recordkeeping requirements in Sec.  201.304(c) 
totaled $26,000 for live poultry dealers,\252\ $166,000 for swine 
contractors,\253\ and $106,000 for packers.\254\
---------------------------------------------------------------------------

    \249\ 90 live poultry dealers x ($44.51 per hour admin. cost x 
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour 
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + ($93.68 information tech cost x (1.5 hours + .75 hours + 
.5 hours + .25 hours))/4 = $30,132.
    \250\ 575 swine contractors x ($44.51 per hour admin. cost x (4 
hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($93.68 information tech cost x (1.5 hours + .75 hours + .5 hours + 
.25 hours))/4 = $192,507.
    \251\ 365 packers x ($44.51 per hour admin. cost x (4 hours + 2 
hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger cost x 
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($93.68 
information tech cost x (1.5 hours + .75 hours + .5 hours + .25 
hours))/4 = $122,200.
    \252\ 90 live poultry dealers x ($44.51 per hour admin. cost x 
(3 hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour 
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + $93.68 information tech cost x (1 hours + .5 hours + .33 
hours + .17 hours))/4 = $26,021.
    \253\ 575 swine contractors x ($44.51 per hour admin. cost x (3 
hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
$93.68 information tech cost x (1 hours + .5 hours + .33 hours + .17 
hours))/4 = $166,244.
    \254\ 365 packers x ($44.51 per hour admin. cost x (3 hours + 
1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger cost x 
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + $93.68 
information tech cost x (1 hours + .5 hours + .33 hours + .17 
hours))/4 = $105,529.
---------------------------------------------------------------------------

    Breaking out costs by market, AMS expects recordkeeping 
requirements in Sec.  201.304(c) to cost beef packers $58,000 in the 
first year and $50,000 in each following year. Section 201.304(c) will 
cost lamb packers $23,000 in the first year and $20,000 in successive 
years. Section 201.304(c) will cost pork packers $42,000, and it will 
cost swine contractors $193,000 for a total of $235,000 in the first 
year. Section 201.304(c) will cost swine contractors $166,000 in 
successive years, and it will cost pork packers $36,000 for a total of 
$202,000 in successive years.

B. Executive Orders 12866, 13563, and 14094; Regulatory Impact 
Analysis; and the Regulatory Flexibility Act

    AMS prepared this assessment in compliance with the requirements of 
Executive Orders 12866, 13563, and 14094. Executive Orders 12866 and 
13563 direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasizes the importance 
of quantifying both costs and benefits, reducing costs, harmonizing 
rules, and promoting flexibility. Executive Order 14094 reaffirms, 
supplements, and updates Executive Order 12866 and further directs 
agencies to solicit and consider input from a wide range of affected 
and interested parties through a variety of means.
    This rulemaking has been determined to be significant for the 
purposes of E.O. 12866 as amended by E.O. 14094 and, therefore, has 
been reviewed by OMB. As a required part of the regulatory process, AMS 
prepared an economic analysis of the costs and benefits of Sec. Sec.  
201.302, 201.304, 201.306, and 201.390.
    This Regulatory Impact Analysis (RIA) presents an assessment of the 
anticipated benefits and costs from the rule including an assessment of 
regulatory alternatives: the status quo, the preferred alternative, and 
the small business exemption alternative. The Regulatory Flexibility 
Analysis (RFA) evaluates the effect of the rule on small businesses.
    This regulatory filing is comprised of definitions in Sec.  
201.302, specific prohibited discriminatory and unduly prejudicial 
practices in Sec.  201.304, specific prohibited deceptive practices in 
Sec.  201.306, and a statement of severability among the provisions in 
Sec.  201.390. The definitions in Sec.  201.302 of a covered producer, 
livestock producer, and regulated entity will apply to Sec. Sec.  
201.304 and 201.306, and the regulatory impacts of the definitions are 
captured in the regulatory impacts of Sec. Sec.  201.304 and 201.306, 
which are highlighted in this analysis.
    The statement of severability in Sec.  201.390 has no quantified 
regulatory impact, as it only serves to ensure that if any provision of 
Sec. Sec.  201.302, 201.304, or 201.306 is declared invalid or the 
applicability to any person or circumstance is invalid, the remainder 
of the provisions will remain valid.
    Under the final rule, there are no new regulatory text changes that 
would change the proposed rule costs and benefits of the regulatory 
analyses. The new information collection and recordkeeping requirements 
under the final rule are updated to reflect only the most recent data 
available, updates in regulated entity wages and number of regulated 
entities.
The Need for the Rule: Market Failure in Livestock and Poultry Markets
    This section describes the need for the regulatory action, and how 
the regulatory action will meet this need. The structure of the 
livestock and poultry industries sets the stage for unjustly 
discriminatory and deceitful conduct by regulated entities. This rule 
aims to benefit covered producers by protecting their rights from these 
market harms. This regulatory action addresses market failure in the 
livestock and

[[Page 16177]]

poultry industries. This section will show how high levels of 
concentration, the prevalence of vertical contracting, asymmetry of 
information and the hold-up problem together create an environment 
facilitating abusive conduct that this rule addresses and defines the 
need for this rule. Discriminatory practices are the exclusionary or 
adverse treatment which market concentration and vertical contracting 
makes possible and hard to avoid on the basis of a covered producer's 
race, or other protected basis, and on the basis of actions that 
prejudice, disadvantage, inhibit market access, or are otherwise 
adverse compared to terms generally or ordinarily offered to similarly 
situation covered producers. This rule focuses on prohibiting regulated 
entities from wrongfully excluding producers from markets or denying 
those producers the full value of their products or services in those 
markets. It will then be shown how the livestock and poultry market 
structures help define the distribution of this rule's costs and 
benefits.
The Need for the Rule: Prevalence of Concentration and Contracting in 
Cattle, Hog, and Poultry Industries
    The rise of concentration and vertical contracts in livestock and 
poultry markets has increasingly created an environment that enables 
packers, swine contractors, and live poultry dealers to unjustly 
exclude many producers from, and otherwise undermine their economic 
opportunities in, the marketplace. This adverse treatment is a cost, or 
economic harm, to covered producers born from market exclusion and 
associated high search costs of finding alternative markets in 
concentrated markets coordinated with vertical contracts.
    Concentration in these markets has intensified over the past 
several decades and continues today. Concentration ratios are one 
metric to track the increasing share of slaughter of livestock and 
poultry in U.S. attributed to fewer packers and poultry integrators. 
Table 1 in the Background section shows the level of concentration in 
the livestock and poultry slaughtering industries for 1980-2020 using 
four-firm Concentration Ratios (CR4). The CR4 for steers and heifers 
was 36 percent in 1980 and rose to 81 percent in 2020. That is, in 
2020, the top four beef packers slaughtered 81 percent of the nation's 
steers and heifers. The CR4 for hogs was 32 percent in 1980 and rose to 
64 in 2020, and the CR4 was 32 percent in 1980 for broilers and rose to 
53 percent in 2020.\255\
---------------------------------------------------------------------------

    \255\ Sheep and turkeys exhibit similar increases in 
concentration between 1980 and 2020.
---------------------------------------------------------------------------

    The data in Table 1 are estimates of CR4s at the national level; 
however, in practice, the relevant economic markets for livestock and 
poultry may be regional or local, where concentration may be higher 
than those at the national level. This is because of limits on how far 
live animals can be safely and efficiently transported. In particular, 
regional concentration is often higher than national concentration for 
hogs.\256\ Similarly, based on AMS's experience conducting 
investigations and monitoring cattle markets, there are often only one 
or two cattle buyers in many local geographic markets, and very few 
sellers have the option of selling fed cattle to more than three or 
four packers. Likewise, even though poultry markets are the least 
concentrated of the four markets described above as measured by their 
national CR4s, relevant markets for poultry growing services are more 
localized than markets for fed cattle or hogs, and local concentration 
in poultry markets is often greater than the national concentration 
level. Thus, the current environment is one where producers have little 
choice in whom they do business with, resulting in an unequal 
distribution of bargaining power between parties. MacDonald and Key 
found that about one quarter of contract growers reported that there 
was just one live poultry dealer in their area, defined by a roughly 
34-mile radius from their farm; another quarter reported two; another 
quarter reported three; and the rest reported four or more.\257\ Table 
2 in the Background section \258\ highlights this issue by using the 
Herfindahl-Hirschman Index (HHI) to show the limited ability of poultry 
growers to switch to different integrators. Similar to a CR4, HHI is an 
indicator of market concentration, with the index increasing as market 
shares across firms (packers) become more unequal or the number of 
these firms decrease. Markets with HHIs above 2,500 are considered 
highly concentrated. Table 2 presented earlier from MacDonald showed 
that 88.4 percent of growers face an integrator HHI of at least 2,500. 
As stated earlier, the data suggest that most contract broiler growers 
in the U.S. are thus in markets where the sellers have the potential 
for market power advantage. Livestock producers face similar market 
vulnerabilities as shown here for poultry growers given that livestock 
producers also face regional market concentration that is more 
concentrated than national data would indicate.
---------------------------------------------------------------------------

    \256\ Wise, T.A., S.E. Trist. ``Buyer Power in U.S. Hog Markets: 
A Critical Review of the Literature,'' Tufts University, Global 
Development and Environment Institute (GDAE) Working Paper No. 10-
04, August 2010, available at https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl (last accessed 8/9/2022).
    \257\ MacDonald, James M. ``Technology, Organization, and 
Financial Performance in U.S. Broiler Production,'' EIB-126, U.S. 
Department of Agriculture, Economic Research Service, June 2014. (In 
the 2011 Agricultural Resource Management Survey (ARMS), the mean 
distance from a grower to the integrator's processing plant was 34 
miles, and 90 percent of all birds were produced on farms within 60 
miles of the plant.)
    \258\ MacDonald, James M., and Nigel Key. ``Market power in 
poultry production contracting? Evidence from a farm survey.'' 
Journal of Agricultural and Applied Economics 44, no. 4 (2012): 477-
490.
---------------------------------------------------------------------------

    Market concentration and the use of vertical contracts are 
interrelated; as such, growing, production, and marketing contracts 
feature prominently in the livestock and poultry industries. As 
outlined above, several provisions in Sec. Sec.  201.304 and 201.306 
will affect the process of contract formation, performance, 
termination, and any other action that a reasonable covered producer 
would find materially adverse for livestock, poultry, and meat grown or 
marketed.
    The type of contracting varies among cattle, hogs, and poultry. 
Broilers, the largest segment of poultry, are almost exclusively grown 
under production contracts, in which the live poultry dealers, a 
regulated entity, own the birds and provide poultry growers with feed 
and medication to raise and care for the birds until they reach the 
desired market size. Poultry growers provide the housing, the skill and 
labor, water, electricity, fuel, and provide for waste removal. Fed 
cattle marketing contracts typically take the form of marketing 
agreements. Hog production falls between these two extremes.
    As shown in Table 5 below, over 96 percent of all broilers and over 
42 percent of all hogs are grown under contractual arrangements. 
Similar to poultry contracts, swine contractors typically own the 
slaughter hogs and sell the finished hogs to pork packers. The swine 
contractors typically provide feed and medication to the swine 
production contract growers who own the growing facilities and provide 
growing services. The following table shows that the percentage of 
contract growing arrangements by species has remained relatively stable 
between 2007 and 2017.

[[Page 16178]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.012

    Other types of contracts include marketing agreements and forward 
contracts. Under marketing agreements and forward contracts, producers 
and packers agree to terms on a future sale and purchase of livestock. 
These types of agreements and contracts are commonly referred to as 
AMAs. Pricing mechanisms vary across AMAs. Some AMAs rely on a reported 
spot, or negotiated, market price or exchange-based futures price for 
at least one aspect of its price, while others involve complicated 
pricing formulas with premiums and discounts based on carcass merits. 
The livestock producer and packer agree on a pricing mechanism under 
AMAs, but usually not on a specific price.
---------------------------------------------------------------------------

    \259\ Agricultural Census, 2012 and 2017, available at https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf (last accessed 8/9/2022).
---------------------------------------------------------------------------

    AMS reports the number of cattle sold to packers under formula, 
forward contract, and negotiated pricing mechanisms. Table 6 
illustrates the prevalence of contracting in the marketing of fed 
cattle. Formula pricing methods and forward contracts are two forms of 
AMA contracts. Thus, the first two columns in the following table are 
cattle marketed under contract and the third column represents the spot 
market, or negotiated market, for fed cattle including negotiated grid. 
The data in the below table show that the AMA contracting of cattle has 
increased since 2010. Approximately 55 percent of fed cattle were 
marketed under contracts in 2010 (formula and forward contracts in the 
below table). By 2021, the percentage of fed cattle marketed to packers 
under AMA contracts had increased to just over 72 percent. These data 
also show the declines in the percentage of cattle sold on the spot 
market, or negotiated trades, from 46 in 2010 to 28 in 2021.
[GRAPHIC] [TIFF OMITTED] TR06MR24.013

    As previously discussed, and illustrated in Table 5 above, over 40 
percent of hogs are grown under production contracts. These hogs are 
then sold by swine contractors to packers. The percentage of hogs sold 
under marketing contracts or produced by packers has increased to over 
98 percent in 2020 (other marketing agreements and formula sales in the 
table below). The spot market, or negotiated trades, for hogs has 
declined from 5.2 percent in 2010 to 1.5 percent in 2020. As these data 
demonstrate, almost all hogs are marketed to packers under some type of 
marketing contract.
---------------------------------------------------------------------------

    \260\ U.S. Department of Agriculture, Agricultural Marketing 
Service, available at: https://mpr.datamart.ams.usda.gov/
menu.do?path=Products\Cattle\Weekly%20Cattle (last accessed Aug. 
2022).

