`[Federal Register Volume 90, Number 10 (Thursday, January 16, 2025)]
[Rules and Regulations]
[Pages 5146-5218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00508]



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Vol. 90

Thursday,

No. 10

January 16, 2025

Part VI





 Department of Agriculture





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 Agricultural Marketing Service





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9 CFR Part 201





Poultry Grower Payment Systems and Capital Improvement Systems; Final 
Rule

  Federal Register / Vol. 90, No. 10 / Thursday, January 16, 2025 / 
Rules and Regulations  

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-22-0046]
RIN 0581-AE18


Poultry Grower Payment Systems and Capital Improvement Systems

AGENCY: Agricultural Marketing Service, U.S. Department of Agriculture.

ACTION: Final rule.

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SUMMARY: This final rule by the United States Department of 
Agriculture's (USDA or the Department) Agricultural Marketing Service 
(AMS or the Agency) amends the Agency's regulations under the Packers 
and Stockyards Act, 1921 (P&S Act or Act). The Act protects fair trade, 
financial integrity, and competitive markets for poultry. The final 
rule prohibits certain payment practices under poultry grower ranking 
systems (commonly known as tournaments) in contract poultry production 
for broiler chickens, requires live poultry dealers (LPDs) to adopt 
policies and procedures for operating a fair ranking system for broiler 
growers, and requires LPDs to provide certain information to broiler 
growers when the LPD requests or requires the grower to make additional 
capital investments. These regulations will increase transparency and 
address deception and unfairness in broiler grower payments, tournament 
operations, and capital improvement systems.

DATES: This rule is effective July 1, 2026.

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; 
phone: (202) 690-4355; or email: usda.gov">s.brett.offutt@usda.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary
II. Background
III. Summary of the Proposed Rule and Changes in the Final Rule
IV. Provisions of the Final Rule
V. Comment Analysis
VI. Regulatory Analysis

I. Executive Summary

    The current broiler chicken industry is highly susceptible to both 
unfairness and deception. Within the last 40 years, the poultry 
industry has become highly integrated, with most LPDs operating as 
``integrators'' who frequently own or control all segments of the 
production process except growout. The growout stage of the production 
process consists of growers raising young poultry to harvest size under 
poultry growing arrangements (contracts). To pay the grower, most LPDs, 
which will also be referred to as ``integrators'' throughout this rule, 
use a relative performance or poultry grower ranking system, commonly 
known as a tournament. Under the tournament system, poultry growers 
compete against one another to determine payment for their services. As 
discussed throughout this rule, growers cannot reasonably avoid certain 
practices that cause them harm. Additionally, growers lack access to 
certain information, which inhibits their ability to meaningfully 
understand, negotiate, and enforce poultry growing contracts with LPDs, 
including in relation to capital investments that LPDs request.
    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 and 
orders to prohibit unfair and deceptive practices by LPDs.
    In a June 8, 2022, advance notice of proposed rulemaking (ANPR), 
AMS sought comments and information to inform policy development and 
future rulemaking regarding the use of poultry grower ranking systems 
(87 FR 34814, June 8, 2022)). Commenters expressed both support and 
concern about the use of tournaments in poultry production, with the 
majority expressing support. Other commenters, especially advocacy 
associations, objected to the current tournament payment system, 
stating that tournament systems do not fulfill the integrators' claimed 
purposes and that the tournament payment systems exemplify the 
manipulative and unjust practices that Congress designed the Act to 
prevent. These commenters cited integrators' arbitrary, unjust, or 
punitive distribution of inputs and production variables, potentially 
punitive manipulation of the group composition, and penalties for small 
deviations below average performance. Some of these ANPR commenters 
also stated that the rulemaking could help address bargaining power 
imbalances for growers by providing proper enforcement, minimum base 
pay, and other provisions.
    Trade organizations commented on the ways input variability affects 
pay and that LPDs lack incentives to take action to reduce 
unpredictability in grower inputs and pay outcomes. AMS has observed 
that monitoring and intervention to remedy unpredictability requires an 
LPD to expend effort and incur cost, and that the LPD does not directly 
benefit from the increased fairness to growers. Without an explicit 
prohibition on unfair variability, LPDs lack compelling incentives to 
operate their tournament system contracts fairly. Comments in response 
to the ANPR, other available data and information, and AMS's Packers 
and Stockyards Division's (PSD) expertise provided the basis for a 
proposed rulemaking.
    On June 10, 2024, AMS published the proposed rule, Poultry Grower 
Payment Systems and Capital Improvement Systems, in the Federal 
Register (89 FR 49002). In response to the proposed rule, AMS posted 
755 comments, some with multiple signatories, over a 60-day comment 
period. Comments were submitted by a variety of stakeholders, including 
farmers' coalitions, government entities, advocacy organizations, 
industry trade organizations, processors, producers, and other 
individual interested parties. Stakeholders commented on the proposed 
rule, as well as several specific questions containing alternate 
proposals. The proposed rule covered, among other things, rate of 
compensation for growers, transition and implementation costs, the 
proposed duty of fair comparison, and reasonable recoupment for 
required additional capital investments. Farmers' coalitions, advocacy 
associations, government entities, and unaffiliated individual 
commenters broadly supported the proposed rule, while the regulated 
trade organizations and LPDs opposed the proposed rule. Live poultry 
growers both supported and opposed the proposed rule. Many growers who 
support the rule raised concerns of unfairness within the tournament 
system, including that pay rates are influenced by factors outside 
growers' control, that growers are forced to make new capital 
investments that have poor to nonexistent return while putting growers 
in more debt, and that growers must compete against fellow growers in 
an unfair manner. Those growers who opposed the proposed rule felt that 
the tournament system does a good job of rewarding effort, and that the 
rule would upset this system by shifting money away from high-
performing growers and by reducing overall bird quality. However, 
several growers that opposed the rule expressed concern that LPDs force 
growers to make additional capital investments that do not produce an 
economic return for the grower.
    Section 407(a) of the P&S Act (7 U.S.C. 228(a)) authorizes the 
Secretary of Agriculture (the Secretary) to make rules and regulations 
as necessary to

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carry out the provisions of the Act (7 U.S.C. 181 et seq.), and the 
Secretary has delegated the responsibility for administering the Act to 
AMS. See 7 CFR 2.22(a)(3)(iii) (delegating authority to administer the 
Act from the Secretary to the Under Secretary for Marketing and 
Regulatory Programs); 7 CFR 2.79(a)(17) (in turn, delegating authority 
to administer the Act from the Under Secretary to the Administrator, 
Agriculture Marketing Service). Under this authority, AMS issues this 
rule to carry out the provisions of section 407 of the Act, as well as 
provisions of sections 202(a) (7 U.S.C. 192(a)) (which prohibits ``any 
unfair, unjustly discriminatory, or deceptive practice or device''), 
401 (7 U.S.C. 221) (which requires an LPD to ``keep such accounts, 
records, and memoranda as fully and correctly disclose all transactions 
involved in his business''), and 410 (7 U.S.C. 228b) (which bans the 
failure to pay ``the full amount due [to the] poultry grower on account 
of such poultry'').
    In this final rule, AMS amends 9 CFR part 201, subpart N, by adding 
several new provisions, including: Sec.  201.106 regarding LPD 
responsibilities for the design of broiler grower compensation 
arrangements; Sec.  201.110 regarding the fair operation of broiler 
grower ranking systems; Sec.  201.112 regarding disclosure requirements 
for LPDs when requesting additional capital investments from broiler 
growers; and Sec.  201.290 regarding severability. In particular, the 
Agency is:
     Prohibiting LPDs from discounting or reducing a grower's 
rate of compensation as disclosed in the broiler growing arrangement 
based on the grower's grouping, ranking, or comparison to others (Sec.  
201.106(a)).
     Establishing that it is a presumptive violation of the Act 
when aggregate gross annual payments based upon a grouping, ranking, or 
comparison of growers exceeds 25 percent of total gross payments to 
growers in a complex on an annual-calendar year basis (Sec.  
201.106(b)).
     For each of the three calendar years following the 
publication date of the above-referenced provisions, requiring LPDs to 
submit certain documentation to the Secretary when any contract 
modification or renewal subject to the prohibition on discounts results 
in a decrease in the prior annual-calendar year's complex-wide average 
gross payment to the grower (Sec.  201.106(c)).
     Establishing a duty of fair comparison that requires LPDs 
to design and operate their broiler grower ranking system to provide a 
fair comparison among growers, with particular attention to certain 
factors in the methods of comparison, including the distribution of 
inputs and flock production practices, the time period of the 
comparison, the conditions and circumstances for the comparison, the 
reasonableness of efforts to resolve disputes, and how the LPD will 
compensate growers when the LPD cannot conduct a fair comparison (Sec.  
201.110(a)).
     Requiring LPDs to establish and maintain written 
documentation of their processes for the design and operation of a 
broiler grower ranking system that is consistent with the duty of fair 
comparison and to retain all relevant written records for five years 
(Sec.  201.110(b)).
     Requiring LPDs to provide growers with a Capital 
Improvement Disclosure Document when an LPD requests that a grower make 
an additional capital investment and requiring that LPDs make 
reasonable efforts to assist the grower in translating the document, as 
well as ensure that the grower is aware of their right to request 
translation assistance (Sec.  201.112).
     Introducing a severability clause that specifies that it 
is USDA's intent that the provisions in subpart N remain in effect even 
if any provision or component of any provision is deemed unenforceable 
(Sec.  201.290).

II. Background

A. Vertical Integration and Market Power

    Today, the broiler chicken industry is highly vertically 
integrated. That is, a single entity owns or controls nearly all the 
steps of production and distribution, with the only partial exception 
being the growout stage, during which broiler growers raise chicks on 
their farms to slaughter weight. The USDA National Agricultural 
Statistics Service's (NASS) Census of Agriculture (Agricultural Census) 
reported that 96.2 percent of broilers were raised and delivered under 
production contracts between LPDs and independent farmers, or broiler 
growers.\1\ Under a production contract, the LPD provides the grower 
chicks, feed, and veterinary treatment services, which the grower uses 
to grow out the flock. The LPD maintains ownership of the chickens 
throughout the production process. The grower provides the poultry 
growing facility, flock management, labor, and utilities required 
during flock growout.\2\ At the end of growout, the LPD collects and 
weighs the mature poultry and pays the broiler grower for their 
services.
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    \1\ USDA, NASS, 2022 Census of Agriculture: United States 
Summary and State Data, volume1, part 51, issued February 2024 pp. 
51 and 411. https://www.nass.usda.gov/Publications/AgCensus/2022/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf.
    \2\ Growout period is defined as the period of time between 
placement of poultry at a grower's facility and the harvest or 
delivery of such animals for slaughter, during which the feeding and 
care of such poultry are under the control of the grower.
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    To grow broiler chickens on a commercial scale, a grower must make 
a substantial initial investment in housing. Over time, LPDs may 
request or require that growers make additional capital investments to 
upgrade housing and equipment, which are intended to improve efficiency 
or respond to customer preferences (e.g., relating to the use of 
antibiotics or other animal-raising concerns) during the contracting 
relationship. Growers generally finance these long-term assets against 
much shorter-term production contracts.\3\ This exposes growers to 
financial risk and uncertainty around debt repayment and the recoupment 
of their investments. For example, compared to other commodity 
producers, broiler growers registered among the highest share of farms 
in extreme financial stress, measured as carrying a term debt coverage 
ratio less than one and a debt-to-asset ratio greater than 55 
percent.\4\ Growers are thus dependent on LPDs--who control most 
aspects of a grower's production--to recoup their substantial initial 
and continuing investments.\5\ Growers also currently receive little to 
no information about the purpose, process, and outcomes expected around 
such investments.
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    \3\ MacDonald, James M. ``Financial Risks and Incomes in 
Contract Broiler Production.'' Amber Waves August 04, 2014. https://www.ers.usda.gov/amber-waves/2014/august/financial-risks-and-incomes-in-contract-broiler-production/ (last accessed 12/13/2023).
    \4\ Nigel Key, Christopher Burns, and Greg Lyons, ``Financial 
Conditions in the U.S. Agricultural Sector: Historical 
Comparisons,'' EIB-211, U.S. Department of Agriculture, Economic 
Research Service (2019), https://www.ers.usda.gov/webdocs/publications/95238/eib-211.pdf?v=4876.5 (In 2017, compared to other 
commodity categories considered, poultry farms showed the greatest 
share of farms in extreme financial stress--around four times that 
of larger-scale general livestock and specialty crop, fruit, nut, 
and vegetable producers and twice that of large-scale grain and 
oilseed producers. Moreover, the percentage of poultry farmers in 
extreme financial stress has been increasing since 2006).
    \5\ For a discussion the difficulty in adapting of broiler grow 
houses for other purposes see Tom Vukina and Porametr Leegomonchai. 
``Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from 
the Broiler Industry.'' American Journal of Agricultural Economics 
88 (2006).
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    Currently, most LPDs operate with the benefit of substantial market 
power and bargaining power in local markets to purchase grower 
services. Broiler grower operations must be close (usually less than 50 
miles) to an LPD's