---------------------------------------------------------------------------

[[Page 16179]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.014

The Need for the Rule: Structural Issues in the Cattle, Hog, and 
Poultry Industries
---------------------------------------------------------------------------

    \261\ U.S. Department of Agriculture, Agricultural Marketing 
Service, available at: https://mpr.datamart.ams.usda.gov/
menu.do?path=\Products (Last accessed Aug. 2022).
    \262\ Includes Packer Owned and Packer Sold, and Other Purchase 
Arrangements.
    \263\ Includes Swine Pork Market Formula, and Other Market 
Formula.
---------------------------------------------------------------------------

    The livestock and poultry industries are characterized by a high 
volume of growing, production, and marketing contracts. When coupled 
with high levels of market concentration, this market environment can 
make it easier for regulated entities to engage in undue prejudice and 
unjust discrimination, retaliation, and deception and make the harms to 
producers greater from those abuses.
    Despite various policy and public concerns, contracting, growing, 
production, and marketing contracts can offer certain benefits to the 
contracting parties. Properly tailored, benefits can include helping 
farmers, livestock producers, and processors manage price and 
production risks, elicit the production of products with specific 
quality attributes by tying prices to those attributes, and facilitate 
the smooth flow of commodities to processing plants. Such attributes 
may encourage certain efficiencies in use of farm and processing 
capacities. Quality-related attributes and standards can incentivize 
farmers to deliver products that consumers desire and produce products 
in ways that reduce processing costs.\264\
---------------------------------------------------------------------------

    \264\ RTI International, 2007, GIPSA Livestock and Meat 
Marketing Study, Prepared for USDA, GIPSA; Stephen R. Koontz, 
``Another Look at Alternative Marketing Arrangement Use by the 
Cattle and Beef Industry,'' in Bart Fischer et al, ``The U.S. Beef 
Supply Chain: Issues and Challenges Proceedings of a Workshop on 
Cattle Markets,''.
---------------------------------------------------------------------------

    There are, however, trade-offs with the use of these contracts. In 
concentrated industries, like the cattle, hog, and poultry industries, 
where market power is present, these types of contracts may result in 
increased opportunities for undue prejudices and unjust discrimination, 
retaliation, and deception, among other concerns, which cause 
inefficiencies in the markets for livestock, poultry, and meat.\265\ 
Heightened market concentration implies that livestock producers and 
poultry growers face fewer marketing and contract options compared to 
less concentrated markets. Livestock producers and poultry growers may 
find themselves in a take-it-or-leave it situation when a new or 
renewal contract is presented due to a limited number of packers and 
live poultry dealers with which to contract. Thus, livestock producers 
and poultry dealers entering into new, or renewal contracts may be 
taken advantage of through discriminatory, deceptive, or retaliatory 
practices.
---------------------------------------------------------------------------

    \265\ Nathan H. Miller, et al., ``Buyer Power in the Beef 
Packing Industry: An Update on Research in Progress,'' April 13, 
2022, available at http://www.nathanhmiller.org/cattlemarkets.pdf.
---------------------------------------------------------------------------

    Livestock and poultry contracts may lead to unjust, prejudicial, 
and retaliatory practices. For example, a contract that limits a 
poultry grower's services to a single integrator, even if the contract 
provides for fair compensation to the grower, still leaves the grower 
subject to risks. The grower faces the risk that the contractor may 
require additional capital investments or the contractor may impose 
lower returns at the time of contract renewal--leveraging its market 
power given the grower's limited options.\266\ Some poultry make 
substantial long-term capital investments as part of livestock or 
poultry production contracts, including land, poultry or hog houses, 
and equipment. Those investments may bind the grower to a single 
contractor or integrator, furthering the indebtedness and exacerbating 
an imbalance of power.
---------------------------------------------------------------------------

    \266\ See Vukina and Leegomonchai, ``Oligopsony Power, Asset 
Specificity, and Hold-Up: Evidence from The Broiler Industry,'' 
American Journal of Agricultural Economics, 88(3): 589-605 (August 
2006).
---------------------------------------------------------------------------

    In the poultry industry, limited integrator choice may accentuate 
contract risks. The data in Table 2 above show that 52 percent of 
broiler growers, who account for 56 percent of total production, report 
having only one or two integrators in their local areas. Even where 
multiple integrators are present, there are high costs to switching, 
owing to the differences in technical specifications that integrators 
require. The growers likely need to invest in new equipment and learn 
to apply different operational techniques due to different breeds, 
target weights, and grow-out cycles.
    A 2006 survey indicated that growers with access to a single 
integrator received seven to eight percent less

[[Page 16180]]

compensation, on average, than farmers located in areas with four or 
more integrators.\267\ If live poultry dealers already possess some 
market power to reduce prices for poultry growing services, some 
contracts can extend that power by raising the costs of entry for new 
competitors or allowing for price discrimination.\268\
---------------------------------------------------------------------------

    \267\ MacDonald, J. and N. Key. ``Market Power in Poultry 
Production Contracting? Evidence from a Farm Survey.'' Journal of 
Agricultural and Applied Economics. 44(4) (November 2012): 477-490.
    \268\ See, e.g., Williamson, Oliver E. ``Markets and 
Hierarchies: Analysis and Antitrust Implications,'' New York: The 
Free Press (1975); Edlin, Aaron S. & Stefan Reichelstein (1996) 
``Holdups, Standard Breach Remedies, and Optimal Investment,'' The 
American Economic Review 86(3): 478-501 (June 1996).
---------------------------------------------------------------------------

    In 2013, production contracts covered $58 billion in agricultural 
production, 83 percent of which was poultry and hog contracts.\269\ 
Most hogs are produced and marketed under production and marketing 
contracts. Open market negotiated trade represented nine percent of 
total trades for hogs in 2008 and dropped to two percent in 2020.\270\ 
In effect, the only production or marketing choice for a hog producer 
is to enter a contract.
---------------------------------------------------------------------------

    \269\ MacDonald, J.M. ``Trends in Agricultural Contracts.'' 
Choices. 2015. Quarter 3. Available at https://www.choicesmagazine.org/choices-magazine/theme-articles/current-issues-in-agricultural-contracts/trends-in-agricultural-contracts, 
accessed 9-19-22.
    \270\ USDA, AMS, FTPP, Packers and Stockyards Division. Packer 
Annual Reports, 2021 and 2012. Available at https://www.ams.usda.gov/reports/psd-annual-reports, accessed 9-19-22.
---------------------------------------------------------------------------

    In the cattle sector, cow-calf operations incur a significant 
investment in breeding stock and typically sell steers and heifers once 
a year. Access to competitive markets, absent from unjust 
discrimination, undue prejudice, and retaliation, is important to the 
economic livelihood of the market. Reduced marketing options--fewer 
options to sell on the spot market, or lack of access to contracts--can 
leave producers susceptible to unfair trade practices. Spot market 
trades, or negotiated trades, as opposed to marketing agreements or 
contracts, for fed cattle accounted for 51 percent of all trades in 
2008 and fell to 29 percent in 2022.\271\
---------------------------------------------------------------------------

    \271\ USDA, AMS, FTPP, Packers and Stockyards Division. Packer 
Annual Reports, 2021 and 2022 pending, and 2012. Available at 
https://www.ams.usda.gov/reports/psd-annual-reports, accessed 9-19-
22.
---------------------------------------------------------------------------

    One indication of potential market power is industry 
concentration.\272\ Market concentration facilitates the exclusionary 
and adverse treatment observed in discriminatory practices. The data in 
Table 1 are estimates of national four-firm concentration ratios at the 
national level, but the relevant economic markets for livestock and 
poultry may be regional or local, and concentration in the relevant 
market may be higher than the national level. For example, while 
poultry markets may appear to be the least concentrated in terms of the 
four-firm concentration ratios presented above, relevant economic 
markets for poultry growing services are more localized than markets 
for fed cattle or hogs, and local concentration in poultry markets is 
often greater than in hog and other livestock markets. The data 
presented earlier in Table 2 highlights this issue by showing the 
limited ability a poultry grower has to switch to a different 
integrator. As a result, national concentration may not demonstrate 
accurately the options poultry growers in a particular region face.
---------------------------------------------------------------------------

    \272\ For additional discussion see MacDonald, J.M. 2016 
``Concentration, contracting, and competition policy in U.S. 
agribusiness,'' Competition Law Review, No. 1-2016: 3-8.
---------------------------------------------------------------------------

    The levels of industry concentration shown in Tables 1 and 2 may 
contribute to oligopolistic market power and asymmetric information. 
The result is that the contracts bargained between the parties may 
leave livestock producers, swine production contract growers, and 
poultry growers vulnerable to anticompetitive conduct such as undue 
prejudice and unjust discrimination, retaliation, and deception.
The Need for the Rule: Asymmetric Information
    There is asymmetry in the information available to livestock 
producers and livestock and poultry growers as compared to the packers, 
swine contractors, and live poultry dealers with whom they contract. 
The larger packers, swine contractors, and live poultry dealers 
generally have more information (costs of production, input quality, 
and consumer demand, for example) that is useful in contracting than 
the smaller livestock producers and livestock and poultry growers. This 
asymmetry of information can lead to deceptive practices by regulated 
entities with superior information in contract formation, performance, 
termination, or refusal by employing a false or misleading statement, 
or omission of material information necessary to make a statement not 
false or misleading. A 2023 AMS rule, Transparency in Poultry Grower 
Contracting and Tournaments, directly aims to address this asymmetric 
information in the poultry industry by adding disclosures and 
information that live poultry dealers engaged in the production of 
broilers must furnish to poultry growers with whom dealers make poultry 
growing arrangements.\273\ There remains a wide range of circumstances 
where information asymmetry is present in the livestock and poultry 
markets, which would be addressed in whole or in part by this final 
rule. Additionally, the information this rule provides can help 
producers know if they are treated unfairly.
---------------------------------------------------------------------------

    \273\ Transparency in Poultry Grower Contracting and 
Tournaments. A Rule by the Agricultural Marketing Service on 11/28/
2023. https://www.federalregister.gov/documents/2023/11/28/2023-24922/transparency-in-poultry-grower-contracting-and-tournaments.
---------------------------------------------------------------------------

    Some marketing contracts for fed cattle, for example, use various 
plant averages in the calculation for the base price of the cattle in 
the marketing contract. Only the packer has the information about the 
plant averages and producers cannot independently verify the 
information. Similar issues exist in hog marketing contracts. For 
contracts based on the pork cutout, the hog packer has more information 
about the direct retail pork demand and hence pork cutout prices than 
hog sellers.
    Live poultry dealers hold information on how individual poultry 
growers perform under a variety of contracts. The average number of 
contracts for the live poultry dealers filing annual reports with AMS 
in 2020 was 251. The largest live poultry dealers contracted with 
several thousand growers.\274\
---------------------------------------------------------------------------

    \274\ All live poultry dealers are required to annually file 
Packers and Stockyards Division (PSD) form 3002 ``Annual Report of 
Live Poultry Dealers,'' OMB control number 0581-0308. The annual 
report form is available to public on the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------

    Most growers producing poultry under production contracts are paid 
under a poultry grower ranking or ``tournament'' pay system. Under 
tournament systems, the contract between the poultry grower and the 
company for whom the grower raises poultry for slaughter pays the 
grower based on a grouping, ranking, or comparison of poultry growers 
delivering poultry to the same company during a specified period. 
Generally, live poultry dealers provide most of the inputs to all the 
growers in each poultry tournament used to determine grower pay. In 
these tournaments, the live poultry dealers have information about the 
quality of the inputs, while each grower only knows what he or she can 
observe. A grower may not be able to evaluate the inputs it received 
such as chicks and feed, and he or she almost certainly will not know 
about the inputs received by other growers. A live poultry dealer also 
has historical information concerning growers' production and income 
under many

[[Page 16181]]

different circumstances for all the growers with which the dealer 
contracts, while an individual grower, like most other producers, only 
has information concerning his or her own production and income. 
Prohibiting deception may serve to reduce the negative impacts from 
asymmetric information. Prohibiting retaliation against producers or 
growers because they joined a cooperative or grower association 
organization, shared information to improve their production or growing 
practices with a regulated entity, another covered producer, or with a 
commercial entity, communicated with the government, or asserted any of 
the rights granted under the Act should lead to reducing the 
information asymmetry between regulated entities and producers.
The Need for the Rule: Hold-Up Problem
    Hold-up is another problem that is particularly acute in service 
contracts between poultry growers and live poultry dealers. The 
economic concept of a hold-up problem refers to a situation in which 
two parties may be unable to cooperate efficiently due to incomplete or 
asymmetric information and the inability to write, enforce, or commit 
to contracts. Once a party becomes locked into a transaction, 
especially as a result of making a transaction-specific investment, 
they become vulnerable to exploitation by the other party. This may 
involve one party to a contract opportunistically deviating from 
expectations of the other party or failing to live up to previously 
agreed upon terms.
    In the poultry industry, hold-up occurs when a poultry grower makes 
an investment, such as in poultry housing, and becomes dependent upon 
the growing arrangement to repay the investment. Hold-up is less common 
for hog and cattle producers, so the discussion here is limited to 
poultry growing to highlight this risk to poultry growers. Substantial 
gaps exist between the periods of time covered by the contract and the 
mortgage on poultry housing, creating uncertainty around whether 
growers will be able to repay their debt and recoup their investments, 
introducing the potential for hold-up into the contracting process. If 
the integrator takes advantage of the grower's dependence, for example, 
by delaying delivery of chicks that the grower depends upon to make 
payments on investments, it would be holding up the grower. The aim of 
the economic hold-up may be to coerce the grower into accepting 
conditions that benefit the integrator at the expense of the grower. 
For example, refusing to supply chicks until a contract amendment with 
unfavorable conditions is signed.
    This is of concern in poultry production contracts because the 
capital investment requirements related to growing chickens are 
significant and highly specialized (that is, they have little value 
outside of growing chickens). As a result, growers entering the market 
are tied to growing chickens to pay off the financing of the capital 
investment. Growers have reported that they must accept unfavorable 
contract terms or endure unfavorable treatment during a contract--
including inappropriate limits on their ability to form associations, 
assert their rights under the law or contract (such as viewing the 
weighing of broilers), communicate with government entities, and seek 
alternative business relationships--because they are tied to production 
to pay off lenders and they have few, if any, alternative integrators 
with whom they can contract. Hog producers, which invest heavily in 
production facilities, may face similar risks.
    Long term, this behavior may result in underinvestment in 
production, which is inefficient. Alternatively, if growers make a 
significant investment because they do not anticipate hold-up, but then 
it does occur, then growers may be required to spend too much on 
investments. The resulting over-investment in capital by those growers 
facing hold-up is also inefficient. The hold-up problem is a 
manifestation of both market power and asymmetric information.
Summary Need for the Rule: Contracting, Industry Structure, and Market 
Failure
    As described previously, the organization and structure of poultry 
and livestock markets is characterized by regional market power; 
substantial investment in production capital that is specific to a 
single production purpose; and, in the poultry industry, nearly 
universal use of production contracts, and widespread use of marketing 
contracts in the cattle industry, while less so, for hogs. These 
conditions create the potential for market failures. Asymmetric 
information and imperfect competition are concerns in livestock and 
poultry markets. economically incomplete contracts and hold-up are of 
particular concern in poultry markets and can exacerbate the risk of 
undue prejudice and unjust discrimination, retaliation, and deception 
in poultry and livestock markets.
    By setting forth specific prohibitions on unduly prejudicial and 
unjustly discriminatory and deceptive practices, the rule will 
reinforce producers' existing rights to gather and share information, 
while reducing the fear of retaliation and interference in the 
contracting process. The prohibitions in the rule will also continue to 
support, and possibly promote more efficient and equitable information 
access, reduce the hold-up problem, reduce retaliation, discourage 
false and misleading statements, and increase communication, 
cooperation, and retention of legal rights. The prohibitions specified 
in Sec. Sec.  201.304 and 201.306 will ultimately assist in mitigating 
the impacts of imperfect competition.
Cost-Benefit Analysis of Sec. Sec.  201.304 and 201.306
Regulatory Alternatives Considered
    Executive Order 12866 requires an assessment of costs and benefits 
of potentially effective and reasonably feasible alternatives to the 
planned regulations and an explanation of why the planned regulatory 
action is preferable to the potential alternatives.\275\ AMS considered 
three regulatory alternatives. The first alternative that AMS 
considered is to maintain the status quo and not propose Sec. Sec.  
201.304 and 201.306. The second alternative that AMS considered is to 
issue Sec. Sec.  201.304 and 201.306 as presented in this rule.\276\ 
This second alternative is AMS's preferred alternative as will be 
explained below. The third alternative that AMS considered is proposing 
Sec. Sec.  201.304 and 201.306, but exempting small businesses, as 
defined by the Small Business Administration (SBA), from having to 
comply with the recordkeeping requirement of Sec.  201.304(c).
---------------------------------------------------------------------------