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feed mills, hatcheries, and processing plants due to the costs of 
transporting feed to the grower's farm and the costs (including death 
loss) associated with transporting finished chickens from the grower's 
farm to the processing plant. This results in poultry production that 
is often localized and regionally concentrated. Most growers have few 
LPDs in their area with whom they can contract. Even where multiple 
LPDs are present, there can be significant costs associated with 
switching to a different LPD, including adjustments for differences in 
technical specifications that LPDs may require. To switch LPDs, a 
grower may need to invest in new equipment and learn to apply different 
operational techniques for different breeds, target weights, and 
growout programs. Facility-specific investments may inhibit the ability 
of growers to switch to a competing LPD where different facility 
specifications are required. Growers have recently complained of at 
least one LPD penalizing growers that are trying to switch to an LPD's 
competition. AMS referred the complaint to the Department of Justice 
for enforcement under the Packers and Stockyards Act. The Department 
secured a consent decree that stopped the conduct, prohibited its 
recurrence, and compensated the harmed growers.\6\
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    \6\ Final Judgment, United States v. Koch Foods, Inc., No. 23-
cv-15813, Dkt. No. 23 (N.D. III. Feb. 12, 2024). See also, 
Zimmerman, Sarah, ``Department of Justice, ``Justice Department 
Files Lawsuit and Proposed Consent Decree to Prohibit Koch Foods 
from Imposing Unfair and Anticompetitive Termination Penalties in 
Contracts with Chicken Growers,'' https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing.
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    Owing to the vertical integration in the system, LPDs exercise 
substantial control over growers' operations through the provision of 
inputs, control over production practices, their tournament settlement 
and comparison practices, and their level of performance in relation to 
communication and dispute resolution. In this rule, AMS uses the term 
``inputs'' to mean resources supplied by LPDs, such as chicks or feed. 
Inputs often vary among growers, which impacts the growers' flock 
performance, thereby unfairly skewing relative performance measures. 
Likewise, LPDs determine production practices on growers' farms, and 
those production practices affect growers' pay. AMS uses the term 
``production practices'' to refer to features of the on-farm production 
process that are determined by the LPD, such as density of bird 
placement (number of chicks delivered or placed with a grower per 
square foot of broiler housing), age at harvest, and weight at harvest. 
These practices greatly impact grower compensation. If LPDs fail to 
apply production practices evenly across grower participants in 
tournaments, that unevenness also unfairly skews relative performance 
measures.
    Additionally, information asymmetry in poultry contracting 
arrangements contributes to market inefficiencies and unfair and 
deceptive practices. Asymmetric information occurs when one party to a 
contract has more critical information than the other party. 
Information asymmetry leads to market failure in the broiler production 
industry as growers lack the information needed to make informed 
business decisions, whereas LPDs know what each grower makes. This 
increases LPDs' to set contractual terms in ways that benefit 
themselves, while the grower lacks the information needed to 
effectively negotiate compensation for the provision of growout 
services or to make a comparison and switch to a competitor that offers 
more competitive terms. Another feature of this information asymmetry 
is that while LPDs know the amounts they have fixed for grower 
compensation, growers do not know this amount, which can span a wide 
range. Similarly, LPDs know the distribution of inputs as well as which 
growers may be grouped together for settlement in the complex, while 
growers cannot easily track that information. Exploiting this 
information asymmetry, LPDs can adjust down compensation in ways that 
are difficult for growers to know or competitively discipline the LPD, 
e.g., by switching out. As highlighted by grower comments and based on 
AMS's experience in evaluating grower concerns in this area, without an 
accurate projection of purposes, processes, and outcomes related to 
capital improvement programs, growers cannot accurately and effectively 
evaluate their allocation of resources to cover necessary expenses \7\ 
or engage in rational decision-making around whether to pursue (or 
resist) additional capital investments to improve and protect their own 
financial interests. Additionally, having widely variable income 
prevents growers from knowing which elements under their control they 
can adjust, and how to adjust them, to correspondingly increase 
compensation. This can cause growers to futilely expend extraneous 
resources that do not yield proportionate increases in performance and 
compensation.\8\ Information asymmetry also facilitates abusive 
practices, whereas the provision of information would help growers and 
AMS identify and halt those practices sooner. Disclosure is not an 
absolute defense. Acts or practices can be unfair or deceptive and 
violate section 202(a) of the Act even if they have been disclosed.
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    \7\ For example, a grower without an accurate projection of 
future income may forgo making an expenditure that costs less long-
term, e.g., making a bundled purchase for two pieces of equipment at 
a reduced per-unit price. Instead, if they don't know if they can 
afford a future purchase, they purchase the minimum amount--one 
piece of equipment at a time at a higher unit price--to sustain 
operations short-term.
    \8\ Numerous commenters described how they would make all of the 
upgrades recommended by the LPD technician and inexplicably place 
last compared to other growers: ``Six months of down time spent 
installing several more thousands of dollars of equipment. We've 
grown two flocks since then and have failed to make enough money to 
even pay the bank each time. We've had to take out a loan to even 
survive our day-to-day life and are behind on all farm bills. We do 
everything the company tells us, but when we finish in the negative, 
were given all kinds of reasons for why our birds weren't good 
enough. When speaking with other farmers and techs from other 
companies, we're told that our weight and feed conversions are good, 
but a couple of farms seem to continuously have unexplained 
successful numbers. Basically, were losing money that goes to pay 
the ones at the top. On one flock, 12 farms were pitted against each 
other. Two farms performed at a level so high that isn't believable, 
and three farms performed below the bottom level we can be paid at. 
The integrator took the bottom three farms out of the tournament 
calculation and compared the remaining farms without them. How fair 
is it that they drop the bottom farms, but not the top ones? This 
resulted in the farms that were close to average being pushed down 
and making less money because the average was raised considerably 
with the highflyers included and the bottom places excluded. The 
company tells us that this helps us, but it doesn't. We've made the 
decision to sell because we can't continue to put our children 
through this'').
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    LPDs often use incomplete contracts in broiler production. When a 
contract is incomplete, the LPD interprets material terms in their 
favor as the grower lacks the ability to require a fairer 
interpretation. Contracts are incomplete when key terms basic to its 
functioning are vague or missing. Incomplete contracts magnify risks 
with respect to the performance of the other contractual party, leading 
to other potential inefficiencies. For example, broiler production 
contracts regularly disclaim LPD responsibility for input quality or 
usability. Nor do they provide enforceable detail around LPD management 
of tournament operations, including tournament groupings or dispute 
resolution expectations. Moreover, the complexity of such pay systems 
makes it difficult for growers to fully understand the potential range 
of payments they are likely to receive or the ways in which LPD 
performance or nonperformance may affect that pay, preventing them from 
properly

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evaluating the fairness of the contract before signing. Preventing LPDs 
from injuring producers using these contracts is among the purposes of 
the Act.\9\ Contracts may be viewed as complete, with no material gaps, 
if the contract terms include the substantive legal, practical, and 
economic promises, obligations, and contingencies needed to operate in 
a poultry growing arrangement. These terms should be verifiable and 
legally enforceable.
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    \9\ See, e.g., Luke Herrine, ``Cutthroat Business,'' U. of 
Alabama Legal Studies Research Paper Forthcoming, Aug. 2024, 
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4936628; Michael Kades, ``Protecting 
livestock producers and chicken growers,'' Washington Center for 
Equitable Growth (May 2022); Peter C. Carstensen, ``The Packers and 
Stockyards Act: A History of Failure to Date,'' The CPI Antitrust 
Journal (2) (2010), available at https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf; Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn 
Law, 2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
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    Finally, contracts that require investments in contract-specific 
assets give rise to the hold-up problem. The economic concept of hold-
up refers to a situation in which one or both parties to a transaction 
must make investments in such contract-specific assets, and the 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 by making 
a transaction-specific investment, they lose bargaining leverage and 
become vulnerable to exploitation by the other party. Hold-ups occur in 
broiler production due to market failures associated with incomplete 
grower information, contract-specific investments, market power, 
relative capital leverage, as well as insufficient enforcement of law 
intended to maintain market integrity and prevent market abuses--
including unfair breaches of contract. Growers are commonly unable to 
exercise contract rights to remedy LPD performance failures owing to 
the risk of hold-up and to the necessity of timely remedies when 
dealing with living birds. Examples from grower complaints include 
failure to correct improper or insufficient feed delivery, the delivery 
of successive inputs that are lower performing, or tournament groupings 
that are suspect.

B. Tournament Practices

    Since the 1990s, the broiler industry overwhelmingly uses the 
tournament system to compensate growers. As discussed above, under a 
tournament system the contract between the broiler grower and the LPD 
provides for payment to the grower based on a grouping, ranking, or 
comparison of broiler growers delivering broilers to the same company 
during a specified period (usually one week). AMS will refer to this as 
a settlement group. Under a typical tournament system, the broiler 
grower receives a fixed payment per pound of broilers produced, that 
LPDs often call a ``base pay rate,'' plus a calculation adjustment that 
is supposed to be based on how efficiently, compared to other growers, 
the grower used the resources provided by the LPD to produce each pound 
of broilers (informally referred to as a performance adjustment).\10\ 
LPDs typically calculate the performance adjustment primarily by 
comparing the feed conversion ratio (i.e., the quantity of feed 
consumed by the flock divided by the weight of the flock delivered) to 
the average ratio of all growers in the tournament settlement group. 
Broiler growers whose feed conversion ratio is less than the average 
ratio for that tournament settlement group receive a bonus above the 
base pay rate, while those whose costs are above the average incur a 
discount from the base pay rate.
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    \10\ There is some inconsistency in the use of payment terms 
across broiler contracts at different companies or complexes. Most 
grower contracts define the term base pay rate as it is described in 
this paragraph. However, some contracts instead use the term base 
pay when referring to a fixed amount plus the performance 
adjustment.
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    LPDs benefit from the tournament system in several ways. The 
tournament system provides LPDs control and certainty over total grower 
compensation as a group. For each tournament, the LPD knows and sets 
the total compensation that will be paid per pound of broilers produced 
by the group. In other words, the LPD is never concerned about paying 
an excess bonus for an individual flock because the LPD allocates the 
pool of payments among growers through performance adjustments for 
growers relative to the floating average performance (i.e., in today's 
system, amounts above, or deductions from, the base pay rate). LPDs 
(and growers, as discussed below) also get the benefit of utilizing a 
floating average (relative to external shocks, such as weather, as 
noted below) to incentivize performance. However, the tournament system 
comes at a cost to growers: that of seeing payment for the services 
they provide reduced for reasons outside of their control yet within 
the control of the LPD. This outcome is magnified by the fact that 
growers cannot easily switch over to a competitor LPD--even if the 
competitor LPD offers more attractive compensation--due to the high 
barriers to switching imposed partly by LPDs.\11\
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    \11\ See, e.g., ``Settlement Administrator Angeion Group 
Announces Proposed Settlement In Broiler Grow-Out Services Class 
Action,'' PR Newswire (2024), https://www.prnewswire.com/news-releases/settlement-administrator-angeion-group-announces-proposed-settlement-in-broiler-grow-out-services-class-action-302252706.html 
(In 2024, some of the largest LPDs agreed to settle grower claims 
that the LPDs conspired with rivals to suppress pay by agreeing not 
to hire growers from each other. Multiple commenters also described 
the difficulty in switching.); United States Department of Justice, 
United States Department of Agriculture, (May 2010), Public 
Workshops Exploring Competition in Agriculture, https://www.justice.gov/archives/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10.
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    LPDs have long claimed that tournaments systems reward growers 
financially for their experience, skill, effort, and investments in up-
to-date and efficient housing and equipment.\12\ The extent to which 
the tournament actually incentivizes additional grower effort and 
expenditure of resources, and whether those efforts and expenditures 
were necessary and fair to growers, depends on a range of factors, 
including the magnitude of the tournament but, in some circumstances, 
also the design of the housing specification (e.g., the use of 
automation and other technology), the type of bird being raised (e.g., 
some require special efforts), the availability of other payment 
incentives, and the absence of arbitrary distortions in the allocation 
of payments, among other factors. In theory, provided that all growers 
in a tournament grouping were treated materially the same and the 
variables within the tournament grouping were within the control of the 
growers, a tournament system could insulate growers to some degree 
against external shocks that affect all growers in the grouping. This 
is because, in this scenario, performance is based on an average that 
floats and adjusts to the particular external circumstances that all 
growers in the pool experienced during the period.\13\ In reality, the