    \275\ See sec. 6(a)(3)(C), E.O. 12866.
    \276\ This final rule includes Sec.  201.302, which defines a 
covered producer, livestock producer, and regulated entity. These 
definitions will apply to final Sec. Sec.  201.304 and 201.306. The 
definitions final in Sec.  201.302 are captured in the regulatory 
impacts of final Sec. Sec.  201.304 and 201.306. The final rule also 
includes Sec.  201.390 which states all provisions are severable in 
case any provision is declared invalid.
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Regulatory Alternative 1: Status Quo Alternative
    If Sec. Sec.  201.304 and 201.306 are never promulgated, there are 
no marginal costs and marginal benefits as industry participants will 
not alter their conduct. From a cost standpoint, this Status Quo 
Alternative is the least-cost alternative compared to the other two 
alternatives. This alternative also has no marginal benefits. Since 
there are no changes from the status quo under this

[[Page 16182]]

regulatory alternative, it will serve as the baseline against which to 
measure the other two alternatives.
Final Rule
    As discussed above, final Sec.  201.304 prohibits undue prejudice, 
unjust discrimination, and retaliation by regulated entities and adds a 
requirement for regulated entities to maintain records that they 
already keep, for up to a period of five years, related to its 
compliance with final Sec.  201.304. Section 201.306 will prohibit 
deceptive practices by regulated entities in contract formation, 
performance, or termination by employing a false or misleading 
statement, or omission of material information necessary to make a 
statement not false or misleading. Additionally, a regulated entity may 
not refuse a contract by providing false or misleading information to a 
covered producer or associations of covered producers.
Final Rule: Benefits
    Reductions in prejudicial, discriminatory, retaliatory, and 
deceptive practices by packers, swine contractors, and live poultry 
dealers will benefit society. These types of conduct are inefficient, 
and often difficult to quantify for prejudicial, discriminatory, 
retaliatory, and deceptive practices are not necessarily written into 
contracts but in contract offers, preparation and enforcement. 
Production contracts need not change to realize benefits in this rule. 
The amount of benefits that depends on the extent to which the rule 
reduces prejudicial, discriminatory, retaliatory, and deceptive 
practices. That, in turn, is bounded by the degree to which any of 
these types of activities are occurring in the baseline. If the 
reductions are small, the benefits will be small. The greater the 
reductions, the greater the potential benefits. USDA's long-standing 
policy has been that the Act prohibits the type of conduct that final 
Sec. Sec.  201.304 and 201.306 addresses.
    Final Sec. Sec.  201.304 and 201.306 add specificity to what 
constitutes undue prejudices, unjustly discriminatory practices, 
retaliation, and deception. The size of the benefits is difficult to 
quantify as it depends on the amount of undue prejudice, unjust 
discrimination and deception that will be avoided due to added 
specificity provided by the rule. The added benefits to the industry 
from final Sec. Sec.  201.304 and 201.306 over the Status Quo occur 
when packers, swine contractors, and live poultry dealers alter their 
conduct to reduce instances of deceptive, prejudicial, and 
discriminatory practices, including retaliation. The potential benefits 
include protecting producer and grower rights, improved corporate 
culture, improved information, fewer deceptive practices, among others. 
The more undue prejudice, unjust discrimination, retaliation, and 
deception that will be avoided, the larger the benefits. AMS is unable 
to quantify the benefits and will present a qualitative discussion of 
the types of potential benefits that accrue from reductions in undue 
prejudice, unjust discrimination, retaliation, and deception.
Benefits: Protecting Producer and Grower Rights
    A key purpose of specifying certain prohibitions on unduly 
prejudicial, discriminatory, and deceptive practices, including those 
in final Sec. Sec.  201.304 and 201.306, is to protect livestock 
producers, swine contractors and poultry growers' rights under the Act. 
Final Sec. Sec.  201.304 and 201.306 will also help protect producers 
from unfair and deceptive practices stemming from market power 
imbalances such as undue prejudice, unjust discrimination, retaliation, 
and deception by using false or misleading statements in contracting by 
packers and live poultry dealers. The benefits of prohibiting 
prejudicial, discriminatory, and deceptive practices, will accrue not 
only to the market's covered producers and cooperative producers who 
have been subjected to the prohibited practices, but also to those for 
whom the rule's deterrence effects will protect from future potential 
abuses.
Benefits: Addressing Imperfect Information
    Several provisions in the final rule will enhance the protection of 
the rights of producers to lawfully communicate and to associate with 
others to explore business relationships and improve production 
practices and in the marketing of livestock, poultry, and meat. These 
provisions will benefit producers by encouraging the use of their 
currently existing legal rights that will solidify and enhance their 
access to information. This in turn will help address information 
asymmetry and thus help producers make better business decisions, 
enhance their competitiveness, reduce the hold-up problem, and promote 
innovation and economic efficiency in the industry.
    The final rule will help close this information gap by protecting 
the rights of producers to form associations and communicate freely 
with one another, and to communicate with other regulated entities for 
the purpose of exploring a business relationship. This will benefit 
producers by improving their ability to strengthen the returns to their 
livestock and poultry investments, by enhancing the bargaining power of 
supplier groups if they elect to organize in such a way.
    This rule will prohibit retaliation against covered producers due 
to their communicating, negotiating, or contracting with other covered 
producers, a commercial entity, consultant, or regulated entities, 
which could increase the important decision-making information 
available to producers. Improved safeguarding of protected activities 
may enable the producer to improve business decision-making and manage 
risk, including potentially acquiring external insurance and risk-
management products. In addition, facilitating producers' ability to 
gain more and better information will help correct information 
asymmetry and improve transparency and completeness in contracts.
    More information will also reduce the risks associated with hold-up 
as discussed above. By protecting rights to freely communicate and 
associate, this rule will facilitate communication across the industry 
that may help disseminate information regarding new innovations and 
best practices within the industry. These types of provisions that 
could provide producers with access to more and better information 
should promote innovation and economic efficiency in the industry.
    The final rule may also serve to reduce the risk of violating sec. 
202(a) of the Act because it will provide clarification to the 
livestock, and poultry industries as to the discriminatory and 
deceptive practices that will be prohibited under that section of the 
Act. Less risk through the clarification provided in the final rule 
will likely foster fairness in contracting by providing explicit 
protections for livestock producers, swine production contract growers, 
and poultry growers.
Benefits: Prohibiting Deceptive Practices
    Final Sec.  201.306 specifies prohibited practices that will be 
considered deceptive, and thus in violation of sec. 202(a) of the Act. 
Though USDA already protects producers from deceptive practices, the 
rule will explicitly protect suppliers from deception by packers and 
live poultry dealers by employing a false and misleading statement, or 
omission of material information necessary to make a statement not 
false or misleading in contracting. Prohibited deceptions, including 
false statements or omissions, can prevent or mislead producers, 
sellers, or buyers from making informed decisions and thus

[[Page 16183]]

represents a market inefficiency. The provisions in final Sec. Sec.  
201.304 and 201.306 will help give producers confidence that the 
information provided by processors is reliable, which will help them to 
make better and more informed business decisions and manage risk.
Other Benefits
    While some of these protections already benefit individual 
producers, ensuring they cover the full marketplace and can be enforced 
individually adds to the integrity and fairness of livestock and 
poultry contracting. Specifying these protections may bring additional 
benefits above the Status Quo Alternative.
    Production and marketing contracting has many benefits in the 
livestock and poultry industries. The final rule can further enhance 
the documented benefits of contracting by prohibiting unduly 
prejudicial, discriminatory, and deceptive practices. Livestock 
producers often have few choices of packers to which they sell, and 
poultry growers often have few choices in the live poultry dealers for 
which they raise poultry. The limited alternatives cause fear among 
producers that certain actions they might undertake, such as 
communication with government or other regulated entities to pursue 
business relationships, association with certain groups, or making 
lawful public complaints about the packers, swine contractors, or live 
poultry dealers might result in harmful retaliations. AMS intends the 
final rule to promote integrity to the marketplace by enhancing the 
protection of the rights of the producers and alleviating those fears.
    The literature and data on these topics are not sufficient to allow 
AMS to estimate the magnitude of the inefficiencies that the final rule 
may correct above the Status Quo Alternative, nor the degree to which 
the additional producer and grower protections will address 
inefficiencies. Though AMS is unable to quantify the benefits of the 
regulation, this analysis has explained the types of benefits that will 
be derived from reductions in undue prejudice, unjust discrimination, 
retaliation, and deception. If the reductions are small, the benefits 
will be small. The greater the reductions, the greater the potential 
benefits.
Final Rule: Costs
    The final rule will not impose any restrictions on numbers or types 
of production or marketing contracts that can be utilized, use of AMAs, 
poultry tournaments, or base price mechanisms in contracts for packers, 
swine contractors, and live poultry dealers. Instead, the final rule 
clarifies the prohibited unduly prejudicial, unjustly discriminatory, 
and deceptive practices that AMS considers violations of sections 
202(a) and (b) of the Act. The final rule will require packers, live 
poultry dealers, and swine contractors to discontinue any prejudicial, 
unjustly discriminatory, or deceptive practices, if any are occurring. 
The practices prohibited by Sec. Sec.  201.304 and 201.306 are the kind 
of practices that do not benefit society as a whole, but there is 
uncertainty about the extent of net costs to regulated entities of 
preventing them since they are based on behaviors and are not expressly 
written into contracts. In other words, Sec. Sec.  201.304 and 201.306 
result in uncertain-in-magnitude indirect costs resulting from 
adjustments by the livestock and poultry industries to reduce their use 
of AMAs, poultry tournaments, and pricing mechanisms, with the 
possibility of a number of changes to existing marketing or production 
contracts.
    Though the magnitude of indirect costs is uncertain, AMS has 
constructed a scenario that indicates the magnitude is likely below an 
established dollar value benchmark. The following scenario illustrates 
why it is extremely unlikely that the rule's indirect costs will exceed 
the Unfunded Mandates Reform Act's (UMRA) cost compliance threshold of 
$170 million annually, a benchmark used to assess this rule's effects 
on the private sector.\277\ If some cattle contracts are altered to 
come into compliance with the rule, and cattle prices to some producers 
are increased, AMS expects that the packers will offer, at most, the 
average price paid for cattle. Looking just at cattle, the weighted 
average difference between the minimum and average liveweight prices 
paid for cattle over the last nine years in four cattle regions 
reported by AMS Market News is $1.31 per cwt ($.01/lb.).\278\ If AMS 
assumes that the entire difference between the minimum and average 
prices paid was due to unlawful discrimination, deception, and 
retaliation, this will require 13 billion pounds of liveweight cattle 
to meet the $170 million threshold.\279\ This assumption does not 
account for any price differences for cattle related to quality of the 
animal. Taking the 2022 average liveweight per head for all cattle of 
1,369 lbs. per head,\280\ this means that 9.5 million head of cattle in 
one year would have to face conduct this rule aims to prohibit to equal 
$170 million in costs in that year.\281\ This number accounts for 28 
percent of all cattle slaughtered in 2022.\282\ Based on AMS's 
knowledge of the livestock industry, it is not expected that the number 
of cattle affected by unlawful discrimination, retaliation, or 
deception reaches this level. This fact, combined with the unrealistic 
assumption that any price deduction below the average price does not 
account for quality differences and is wholly the result of 
discrimination, retaliation, and deception, points to a conclusion that 
this rule will have limited impacts, and not exceed the UMRA threshold.
---------------------------------------------------------------------------