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tournament system does not sufficiently protect from external shock. A 
range of shocks and factors external to the growers--some of which are 
within the control of the LPD--still adversely affect the overall 
weight of the broilers in a tournament and thereby reduce the 
compensation for all participating growers.
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    \12\ See, e.g., ``How the Tournament System Works,'' National 
Chicken Council (informing farmers that: ``1 All farmers are 
provided the same quality of chicks, the same feed, and access to 
veterinary care. 2 Farmers who invest in more advanced facilities, 
as well as use the best management practices will likely produce 
higher quality chickens more efficiently. 3 Farmers receive a base 
pay (per their contract) and potentially a bonus, based on the 
health and quantity of the flock (tournament system).''); available 
at https://www.chickencheck.in/faq/tournament-system/ (last accessed 
May 22, 2024).
    \13\ Knoeber and Thurman show that tournaments shift most of the 
risks of broiler production from broiler growers to LPDs relative to 
a fixed payment system. See Knoeber, C.R. and W.N Thurman. `` `Don't 
Count Your Chickens . . .': Risk and Risk Shifting in the Broiler 
Industry,'' American Journal of Agricultural Economics 77 (August 
1995) p. 486-496.
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    AMS has concluded that several widely adopted aspects of LPDs' 
operations are unfair, deceptive, or both. First, without a clearly 
stated base pay rate, LPDs deceive growers regarding their actual 
minimum pay. The complexity and unpredictability of LPDs' current 
operation of tournaments makes it difficult for growers to clearly 
understand before entering into a contract the minimum amount they 
could actually receive under the contract.\14\ For example, base pay 
can be, but is not commonly, a guaranteed minimum pay.\15\ Second, if 
performance pay--particularly performance pay that is based on 
comparisons with other growers--is substantial relative to total 
compensation, the arbitrary lottery-like aspects in a tournament system 
operation will, in most circumstances, undermine its effectiveness as a 
compensation scheme because compensation outcomes will not reflect the 
effort or performance of growers, and is unfair and deceptive. Third, 
arbitrary or unjustly discriminatory distribution of inputs, production 
practices, tournament groupings, or communications and dispute 
resolution--as key aspects of LPD performance under the contract--also 
can create a system in which compensation does not reflect the effort 
or performance of growers, deprives growers of the full amount due for 
their performance, and is unfair. These provisions are meant to be 
complementary and mutually reinforcing. AMS explains each of these 
concerns in greater detail below, under section IV., ``Provisions of 
the Final Rule.''
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    \14\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022) (Wayne-Sanderson), pars. 153-56, 
available at https://www.justice.gov/media/1238931/dl?inline; AMS-
FTPP-22-0046-0913 (``As a third-generation contract poultry farmer, 
this is one of the most unstable times I have witnessed or heard 
about with the growers in the majority. For many years we have been 
paid based on the tournament system, and for several years I viewed 
it to be fair, but no longer. Currently, we as growers compete 
against each other on a weekly basis to see who has the best cost. 
The list used to be really tight on what cost of top versus bottom 
grower, but in our complex alone, that is no longer the case. The 
top grower is making a healthy check, while those below average are 
not making enough to cover the cost of production and overhead. It 
is no longer the ones that put in the effort of hard work that are 
successful in this business''); Transcript, United States Department 
of Justice, United States Department of Agriculture, Public 
Workshops Exploring Competition in Agriculture: Poultry Workshop May 
21, 2010, Normal, Alabama. Lee Schrader and John Wilson, ``Broiler 
Grower Survey Report,'' in Farmers' Legal Action Group, Assessing 
the Impact of LPD Practices on Contract Poultry Growers, ed. 
Farmers' Legal Action Group (FLAG Survey) (September 2001). http://www.flaginc.org/publication/assessing-the-impact-of-LPD-practices-on-contract-poultry-growers/ (In 1999, Lee Schrader of Purdue 
University and John Wilson of Duke University surveyed over a 
thousand broiler growers in ten of the largest broiler-growing 
states (Alabama, Arkansas, Delaware, Georgia, Maryland, Mississippi, 
North Carolina, South Carolina, Texas, and Virginia). Based on AMS' 
experience, the survey results still provide a relevant reflection 
of the views of growers today, including companies' representations 
about compensation to growers).
    \15\ See ``A Bird's Eye View of How Chicken Farmers Are Paid,'' 
National Chicken Council (informing farmers that: ``All farmers are 
guaranteed a base pay from the chicken company per their 
contract.''; ``No matter what, farmers get paid.''; and ``Bonuses 
are given to farmers who raise healthy flocks and invest in their 
farm. This is referred to as the tournament system.''); available at 
https://www.chickencheck.in/faq/tournament-system/ (last accessed 
May 22, 2024).
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    As noted above, many broiler growers operate in regions with just 
one to two LPDs.\16\ The local competitive conditions result in higher-
risk, lower-paying grower contracts that commonly subject the grower to 
arbitrary and unfair payment; in particular, these contracts do not 
guarantee growers an adequate minimum base pay rate, flock placements 
and stocking densities, or length of contract in relation to the loan 
obligations commonly necessary to engage in broiler growing. Because 
LPDs control the distribution of inputs and assignment of production 
practices, growers repeatedly tell AMS that they experience unfair and 
deceptive operation of the contract. The typical tournament contract 
introduces levels of complexity and uncertainty for growers in the 
calculation of their compensation and in evaluating growers' return on 
investments so as to render the payment system unfair and deceptive. 
Furthermore, under that payment system, growers are commonly unable to 
discover unscrupulous conduct by LPDs, compare offers from competing 
LPDs, and plan and manage their businesses effectively. LPDs also say 
growers will operate ``independently''--i.e., their individual effort 
will produce commensurate higher compensation--though in practice their 
comparison-based compensation pay is heavily dependent on the LPD's 
inputs and comparison method, close supervision, responsiveness, and 
the performance of others in their LPD-determined settlement group.
---------------------------------------------------------------------------

    \16\ MacDonald, James M. 2014, Technology, Organization, and 
Financial Performance in U.S. Broiler Production, EIB-126, USDA 
Economic Research Service, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6 (Half of respondents 
with two integrators in their area and over a third of those with 
three integrators asserted that they could not shift to another 
integrator).
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    AMS concludes that the ``incentive system'' in its current form 
does not excuse the unfair and deceptive operation of tournament 
systems because factors outside of the grower's control impact 
performance. Without adequate regulation under the current system, LPDs 
fail to provide fair compensation for the grower's effort and deceive 
the grower regarding tournament operation and pay.

C. Debt and Financial Vulnerabilities

    Requests by LPDs for growers to make additional capital investments 
are a pervasive part of the broiler growing industry such that Congress 
required that LPDs disclose the possibility of such requests to growers 
in their contracts (7 U.S.C. 197a(b)). These additional capital 
investment requests occur against a backdrop of significant financial 
vulnerability for growers, which implicates issues of potential 
unfairness and deception. Under this system of capital improvement, the 
LPD requests--and indeed, in practice, largely requires--growers to 
invest in housing improvements with little to no information regarding 
the purposes, processes, outcomes, or likely return to be achieved by 
the investment. These omissions of material information critical to 
growers' decision-making is unfair and deceptive. These additional 
capital investments are highly particularized, which leaves the growers 
investing in projects and investments that may be used only for growing 
broilers with a particular LPD. Growers have long complained to AMS 
that they face a perpetual cycle of debt owing to successive requests 
by LPDs for additional capital investments, suppressing their returns 
and leaving them even more vulnerable to the range of abuses outlined 
above.
    Indeed, the Figures below show a declining rate of return on assets 
and higher debt to asset ratios carried by poultry operations compared 
to cattle, dairy, and hog operations.
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BILLING CODE C
    The higher debt to asset ratios carried by poultry operations are 
driven, in part, by LPD requests for additional capital investments and 
are also facilitated, partially, by loan guarantees authorized under 
Federal law. Additionally, the gains from upgrades commonly flow to 
LPDs, and so growers' higher debt levels are not always supported by 
efficiency gains that would result from the additional capital 
investments. Under those circumstances and because of the willingness 
of lenders to loan due to guarantees, when growers are asked by LPDs to 
make additional capital investments without critical information about 
their purposes, processes, or outcomes, they are deprived of key 
information relating to those decisions. This practice is both 
deceptive and unfair because it deprives growers of their ability to 
identify fundamentally coercive or otherwise unfair capital improvement 
programs at an early enough time to seek AMS enforcement assistance in 
halting them, if appropriate.
    Accordingly, AMS adopts this final rule prohibiting practices that, 
in AMS's view, violate the Act. The overall tournament system is highly 
problematic for poultry growers, and it is crucial to implement some 
guardrails for the industry to prevent unfair and deceptive contracting 
practices.

III. Summary of the Proposed Rule and Changes in the Final Rule

    In the June 2024 proposed rule, AMS proposed amending 9 CFR 201, 
subpart N, by adding several new provisions: Sec.  201.106 regarding 
LPD responsibilities for the design of broiler grower compensation 
arrangements; Sec.  201.110 regarding the fair operation of broiler 
grower ranking systems; Sec.  201.112 regarding disclosure requirements 
for LPDs when requesting additional capital investments from broiler 
growers; and Sec.  201.290 regarding severability.
    AMS proposed adding Sec.  201.106, titled ``Broiler Grower 
Compensation Design,'' to prohibit the reduction, or discounting, of 
any compensation rate under the broiler growing arrangement based on a 
grower's performance relative to other growers. The proposed provision 
would have required broiler grower arrangements to clearly state the 
grower's rate of compensation and not reduce that rate based on the 
grower's performance relative to other growers. The arrangement could 
provide for the rate of compensation to be increased based on that 
comparison.
    AMS proposed adding Sec.  201.110, titled ``Operation of Broiler 
Grower Ranking Systems,'' to prevent unfair and deceptive practices in 
LPDs' operation of ranking systems for broiler growers. Proposed 
paragraph (a)(1) would have required LPDs to design and operate their 
poultry grower ranking system to provide a fair comparison among 
growers, and under proposed paragraph (a)(2), the Secretary would 
evaluate specific factors to determine if the poultry grower ranking 
system is reasonably designed to deliver a fair comparison among 
growers. Proposed Sec.  201.110(a)(3) also included a requirement that, 
when LPDs could not conduct a fair comparison, they must compensate 
growers through a non-comparison method. Proposed paragraph (b)(1) 
would have required documentation regarding the processes (policies and 
procedures) the LPDs must establish and maintain for the design and 
operation of poultry grower ranking systems for broiler growers that is 
consistent with the duty of fair comparison. Under proposed paragraph 
(b)(2), LPDs would have been required to review their compliance with 
these processes, and under proposed paragraph (b)(3) they would have 
been required to retain all written records relevant to their 
compliance for no less than 5 years from the date of record creation.
    AMS proposed adding Sec.  201.112, titled ``Broiler Grower Capital 
Improvement Disclosure Document,'' detailing in proposed paragraph (a) 
that an LPD would be required to provide the grower with a Capital 
Improvement Disclosure Document (Disclosure Document) upon requesting 
that the grower make an additional capital investment. Paragraph (b) of 
the proposed regulation described the disclosures that the LPD would be 
required to include in the Disclosure Document. These disclosures 
included a justification of the request, financial incentives for the 
grower, specifications for construction, and a thorough analysis of the 
grower's projected returns.
    Lastly, AMS proposed adding Sec.  201.290, titled ``Severability,'' 
to ensure that if any provision of subpart N or component of any 
provision is declared invalid, or if the applicability of any of these 
provisions to any person or circumstances is held invalid, the validity 
of the remainder of this subpart or the applicability thereof to other 
persons or circumstances shall not be affected. Such a provision is 
typical in AMS regulations that cover several different topics and was 
proposed here as a matter of housekeeping.
    Upon consideration of public comments on the proposed rule, AMS has 
modified the proposed provisions as follows:
     Revised proposed Sec.  201.106 by designating the proposed 
text as paragraph (a) and adding the paragraph heading ``Rate 
transparency.''
     Added a new Sec.  201.106(b), ``Excessive variability,'' 
that establishes a presumptive violation of the Act when aggregate 
gross annual payments based upon a grouping, ranking, or comparison of 
growers exceeds 25 percent of total gross payments to growers in a 
complex on an annual-calendar year basis.
     Added a new Sec.  201.106(c), ``Transition,'' that 
requires that LPDs, for each of the three calendar years commencing 
with and including the rule's effective date, submit to AMS a copy of 
the prior and modified contract and any LPD Disclosure Document 
prepared under Sec.  201.102 for any modified or renewed contracts 
under specified conditions.
     Simplified proposed Sec.  201.110(b)(1)(i) and (ii) 
(concerning LPDs' processes for determining inputs and production 
practices) by removing the subparagraphs that itemized each component 
of the required processes.
     Simplified proposed Sec.  201.110(b)(1)(iii) (concerning 
LPDs' processes for grower comparison flexibility) by removing 
subparagraphs (A) through (C) and placing those requirements into three 
simple paragraphs: (b)(1)(iii), ``League composition;'' (b)(1)(iv), 
``Evaluation period;'' and (b)(1)(v), ``Non-comparison.'' Accordingly, 
AMS also redesignated proposed Sec.  201.110(b)(1)(iv), ``Communication 
and cooperation,'' as paragraph (b)(1)(vi).
     Removed proposed Sec.  201.110(b)(2), ``Compliance 
review'' and redesignated proposed Sec.  201.110(b)(3), ``Record 
retention,'' as paragraph (b)(2).
     Revised proposed Sec.  201.112(a) and (b) to include the 
paragraph headings ``Disclosure requirement'' and ``Disclosure 
contents,'' respectively.
     Revised proposed Sec.  201.112(b)(1) through (3) to remove 
the term ``relevant'' as a technical change, along with conforming 
grammatical edits.
     Revised proposed Sec.  201.112(b)(5) to clarify that, in 
addition to disclosing any required or approved manufacturers or 
vendors, the Capital Improvement Disclosure Document must disclose all 
financial benefits, if any, that the LPD or other affiliated persons 
receives from the use of the required or approved manufacturer or 
vendor.
     Revised proposed Sec.  201.112(b)(6) as a technical 
stylistic change.