    \277\ Title II of the Unfunded Mandates Reform Act of 1995 
(UMRA, Pub. L. 104-4) requires Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
Governments and on the private sector. Agencies generally must 
prepare a written statement, including cost benefits analysis, for 
proposed and final rules with ``Federal mandates'' that may result 
in expenditures of $100 million or more (adjusted for inflation) in 
any 1 year for State, local or Tribal governments, in the aggregate, 
or to the private sector. Congressional Research Service. Updated 
February 23, 2021. Unfunded Mandates Reform Act: History, Impact, 
and Issues. Accessed at https://crsreports.congress.gov/product/pdf/R/R40957/109 on 02/08/2024.
    \278\ Data for negotiated steers and heifers, across all Choice 
cattle, four cattle regions, 2015-2023. Sources: U.S. Department of 
Agriculture, Agricultural Marketing Service. Texas-Oklahoma-New 
Mexico Weekly Direct Slaughter Cattle--Negotiated Purchases 
(LM_CT156), Kansas Weekly Direct Slaughter Cattle--Negotiated 
Purchases (LM_CT157), Nebraska Weekly Direct Slaughter cattle--
Negotiated Purchases (LM_CT158), and Iowa/Minnesota Weekly Weighted 
Average Cattle Report--Negotiated (LM_CT167).
    \279\ 13 billion lbs. = UMRA $170 million threshold divided by 
$0.01 per lb. (difference between the minimum and average liveweight 
prices paid for cattle over the last nine years in eight cattle 
markets is $1.31 per cwt ($.01/lb.)).
    \280\ U.S. Department of Agriculture, National Agricultural 
Statistical Service. April 2023. Livestock Slaughter 2022 Summary. 
Accessed at https://downloads.usda.library.cornell.edu/usda-esmis/files/r207tp32d/8p58qs65g/g445dv089/lsan0423.pdf on 02/08/2024.
    \281\ 9.5 million head of cattle = 13 million lbs. of cattle 
divided by 1,369 lbs. per head.
    \282\ 28 percent = (9,479,254 head divided by 34,300,00 head 
annual slaughter) multiplied by 100.
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Litigation Costs
    AMS expects Sec. Sec.  201.304 and 201.306 to reduce litigation 
costs due to increased compliance with the rule associated with the 
clarity provided by the rule as to the conduct that violates the Act, 
but also to increase litigation as this rule allows producers to find 
relief in courts. AMS is uncertain as to which of these offsetting 
effects will dominate and to what extent. The final rule clarifies the 
prohibited unduly prejudicial, discriminatory, and deceptive practices 
that will violate section 202(a) of the Act. The clarification could 
result in a reduction in litigation costs if companies come

[[Page 16184]]

into compliance without any enforcement action. These regulations 
encourage regulated entities to proactively avoid prejudicial, 
discriminatory, and deceptive practices that could otherwise lead to 
costly litigation. Further, some firms may develop policies and 
procedures to comply with the recordkeeping requirements. This effect 
could reduce litigation and thus result in reduced litigation costs for 
regulated entities.
    However, there are several provisions in Sec.  201.304 that could 
result in additional litigation. AMS has received formal and informal 
complaints against packers, swine contractors, and live poultry dealers 
for retaliation for belonging to various producer and grower 
associations, contacting AMS to file a complaint, asserting legal 
rights, and contacting a competing regulated entity to pursue a 
contractual relationship. Similarly, there are several provisions in 
Sec.  201.306 that could result in additional litigation, including 
refusals by regulated entities to enter into or renegotiate contracts 
and contract terminations by producers. The clarity of the practices 
that AMS considers to be discriminatory and deceptive in Sec. Sec.  
201.304 and 201.306 could offer producers new hope for relief from 
courts for undue prejudicial, discriminatory, and deceptive practices 
by regulated entities. This effect could result in increased 
litigation.
    As stated above, AMS is uncertain as to which effect will dominate 
and to what extent. AMS does not estimate litigation costs in this 
analysis.
Direct Costs of the Final Rule
    AMS expects Sec. Sec.  201.304 and 201.306 will result in direct 
administrative and recordkeeping costs to the industry. AMS expects 
that packers, swine contractors, and live poultry dealers will incur 
direct administrative costs of learning the rule and then reviewing 
and, if necessary, revising marketing and production contracts to 
ensure compliance with Sec. Sec.  201.304 and 201.306. Regulated 
entities will also incur recordkeeping costs from keeping the records 
they already maintain for up to five years as required under Sec.  
201.304. The expected total costs of Sec. Sec.  201.304 and 201.306 
will be the direct administrative costs and recordkeeping costs of that 
regulatory alternative. The direct administrative costs and 
recordkeeping costs will be estimated below.
Direct Administrative Costs of the Final Rule
    AMS expects that Sec. Sec.  201.304 and 201.306 will prompt 
packers, live poultry dealers, and swine contractors to first review 
and learn the rule and then review their procurement policies and 
production contracts and make any necessary changes to ensure 
compliance with the new regulations. Expected costs are estimated as 
the total value of the time required to review and learn the rule and 
then review and, if necessary, revise procurement and production 
contracts.
    AMS expects the direct administrative costs of complying with 
Sec. Sec.  201.304 and 201.306 will be relatively small.
    The certain types of benefits outlined above will be in proportion 
to the extent to which the rule reduces prejudicial, discriminatory, 
retaliatory, and deceptive practices. The USDA policy has long held 
that several of the provisions in Sec. Sec.  201.304 and 201.306 or 
similar provisions were violations of the Act, although the position 
has not been established in regulations. Consequently, AMS expects 
packers, live poultry dealers, and swine contractors to make changes to 
relatively few contracts.
    The direct costs of the rule are low because the discriminatory, 
retaliatory, and deceptive behavior which the rule seeks to mitigate 
are not overtly written into the terms of the contracts between 
regulated entities and producers. They are behaviors or conduct in 
which some regulated entities engage, for example by not offering 
contracts to some producers due to discrimination and retaliation or by 
offering less favorable contract terms due to discrimination, 
retaliation, and deception. If the rule results in less discriminatory, 
retaliatory, or deceptive behavior by regulated entities, the costs of 
offering a contract to a producer or grower that was previously denied 
a contract or amending the terms of a less favorable contract to an 
impacted producer or grower will be of uncertain. Given that the 
behavior that the rule seeks to mitigate is not overtly written into 
contracts and is behavior during the contract offering process, the 
potential costs of mitigating the behavior are uncertain. The more that 
discriminatory, retaliatory, and deceptive behavior is mitigated 
because of the rule, the greater the benefits. AMS does not expect any 
changes in types of production and marketing contracts offered. AMS 
expects the same types of contracts to be offered, but with more 
equitable performance under the contracts by regulated entities across 
producers, fewer producers denied or terminated from contracts, and 
better clarity regarding contractual expectations. AMS also expects 
more contracts to be offered to producers who may not previously have 
been offered a contract due to discrimination, for example. Given its 
professional expertise based on regulating the industry and 
investigating complaints of the prohibited behaviors, AMS does not 
believe that the discriminatory, retaliatory, and deceptive behavior 
addressed by this rule is written into contract terms frequently enough 
to warrant changes to very many contracts.
    Although the amount of indirect costs is uncertain, AMS expects any 
indirect costs will likely range from marginal to modest. As shown 
above, AMS acknowledges that some regulated entities may offer higher 
prices to some livestock producers and growers when they come into 
compliance with this rule. This could shift livestock and poultry 
prices offered to some producers and growers toward the true value of 
their livestock or poultry that would prevail in a more competitive 
market and away from the artificially low prices offered through the 
abuse of market power by engaging in deception, discrimination, or 
retaliation. This would reduce the cost to society due to the market 
inefficiency (dead weight loss) created by discriminatory, retaliatory, 
and deceptive practices by some regulated entities. This shift in 
prices offered to some producers and growers toward their true value 
would result, in some instances, in a transfer of excess profits 
(profits that exceed those that would be earned in a more competitive 
market) from regulated entities to some growers and producers. This 
transfer from regulated entities to some producers and growers could 
occur. AMS cannot quantify the extent to which the behavior this rule 
aims to prohibit occurs in the industry or the extent of any harm that 
would be avoided by regulated entities' cessation of the behavior under 
the clearer limitations set by this rule. AMS notes that regulated 
entities, in their comments to the proposed rule, asserted that the 
occurrence of the practices addressed in the rule are not widespread. 
Assuming this is true, the indirect costs will be marginal. AMS, 
however, has noted the behaviors have been sufficiently widespread to 
warrant the intervention provided by this final rule.
    Estimates of the amount of time required to review and learn the 
rule and to review and revise contracts and keep records were provided 
by AMS subject matter experts. These experts were auditors and 
supervisors with many years of experience in AMS's PSD conducting 
investigations and compliance reviews of regulated entities. In May 
2022, BLS released

[[Page 16185]]

Occupational Employment and Wage Statistics that AMS used for the time 
values in this analysis.\283\ BLS estimated an average hourly wage for 
general and operations managers in animal slaughtering and processing 
to be $61.24. The average hourly wage for lawyers in food manufacturing 
was $103.81. In applying the cost estimates, AMS marked up the wages by 
41.79 percent to account for fringe benefits.\284\
---------------------------------------------------------------------------

    \283\ Estimates are available at U.S. Bureau of Labor 
Statistics. Occupational Employment and Wage Statistics, available 
https://www.bls.gov/oes/special-requests/oesm22all.zip (accessed 7/
14/2023).
    \284\ Estimates are available at U.S. Bureau of Labor 
Statistics. Occupational Employment and Wage Statistics, available 
https://www.bls.gov/oes/special-requests/oesm22all.zip (accessed 7/
14/2023).
---------------------------------------------------------------------------

    AMS expects that each packer, swine contractor, and live poultry 
dealer will spend one hour of legal time and one hour of management 
time to review and learn the rule and then, if necessary, revise 
production and marketing contracts to ensure compliance with the rule.
    Live poultry dealers are currently required to file form PSD 3002, 
``Annual Report of Live Poultry Dealers,'' OMB control number 0581-
0308, with AMS. Ninety live poultry dealers filed annual reports with 
AMS for their 2021 fiscal year.
    Packers are currently required to file form PSD 3004, ``Annual 
Report of Packers'' OMB control number 0581-0308, with AMS. Among other 
things, each packer reports the number of head of cattle or calves, 
hogs, and lamb, sheep, or goats that it processed. Three hundred sixty-
five packers that processed cattle or calves, hogs, or lamb, sheep or 
goats filed reports or were due to file a report with AMS for their 
fiscal year 2021. Two hundred sixty-one were beef or veal packers. One 
hundred ninety-six were pork packers, and 139 were lamb, sheep, or goat 
packers.\285\ The number of beef, pork, and lamb packers do not sum to 
365 because many firms slaughtered more than one species of livestock. 
For instance, 112 packers slaughtered both beef and pork, and 66 
slaughtered beef, pork, and lamb.
---------------------------------------------------------------------------

    \285\ For brevity, all beef and veal packers will be 
collectively referred to as beef packers and all lamb, sheep, and 
goat packers will be collectively referred to as lamb packers.
---------------------------------------------------------------------------

    AMS expects that packers processing more than one species of 
livestock will not incur additional costs for each species. That is, 
AMS expects that each packer will require one hour of attorney's time 
and one hour of management time regardless of how many species of 
livestock it processes. To allocate costs across (1) beef, (2) pork, 
and (3) lamb processors, AMS allocated one-third of the costs to each 
of (1) beef, (2) pork, and (3) lamb for packers that processed all 
three species. For packers processing any two, AMS allocated one half 
the costs to each.
    AMS estimated that all live poultry dealers that are regulated 
under the final rule will require one hour of an attorney's time 
costing the industry $13,000 \286\ and one hour of management time 
costing the industry $8,000 \287\ for learning the rule, reviewing, and 
adjusting contracts. The total costs for learning, reviewing, and 
adjusting contracts will be $21,000 \288\ for live poultry dealers.
---------------------------------------------------------------------------

    \286\ 90 live poultry dealers x $147.19 per hour x 1 hour = 
$13,247.
    \287\ 90 live poultry dealers x $86.83 per hour x 1 hour = 
$7,815.
    \288\ $13,247 + $7,815 = $21,062.
---------------------------------------------------------------------------

    AMS expects that packers will require an estimated one hour of an 
attorney's time and one hour of management time costing the industry 
$85,000. AMS estimates the total costs will be $40,000 for beef packers 
and $16,000 for lamb packers to learn and review the rule and adjust 
contracts.\289\ Pork packers' share of the packers' costs will be 
$29,000. AMS also expects that rule will cost all 575 swine contractors 
an hour of an attorney's time and one hour of management time costing a 
total of $135,000 across all swine contractors.\290\ Combining costs to 
pork packers with costs to swine contractors arrives at a total cost of 
$164,000 for hog and pork markets.
---------------------------------------------------------------------------

    \289\ 365 x ($147.19 per hour x 1 hour + $86.83 per hour x 1 
hour) = $85,417.
    \290\ 575 x ($147.19 per hour x 1 hour + $86.83 per hour x 1 
hour) = $134,562.
---------------------------------------------------------------------------

Direct Recordkeeping Costs for the Final Rule
    Costs to comply with the recordkeeping requirements are likely 
relatively low. Section 201.304(c) requires specific records that, if 
the regulated entity maintains, should be kept for a period of five 
years, including policies and procedures, staff training materials, 
materials informing covered producers regarding reporting mechanisms 
and protections, compliance testing, board of directors' oversight 
materials, and any records of the number and nature of unduly 
prejudicial or unjustly discriminatory-based complaints received.
    Costs of recordkeeping include regulated entities maintaining and 
updating compliance records and are considered a direct cost. Some 
smaller regulated entities that currently don't maintain records may 
voluntarily decide to develop formal policies, procedures, training, 
etc. to comply with the rule and will then have records to maintain.
    AMS expects the recordkeeping costs will comprise the time required 
by regulated entities to store and maintain records they already keep. 
AMS expects that the costs will be relatively small because many 
packers, live poultry dealers, and swine contractors may currently have 
few records concerning policies and procedures, staff training 
materials, materials informing covered producers regarding reporting 
mechanisms and protections, compliance testing, and board of directors' 
oversight materials related to prejudicial treatment. Some smaller 
firms might not have any records to store. Others already store the 
records and may have no new costs.
    AMS estimated that recordkeeping time for larger entities will be 
greater than for smaller entities, and thus estimated costs by 
quartiles, from largest entities to smallest. AMS estimated that Sec.  
201.304(c) will require packers, live poultry dealers, and swine 
contractors in each quartile an average 4.00 hours, 2.00 hours, 1.33 
hours, and 0.67 hours of administrative time for the first, second, 
third, and fourth quartiles, respectively. Additionally, AMS estimated 
that the hours required of managers, attorneys, and information 
technology staff each will average 1.50 hours, 0.75 hours, 0.50 hours, 
and 0.25 hours for the first, second, third, and fourth quartiles, 
respectively.
    AMS also expects that packers, live poultry dealers, and swine 
contractors will incur continuing recordkeeping costs in each 
successive year. AMS estimated that Sec.  201.304(c) will require an 
average of 3.00 hours, 1.50 hours, 1.00 hour, and 0.50 hour of 
administrative assistant time; 1.50 hours, 0.75 hour, 0.50 hour, and 
0.25 hour of time each from managers and attorneys; and 1.00 hour, 0.50 
hour, 0.33 hour, and 0.17 hour of time from information technology 
staff for packers, live poultry dealers, and swine contractors in the 
first, second, third, and fourth quartiles, respectively, to setup and 
maintain the required records in each succeeding year.
    Estimated first-year costs for recordkeeping requirements in Sec.  
201.304(c) totaled $30,000 for live poultry dealers,\291\ $193,000 for 
swine

[[Page 16186]]

contractors,\292\ and $122,000 for packers.\293\ Estimated yearly 
continuing costs for recordkeeping requirements in Sec.  201.304(c) 
totaled $26,000 for live poultry dealers,\294\ $166,000 for swine 
contractors,\295\ and $106,000 for packers.\296\
---------------------------------------------------------------------------

    \291\ 90 live poultry dealers x (($44.51 per hour admin. Cost x 
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour 
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + ($93.68 information tech cost x (1.5 hours + .75 hours + 
.5 hours + .25 hours)))/4 = $30,132.
    \292\ 575 swine contractors x (($44.51 per hour admin. cost x (4 
hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($93.68 information tech cost x (1.5 hours + .75 hours + .5 hours + 
.25 hours)))/4 = $192,507.
    \293\ 365 packers x (($44.51 per hour admin. cost x (4 hours + 2 
hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger cost x 
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($93.68 
information tech cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)))/4 = $122,200.
    \294\ 90 live poultry dealers x (($44.51 per hour admin. cost x 
(3 hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour 
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + $93.68 information tech cost x (1 hours + .5 hours + .33 
hours + .17 hours)))/4 = $26,021.
    \295\ 575 swine contractors x (($44.51 per hour admin. Cost x (3 
hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
$93.68 information tech cost x (1 hours + .5 hours + .33 hours + .17 
hours)))/4 = $166,244.
    \296\ 365 packers x (($44.51 per hour admin. cost x (3 hours + 
1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger cost x 
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + $93.68 
information tech cost x (1 hours + .5 hours + .33 hours + .17 
hours)))/4 = $105,529.
---------------------------------------------------------------------------

    Breaking out costs by market, AMS expects recordkeeping 
requirements in Sec.  201.304(c) to cost beef packers $58,000 in the 
first year and $50,000 in each following year. Section 201.304(c) will 
cost lamb packers $23,000 in the first year and $20,000 in successive 
years. Section 201.304(c) will cost pork packers $42,000, and it will 
cost swine contractors $193,000 for a total of $235,000 in the first 
year. Section 201.304(c) will cost swine contractors $166,000 in 
successive years, and it will cost pork packers $36,000 for a total 
$202,000.
Total Direct Administrative & Recordkeeping Costs for the Final Rule
    Table 8 below summarizes combined expected administrative and 
recordkeeping costs for regulated entities in the first year and in 
succeeding years. AMS expects that administrative and recordkeeping 
costs associated with Sec. Sec.  201.304 and 201.306 will cost each 
packer, swine contractor, and live poultry dealer an average $569 in 
the first year and an average $289 in each succeeding year. First-year 
costs will total $51,000 for live poultry dealers, $327,000 for swine 
contractors, and $208,000 for packers. Costs in successive years will 
be due to recordkeeping requirements and will total $26,000 for live 
poultry dealers, $166,000 for swine contractors, and $105,000 for 
packers annually.
[GRAPHIC] [TIFF OMITTED] TR06MR24.015


[[Page 16187]]


    The total direct administrative and recordkeeping costs are 
estimated to be $586,000 in the first year. Estimated first year total 
direct administrative and recordkeeping costs for the cattle and beef 
industry, hogs and pork, lamb, and poultry industries rounded to the 
nearest thousand dollars are listed in the following table.
[GRAPHIC] [TIFF OMITTED] TR06MR24.016

Final Rule: Ten-Year Total Direct Administrative and Recordkeeping 
Costs
    Expected administrative and recordkeeping costs of Sec. Sec.  
201.304 and 201.306 for each year from 2023 through 2032 appear in the 
table below. Based on the analysis, AMS expects the ten-year total 
direct administrative and recordkeeping costs of Sec. Sec.  201.304 and 
201.306 to be $3.3 million.
[GRAPHIC] [TIFF OMITTED] TR06MR24.017

Final Rule: Present Value of Ten-Year Total Direct Administrative and 
Recordkeeping Costs
    Costs to be incurred in the future are lower than the same costs to 
be incurred today. This is because the money that will be used to pay 
the costs in the future can be invested today and earn a return on 
investment until the period in which the cost is incurred. After the 
cost has been incurred, the earned returns will still be available.
    To account for the time value of money, the administrative costs to 
be incurred in the future are discounted back to today's dollars using 
a discount rate. The sum of all costs discounted back to the present is 
called the present value (PV) of total costs. AMS relied on both a 
three percent and seven percent discount rate as discussed in Circular 
A-4.\297\
---------------------------------------------------------------------------

    \297\ Circular A-4. September 17, 2003, available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/. Note: OMB 
issued an updated Circular A-4 on November 9, 2023. AMS developed 
its analysis for this final rule using the 2003 Circular A-4 
guidance. The 2023 guidance is effective March 1, 2024, and applies 
to draft final rules submitted to OMB's Office of Information and 
Regulatory Affairs after December 31, 2024. The 2023 guidance is 
available at https://www.whitehouse.gov/wp-content/uploads/2023/11/CircularA-4.pdf.

---------------------------------------------------------------------------

[[Page 16188]]

    AMS calculated the PV of the ten-year total direct administrative 
and recordkeeping costs of the regulations using a three percent and 
seven percent discount rate. The PVs appear in Table 11.
[GRAPHIC] [TIFF OMITTED] TR06MR24.018

    AMS expects the PV of the ten-year total administrative and 
recordkeeping costs of Sec. Sec.  201.304 and 201.306 to be $2.8 
million at a three percent discount rate and $2.4 million at a seven 
percent discount rate.
Final Rule: Annualized PV of Ten-Year Total Direct Administrative and 
Recordkeeping Costs
    AMS then annualized the PV of the ten-year total administrative and 
recordkeeping costs (referred to as annualized costs) of Sec. Sec.  
201.304 and 201.306 using both a three percent and seven percent 
discount rate as required by Circular A-4 and the results appear in 
Table 12.\298\
---------------------------------------------------------------------------

    \298\ Circular A-4. September 17, 2003, available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/.
[GRAPHIC] [TIFF OMITTED] TR06MR24.019

    AMS expects the annualized ten-year administrative and 
recordkeeping costs of final Sec. Sec.  201.304 and 201.306 to be 
$331,000 at a three percent discount rate and $336,000 at a seven 
percent discount rate.
Cost-Benefit Comparison of the Final Rule
    The expected costs of this rule are very small relative to the size 
of the industry; and expected benefits are expected to be proportional 
to reductions in conduct this rule addresses. Combined sales of beef, 
pork, and broiler chicken in the U.S. for 2022 were approximately 
$294.5 billion.\299\ As discussed above, the total cost of Sec. Sec.  
201.304 and 201.306 in the first year is estimated to be $586,000, or 
0.0002 percent of revenues. A reduction in prejudicial, discriminatory, 
retaliatory, and deceptive practices will lead to benefits that will be 
directly related to the reductions in these practices. If the 
reductions are small, the benefits will be small. The greater the 
reductions, the greater the benefits. AMS expects that the costs and 
benefits to society from the rule will be very small in relation to the 
total value of industry production, leading to negligible indirect 
effects on industry supply and demand, including price and quantity 
effects.
---------------------------------------------------------------------------

    \299\ Total meat and poultry processing industry revenues. 
Source: https://www.ibisworld.com/industry-statistics/market-size/
meat-beef-poultry-processing-united-states/
#:~:text=The%20market%20size%2C%20measured%20by,industry%20increased%
200.2%25%20in%202022.
---------------------------------------------------------------------------

Regulatory Alternative 3: Small Business Exemption Alternative
    The third regulatory alternative that AMS considered is issuing 
Sec. Sec.  201.304 and 201.306, but exempting small businesses, as 
defined by the SBA, from compliance with the recordkeeping requirement 
of Sec.  201.304(c).\300\ All other provisions of Sec. Sec.  201.304 
and 201.306 will still apply to small businesses. Most packers are 
small businesses under the SBA definition. Of the 365 packers reporting 
to AMS, 348 are small businesses. Two hundred fifty-three beef packers 
and 183 pork packers are small businesses. All 139 lamb packers are 
small businesses. Packers include multi-species packers. One hundred 
eight swine contractors are small businesses. There are 55 small 
poultry dealers.
---------------------------------------------------------------------------

    \300\ See, ``Stay legally compliant (sba.gov),'' available at 
https://www.sba.gov/business-guide/manage-your-business/stay-legally-compliant (Last accessed 8/9/2022).
---------------------------------------------------------------------------

Regulatory Alternative 3: Total Costs of the Small Business Exemption 
Alternative
    Table 13 summarizes combined expected administrative and 
recordkeeping costs for regulated entities in the first year and in 
succeeding years. AMS expects that administrative and recordkeeping 
costs associated with a small business exemption alternative will cost 
each live poultry dealer, swine contractor, and packer an average of 
$448, $548, and $265, respectively, in the first year. AMS expects 
costs to average $185, $271, and $27 for live poultry dealers, swine 
contractors, and packers, respectively, in each succeeding year. First-
year costs will total $40,000 for live poultry dealers, $315,000 for 
swine contractors, and $97,000 for packers.

[[Page 16189]]

Costs in successive years will be due to recordkeeping requirements and 
will total $17,000 for live poultry dealers, $156,000 for swine 
contractors, and $10,000 for packers annually. The total direct 
administrative and recordkeeping costs are estimated to be $452,000 in 
the first year.
[GRAPHIC] [TIFF OMITTED] TR06MR24.020

    As discussed above, AMS considers the total costs from Sec. Sec.  
201.304 and 201.306 to be increased direct administrative and 
recordkeeping costs with no indirect costs from adjustments by the 
cattle, hog, and poultry industries to reduce their use of AMAs, change 
to pricing mechanisms or poultry tournaments, and no substantial 
changes to existing marketing, or growing or production contracts. AMS 
estimated the costs to small business from the direct administrative 
costs of Sec. Sec.  201.304 and 201.306 but excluded the recordkeeping 
costs of Sec.  201.304(c) in this alternative option.
    AMS estimated the costs to small business to be the value of the 
time for management, attorneys, administrative staff, and information 
technology staff to review the rule and the firms' practices 
determining compliance with the direct administrative costs of 
Sec. Sec.  201.304 and 201.306. AMS estimated costs for the Small 
Business Exemption Alternative similarly to the final rule. The only 
difference is the recordkeeping costs of Sec.  201.304(c) attributable 
to small business are not included in the costs for the Small Business 
Exemption Alternative. The estimates appear in Table 14. Costs for the 
final rule are also shown for convenience.

[[Page 16190]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.021

    AMS estimates that Sec. Sec.  201.304 and 201.306, with the small 
business exemption, will result in $427,000 in direct total costs in 
the cattle, hog, lamb, and poultry industries in the first full year 
following implementation and $182,000 each year in ongoing costs. AMS 
expects the ten-year total costs of Sec.  201.304 and 201.306 with a 
small business exemption to be $2.1 million. Exempting small business 
will save approximately $159,000 in the first year and $1.1 million 
over ten years.
Regulatory Alternative 3: PV of Total Costs of the Small Business 
Exemption Alternative
    AMS calculated the PV of the ten-year total costs of the Small 
Business Exemption Alternative using both a three percent and seven 
percent discount rate and the PVs appear in the following table. Costs 
for the final rule are also shown for convenience.
[GRAPHIC] [TIFF OMITTED] TR06MR24.022

    AMS expects the PV of the ten-year total costs of Sec. Sec.  
201.304 and 201.306 with a small business exemption to be $1.8 million 
at a three percent discount rate and $1.5 million at a seven percent 
discount rate.
Regulatory Alternative 3: Annualized Costs of the Small Business 
Exemption Alternative
    AMS then annualized the PV of the ten-year total costs of 
Sec. Sec.  201.304 and 201.306 with a small business exemption using 
both a three percent and seven percent discount rate and the results 
appear in Table 16. The final rule is also shown for convenience.
[GRAPHIC] [TIFF OMITTED] TR06MR24.023


[[Page 16191]]


    AMS expects the annualized costs of Sec. Sec.  201.304 and 201.306 
with a small business exemption to be $210,000 at a three percent 
discount rate and $215,000 at a seven percent discount rate.
Cost-Benefit Comparison of Regulatory Alternatives
    The status quo alternative has zero marginal costs. AMS compared 
the annualized costs of the final rule to the annualized costs of the 
Small Business Exemption Alternative by subtracting the annualized 
costs of the Small Business Exemption Alternative from those of the 
final rule and the results appear in Table 17.
[GRAPHIC] [TIFF OMITTED] TR06MR24.024