[[Page 5153]]

     Added a new Sec.  201.112(c) to require the LPDs to make 
reasonable efforts to ensure that growers are aware of their right to 
request translation assistance and to assist the grower in translating 
the Capital Improvement Disclosure Document.
    Section IV. below explains in detail AMS's reasons for making these 
changes.

IV. Provisions of the Final Rule

    Throughout this final rule, AMS's analysis of unfair and deceptive 
trade practices in poultry contracts is informed by prior P&S Act case 
law, States' unfair and deceptive practice laws, and, in particular, 
the Federal Trade Commission (FTC)'s encapsulation of principles 
governing unfairness, unfair methods of competition, and deception.\17\ 
AMS looks to the FTC's policy statements owing to the FTC's extensive 
experience enforcing prohibitions against unfair practices, unfair 
methods of competition, and deception arising under the FTC Act, which 
are similar to provisions prohibiting unfair and deceptive practices 
under section 202(a) of the P&S Act. Like section 202(a) of the Act, 
section 5 of the Federal Trade Commission (FTC) Act also prohibits 
unfair and deceptive practices and unfair methods of competition. In 
1980, 1983, and 2022, the FTC adopted the aforementioned policy 
statements summarizing its longstanding approaches to these matters 
under its cases. While recognizing that the P&S Act is broader than the 
FTC Act, AMS references these policy statements because they offer 
useful guidance owing to the similarity of the statutory provisions and 
case law histories.\18\ In addition, AMS recognizes the benefits to the 
practical application of this final rule by grounding it on the well-
understood principles of unfairness, unfair methods of competition, and 
deception as identified in the FTC policy statements. It is for these 
reasons that the FTC Act has, in part, informed this final rule.
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    \17\ Federal Trade Commission, Policy Statement on Unfairness, 
1980, https://www.ftc.gov/legal-library/browse/ftc-policy-statement-unfairness (last accessed Oct. 2024); Federal Trade Commission, 
Policy Statement on Deception, 1983 available at https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf (last accessed Oct. 2024); Federal Trade 
Commission: Policy Statement on the Scope of Unfair Methods of 
Competition Under Section 5 of the Federal Trade Commission Act, 
Nov. 2022, available at https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission (last accessed Oct. 2024).
    Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451, 1455 (9th 
Cir. 1988); Armour & Co. v. United States, 402 F.2d 712 (7th Cir. 
1968) (``Section 202(a) should be read liberally enough to take care 
of the types of anti-competitive practices properly deemed `unfair' 
by the Federal Trade Commission (15 U.S.C. 45) and also to reach any 
of the special mischiefs and injuries inherent in livestock and 
poultry traffic'').
    \18\ Michael Kades, ``Protecting livestock producers and chicken 
growers,'' Washington Center for Equitable Growth (May 2022).
---------------------------------------------------------------------------

A. Broiler Grower Compensation Design (Sec.  201.106)

    AMS is finalizing new Sec.  201.106, ``Broiler grower compensation 
design,'' with two notable changes from the proposed rule. In the final 
rule, AMS is retaining Sec.  201.106 as proposed and designating it as 
paragraph (a), ``Rate transparency.'' AMS is adding paragraph (b), 
``Excessive variability,'' and paragraph (c), ``Transition.'' Paragraph 
(b) adds a presumption against excessive variability in performance 
compensation to growers competing in a tournament. Paragraph (c) 
provides for grower protections during the transition from the existing 
payment systems to systems compliant with this final rule. Each 
paragraph will be discussed further below.
    Most large LPDs today include a tournament component as part of 
their grower compensation arrangements. Under this type of arrangement, 
if a grower's feed conversion ratio (i.e., the quantity of feed 
consumed by the flock divided by the weight of the flock delivered) is 
above the average of other growers in the tournament, the grower 
receives a bonus; if the grower is below average, the LPD reduces the 
grower's compensation. Under the tournament system, the contract 
between the grower and LPD provides for payment to the grower based on 
a grouping, ranking, or comparison of growers delivering broilers to 
the same company during a specified period. These pay rates are 
generally expressed in cents per pound. Applying these adjustments, 
whether positive or negative, significantly affects growers' effective 
rates of compensation and net income.
    In its current form, the tournament system operates unfairly and 
deceptively. Without clearly stated base rates of compensation, the 
complexity of the tournament makes it difficult for growers to clearly 
understand the minimum amount they could be paid. Moreover, 
compensation based on relative performance when LPDs control the 
operation of the tournament (such as the distribution of inputs and 
assignment of production practices) creates the potential for growers' 
performance to be determined by factors outside their control, thereby 
making the tournament system an ineffective incentive system that is 
arbitrary and unfair to growers. The tournament system also introduces 
considerable complexity and uncertainty for growers in calculating 
their anticipated total compensation and evaluating the potential 
return on their investments. Furthermore, if the comparison-
compensation factor (i.e., the bonus or deduction) is a large 
percentage of total compensation, that variance in total grower 
compensation is no longer a legitimate business but simply shifts 
economic risk from processors onto poultry growers without a 
demonstrable countervailing benefit. Without additional guardrails, the 
current tournament system creates significant risk of deception or 
unfairness for growers under the Act.
    AMS has not found any evidence that poultry tournament systems that 
include deductions from the base pay rate or excessive variability in 
grower compensation provide a benefit to growers or competition in the 
market for grower services that outweighs the harm to growers. 
Deductions in other livestock contracts commonly reflect performance 
attributes of the animal itself, which is owned by the producer. Here, 
the producer provides a service with no ownership interest in or role 
in the selection of the animal. These deceptive and unfair payment 
practices create an unfair competitive advantage for LPDs at the 
expense of growers. Therefore, the widespread adoption of these types 
of contracts has frustrated fair competition, instead of enhancing it. 
Such discounting and pay variability also reflect the market power and 
bargaining power of the LPD in dictating contract terms.
    Section 201.106 will provide growers with greater clarity and 
protection regarding the minimum payments they can expect under broiler 
growing arrangements. This rule prohibits a range of unlawful behavior 
by establishing a threshold presumption against excessive pay 
variability, establishing a transition period to preserve existing pay, 
and making minimum pay clear for growers. This rule will better enable 
growers to compare contract terms, evaluate revenue generation, and 
assess the value of additional capital investments.
i. Section 201.106(a)--Rate Transparency
    AMS is finalizing new Sec.  201.106(a), which prohibits the 
reduction of any rate of compensation under the broiler growing 
arrangement on account of the grower's grouping, ranking, or comparison 
to other growers. This provision is identical to that which was 
proposed, except that the provision is

[[Page 5154]]

now designated paragraph (a), with the paragraph heading ``Rate 
transparency.'' Under this provision, the broiler growing arrangement 
must clearly state the compensation rate. The arrangement may not 
provide for mechanisms or calculations that would reduce the 
compensation rate based on the grower's performance relative to other 
growers, but it can provide for the rate to be increased based on the 
grower's performance relative to others. The broiler growing 
arrangement could provide for the compensation rate to be increased 
based on the broiler grower's performance relative to others, but in no 
event could the rate be decreased or discounted by that comparison.
    ``Rate of compensation'' refers to any payment amount that the LPD 
utilizes to compensate the grower under a broiler growing arrangement, 
which could include ``base pay,'' ``minimum pay,'' or any other rate 
defined in the contract. That rate would have to be prominently and 
clearly defined as the guaranteed level of pay a grower will receive if 
the grower performs to the minimum specifications of the relevant 
provisions of the contract. To the extent that a broiler growing 
arrangement had more than one rate of compensation, none of the rates 
could be reduced or discounted by a comparison. Under existing AMS 
regulations, a broiler growing arrangement must include all payment 
terms in the contract (9 CFR 201.100(c)(2)).
    Under section 202 of the P&S Act, AMS concludes that the practice 
of discounting disclosed ``base'' pay rates in broiler contracts is an 
unfair and deceptive practice. This practice forces growers to estimate 
potential earnings using contractually stated ``base'' pay rates that, 
under the tournament system, only half of the settlement group can 
achieve. This unfair and deceptive practice obscures the value of the 
contract, thereby frustrating comparisons with competing LPD contracts 
in markets where growers are fortunate enough to have more than one or 
two LPDs to contract with.
    AMS expects that, under this regulation, LPDs will still be able to 
elicit a competitive level of performance using a broiler compensation 
design that conforms to the requirements of this final rule. The LPD 
could reward performance for feed efficiency relative to the growers in 
the settlement with a minimum base pay rate per pound and an upward 
adjustment to the payment formula. Depending upon the facts and 
circumstances, mere compliance with this regulation does not absolve an 
LPD of its other legal obligations. A compensation structure without a 
penalty or reduction from a true guaranteed minimum pay rate may 
still--if the facts demonstrate it--result in other violations of the 
Act.
ii. Section 201.106(b)--Excessive Variability
    In the final rule, AMS is adding new paragraph (b), ``Excessive 
variability,'' which establishes a presumption that an LPD has violated 
section 202 of the Act when aggregate gross annual payments based upon 
a grouping, ranking, or comparison of growers exceed 25 percent of 
total gross payments to growers in a complex on an annual-calendar year 
basis. AMS is adopting this approach because excessive variance in 
total grower compensation arising from comparison-based compensation 
would, generally, create excessive variability that is deceptive 
because growers cannot reasonably assess the risk they are undertaking 
or forecast, predict, or budget their business operations. Further, 
excessive pay variance makes compensation dependent on arbitrary 
criteria, random factors, or other criteria that the grower cannot 
control or affect. When the comparison performance pay too 
substantially affects compensation, it is unfair.
    When growers perform reasonably under the terms of the production 
agreement, excessive variability in performance pay arises at least in 
part due to LPD-controlled factors or unavoidable inherent natural 
variability. These factors are outside of the grower's control and 
cannot be completely offset by grower effort or skill. LPDs design 
ranking systems to allocate grower payments based upon grower effort 
and skill. When factors other than grower effort and skill are 
comingled with the metrics used to allocate pay, the practice is ripe 
for potential abuse and unfairness because excessive variability in 
performance payments unfairly reduces compensation to growers. This 
unfairness to growers is particularly pronounced owing to high 
indebtedness among growers, which leaves them more financially 
vulnerable to harms from excessive income variability that does not 
reasonably reflect their own efforts.\19\ That pay variability also 
frustrates growers' ability to accurately assess, or reasonably 
control, their rates of compensation and the overall financial risk 
they undertake under a broiler growing arrangement, which is 
particularly problematic given the risk they bear. The injury is not 
offset by attendant benefits, since the practice tends toward 
distorting the market's true pay amount and reducing growers' ability 
to accurately assess, or reasonably control, their finances and make 
informed business decisions.
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    \19\ In contrast to contributions by the grower, LPDs contribute 
much more significantly to overall performance by furnishing the 
inputs, e.g., genetics, feed, nutrition, sex of chicks, and close 
supervision of the grower's managing production.
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    Though Sec.  201.106(a) addresses the problem of reductions to 
rates of compensation that arise owing to groupings, rankings, or 
comparisons of growers, it does not alleviate all potentially unfair 
aspects of the tournament system or of the integrated model of broiler 
production. The proposed rule indicated that AMS intended to engage in 
case-by-case enforcement to remedy other aspects of tournament system 
unfairness, including issues arising from excessive variability in 
payments. In addition to a prohibition on discounting rates of 
compensation, the proposed rule particularly highlighted the potential 
importance of a 25 percent presumption on total compensation based on a 
grouping, ranking, or a comparison (the tournament) to total of base 
pay rate plus performance compensation. As AMS indicated in the 
proposed rule, this approach could alleviate extreme variability as an 
aspect of existing tournament system unfairness.
    In the proposed rule, AMS included questions containing additional 
proposals. One such proposal solicited comment on whether it is 
presumptively unfair for comparison-based compensation to equal or 
exceed 25 percent of total (base pay rate plus comparison-based) 
compensation for any grower and asked a range of questions around the 
appropriateness of the specific threshold, how to calculate it, and how 
it would affect the industry.\20\ These questions included highlighting 
the role of the 25 percent presumption as a potentially binding 
constraint, and how LPDs might respond to the prohibition introduced in 
Sec.  201.106(a) by modifying the compensation structures in grower 
contracts. AMS's questions indicated that it could raise base pay and/
or limit performance payments--thus reducing the difference between top 
and bottom performing growers--without increasing total grower 
compensation expenditures. It also left open the possibility that LPDs 
could potentially adjust their compensation structures in other ways, 
such as by providing non-comparison-based incentives to growers they 
might seek to reward (such as per pound or per square foot compensation 
for housing known to provide efficiencies to the LPD) or deploy other

[[Page 5155]]

incentives (such as fixed performance bonuses).
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    \20\ 89 FR 49002, 49011-49012 (June 10, 2024).
---------------------------------------------------------------------------

    In response to the proposed rule, growers and advocate commenters 
overwhelmingly supported the need for additional limitations on 
excessive variability in payment arising from rates of compensation, 
with a particularly strong endorsement of the 25 percent limitation on 
performance. Commenters underscored the importance of this limitation 
for some of the reasons that AMS indicated in the proposed rule: that 
it is necessary to protect growers from unfair reductions in payments.
    To incentivize grower effort, LPDs allocate grower pay using 
relative performance metrics; however, grower effort alone is an 
insufficient determinant of grower performance. Growers' performance 
depends on many factors, some of which are under the control of growers 
while others are not. Some known factors, including a grower's skill 
and effort, are within a grower's control. Other factors are outside a 
grower's control, such as feed quality, chick quality, and the skill or 
other efforts of other growers in the comparison group. Even if all 
these known factors are accounted for, there is still some unavoidable 
inherent natural variation in performance that would explain growers' 
performance volatility, flock to flock, even if all the known factors 
remain constant. The nature of this variability creates harm to growers 
in reduced performance payments.
    The use of flock performance metrics, specifically feed conversion, 
as a proxy to grower effort is imperfect. Feed conversion itself is 
affected by variables beyond grower effort. AMS is not aware of 
existing technological innovations that could serve to better isolate 
grower effort, which is exclusively under grower control. That is not 
to say flock performance metrics serve no purpose in assessment of 
grower effort and allocation of grower payments. AMS's experience in 
analyzing performance payments suggest that ranking systems can be a 
useful and reasonably equitable mechanism for pay allocation with 
proper regulation and in proper magnitude. Within a reasonably 
contained range--i.e., presumptively 25 percent of total compensation--
the tournament may offer a reasonable benefit to growers by enabling 
LPDs to efficiently measure grower performance and guard against 
natural forms of variability that would arise were compensation fixed 
rather than floating (i.e., the comparison-based average of growers). 
Yet at too high a level, the potential harms of comparison-based 
compensation (performance pay dominating grower pay allocation without 
rewarding commensurate differences in effort) outweigh the potential 
benefits. That is unfair under section 202(a) of the Act because 
compensation under the tournament becomes correlated to input 
distribution (and other circumstances under the control of the LPD, 
such as flock production practices or responsiveness to complaints), 
which is commonly arbitrary--or, in some cases when not arbitrary, can 
be punitive. Some growers who comply with the contract and are unfairly 
penalized for factors beyond their control suffer unavoidable harm; 
they are denied the full amount due for their growout services. While 
growers can benefit from participation in the tournament, excessive pay 
variability can cancel out those benefits as they are outweighed by the 
harms.
    Based on previous analysis of grower compensation data for a small 
sample of broiler complexes, AMS is not aware of any complex with 
performance payments that are as much as 26 percent of total payments. 
Additionally, in United States v. Cargill Meat Solutions Corp., 
commonly referred to as ``Wayne-Sanderson,'' the final judgment also 
contains a 25 percent limitation on performance payments.\21\ The 
Wayne-Sanderson settlement is significant because it was agreed to by 
one of the largest market participants and has not caused any 
demonstrable harm to the company or to the market, nor is there any 
evidence that it disincentivized grower effort or lowered performance. 
While Wayne-Sanderson had agreed to a 25 percent limitation on 
performance payments, this final rule establishes that performance 
payments above 25 percent are presumed to be unfair. This is because 
performance pay variability causes injury to growers when the magnitude 
of performance pay is so excessive. That is, the performance pay 
significantly affects whether the grower is successful, yet the amount 
depends on unavoidable variance and does not reflect grower 
performance. In those circumstances, compensation no longer correlates 
to factors within grower control, such as their effort and expertise. 
This deprives growers of the value, both real and expected, of their 
services. The vast majority of commenters who addressed the topic of 
comparison-based compensation endorsed the idea of 25 percent as an 
appropriate level for a presumption of this type.
---------------------------------------------------------------------------

    \21\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022).
---------------------------------------------------------------------------

    We note that this presumption will provide guardrails in helping 
LPDs set and maintain performance pay standards that achieve 
appropriate goals, such as rewarding effort and skill against a 
floating average that adjusts for common circumstances, like weather, 
without unduly denying growers the expected value of their growout 
services. This clarity will guide LPDs that need to modify existing 
contracts to comply with this final rule, such as with Sec.  
201.106(a). For example, absent the existence of Sec.  201.106(b), LPDs 
could comply with Sec.  201.106(a) by decreasing base pay and 
excessively increasing the proportion of pay that is dependent on 
performance compensation. Such contract modifications would supercharge 
pay variance in the tournament while penalizing growers under the guise 
of complying with reforms designed to improve transparency and 
fairness. The presumption under Sec.  201.106(b) helps ensure 
continuity in compensation at an aggregate level because it guards 
against excessive variability of performance pay relative to total pay. 
To stay within the presumptive boundary set by Sec.  201.106(b), an LPD 
must set a reasonable compensation rate for any new base payment under 
the contract. AMS underscores that nothing in the rule prevents LPDs 
from providing other forms of incentive compensation to growers for 
reasons other than relative performance, such as payments for improved 
facilities or utility subsidies. Overall, the 25 percent presumption 
against excessive variability is useful to provide clarity and 
consistency around when AMS may seek to investigate for case-by-case 
compliance and enhances the fairness and transparency of compensation 
rates in broiler growing arrangements. As such, it reflects a logical 
outgrowth of the proposed rule.
    Separately, AMS notes that it also expects to examine for excessive 
variability other forms of performance payments that are based on how 
efficiently a grower uses inputs supplied by the LPD: such payments 
could emerge as a method for evading this provision's purpose. Examples 
of such performance payment systems include what are commonly called 
fixed metric performance payments, which predate the current 
tournament, whereby growers' performance payments are tied to their 
individual achievement of certain fixed metrics around efficient use of 
inputs. AMS expects to examine these types of performance systems for 
excessive variability for similar risks of unfairness, including 
because the LPD provides the inputs and production

[[Page 5156]]

practices and in those circumstances would be setting the fixed 
metrics.
    In review of the presumption, AMS will consider other complex-
specific incentives as requested by the LPD that would otherwise not be 
appropriate to consider as part of the rates that make up base payment. 
For example, energy incentives may be considered differently because 
they vary significantly based on geographic location, and so would 
result in somewhat different application of the provision for growers 
at different complexes. Where a relatively high degree of variability 
in performance pay exists, even within the 25 percent, due in part to 
energy incentive payments, AMS may examine whether the tournament is 
unfair.
    To rebut the presumption of unfairness triggered when comparison 
compensation payments exceed 25 percent of total compensation, the LPD 
may affirmatively demonstrate (i) that a given tournament's 
compensation system allows all growers to be economically successful 
without the need to receive any payments based upon a grouping, 
ranking, or comparison of growers that exceed the amount covered by the 
presumption; (ii) that payments to all growers that exceed the amount 
covered by the presumption are sufficient to reflect the increased risk 
of variability to all growers under that system; and (iii) that the 
system is not otherwise unfair or deceptive. The Agency would examine 
any rebuttal on a case-by-case basis to comport with the purposes of 
the presumption to prevent LPDs from engaging in unfair or deceptive 
practices or devices that harm poultry growers.
    AMS adopted this provision after considering the case-by-case 
presumption set forth in the proposed rule and public comments that 
urged AMS to instead establish a greater limitation on excessive 
variability of payments arising from performance, especially 
comparison-based, compensation. Public comment regarding this 
provision, and AMS's response to those comments, are discussed in 
greater detail below in section V., ``Comment Analysis.''
iii. Section 201.106(c)--Transition
    In the final rule, AMS is also adding new Sec.  201.106(c), which 
requires that, for any contract modification or renewal subject to 
Sec.  201.106(a) that results in a grower receiving less than the prior 
year's complex-wide average gross payment, the LPD must submit a copy 
of the prior contract and the modified contract, as well as any LPD 
Disclosure Document prepared under Sec.  201.102 with respect to the 
prior and the modified contract, to the Secretary.
    AMS will monitor contracts to identify signs of the unfair exercise 
of LPD bargaining power during this transition period. These could 
include, for example, a predatory method of competition whereby an LPD 
seeks to lower pay across the entire complex or discriminatory or 
retaliatory conduct that seeks to lower the pay of some subset of 
growers. Unfair conduct by the LPD could potentially arise where the 
LPD seeks to undermine contractually agreed-upon earnings from the 
previous contract irrespective of the tournament. One way for AMS to 
identify such conduct could be through LPD Disclosure Documents 
(currently required under existing 9 CFR 201.102), which would be 
required if LPDs modify or replace contracts in seeking compliance with 
this rule. The record-keeping and reporting requirements in this final 
rule will further help identify any potential illicit exertions of 
market power by allowing AMS to closely scrutinize contract 
modifications that jeopardize grower welfare during the transition 
period.
    In keeping with the requirements in Sec.  201.102(d)(2), AMS 
expects LPDs to explain why the annual gross payment averages for the 
previous five years may not provide an accurate representation of 
projected future payments. AMS also expects a distinct explanation of 
how any changes the LPD is proposing under the new contract are 
necessary to comply each part of final Sec.  201.106. That is, changes 
made to comply with Sec.  201.106(a) and (b) should be explained. AMS 
strongly encourages LPDs to explain changes needed to comply with Sec.  
201.106(b) first, and then apply a conversion scale from whatever 
updated approach is adopted to comply with Sec.  201.106(a).
    AMS will evaluate the reported contract modifications and 
associated documentation to assess grower welfare, given that growers 
will be particularly susceptible to economic hold-up concerns. In 
particular, AMS will consider the following variables: (1) the number 
of flock placements annually; (2) the stocking density; and (3) the 
distributional range of payments. If, upon consideration of these 
variables, AMS identifies contract modifications that negatively impact 
grower welfare or that include supply reductions from the complex, the 
Agency will closely scrutinize the modifications, including rates, for 
fairness and reasonableness.
    It is crucial that growers are meaningfully informed about the 
terms of the grower arrangements and the expected compensation for 
their services so that they can make financially sound decisions and 
identify potential economic hold-up. The reporting requirements will 
only be in effect for three years including and from the effective date 
of this rule.
    During the three-year transition period, LPDs must evaluate average 
grower compensation at the complex level for each of the three calendar 
years commencing with and including the rule's effective date to 
determine if they need to submit their contract to AMS for review. The 
rule requires LPDs to use the average grower compensation across the 
complex, because this analysis shows if an LPD has cut grower 
compensation overall. The rule uses averages because performance-based 
compensation is unpredictable on a grower-by-grower basis and because 
using total grower compensation at the complex would be overinclusive. 
For example, grower turnover might skew an analysis based on total 
grower compensation. This makes the Sec.  201.106(c) method of 
evaluation comparable to how unfair levels of performance-based 
compensation are defined under Sec.  201.106(b).
    AMS chose a transition period of three years for several reasons. 
First, it is nearly impossible to evaluate the changes to grower pay 
made to contracts within 180 days or even a single year with any level 
of confidence. Many contracts are three, five, or ten years in length, 
so it may take up to a year of payments to even begin evaluating the 
financial effect of changes. Reviewing payments within a 180-day period 
may not indicate what growers would earn in a year and would be limited 
in scope and value; any conclusions based on that limited review would 
be speculative, and violations of the Act cannot be based on 
speculation. After a full year of operation following contract 
modification, the realization of grower performance outcomes and 
practical application of the compensation structure are known and 
translated into actual grower payments. This will facilitate AMS's 
analysis of the actual distribution of grower payments and overall 
level of compensation that resulted from the new compensation structure 
and allow for a more fulsome evaluation of fairness concerns. It also 
allows AMS to consider the market environment as context for LPD 
actions.
    Additionally, this new rule may necessitate adjustments to the 
compensation structures used in grower contracts, and it will take time 
for growers to become used to the new regulation. AMS needs to look at 
how the overall market is adjusting to this new reality and prevent 
evasion during

[[Page 5157]]

that adjustment period. For example, an LPD may make a series of small 
contract changes, which would require AMS to review the overall market 
adjustments, not just the initial changes. Failure to capture the full 
implications of the transition period would put growers at risk from 
LPD market power and bargaining imbalances between LPDs and growers.
    AMS underscores that this is a monitoring and reporting 
requirement, owing to the ongoing risk to growers that the contracts 
could be modified and re-modified during this transition period. This 
contract review will help the Agency decide whether to conduct more 
specific oversight and enforcement while the new regulatory regime is 
implemented.
    Three years is the period of financial information that banks 
request from borrowers, such as growers, and so it provides a 
reasonable period for AMS to engage in these market-monitoring 
activities. After three years, AMS agents will continue to monitor 
contracts and ensure they are following the requirements of this final 
rule, but LPDs will not need to submit contract modifications.
    In the proposed rule, we asked for public comment on this issue, 
and received overall support for a provision to protect growers that 
rely on existing contracts from holdups and potential market abuse. 
Specifically, we asked the following question: ``To minimize transition 
risks to growers, should AMS include a requirement that LPDs submit to 
AMS for review any contracts modified or revised to comply with new 
Sec.  201.106?'' \17\ The comments received in response to this 
specific question were mixed in their support and are addressed below 
in sections V.A.iv. and v.
    Because the Secretary will subject the updated contracts to close 
scrutiny for unfairness, the Secretary would seek access to the 
dealer's business records. During any investigation, AMS may examine 
any changes to average annual gross payment per pound for growers in 
the complex and any changes to average payment per square foot 
increased. Each investigation will consider the individual facts and 
circumstances of each situation, as these considerations are important 
in examining whether growers were held at least no worse off during the 
contract modification process. Although the final rule is designed to 
benefit growers and reduce unfair and deceptive practices, growers face 
a significant risk of unfair practices owing to the risk of hold-up 
when they may be required to change their contracts so that LPDs comply 
with this rule. Based on AMS's experience implementing rules, LPDs may 
seek during any compliance and implementation period to extract changes 
to the contract unrelated to the regulatory requirements of this rule. 
The purpose of providing contracts to AMS is to identify unfair 
practices or otherwise unlawful reductions to payment that are 
favorable to LPDs and harmful to growers.