    The annualized costs of the Small Business Exemption Alternative 
are $121,000 less expensive using a three percent discount rate and 
$121,000 less expensive using a seven percent discount rate. As is the 
case with costs, the benefits will be highest for the final rule 
because the full benefits will be received by all livestock producers 
and poultry growers, not just those doing business with large packers, 
swine contractors and live poultry dealers.
    Though the Small Business Exemption Alternative will save 
approximately $121,000 on an annualized basis, AMS chose final 
Sec. Sec.  201.304 and 201.306 over the Small Business Exemption 
Alternative because AMS wishes to prevent broadly the kind of undue 
prejudices and unjust discrimination described in the rule. AMS 
believes that keeping relevant records will help promote compliance 
with this rule, that all packers, live poultry dealers, and swine 
contractors cannot purchase livestock or enter into contracts for 
growing services with the kind of undue prejudices and unjust 
discrimination described in the rule.
    AMS considered all three regulatory alternatives and believes that 
the final rule is the best alternative, as it benefits all livestock 
producers, swine production contract growers, and poultry growers, 
regardless of the size of the packer, swine contractor, or live poultry 
dealer with which they contract above the Status Quo Alternative.
Regulatory Flexibility Analysis
    As part of the regulatory process, a Regulatory Flexibility 
Analysis (RFA) is conducted in order to evaluate the effects of this 
rule on small businesses. Under the final rule, there are no new 
regulatory text changes that would change the proposed rule costs and 
benefits of the regulatory analyses.
    The SBA defines small businesses by their North American Industry 
Classification System Codes (NAICS).\301\ Live poultry dealers, NAICS 
311615, are considered small businesses if they have fewer than 1,250 
employees. Meat packers, including, beef, veal, pork, lamb, and goat 
packers, NAICS 311611, are small businesses if they have fewer than 
1,000 employees. Swine contractors, NAICS 112210, are considered small 
if their sales are less than $1 million annually.
---------------------------------------------------------------------------

    \301\ U.S. Small Business Administration. Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes. Effective August 19, 2019. ``The SBA 
Issues a Final Rule to Adopt NAICS 2017 for Small Business Size 
(last accessed 8/9/2022).'' Available at https://www.sba.gov/article/2018/feb/27/sba-issues-final-rule-adopt-naics-2017-small-business-size-standards.
---------------------------------------------------------------------------

    AMS maintains data on live poultry dealers from the annual reports 
these firms file with AMS. Currently, 90 live poultry dealers will be 
subject to the regulation. Fifty-five of the live poultry dealers will 
be small businesses according to the SBA standard.
    AMS records identified 365 packers that file annual reports or are 
due to file with PSD for their 2021 fiscal year. Two hundred sixty-one 
were beef packers. One hundred ninety-six were pork packers, and 139 
were lamb or goat packers. Many firms slaughtered more than one species 
of livestock. For instance, 112 packers slaughtered both beef and pork.
    Most packers will be small businesses, although large packers are 
responsible for most meat production. Three hundred forty-eight packers 
will be small businesses. Two hundred fifty-three beef packers and 183 
pork packers were small businesses. All 139 lamb and goat packers were 
small businesses.
    AMS does not have similar records for swine contractors because 
they are not required to register with AMS or provide annual reports. 
Table 24 of the 2017 USDA Census of Agriculture indicated that there 
were 575 swine contractors in 2017. The Census of Agriculture table has 
categories for the number of head that swine contractors sold, but not 
the value of the head sold. AMS expects that the 467 swine contractors 
that sold 5,000 head of hogs or more were large businesses, and the 108 
contractors that sold less than 5,000 head were small businesses.
    AMS estimated the costs in two parts. First, AMS expects that each 
packer, swine contractor, and live poultry dealer will review and learn 
the new rule and, if necessary, revise production and marketing 
contracts to ensure compliance with the new rule. Second, AMS expects 
that packers, live poultry dealers, and swine contractors will have 
additional costs associated with the new recordkeeping requirements in 
Sec.  201.304(c).
    AMS estimated that costs for reviewing and learning the final rule 
to small live poultry dealers, small packers, and small swine 
contractors will consist of one hour of a manager's time and one hour 
of a lawyer's time to review the requirements of Sec. Sec.  201.304 and 
201.306. Expected first-year costs will be $234 \302\ for each live 
poultry dealer, each swine contractor, and each packer. This will 
amount to a total $13,000 for the 55 live poultry dealers, $81,000 for 
the 348 packers, and $25,000 for the 108 swine contractors.
---------------------------------------------------------------------------

    \302\ $147.19 per hour x 1 hour of an attorney's time + $86.83 
per hour x 1 hour of a manager's time = $234.
---------------------------------------------------------------------------

    Concerning the recordkeeping requirements in final Sec.  
201.304(c), AMS expects the cost will be comprised of the time required 
to store and maintain records already kept. AMS expects that the costs 
will be relatively small

[[Page 16192]]

because packers, live poultry dealers, and swine contractors will 
likely have few records concerning policies and procedures, staff 
training materials, materials informing covered producers regarding 
reporting mechanisms and protections, compliance testing, and board of 
directors' oversight materials related to prejudicial treatment. Many 
firms might not have any records to maintain. Others already maintain 
the records and have no new costs.
    AMS expects that recordkeeping costs will be correlated with the 
size of the firms. AMS ranked packers, live poultry dealers, and swine 
contractors by size and grouped them into quartiles, estimating more 
recordkeeping time for larger entities than for the smaller entities. 
AMS estimated that Sec.  201.304(c) will require an average of 4.00 
hours of administrative assistant time, 1.50 hours of time each from 
managers, attorneys, and information technology staff for packers, live 
poultry dealers, and swine contractors in the first quartile, 
containing the largest entities, to setup and maintain the required 
records in the first year. AMS expects the packers, live poultry 
dealers, and swine contractors in the second quartile will require an 
average of 2.00 hours of administrative assistant time, 0.75 hours of 
time each from managers, attorneys, and information technology staff 
for first year costs. The third quartile will require 1.33 hours of 
administrative assistant time, 0.50 hours of time each from managers, 
attorneys, and information technology staff for first year costs, and 
the fourth quartile, containing the smallest entities, will require 
0.67 hours of administrative assistant time, 0.25 hours of time each 
from managers, attorneys, and information technology staff.
    AMS also expects that packers, live poultry dealers, and swine 
contractors will incur continuing costs in each successive year. AMS 
estimated that Sec.  201.304(c) will require an average of 3.00 hours 
of administrative assistant time, 1.50 hours of time each from managers 
and attorneys, and 1.00 hour of time from information technology staff 
for packers, live poultry dealers, and swine contractors in the first 
quartile to setup and maintain the required records in each succeeding 
year. AMS expects the packers, live poultry dealers, and swine 
contractors in the second quartile will require an average of 1.50 
hours of administrative assistant time, 0.75 hours of time each from 
managers and attorneys, and 0.50 hours of time from information 
technology staff in each succeeding year. The third quartile will 
require 1.00 hour of administrative assistant time, 0.50 hours of time 
each from managers and attorneys, and 0.33 hours of time from 
information technology staff in each succeeding year, and the fourth 
quartile will require 0.50 hours of administrative assistant time, 0.25 
hours of time each from managers and attorneys, and 0.17 hours from 
information technology staff.
    Estimated first-year costs for recordkeeping requirements in final 
Sec.  201.304(c) totaled $11,000 for live poultry dealers,\303\ $12,000 
for swine contractors,\304\ and $111,000 for packers.\305\ Estimated 
yearly continuing costs for recordkeeping requirements in Sec.  
201.304(c) totaled $9,000 for live poultry dealers,\306\ $10,000 for 
swine contractors,\307\ and $96,000 for packers.\308\
---------------------------------------------------------------------------

    \303\ 10 live poultry dealers x ($44.51 per hour admin. cost x 2 
hours + $86.83 per hour manger cost x .75 + $147.19 legal cost x .75 
hours + $93.68 information tech cost x .75 hours) + 45 live poultry 
dealers x ($44.51 per hour admin. cost x (1.33 hours + .67 hours) + 
$86.83 per hour manger cost x (.5 hours + .25 hours) + $147.19 legal 
cost x (.5 hours + .25 hours) + $93.68 information tech cost x (.5 
hours + .25 hours))/2 = $10,881.
    \304\ 108 swine contractors x ($44.51 per hour admin. cost x .67 
hours + $86.83 per hour manger cost x .25 hours + $147.19 legal cost 
x .25 hours + $93.68 information tech cost x .25 hours) = $12,053.
    \305\ 74.25 packers x ($44.51 per hour admin. cost x 2 hours + 
$86.83 per hour manger cost x .75 hours + $147.19 legal cost x .75 
hours + $93.68 information tech cost x .75 hours + 273.75 packers x 
($44.51 per hour admin. cost x (2 hours + 1.33 hours + .67 hours) + 
$86.83 per hour manger cost x (.75 hours + .5 hours + .25 hours) + 
$147.19 legal cost x (.75 hours + .5 hours + .25 hours) + $93.68 
information tech cost x (.75 hours + .5 hours + .25 hours))/3 = 
$110,817.
    \306\ 10 live poultry dealers x ($44.51 per hour admin. cost x 
1.5 hours + $86.83 per hour manger cost x .75 + $147.19 legal cost x 
.75 hours + $93.68 information tech cost x .50 hours) + 45 live 
poultry dealers x ($44.51 per hour admin. cost x (1 hours + .5 
hours) + $86.83 per hour manger cost x (.5 hours + .25 hours) + 
$147.19 legal cost x (.5 hours + .25 hours) + $93.68 information 
tech cost x (.33 hours + .17 hours))/2 = $9,396.
    \307\ 108 swine contractors x ($44.51 per hour admin. cost x .5 
hours + $86.83 per hour manger cost x .25 hours + $147.19 legal cost 
x .25 hours + $93.68 information tech cost x .17 hours) = $10,408.
    \308\ 74.25 packers x ($44.51 per hour admin. cost x 3 hours + 
$86.83 per hour manger cost x 1.5 hours + $147.19 legal cost x 1.5 
hours + $93.68 information tech cost x 1 hours + 273.75 packers x 
($44.51 per hour admin. cost x (1.5 hours + 1 hours + .5 hours) + 
$86.83 per hour manger cost x (.75 hours + .5 hours + .25 hours) + 
$147.19 legal cost x (.75 hours + .5 hours + .25 hours) + $93.68 
information tech cost x (.5 hours + .33 hours + .17 hours))/3 = 
$110,817.
---------------------------------------------------------------------------

    Total expected first year costs for small businesses, including one 
time reviewing costs and recordkeeping costs will be $192,000 for 
packers, $37,000 for swine contractors, and $24,000 for live poultry 
dealers. The table below lists expected costs for small businesses 
subject to Sec. Sec.  201.304 and 201.306. AMS expects marginal costs 
to total $255,000 in the first year. Ten-year costs annualized at three 
percent will be $107,000 for packers, $13,000 for swine contractors, 
and $11,000 for live poultry dealers. Total ten-year costs annualized 
at three percent will be expected to be $131,000.
    The table below shows that ten-year costs annualized at seven 
percent will be $109,000 for packers, $14,000 for swine contractors, 
and $11,000 for live poultry dealers. Total ten-year costs annualized 
at seven percent will be expected to be $134,000.

[[Page 16193]]

[GRAPHIC] [TIFF OMITTED] TR06MR24.025

    Live poultry dealers annually file reports with AMS that list each 
firm's net sales. Packers that purchase more than $500,000 annually in 
livestock also file annual reports that list net sales. While packers 
that annually slaughter less than $500,000 in livestock also file 
annual reports with AMS, in order to reduce the reporting requirements 
for small packers, they are not required to provide annual net sales.
    Data from the annual reports enables AMS to compare average net 
sales for small pork packers, beef packers, and live poultry dealers to 
the expected costs of Sec. Sec.  201.304 and 201.306 in the table 
below. A shortcoming in the comparison is that net sales for smallest 
packers, those that purchase less than $500,000 in livestock, are not 
included in the average.
    Swine contractors are not required to file annual reports with AMS, 
and similar net sales data are not available for swine contractors. 
Census of Agriculture's data have the number of head sold by size 
classes for farms that sold their own hogs and pigs in 2017 and that 
identified themselves as contractors or integrators, but not the value 
of sales nor the number of head sold from the farms of the contracted 
production. To estimate average revenue per establishment, AMS used the 
estimated average value per head for sales of all swine operations and 
the production values for firms in the Agriculture Census size classes 
for swine contractors.
    Table 19 compares the average per entity first-year costs of final 
Sec. Sec.  201.304 and 201.306 to the average revenue per establishment 
for all regulated small businesses. First-year costs are appropriate 
for a threshold analysis because all the costs will occur in the first 
year. First-year costs per regulated entity are considerably higher 
than annualized costs, and any ratio of annualized costs to revenues 
will be less than a ratio of first-year costs to revenues.
[GRAPHIC] [TIFF OMITTED] TR06MR24.026


[[Page 16194]]


    Average first-year costs as a percent of revenues are small. It is 
highest for swine contractors because average revenues for swine 
contractors are considerably smaller than average revenues for packers 
and live poultry dealers. At 0.0711 percent, the average first-year 
cost is small compared to revenue.
    Average net sales for packers listed in Table 18 have the problem 
of excluding the smallest packers, and consequently the averages are 
biased toward being too large. However, first-year cost as a percent of 
net sales is 0.0007 percent. Estimated first year cost for each packer 
is $552. These are relatively small numbers. If average net sales for 
each packer were only one hundredth of the amount listed in Table 19, 
estimated average first-year costs will be less than 0.1 percent of net 
sales.
    AMS has limited data on revenues for the smallest packers and live 
poultry dealers. One hundred eleven packers submitted shortened annual 
reports to AMS because they purchased less than $500,000 in livestock. 
For the largest of these small packers, annual revenues are likely 
close to $500,000 and expected costs will be about 0.07 percent.
RFA Small Business Exemption Alternative: Recordkeeping Exemption
    AMS also considered a Small Business Exemption Alternative to final 
Sec. Sec.  201.304 and 201.306. The Small Business Exemption 
Alternative will be the same as the final Sec. Sec.  201.304 and 
201.306 in all respects with the exception that none of the 
recordkeeping requirements in Sec.  201.304(c) will apply to small 
businesses. This Small Business Exemption Alternative will cost small 
packers, swine contractors, and live poultry dealers less than 
Sec. Sec.  201.304 and 201.306 will cost. Recordkeeping costs comprised 
the largest share of the costs associated with Sec. Sec.  201.304 and 
201.306.
    Although the Small Business Exemption Alternative will not require 
small businesses to keep any additional records, small businesses will 
still be required to comply with all the other provisions of Sec. Sec.  
201.304 and 201.306. AMS expects that small live poultry dealers, small 
packers, and small swine contractors will need to review the new rule 
and determine whether the rule will require any changes to their 
procurement contracts or other business practices and make the 
necessary changes. AMS estimated that costs will consist of one hour of 
a manager's time and one hour of a lawyer's time to review the 
requirements of final Sec. Sec.  201.304 and 201.306. This amounts to 
expected first-year costs of $234 \309\ for each live poultry dealer, 
each swine contractor, and each packer that qualifies as a small 
business. All costs will occur in the first year.
---------------------------------------------------------------------------