B. Operation of Broiler Grower Ranking Systems (Sec.  201.110)

    AMS is finalizing new Sec.  201.110, ``Operation of broiler grower 
ranking systems,'' which regulates how LPDs operate ranking systems 
(i.e., tournaments) for contract broiler growers, establishing a duty 
of fair comparison when calculating comparison-based compensation among 
a group of poultry growers in a settlement group. This section contains 
factors for the Secretary to consider when evaluating whether LPDs have 
abided by the duty of fair comparison requirement. When LPDs are unable 
to make a fair comparison for one or more growers, they are required to 
use a non-comparison compensation method as specified in the contract. 
LPDs are required to document how they design and operate their poultry 
grower ranking systems in a manner that is consistent with the duty of 
fair comparison. The documentation must show that LPDs take measures to 
mitigate the impact of inequitable distribution of inputs and flock 
production practices on grower performance and, hence, comparison-based 
compensation.
    The purpose of the rule is to ensure that comparison-based 
compensation reflects grower effort, not factors that injure the 
grower, such as feed or chick quality or timing of feed delivery that 
are outside of grower control but within the control of LPDs. The 
problem this rule seeks to address is how LPDs manage variation in 
quality or timing of inputs, flock production practices, and how LPDs 
handle growers' concerns (i.e., groupings, responsiveness to problems). 
AMS certainly believes that rewarding grower effort is fair, but unfair 
and deceptive comparison systems are not.
    For example, breeding hens have a lifecycle of 50 weeks. They 
produce optimal chicks between weeks 20-34, but they also produce 
chicks that have value outside the optimal window. The LPD has a 
financial incentive to grow all these chicks to maturity, and thus will 
distribute a mix of higher and lower quality chicks in any one 
settlement period to its growers. Those growers receiving a higher 
proportion of suboptimal chicks are disadvantaged in a relative 
comparison to growers who received a higher proportion of optimal 
chicks.
    In theory, LPDs would provide uniformly high-quality inputs (such 
as chicks and feed) and appropriate production practices (such as flock 
density) to all growers to ensure maximum efficiency, product quality, 
and profit. LPDs would also ensure tournament groupings are reasonably 
random or otherwise not biased and would also reasonably control for 
problems that growers faced (such as accidental delivery of the wrong 
feed). However, inputs are natural systems and, therefore, variation in 
input quality necessarily exists. This variation in input quality 
affects performance. Moreover, human error can be present in vertically 
integrated systems as well, for example, the accidental delivery of 
feed designed for older birds. LPDs want to obtain the full value from 
all usable inputs and are not inclined to dispose of lower quality 
chicks or feed to ensure growers only get the highest quality inputs. 
Thus, LPDs routinely distribute lower quality, lesser performing inputs 
to their contract growers, even though growers who receive those inputs 
will likely receive lower compensation than their peer growers in the 
same tournament that receive higher quality, higher performing inputs. 
Within a given poultry complex (group of growers serving a single 
processing plant), a significant share of each grower's compensation is 
determined by their rank in tournaments between growers at the complex, 
even though a proportion of performance variation across growers is 
attributable to variation in inputs, including feed and chick quality, 
timing of feed delivery and flock pick-ups.
    LPDs purport that this system works to promote fair competition in 
the market for grower services. From an LPD's perspective, as outlined 
in several public comments, a grower receiving poorly performing inputs 
and a low rank in one tournament is how the system works; over the long 
term, according to the commenter, the grower will likely receive 
better-performing inputs that help to balance out one tournament's 
losses. LPDs also stated in their public comments that they have no 
incentive to furnish a grower with poorly performing inputs and/or 
otherwise mistreat growers.
    In practice, LPDs assertions do not bear out. LPDs have limited 
financial incentive to expend extra efforts to evenly distribute 
optimal inputs and production practices across growers in a

[[Page 5158]]

poultry settlement pool or even to some extent to promptly address 
problems. LPDs have not provided supporting evidence that long-term 
provision of inputs balance out uniformly. Even if over the long-term 
the variability, on average, balances out, there will be growers who do 
not benefit from the balancing or for whom the balancing comes too late 
to address the harms caused by variability. LPDs' assurances of long-
term balancing out do not provide comfort to the grower facing 
decreasing ability to pay for immediate operating expenses--and who 
does not have the extra cash to buffer one tournament's losses. 
Furthermore, under the current compensation system, LPDs have little 
motivation to limit performance variability, exercise appropriate care 
in input distribution, or generally create reasonable uniformity 
regarding other aspects of tournament operations.
    As growers and grower advocacy organizations have asserted, LPDs 
often provide the ``noisy'' grower (who exercises their dissatisfaction 
or seeks redress for bad treatment) ``bad'' or otherwise inappropriate 
or untimely inputs or flock production practices, or even organize them 
into comparison groupings designed to adversely affect their 
performance. This can even occur for those seeking timely assistance or 
correction for supposedly inadvertent mistakes (e.g., feed delivered to 
new chicks that is designed for older birds, and hence is not edible by 
the younger birds). Growers have consistently reported over the years 
that LPDs commonly exercise punitive control over inputs, production 
practices, tournament groupings, and the availability of assistance for 
ordinary problems. These circumstances suggest an environment 
characterized by unavoidable unfairness and oppressive methods that 
adversely affect growers' and even LPDs' ability to compete on the 
merits. Growers who receive bad treatment cannot competitively 
discipline an LPD by negotiating better terms or choosing a different 
LPD. They must accede to continued poor treatment by the LPD.
    LPDs' practice of basing grower compensation on factors beyond 
growers' control distorts the competitive market for grower services. 
LPDs possess power--whether regionally, within the contract 
relationship with growers who depend on that relationship to pay down 
debt, and/or through information asymmetry (i.e., through knowing 
detailed information about inputs and growers' finances while growers 
know relatively little). This power allows them to reduce growers' 
compensation to unfair levels they know growers can barely bear; in 
turn, growers' reduced financial stability further reduces their 
countervailing power. Another feature of this practice is that LPDs are 
not actually allocating more funds to better compensate higher-
performing growers: they fix overall compensation to their growers from 
tournament to tournament and deduct pay from those who performed below 
the average to reward those who performed above average. In so doing, 
they prevent growers from actually earning compensation commensurate to 
services--a circumstance that numerous commenters described 
experiencing but possessed little recourse to counterbalance, i.e., 
``Take it or leave it.'' This practice further erodes the competitive 
conditions in the market for grower services. Numerous commenters 
discussed how just a few below-average rankings caused them to not be 
able to afford operational expenses and perform worse and worse; and/or 
exit. By basing compensation on factors outside of actual grower 
services, LPDs also distort the actual price signal for grower 
services. And, by fixing overall compensation and deducting from the 
bottom to reward the top, they prevent honest competitors that actually 
allocate more funds for better-performing growers. Altogether, AMS 
believes these are unfair and deceptive practices under the Act.
    LPDs harm growers when they compare growers where inputs, 
production practices, tournament groupings, and assistance are not 
equitably distributed. Grower pay becomes undeservedly low and fosters 
unlawful variability in both performance and compensation that have no 
relationship to the grower's work, initiative, or skill. Growers have 
no control over how inputs, production practices, tournament groupings 
and assistance are allocated, owing to the vertically integrated model 
of broiler chicken production. Unfair comparisons do not benefit 
growers or competition, and indeed frustrate the LPDs' claimed purpose 
of the tournament structure. The tournament is a form of performance 
payment that is intended to incentivize grower deployment of effort, 
skill, and investment to foster more efficient use of the inputs 
provided by the LPD. Purportedly, tournaments capture actual 
differences in grower performance during a given period, while 
adjusting for overall conditions affecting performance, such as adverse 
weather conditions, that affect all growers in the complex. The rule 
sets out reasonable alternatives to these harms that do not undermine 
the benefits to growers from the vertically integrated production 
system or from using comparisons to establish flexible baselines for 
evaluating grower performance, within its appropriate limits.
    AMS notes that growers get paid by the pound and start with a 
static number of chickens. Thus, they have contractually inherent 
incentives to grow their chickens to the target weight and to minimize 
the death loss of chickens, even in the absence of a performance 
payment. Yet AMS also acknowledges that ensuring growers' use of the 
minimum amount of inputs, such as feed, to achieve maximum growout is 
also an important part of the overall mix of cost efficiencies. AMS 
agrees, to the extent that the pool of growers in a tournament is 
sufficiently random and that the necessary conditions for equitable 
comparison are met, a tournament may spur growers to operate more 
efficiently as they seek higher comparison-based compensation, while 
reasonably guarding against commonly shared external conditions. Yet as 
discussed in the proposed rule and reflected in comments from grower 
groups and others, those conditions are often not met. Nor, indeed, are 
arbitrary or inequitable differences in inputs and production practices 
inherently essential features required to deliver the benefits of the 
poultry industry's vertically integrated production and comparison-
based performance compensation system. In fact, arbitrary or 
inequitable practices undermine these benefits, producing instead 
arbitrary or otherwise inequitable grower pay differences that run 
contrary to the industry's avowed purpose of the tournament system.\22\
---------------------------------------------------------------------------

    \22\ See, e.g., ``How the Tournament System Works,'' National 
Chicken Council (informing farmers that: ``1 All farmers are 
provided the same quality of chicks, the same feed, and access to 
veterinary care. 2 Farmers who invest in more advanced facilities, 
as well as use the best management practices will likely produce 
higher quality chickens more efficiently. 3 Farmers receive a base 
pay (per their contract) and potentially a bonus, based on the 
health and quantity of the flock (tournament system).''); available 
at https://www.chickencheck.in/faq/tournament-system/ (last accessed 
May 22, 2024).
---------------------------------------------------------------------------

    Because the tournament system determines a component of grower pay, 
LPD practices that impair a fair comparison of grower performance cause 
a misallocation of performance compensation, thereby unfairly reducing 
the compensation that may otherwise be due to some growers. Studies 
\23\ have shown that differences

[[Page 5159]]

in production practices and inputs, such as stocking density, slaughter 
weight, bird gender, and breeder flock age, can impact the performance 
metrics used in determining the performance adjustments in tournament 
payment systems. If LPDs provide all growers in a tournament group 
similar-quality inputs and compare growers using similar flock 
production practices, or if they take steps to balance these 
differences over time or otherwise adjust pay to account for the 
relevant differences, these production factors under LPD control are 
unlikely to unfairly affect growers.
---------------------------------------------------------------------------

    \23\ Dozier III, W.A., et al. ``Stocking Density Effects on 
Growth Performance and Processing Yields of Heavy Broilers,'' 
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler 
performance at different stocking densities.'' Journal of Applied 
Poultry Research 4.1:55-60 (1995). Burke, William and Peter J. 
Sharp. ``Sex Differences in Body Weight of Chicken Embryos.'' 
Poultry Science 68.6 (1989): 805-810; Beg, Mah, et al. Effects of 
Separate Sex Growing on Performance and Metabolic Disorders of 
Broilers. Diss. Faculty of Animal Science and Veterinary Medicine, 
Sher-e-Bangla Agricultural University, Dhaka, Bangladesh, 2016; 
Wilson, H.R. ``Interrelationships of Egg Size, Chick Size, 
Posthatching Growth and Hatchability.'' World's Poultry Science 
Journal 47.1 (1991): 5-20; Washburn, K.W., and R.A. Guill. 
``Relationship of Embryo Weight as a Percent of Egg Weight to 
Efficiency of Feed Utilization in the Hatched Chick.'' Poultry 
Science 53.2 (1974): 766-769; Weatherup, S.T.C., and W.H. Foster. 
``A Description of the Curve Relating Egg Weight and Age of Hen.'' 
British Poultry Science 21.6 (1980): 511-519; University of 
Kentucky/Kentucky Poultry Federation, Poultry Production Manual, 
https://afs.ca.uky.edu/poultry/production-manual (uky.edu), last 
accessed 08/21/2023.
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    However, when LPDs rank growers who received lower quality (i.e., 
lesser performing) inputs or less favorable flock production practices 
against growers who received higher quality (i.e., higher performing) 
inputs or more favorable flock production practices the former group 
will likely receive lower pay than the latter group due to factors 
beyond their control. The ranking in the tournament will not reflect 
the grower's actual performance; it will reflect the inputs and flock 
distribution practices the grower received and the grower's performance 
relative to that of other growers. This is an unfair practice unless 
the LPD took effective steps to make appropriate adjustments to the 
compensation structure for this settlement group to reasonably 
neutralize the impact of the inequitable distribution of inputs and 
flock production practices within the ranking group. The problem this 
section of the rule addresses is how tournaments can be designed to 
effectively counteract the impact of inequitable tournament practices 
and lead to a fair comparison in poultry ranking systems.
    Some LPDs have taken steps to design their compensation systems to 
appropriately account for the maldistribution of inputs and production 
practices within a poultry ranking group. In response to the Advance 
Notice of Proposed Rulemaking that preceded the proposed rule for this 
final rule, LPDs and their trade associations described different steps 
LPDs have taken to correct for the inequitable distribution of inputs 
and production practices among growers and resulting comparisons. A 
meat industry trade organization indicated that LPDs are known to 
reduce unpredictability in grower outcomes by having contracts that 
evaluate performance over multiple flocks and adjust pay for factors 
outside growers' control. For example, some LPDs adjust payments for 
different densities of birds placed or provide credits for excess 
seven-day death loss.
    Complementing these examples, AMS investigations have also found 
that some LPDs will attempt to ensure that broiler growers do not 
receive chicks from young laying hens too often because this can 
negatively affect growers' tournament performance. Some LPDs will 
communicate and correct ordinary problems on a timely basis. This helps 
growers avoid unintentionally punitive outcomes than would otherwise be 
the case. Yet, while LPDs assert that quality communication and fair 
operation are universal, AMS has found through interviews and comment 
review that LPD behavior currently depends extensively on the goodwill 
of the LPD, commonly via the manager of the local complex, and LPDs are 
not uniformly consistent in addressing issues that lead to unfair 
outcomes. Some local complexes make discretionary decisions that harm 
growers.
    For instance, while LPDs regularly maintain extensive grower 
manuals, LPDs are not obligated to have their manuals address the range 
of situations that undermine a fair comparison or monitor whether the 
local complexes comply with that manual in practice. Growers need a 
poultry ranking system that meets a reasonably reliable standard. For 
there to be fair payments under sections 202(a) and 410 of the Act, 
LPDs must properly adjust their comparison-based compensation systems 
used in poultry grower ranking systems. Rules, like this final rule, 
must reasonably neutralize the impact of inequitable distribution of 
inputs and flock distribution practices on poultry grower compensation.
    Because different inputs and flock production practices affect 
performance under the tournament, LPD decisions are an outsized 
component of grower payments. When an LPD operates a tournament that 
uses arbitrary or inequitable delivery of inputs and production 
practices without establishing systems to mitigate material differences 
in inputs and production practices among growers in a comparison group 
or otherwise reasonably neutralize comparison impacts, the LPD has 
committed an unfair and deceptive practice under the Act. Such a 
practice is unfair because it uses criteria outside the growers' 
control to evaluate their performance. It is deceptive because it 
purports to evaluate growers on their effort when in fact it does not, 
often leading to payment rates that are wildly fluctuating and 
unpredictable. The duty of fair comparison established in this rule 
also arises out of the Act's prohibitions on unfair practices, unjust 
discrimination, the manipulation of prices, and failure to pay. 
Comparison-based compensation systems can be used to proactively cause 
harm to one or more growers by placing them in grower settlement groups 
that are inappropriate based on distribution of inputs or flock 
production practices. LPDs likewise can use league composition (i.e., 
the formation of settlement groups) to manipulate prices downward for a 
given grower or group of growers. Finally, such practices can lead to a 
failure to pay for services provided. Violations of the Act include an 
LPD failing to maintain policies and procedures necessary to document 
the company's compliance with those fair comparison duties, owing to 
the Act's recordkeeping authorities (7 U.S.C. 221).
    AMS is adding a new Sec.  201.110, ``Operation of broiler grower 
ranking systems,'' to regulate LPDs' operation of poultry grower 
ranking systems (i.e., tournaments) for broiler growers. Paragraph (a) 
establishes an LPD duty of fair comparison in tournaments. This duty of 
fair comparison requires LPDs to structure their tournament system to 
provide a fair comparison among growers. AMS acknowledges that 
sometimes a fair comparison is not possible due to unforeseen 
differences in inputs or other circumstances, in which case an LPD must 
compensate growers through a non-comparison method specified in the 
contract that reflects a reasonable compensation to the grower for its 
services. Paragraph (b) establishes basic documentation that LPDs must 
maintain regarding how they design and operate their poultry grower 
ranking systems for broiler growers.
i. Section 201.110(a)--Fair Comparison
    Paragraph (a)(1) requires LPDs that use comparison-based 
compensation systems for their poultry growers to design and operate 
their poultry grower

[[Page 5160]]

ranking system (i.e., comparison-based compensations system) in a way 
that provides a fair comparison among growers. This final rule uses in 
various places the definition of ``poultry grower ranking system''--
commonly called the tournament contract--already set forth in PSD 
regulations at Sec.  201.2.\24\ Recognizing that LPDs have long claimed 
that tournament contracts are designed to promote efficiency, not 
frustrate it, AMS has written this rule to affirm the duty to fairly 
compare growers. Specifically, this rule requires LPDs to advance a 
fair comparison among growers in a poultry ranking group based on 
grower effort and skill. Measuring performance based on input quality--
which is outside of the grower's control--is unfair and deceptive. LPDs 
have a multitude of means to maintain fair comparisons. This includes 
correcting for: input quality variations, inappropriate feed type 
delivery, gaps in feed delivery, variation in production practices such 
as flock density, pick-up time or pick-up weight across the comparison 
group. LPDs can manage fair comparisons through extending the period 
over which the comparisons are made, adjusting payment for certain 
inputs or production practice differences, or removing growers from 
tournaments where a fair comparison is not possible. LPDs can ensure 
league composition (ranking groups) are reasonably random and robust 
enough to establish a fair comparison baseline. LPDs can also establish 
processes for responding to complaints in a timely manner or making 
appropriate adjustments to comparisons. But LPDs violate the Act when 
they do not design and operate their comparison poultry compensation 
system in a manner that delivers a fair comparison among growers within 
any given ranking group.
---------------------------------------------------------------------------

    \24\ Poultry grower ranking system means a system where the 
contract between the live poultry dealer and the poultry grower 
provides for payment to the poultry grower based upon a grouping, 
ranking, or comparison of poultry growers delivering poultry during 
a specified period.
---------------------------------------------------------------------------

    Paragraph (a)(2) of Sec.  201.110 establishes the factors the 
Secretary will consider in determining whether an LPD reasonably 
designed or operated its poultry grower ranking system to deliver a 
fair comparison among growers or whether the LPD must utilize a non-
comparison compensation method. This provision establishes a violation 
for either the LPD's failure to design or failure to operate a poultry 
grower ranking system to deliver a fair comparison among growers. In 
the first instance, AMS could bring an enforcement action for an LPD's 
failure to design the ranking system in a manner that would deliver a 
fair comparison; such an action would be based upon the processes set 
forth in the documentation required under paragraph (b) of this 
section. In the second instance, AMS could bring an enforcement action 
based upon an LPD's failure to operate the ranking system in a manner 
consistent with the duty of fair comparison. Such a failure could be 
because the LPD was not following the documented processes or because 
in practice the documented processes do not deliver a fair comparison. 
The factors listed in Sec.  201.110 (a)(2)(i) through (vi) are designed 
to establish what constitutes reasonable delivery of a fair comparison. 
That is, the Secretary will examine these factors when determining 
whether the LPD has reasonably designed or operated their ranking 
system. Reasonableness should be viewed as an objective test that 
accounts for growers' contract expectations, basic considerations of 
equity, and the LPD's ability and willingness to prevent harms to 
growers resulting from factors outside growers' control. However, it 
should also provide some flexibility to LPDs to achieve distinct goals 
provided they are well-designed, justified, and not otherwise unfair or 
deceptive.
    Paragraphs (a)(2)(i) and (ii) of Sec.  201.110 address whether an 
LPD's distribution of inputs and assignment of flock production 
practices caused material differences in performance that growers 
cannot avoid, and whether the LPD made appropriate adjustments to 
compensation. Fair comparison of growers requires that growers do not 
receive a distribution of inputs or assignment of production practices 
that cause material differences in performance from other growers to 
whom they are being compared and are caused by factors outside of a 
grower's control. Material differences in performance are differences 
that meaningfully (from the perspective of the grower) impact grower 
payments.
    To comply with these requirements, LPDs must identify inputs and 
flock production practices under their control that impact grower 
payment and ensure that these factors do not meaningfully impact grower 
payments. LPDs also must improve their monitoring of how inputs and 
flock production practices are allocated across growers, and, as 
appropriate, adjust such allocations to reduce the unequal distribution 
among growers within a settlement group or across a given time period. 
An LPD could still provide certain growers with different inputs, for 
example because an LPD believed certain growers were better at raising 
particular types or quality of birds (e.g., chicks from older hens), 
provided it adjusted compensation if material differences in 
performance affected the comparison. The LPD would also be free to use 
a non-comparison method for those growers.
    LPDs must adjust how grower pay is calculated if a fair comparison 
is impractical due to unavoidable inequitable allocations. For example, 
the LPD may determine that a five-flock average may be appropriate for 
determining a grower's pay when the LPD provided chicks for that grower 
are later discovered to be diseased, and no fair comparison is 
reasonably possible, practical, or appropriate for that grower within 
the tournament for that flock. Any adjustment to how grower 
compensation is determined must use a non-comparison method specified 
in the contract that reflects reasonable compensation to the grower for 
its services. The contract should set forth the preferred approach(es) 
of the parties. Ensuring that agreed-to payment adjustments are fair 
will be part of regular AMS poultry compliance reviews. An average of 
the last five settlements by the grower is considered a non-comparison 
method for the purpose of the tournament settlement that the grower is 
being excluded from, even though the average is affected by the 
previous comparisons (unless unusual facts and circumstances call into 
question the fairness of such an approach).
    Section 201.110(a)(2)(iii) addresses whether the designated time 
period used in an LPD's comparison is appropriate, including whether 
the LPD uses one or more groupings, rankings, or comparisons of growers 
to mitigate the effects of any differences in inputs over the 
designated time period. Fair comparison of growers does not require 
that LPDs provide all growers precisely equal inputs and identical 
production practices for each flock. This rule permits LPDs to minimize 
production inefficiencies that would arise from a standard requiring 
strict equality in inputs, while avoiding an unfair comparison of 
grower performance. If the LPDs compare growers fairly over reasonable 
period of time, randomly selecting inputs is one way, in most cases, to 
minimize the effect of the flock-to-flock variance in inputs. Companies 
may use non-random distribution, including temporarily correct for what 
would otherwise be an inequitable distribution of inputs under an 
otherwise random system, provided they ensure comparisons are fair.