    \309\ $147.19 per hour x 1 hour of an attorney's time + $86.83 
per hour x 1 hour of a manager's time = $234.
---------------------------------------------------------------------------

    The table below lists expected costs for small businesses subject 
to the Small Business Exemption Alternative. AMS expects marginal costs 
to total $120,000 in the first year. The Small Business Exemption 
Alternative is expected to cost $81,000, $25,000, and $13,000 in the 
first year for packers, swine contractors, and live poultry dealers, 
respectively.
[GRAPHIC] [TIFF OMITTED] TR06MR24.027


[[Page 16195]]


    Ten-year costs annualized at three percent will be $9,000 for 
packers, $3,000 for swine contractors, and $1,000 for live poultry 
dealers. This amounts to $27 for each live poultry dealer, swine 
contractor, and packer. Total ten-year costs annualized at three 
percent will be expected to be $14,000.
    Ten-year costs annualized at seven percent will be $11,000 for 
packers, $3,000 for swine contractors, and $2,000 for live poultry 
dealers. This amounts to $31 for each live poultry dealer, swine 
contractor, and packer. Total ten-year costs annualized at seven 
percent will be expected to be $16,000.
    The table below compares the average per entity first-year costs of 
the Small Business Exemption Alternative to the average revenue for 
each regulated small business. First-year costs are appropriate for a 
threshold analysis because all the costs associated with the 
alternative will occur in the first year.
[GRAPHIC] [TIFF OMITTED] TR06MR24.028

    Average first-year costs as a percent of revenues are small. 
Similar to Sec. Sec.  201.304 and 201.306, relative costs are highest 
for swine contractors because average revenues for swine contractors 
are considerably smaller than average revenues for packers and live 
poultry dealers. At 0.0482 percent, the first-year cost to swine 
contractors is small compared to revenue.
    Average net sales for packers listed in Table 20 have the same 
problem as the net sales figures in Table 18. They exclude the smallest 
packers, and consequently the averages are biased toward being too 
large. However, first-year cost as a percent of net sales for packers 
purchasing more than $500,000 per year is 0.0002 percent. Estimated 
first year cost for each packer is $234. Costs will be less than 0.1 
percent of revenues for any packer with revenue greater than $23,400. 
Even for the smallest packer that AMS regulates, $234 will not likely 
have a significant economic impact.
Comparison of Alternatives
    Expected costs for small businesses under final Sec. Sec.  201.304 
and 201.306 will be more than double the expected costs for small 
businesses under a Small Business Exemption Alternative. The cost 
difference is due to recordkeeping requirements. First-year costs will 
be $159,000 more for final Sec. Sec.  201.304 and 201.306 than the 
Small Business Exemption Alternative.\310\ While all the costs 
associated with the Small Business Exemption Alternative occur in the 
first year, small businesses will continue to incur recordkeeping costs 
associated with final Sec. Sec.  201.304 and 201.306 into the future. 
Estimated costs annualized at seven percent are $121,000 higher for 
final Sec. Sec.  201.304 and 201.306 than for the Small Business 
Exemption Alternative.
---------------------------------------------------------------------------

    \310\ $586,000-$427,000 = $159,000 (Table 15).
---------------------------------------------------------------------------

    With either the Small Business Exemption Alternative or the final 
rule, AMS expects the costs per entity to be relatively small. The 
number of regulated entities that could experience a cost increase is 
substantial. Most regulated packers and live poultry dealers are small 
businesses. However, AMS expects that few small businesses will 
experience significant costs. For all three groups of regulated 
entities: packers, live poultry dealers, and swine contractors, average 
first year costs are expected to amount to less than 0.1 percent of 
annual revenue for either of the alternatives. AMS expects that any 
additional costs to small packers, live poultry dealers, and swine 
contractors from this rulemaking will not change their ability to 
continue operations or place any small businesses at a competitive 
disadvantage.
    AMS chose final Sec. Sec.  201.304 and 201.306 over the Small 
Business Exemption Alternative because AMS wishes to prevent the kind 
of undue prejudices and unjust discrimination described in the rule. 
AMS believes that keeping relevant records serves as constant reminder 
to all packers, live poultry dealers, and swine contractors that they 
cannot practice undue prejudice on the basis of protected bases and 
protected actions; retaliate on the basis of protected activities or 
actions; or deceive on the basis of contract formation, performance, 
termination, or refusal.
    Final Sec. Sec.  201.304 and 201.306 are not expected to have a 
significant economic impact on a substantial number of small business 
entities as defined in the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.).

C. Executive Order 13175--Consultation and Coordination With Indian 
Tribal Governments

    E.O. 13175 requires Federal agencies to consult with Tribes on a 
government-to-government basis on policies that have Tribal 
implications, including regulations, legislative comments or proposed 
legislation, and other policy statements or actions that have 
substantial direct effects on one or more Indian Tribes, on the 
relationship between the Federal Government and Indian Tribes or the 
distribution of power and responsibilities between the Federal 
Government and Indian Tribes.
    Three commenters including the Cherokee Nation, the Coalition of 
Large Tribes (COLT), and an academic commenter who is the executive

[[Page 16196]]

director of the Indigenous Food and Agriculture Initiative (IFAI) at 
the University of Arkansas School of Law, responded to USDA's January 
19, 2023, Tribal consultation seeking input on the proposed rule on 
Inclusive Competition and Market Integrity Under the Act. All three 
commenters gave context about Tribal participation in the meat and 
livestock industry and contended that the proposed rule should not 
apply to Tribes and Tribal entities.
    Comment: A commenter stated that the proposed rule's provisions 
targeting unjust discrimination could inadvertently ban practices 
designed to enable Tribal enterprises to serve their own community, 
such as laws requiring businesses to provide contracting and employment 
preferences to Tribal members. According to the commenter, these 
practices could arguably be interpreted under the proposed rule as 
``offering contract terms that are less favorable than those generally 
or ordinarily offered'' or ``differential contract performance or 
enforcement'' which are ``based upon the covered producer's status as a 
market vulnerable individual.'' According to the commenter, the 
regulation's language, as proposed, and the lack of exceptions provided 
could have a chilling effect on the traditional animal husbandry 
practices of Tribes regardless of a Tribal business's likelihood of 
prevailing under a legal challenge.
    AMS Response: In its final rule, AMS has included a limited list of 
legitimate business justifications including an exception to the rule's 
prohibition on unjust discrimination for Tribes fulfilling their 
governmental function of serving their members. In doing so, AMS in 
this rule recognizes longstanding practice around Tribal entities, 
acting in their governmental capacities, in preferencing their own 
Tribal members and their descendants in the purchase and sale of 
livestock. Additionally, AMS has changed its approach from the proposed 
rule to no longer use the term ``Market Vulnerable'' to define to whom 
the rule offers protections. In shifting to the specific terms 
identified, the final rule provides greater certainty that Tribal 
members will be protected against discriminatory practices they may 
encounter in the marketplace.
    Comment: A Tribal commenter stated that Tribal producers may be 
hesitant to report discriminatory practices, stating that the long 
history of governmental indifference to, or even complicity in, unjust 
discrimination against their communities' factors into a fear of 
retaliation. The commenter noted Tribal producers have also reported 
that they are not sure where to report violations of the Act, 
suggesting USDA should consider establishing a streamlined process for 
reporting issues under the Act and make concerted efforts to inform 
producers of their rights.
    AMS Response: Through expressly prohibiting discriminatory and 
retaliatory conduct in this rulemaking, AMS aims to address the 
commenters concern that ``a long history of governmental indifference 
to, or even complicity in, discrimination against their communities' 
factors into a fear of retaliation.'' AMS has an online portal designed 
to receive complaints that may amount to violations under the Act and 
will direct Tribal producers to this portal as well as educating them 
as to other methods of reporting potential violations. Furthermore, AMS 
will consult with the USDA Office of Tribal Relations (OTR) and 
recommend educational outreach to ensure Tribal producers understand 
how to report a violation.
    Comment: All three commenters urged AMS not to apply the proposed 
rule to Tribes and Tribal entities. The commenters said Tribes are 
sovereign governments that retain authority to make their own laws and 
be ruled by them, unless expressly abrogated. Commenters cited the 
Supreme Court's holding in Vermont Agency of Natural Resources v. 
United States ex rel. Stevens that statutory use of the term ``person'' 
does not include sovereign entities unless there is an ``affirmative 
showing of statutory intent to the contrary,'' arguing that Tribes do 
not fall within any of these categories.\311\ Commenters said the 
omission of Tribes from the ``person'' definition also excludes them 
from being defined as ``packers'' under the Act, as it defines packers 
as ``any person engaged in'' the packing activities enumerated in the 
definition.
---------------------------------------------------------------------------

    \311\ See Vermont Agency of Natural Resources v. United States 
ex rel. Stevens, 529 U.S. 765 (2000).
---------------------------------------------------------------------------

    AMS Response: In this final rule, AMS excludes Tribes that are 
fulfilling their governmental function of serving their members from 
the rule's prohibition on unjust discrimination. In doing so, AMS 
recognizes the longstanding practice of Tribal entities, acting in 
their governmental capacities, in preferencing their own Tribal members 
and their descendants in the purchase and sale of livestock. AMS 
believes that these changes are sufficient to address the immediate 
policy concerns underlying the comments in relation to this final rule 
and that any further changes would be outside the scope of this rule.
    Comment: Commenters stated that ``complying with unnecessary and 
burdensome federal regulations will hinder our small Tribal 
agricultural operations that already operate on very thin margins.'' 
Arguing that given the small size of packing operations on Tribal land, 
they may lack the resources or financial ability to comply with 
recordkeeping and other regulatory requirements the rule imposes. A 
commenter stated that ``record keeping, and other regulatory 
obligations are always more burdensome to small businesses that lack 
the legal and compliance departments of a large corporation, and 
isolated rural locations often struggle to hire and retain adequate 
office staff.''
    AMS Response: The economic costs of preventing undue prejudice, 
unjust discrimination, retaliation, and deception are minor in 
comparison to the benefit such protections will ensure for farmers and 
ranchers, including Tribal members. Many businesses already keep 
records for business purposes, therefore adding hardly any additional 
costs associated with compliance with this rule. Furthermore, Tribal 
commenters state that discrimination and retaliation are commonplace in 
Indian country and that these harms greatly hinder the success of 
Tribal producers. This rule aims to address those issues directly. AMS 
notes that the final rule excludes Tribes fulfilling their governmental 
function of serving their members from the rule's prohibition on unjust 
discrimination and that any further changes would be outside the scope 
of this rule.
    Comment: Commenters stated that under Federal jurisprudence, 
sovereign immunity extends to business activities conducted off Tribal 
lands. Commenters contend that the U.S. Supreme Court has determined in 
Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe of 
Oklahoma, 498 U.S. 505 (1991) decision, that Tribes in their commercial 
activity with other entities are covered under the umbrella of the 
Tribes' sovereignty and even when Tribes entered into activities, 
executed off-reservation, they still enjoy sovereign immunity Kiowa 
Tribe of Oklahoma v. Manufacturing Technologies, 523 U.S. 751 (1998). 
See Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 546-47 
(1985).
    AMS Response: AMS notes that the final rule excludes Tribes 
fulfilling their governmental function of serving its members from the 
rule's prohibition on unjust discrimination. Any further changes would 
be outside the scope of this rule.

[[Page 16197]]

    Comment: A commenter suggests that if adopted and applied to Tribal 
entities, the rule would have an adverse effect to its intent. Stating 
that if the intent of the proposed rule is to decrease market 
concentration and increase market access, adding additional regulatory 
burdens on small scale meat packing plants will make it more difficult 
for these small operations to enter, and maintain presence in, the 
market.
    AMS Response: The overarching objective of this rule is to improve 
market integrity and inclusive competition, and to decrease the 
undesirable conduct that is facilitated by concentration in 
agricultural markets. This rule aims to address three specific types of 
conduct that harm competition: undue prejudice and unjust 
discrimination, retaliation, and deception. As explained in the RIA/
RFA, any regulatory burdens created from enforcing the Act in this 
regard will be minimal in comparison to the benefits of protecting 
producers from this harmful conduct. AMS notes that the final rule 
excludes Tribes fulfilling their governmental function of serving their 
members from the rule's prohibition on unjust discrimination and that 
any further changes would be outside the scope of this rule.

D. Civil Rights Impact Statement

    Objective and Purpose AMS is issuing this final rule to revise the 
regulations that effectuate the Act. AMS is adopting these regulations 
under the Act's provisions prohibiting undue prejudice, unjust 
discrimination, and deception to establish clearer, more effective 
standards to govern the modern marketplace and to better protect, 
through compliance and enforcement, individually harmed producers. AMS 
is concerned that the current regulations do not adequately address 
many unduly prejudicial, unjustly discriminatory, retaliatory, and 
deceptive practices, which are exacerbated by the environment created 
through increased horizontal concentration and vertical contracting.
    Who Is Impacted--The effects of this new regulation will fall on 
packers, swine contractors and live poultry dealers. AMS will cite 
regulated entities initiating actions or conduct. AMS believes creating 
an undue prejudice is a violation of section 202(b) of the Act. This is 
particularly true for those purchasing livestock on a carcass grade, 
carcass weight, or carcass grade and weight basis, under marketing 
agreements and production contracts. Swine contractors obtaining swine 
under swine production contracts and live poultry dealers acquiring 
poultry through poultry growing arrangements will also feel the impacts 
of the new regulation.
    Beneficiaries--The primary beneficiaries of Sec. Sec.  201.304 and 
201.306 will include farmers, feedlot owners, swine production contract 
growers, and poultry growers. These producers and growers are those 
most likely to be harmed by undue prejudices, unjust discrimination, 
retaliation, and deception resulting from the actions or conduct of 
firms subject to the Act. Identifying criteria for recognizing what 
actions or conduct may create undue prejudices, discrimination, 
retaliation, and deception will help lower the number of instances and 
severity of the harm done by these types of actions or conduct.
    The Civil Rights Impact Analysis found that Asian, and Native 
Hawaiians or Other Pacific Islanders are disproportionately impacted by 
this rule. Other impacted producers, including Men, Women, Hispanics, 
Whites, Black/African Americans, and American Indians, are not 
disproportionately impacted by this rule.
    Impacts on Regulated Entities--AMS estimated the direct and 
indirect costs of regulation over a period of 10 years, from 2023 
through 2032. AMS expects the direct costs to be comprised of 
administrative and litigation costs, largely borne by regulated 
entities.
    Impacts on Protected Groups--Protected groups will see minimal, if 
any, direct or indirect costs because of the implementation or 
enforcement of the new regulations. Although the required analysis 
indicates a disproportionate impact for Asian, and Native Hawaiians or 
Other Pacific Islanders, because the new regulations impact all 
industry participants equally, no individual or group would likely be 
adversely impacted.
    AMS has considered the potential civil rights implications of this 
final rule on members of protected groups to ensure that no person or 
group will be adversely or disproportionately at risk or discriminated 
against on the basis of race, color, national origin, gender, religion, 
age, disability, sexual orientation, marital or family status, or 
protected genetic information.
    Tribal Implications--Executive Order 13175 requires Federal 
agencies to consult with American Indian Tribes on a government-to-
government basis on policies that have Tribal implications. This 
includes regulations, legislative comments or proposed legislation, and 
other policy statements or actions. Consultation is required when such 
policies have substantial direct effects on one or more Indian Tribes, 
on the relationship between the Federal Government and Indian Tribes, 
or the distribution of power and responsibilities between the Federal 
Government and Indian Tribes.
    AMS has determined that this final rule does not have substantial 
direct effects on one or more Tribes that would require consultation. 
If a Tribe requests consultation, AMS will work with USDA's Office of 
Tribal Relations to ensure meaningful consultation is provided where 
changes, additions, and modifications identified herein are not 
expressly mandated by Congress. AMS will also conduct outreach to 
ensure that Tribes and Tribal members are aware of the requirements and 
benefits under this final rule.
    Positive Impacts--This final rule affirms the importance of a clear 
and direct regulatory framework that prohibits deception, retaliation, 
undue prejudice, and unjust discrimination, thus protecting producers 
in the marketplace. The rational decision-making and robust competition 
so critical to economic success can most effectively occur in a market 
free of such practices.
    To ensure the potential disparately impacted groups identified 
above receive the full measure of the positive impacts of this new 
regulation, AMS will provide addition outreach actions directed toward 
these groups.

E. Executive Order 12988--Civil Justice Reform

    This rule has been reviewed under Executive Order 12988. This rule 
is not intended to have retroactive effect. This rule would not preempt 
State or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rulemaking. There are no 
administrative procedures that must be exhausted prior to any judicial 
challenge to the provisions of this rule. Nothing in this rule is 
intended to interfere with a person's right to enforce liability 
against any person subject to the Act under authority granted in 
section 308 of the Act.

F. E-Government Act

    USDA is committed to complying with the E-Government Act by 
promoting the use of the internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

G. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L.

[[Page 16198]]

104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, and Tribal Governments and on the 
private sector. Agencies generally must prepare a written statement, 
including cost benefits analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures of $100 million or 
more (adjusted for inflation) in any 1 year for State, local or Tribal 
governments, in the aggregate, or to the private sector. UMRA generally 
requires agencies to consider alternatives and adopt the more cost 
effective or least burdensome alternative that achieves the objectives 
of the rule. This rule contains no Federal mandates, as defined in 
title II of UMRA, for State, local, or Tribal Governments, and it does 
not contain a mandate for the private sector that would likely result 
in compliance costs of $100 million or more (adjusted annually for 
inflation) in at least one year. Therefore, this rule is not subject to 
the requirements of sections 202 and 205 of UMRA.
    AMS expects that the direct costs of this final rule will be 0.0002 
percent of industry revenues in the first year of the rule, or 
$586,000. Indirect costs would have to be nearly 300 times \312\ the 
expected direct costs to meet the compliance cost threshold of $170 
million or more in a single year ($100 million in 1994 dollars adjusted 
for inflation as of 2021),\313\ which AMS has no basis to expect, given 
its professional expertise gained by regulating the industry and 
regularly communicating with regulated entities, growers, and 
producers. Indeed, to reach that threshold, discrimination, 
retaliation, and deception would have to occur at a prevalence that 
would have to touch more than 28 percent of all cattle slaughtered in 
the United States in 2022 and account for the entirety of the 
difference in prices between the minimum and average liveweight price 
paid for cattle at the five regional cattle markets over the last 9 
years. Extending that analysis to poultry and hogs would not change the 
conclusion. If anything, it would be even harder to meet the UMRA 
threshold because almost universal use of the tournament system in the 
poultry industry means higher compensation to certain growers is 
unlikely to increase compensation for growers in aggregate. Each 
tournament has a fixed total compensation pool, with growers ranked 
relative to other members of their respective tournament and 
compensated accordingly.
---------------------------------------------------------------------------

    \312\ $170 million UMRA threshold divided by $586,000 (first-
year direct costs) multiplied by 100 = 290.
    \313\ Congressional Research Service. Updated February 23, 2021. 
Unfunded Mandates Reform Act: History, Impact, and Issues. Accessed 
at https://crsreports.congress.gov/product/pdf/R/R40957/109on02/08/2024.
---------------------------------------------------------------------------

    In addition, AMS takes note of the exemption from UMRA for rules 
enforcing Constitutional rights of individuals or establishing or 
enforcing a statutory right that prohibits discrimination on the basis 
of age, race, color, religion, sex, national origin, handicap, or 
disability. (2 U.S.C. 1503) Provisions of this rule enforce the Act's 
prohibition against unjust discrimination and undue prejudice to 
prohibit adverse treatment on the basis of race, color, religion, 
national origin (including ethnicity), sex (including sexual 
orientation and gender identity, as well as pregnancy), disability, 
marital status, or age. The rule also prohibits retaliatory and adverse 
actions that interfere with lawful communications, assertion of rights, 
associational participation, and other protected activities.

H. Congressional Review Act

    Pursuant to Subtitle E of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (also known as the Congressional Review Act, 5 
U.S.C. 801 et seq.), OMB's Office of Information and Regulatory Affairs 
has determined that this final rule does not meet the criteria set 
forth in 5 U.S.C. 804(2).

List of Subjects in 9 CFR Part 201

    Confidential business information, Reporting and recordkeeping 
requirements, Stockyards, Surety bonds, Trade practices.
    For the reasons set forth in the preamble, AMS amends 9 CFR part 
201 as follows:

PART 201--ADMINISTERING THE PACKERS AND STOCKYARDS ACT

0
1. The authority citation for part 201 continues to read as follows:

    Authority:  7 U.S.C. 181-229c.


0
2. Add subpart O, consisting of Sec. Sec.  201.300 through 201.390, to 
read as follows:
Subpart O--Competition and Market Integrity
Sec.
201.300-201.301 [Reserved]
201.302 Definitions.
201.303 [Reserved]
201.304 Undue prejudices or disadvantages and unjust discriminatory 
practices.
201.305 [Reserved]
201.306 Deceptive practices.
201.307-201.308 [Reserved]
201.389 [Reserved]
201.390 Severability.

Subpart O--Competition and Market Integrity


Sec.  Sec.  201.300-201.301  [Reserved]


Sec.  201.302  Definitions.

    For purposes of this subpart, the following definitions apply:
    Covered producer means a livestock producer as defined in this 
section or a swine production contract grower or poultry grower as 
defined in section 2(a) of the Act (7 U.S.C. 182(8), (14)).
    Livestock producer means any person, except an employee of the 
livestock owner, engaged in the raising of and caring for livestock.
    Regulated entity means a swine contractor or live poultry dealer as 
defined in section 2(a) of the Act (7 U.S.C. 182(8)) or a packer as 
defined in section 201 of the Act (7 U.S.C. 191).


Sec.  201.303  [Reserved]


Sec.  201.304  Undue prejudices or disadvantages and unjust 
discriminatory practices.

    (a) Prohibited bases. (1) Except as provided in paragraph (a)(3) of 
this section, a regulated entity may not prejudice, disadvantage, 
inhibit market access, or otherwise take an adverse action against a 
covered producer with respect to livestock, meats, meat food products, 
livestock products in unmanufactured form, or live poultry based upon 
the following characteristics:
    (i) On the basis of the covered producer's race, color, religion, 
national origin, sex (including sexual orientation and gender 
identity), disability, marital status, or age.
    (ii) On the basis of the covered producer's status as a 
cooperative.
    (2) Actions that prejudice, disadvantage, inhibit market access, or 
are otherwise adverse under paragraph (a)(1) of this section are as 
follows:
    (i) Offering contract terms that are less favorable than those 
generally or ordinarily offered to similarly situated covered 
producers.
    (ii) Refusing to deal with a covered producer on terms generally or 
ordinarily offered to similarly situated covered producers.
    (iii) Performing under or enforcing a contract differently than 
with similarly situated covered producers.
    (iv) Requiring a contract modification or renewal on terms less 
favorable than similarly situated covered producers.
    (v) Terminating or not renewing a contract.
    (vi) Any other action that a reasonable covered producer would find 
materially adverse.
    (3) The following actions by a regulated entity do not prejudice,

[[Page 16199]]

disadvantage, inhibit market access, or constitute adverse action under 
paragraph (a)(1) of this section:
    (i) Fulfilling a religious commitment relating to livestock, meats, 
meat food products, livestock products in unmanufactured form, or live 
poultry.
    (ii) A Federally recognized Tribe, including its wholly or 
majority-owned entities, corporations, or Tribal organizations, 
performing its Tribal governmental functions.
    (b) Retaliation prohibited. (1) A regulated entity may not 
retaliate or otherwise take an adverse action against a covered 
producer based upon the covered producer's participation in an activity 
described in paragraph (b)(2) of this section.
    (2) The following activities by covered producers are protected 
under paragraph (b)(1) of this section unless otherwise prohibited by 
Federal, Tribal, or State law, including antitrust laws:
    (i) Communicating with a government entity or official or 
petitioning a government entity or official for redress of grievances 
with respect to livestock, meats, meat food products, livestock 
products in unmanufactured form, or live poultry.
    (ii) Refusing a request of the regulated entity to engage in a 
communication with a government entity or official that is not required 
by law.
    (iii) Asserting the right to form or join, or to refuse to form or 
join, a producer or grower association or organization, or cooperative 
or to collectively process, prepare for market, handle, or market 
livestock or poultry.
    (iv) Communicating or cooperating with a person for the purposes of 
improving production or marketing of livestock or poultry.
    (v) Communicating, negotiating, or contracting with a regulated 
entity, another covered producer, or with a commercial entity or 
consultant, for the purpose of exploring or entering into a business 
relationship.
    (vi) Supporting or participating as a witness in any proceeding 
under the Act, or any proceeding that relates to an alleged violation 
of any law by a regulated entity.
    (vii) Asserting any of the rights granted under Act or this part, 
or asserting contract rights.
    (3) The following actions are considered retaliation or an 
otherwise adverse action under paragraph (b)(1) of this section:
    (i) Terminating or not renewing a contract.
    (ii) Performing under or enforcing a contract differently than with 
similarly situated covered producers.
    (iii) Requiring a contract modification or a renewal on terms less 
favorable than similarly situated covered producers.
    (iv) Refusing to deal with a covered producer on terms generally or 
ordinarily offered to similarly situated covered producers.
    (v) Interfering in a farm real estate transaction or a contract 
with third parties.
    (vi) Any other action that a reasonable covered producer would find 
materially adverse.
    (c) Recordkeeping of compliance practices. (1) The regulated entity 
shall retain all records relevant to its compliance with paragraphs (a) 
and (b) of this section for no less than 5 years from the date of 
record creation.
    (2) Relevant records to paragraph (c)(1) of this section may 
include: policies and procedures, staff training materials, materials 
informing covered producers regarding reporting mechanisms and 
protections, compliance testing, board of directors' oversight 
materials, and the number and nature of complaints received relevant to 
this section.


Sec.  201.305  [Reserved]


Sec.  201.306  Deceptive practices.

    (a) Prohibited practices. A regulated entity may not engage in the 
deceptive practices in paragraphs (b) through (e) of this section with 
respect to livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry.
    (b) Contract formation. A regulated entity may not make or modify a 
contract with a covered producer by employing a false or misleading 
statement, or omission of material information necessary to make a 
statement not false or misleading.
    (c) Contract performance. A regulated entity may not perform under 
or enforce a contract with a covered producer by employing a false or 
misleading statement, or omission of material information necessary to 
make a statement not false or misleading.
    (d) Contract termination. A regulated entity may not terminate a 
contract with a covered producer by employing a false or misleading 
statement, or omission of material information necessary to make a 
statement not false or misleading.
    (e) Contract refusal. A regulated entity may not provide false or 
misleading information to a covered producer or association of covered 
producers concerning a refusal to contract.


Sec.  Sec.  201.307--201.308  [Reserved]


Sec.  201.389  [Reserved]


Sec.  201.390  Severability.

    If any provision of this subpart, or any component of any 
provision, is declared invalid or the applicability thereof to any 
person or circumstances is held invalid, it is the Agricultural 
Marketing Service's intention that the validity of the remainder of 
this subpart or the applicability thereof to other persons or 
circumstances shall not be affected thereby with the remaining 
provision, or component of any provision, to continue in effect.

Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2024-04419 Filed 3-5-24; 8:45 am]
BILLING CODE 3410-02-P


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