[[Page 5161]]

    AMS considers a period of one year or less to be a reasonable 
timeframe across which to compare growers' performance because it 
provides sufficient time to limit variation from one event while 
ensuring that LPDs treat growers fairly over a reasonable timeline. The 
one-year period coincides with commonly used five-flock averages and 
with one-year comparisons used in some live poultry growing 
arrangements.
    Paragraph (a)(2)(iv) of Sec.  201.110 addresses whether conditions 
and circumstances outside the control of the LPD render comparison 
impractical or inappropriate. A settlement group may have differences 
in LPD-provided inputs, LPD-assigned production practices, or other 
factors beyond the control of LPDs and growers that render a reliable 
comparison impossible. The Secretary will consider the facts and 
circumstances applicable to each case. One example might be the 
previously described situation where an LPD unknowingly delivered 
chicks to a grower that are later discovered to be diseased so that no 
fair comparison is possible.
    Section 201.110(a)(2)(v) addresses whether an LPD has made 
reasonable efforts to resolve in a timely manner grower concerns 
regarding the LPD's exercise of discretion over the implementation of 
its fair comparison processes. In determining compliance with this 
requirement, through compliance reviews or in response to a complaint, 
AMS will consider whether an LPD has demonstrated enough responsiveness 
and commitment to resolving legitimate concerns to avoid potential 
secondary harm to the grower. What constitutes ``reasonable efforts'' 
and ``timely'' resolution of a grower's concerns will depend on the 
facts and circumstances of each case, with particular attention placed 
on whether and how the situation adversely impacts the fairness of the 
comparison(s) for the grower. For example, if a grower raises immediate 
and urgent concerns about feed quality, such as the delivery of feed 
meant for older chicks than the grower has, the LPD should have in 
place processes to--and in fact, actually--resolve this concern as soon 
as possible to minimize any additional undue damage to the grower's 
flock due to lack of proper nutrition. If a grower raises concerns 
about feed persistently being delivered late or in an insufficient 
quantity, the Agency will examine the LPD's ``reasonable efforts'' 
taken to adjust the delivery method. Additionally, an LPD is prohibited 
from retaliating against a grower in any manner for raising concerns as 
to whether a fair comparison method was used.
    Lastly, Sec.  201.110(a)(2)(vi) states that the Secretary shall 
consider any other factor relevant to a fair comparison among broiler 
growers in a poultry ranking system. This provision gives AMS the 
authority to address any other facts or circumstances that adversely 
affected the fairness of the design or operation of the poultry grower 
ranking system. AMS will determine compliance by examining the facts 
and circumstances, and in particular, whether the LPD took specific 
actions to undermine the comparison process. For example, this prong 
allows AMS to consider whether an LPD's intentional grouping of certain 
growers in a poultry ranking group to manipulate or adversely affect 
comparison-based outcomes constitutes a violation of the Act.
    When determining whether an LPD has designed and operated its 
broiler grower ranking system to provide a fair comparison among 
growers, AMS will consider the fair comparison factors set forth in 
Sec.  201.110(a)(2) against how and to what degree comparison factors 
account for total grower compensation. When relative grower performance 
pay accounts for a very small portion of grower compensation, AMS 
expects differences in inputs and flock production practices to cause 
fewer material differences in pay. AMS expects this dynamic to operate 
on a sliding scale; the smaller the role of comparison pay in total 
grower compensation, the smaller the effect of variations in inputs and 
flock production practices on total compensation. AMS will also 
consider the design of the formula to determine its impact on the 
magnitude or distribution of compensation, if any.
    In some situations, differences among LPD-provided inputs, LPD-
assigned flock production practices, or factors beyond the control of 
both LPDs and growers make a reliable comparison impossible, 
impractical, or inappropriate for one or more growers. In such cases, 
Sec.  201.110(a)(3) requires that an LPD must fairly compensate growers 
through a non-comparison method specified in the contract that reflects 
reasonable compensation to the grower or growers for their services. 
For example, if an LPD is unable to pick up a flock in a timely manner 
because of processing disruptions (as occurred during the COVID-19 
pandemic), the LPD may remove the grower from the settlement rather 
than compare that grower's flock performance against growers delivering 
flocks of a significantly different age. In such cases, the LPD must 
compensate the grower using a reasonable non-comparison alternative. 
Multiple approaches could be considered reasonable depending on the 
circumstances, and LPD costs are an appropriate consideration as part 
of those particular facts and circumstances. AMS is aware that LPDs 
often pay the grower an amount equal to the average rate they received 
over their previous five flocks. The non-comparison method is intended 
to fairly compensate the grower. Therefore, absent special 
circumstances where a rationale and an agreement to do otherwise are 
reasonable and appropriate (and documented as such), the non-comparison 
compensation method needs to equal or exceed the pay that the 
comparison-based compensation rate would have delivered. AMS will rely 
on the documentation of written processes set out in Sec.  201.110(b), 
as well as the facts and circumstances of specific occurrences, to 
evaluate compliance.
ii. Section 201.110(b)--Documentation
    Paragraph (b) of Sec.  201.110 details the documentation an LPD 
must establish and maintain of its processes for the design and 
operation of its poultry grower ranking system for broiler growers that 
is consistent with the duty of fair comparison. This paragraph has 
changed considerably from the proposed rule to provide greater 
flexibility in meeting the terms of this regulation. AMS also revised 
paragraph (b) in response to commenters' concerns that the specific 
documentation requirements laid out in the proposed rule were very 
similar to documentation requirements delineated in existing 
regulations at Sec.  201.102(b) and that burdening LPD service 
technicians with increased paperwork would take away from their core 
responsibilities of attending to the production needs of growers.
    In the final rule, Sec.  201.110(b) sets forth documentation 
requirements regarding LPDs' duty to ensure the fair design and 
operation of broiler grower ranking systems. Under section 401 of the 
Act, AMS is authorized to prescribe ``the manner and form in which such 
accounts, records, and memoranda shall be kept'' whenever the Secretary 
finds that the records of an LPD do not fully and correctly disclose 
the LPD's business transactions (7 U.S.C. 221). Paragraph (b)(1) 
requires that LPDs establish and maintain written documentation of 
their processes for the design and operation of a poultry grower 
ranking system that is consistent with the duty of fair comparison. 
This rule requires documentation to include

[[Page 5162]]

written processes, referred to as policies and procedures, regarding 
the process for (i) inputs under LPD control, (ii) flock production 
practices (iii) league composition, (iv) the evaluation period, (v) 
non-comparison factors, and (vi) LPD communication and cooperation with 
growers. These processes must provide a general description of the 
items that the rule requires to be included, with sufficient detail to 
provide a typical user of the documentation--such as a local poultry 
complex manager that directs the operation of the complex's 
tournament--with an understanding of how duty of fair comparison is to 
be operationalized within this complex's poultry grower ranking 
systems.
    To simplify the documentation requirements and minimize paperwork 
burdens for poultry complex service technicians, AMS revised paragraph 
Sec.  201.110(b)(1)(i), ``Inputs under live poultry dealer control,'' 
from what was proposed by removing subparagraphs (b)(1)(i)(A) through 
(E), which delineated detailed requirements pertaining to 
identification, management, and adjustment of differences in input 
distribution to growers, and how LPDs adjust compensation calculations 
based on the inputs a grower receives. In the final rule, paragraph 
(b)(1)(i) contains no subparagraphs and simply requires that the LPD's 
written processes include how and when the LPD assigns, adjusts, or 
otherwise accounts for similarities and differences of quality and 
quantity in the delivery of inputs to growers. The removal of 
subparagraphs (A) through (E) simplifies the requirement by including 
one all-encompassing requirement that LPDs must explain how they 
assign, adjust or otherwise account for similarities and differences of 
quality and quantity in the delivery of inputs to growers. Revised 
paragraph (b)(1)(i) clearly requires that LPDs address all the ways 
that variation in inputs can impact a poultry growing ranking system, 
while giving LPDs flexibility in how to mitigate the impact of uneven 
distribution of LPD-provided inputs on fair comparison in the 
tournament and, hence, comparison-based grower pay. In sum, AMS 
determined that the deleted subparagraphs were not needed to establish 
that LPDs must explain in their written documentation how they account 
for the possible distortions and resulting inequities that can manifest 
in poultry grower ranking systems when they fail to properly account 
for variations in inputs.
    Under paragraph (b)(1)(i), LPDs are required to create a written 
process for how and when the LPD assigns, adjusts, or otherwise 
accounts for similarities and differences of quality and quantity in 
the delivery of inputs to growers. This provision requires LPDs to have 
a defined process governing how they will ensure the duty of fair 
comparison is met. Such a process needs to explain how the LPD will 
operate its poultry complex and its related poultry grower ranking 
system, so growers have fair opportunity to compete on a level playing 
field in individual flock settlements or in a comparison settlement 
that stretches beyond individual flocks, where the impact of variation 
in quality, quantity, or timing of inputs may be significantly reduced 
or eliminated. LPDs unfairly harm growers when they distribute inputs 
in a manner that disadvantages a grower relative to other growers in 
said tournament(s) and base their compensation accordingly. Growers 
cannot control the nature of the inputs they receive from their LPD, 
whether that be quality of chicks or feed, appropriateness of feed 
delivered for stage of growth, gaps in feed delivery, or delivery of 
veterinary services. Receipt of low-quality, insufficient, or 
inappropriate inputs can unfairly impact growers' performance in 
tournaments if the LPD does not have appropriate processes in place for 
mitigating such variation in input delivery. LPD processes required 
under paragraph (b)(1)(i) must include ongoing accounting and 
monitoring of inputs supplied to each producer using objective measures 
of quality and performance that are generally accepted in the industry. 
Such monitoring and accounting should aim for as minimal variation as 
possible in input delivery quality or quantity across the members of 
one or more grower poultry ranking groups, and appropriate mechanisms 
for detecting and correcting for input variations in a timely manner. 
Such processes should address key areas of concern, including 
allocation of chicks that differ in quality and performance, variation 
in quality or quantity of feed, or variation in medication across 
grower groupings. LPDs may include policies and procedures for 
balancing disparity of inputs either within a single flock or over 
multiple flocks as appropriate and feasible.
    In the final rule, AMS also simplified Sec.  201.110(b)(1)(ii), 
``Flock production practices,'' from that which was proposed. AMS 
removed subparagraphs (b)(1)(ii)(A) through (E), which described, in 
detail, the processes LPDs must include in the design and operation of 
their poultry grower ranking systems pertaining to assignment of flock 
density at delivery, timing of pick-up, adjustment of comparison based 
on different assignment flock production practices, and adjustment of 
compensation calculations based on the grower's receipt of specific 
flock production practices. In the final rule, paragraph (b)(1)(ii) 
contains no subparagraphs and simply requires that written processes 
include how and when the LPD assigns, adjusts, or otherwise accounts 
for differences in production practices. The removal of subparagraphs 
(A) through (E) simplifies the requirement by including one all-
encompassing requirement that LPDs must explain how they assign, 
adjust, or otherwise account for similarities and differences regarding 
assignment of flock production practices. Revised paragraph (b)(1)(ii) 
clearly requires that LPD address the ways that variation in flock 
production practices assigned to growers can impact a poultry growing 
ranking system, while providing flexibility on the appropriate 
processes LPDs can establish to mitigate the negative impact LPD-
assigned production practices can have on fair comparison in the 
tournament(s) and, therefore, comparison-based grower pay. In sum, AMS 
determined that the deleted subparagraphs were not needed to establish 
that LPDs must explain how they account for the possible distortions 
and resulting inequities that can manifest in poultry grower ranking 
systems when LPDs fail to account for variations in flock production 
practices.
    Under paragraph (b)(1)(ii), LPDs must maintain written 
documentation of its processes for how and when the LPD assigns, 
adjusts, or otherwise accounts for differences in production practices 
across growers in a poultry ranking system. Similar to paragraph 
(b)(1)(i), such processes should include ongoing monitoring of how 
flock production practices are allocated across different growers in 
one or more poultry grower ranking systems, and mechanisms for 
adjusting for disparities in flock production allocations in a 
reasonable time frame such that additional harm does not result. Such 
processes governing flock production processes should cover how and 
when the LPD assigns density at delivery; how and when the LPD manages 
pickup of birds with respect to slaughter weight and bird age; how and 
when the LPD adjusts how a grower is compared to other growers with 
different assigned flock production practices or otherwise adjusts the 
flock production practices the grower receives; any steps the LPD takes 
to adjust compensation

[[Page 5163]]

calculations based on suboptimal allocation of flock production 
practices to growers; and how and when the LPD minimizes, adjusts, or 
otherwise accounts for differences in production practices. LPDs can 
unfairly manipulate grower payments when they compare growers even 
within a single tournament settlement group within which the LPD has 
assigned different types of production practices to growers in the 
group. Under this rule, LPDs must develop policies and procedures that 
describe the processes for ongoing accounting and monitoring of LPD-
determined flock production practices allocated to each producer. The 
LPD's processes must provide a consistent approach to minimize 
differences in production practice assignments and describe methods to 
compensate growers for differences that result in harms.
    In the final rule, AMS also simplified paragraph (b)(1)(iii) of 
Sec.  201.110 from what was proposed. In the final rule, AMS removed 
subparagraphs (A) through (C) from paragraph (b)(1)(iii) and instead 
separated out the requirements into three distinct paragraphs: 
(b)(1)(iii), ``League composition;'' (b)(1)(iv), ``Evaluation period;'' 
and (b)(1)(v), ``Non-comparison.''
    Under the final rule, paragraph (b)(1)(iii), ``League 
composition,'' requires LPDs to create written processes governing 
league composition, which is how LPDs assign groups of growers to 
settlement groups. AMS revised this paragraph for simplicity and 
readability. Formerly, the provision was contained in paragraph 
(b)(1)(iii)(C), reading, ``If the live poultry dealer groups growers 
for settlement in any manner other than the one used in recent 
settlements, how the dealer determines such groupings.'' Settlement 
groupings, also called league composition, are most commonly based on 
their chronological availability for slaughter within the complex but 
could also be based on housing type or other commonalities across a 
group of growers. Generally, the settlement grouping is determined by 
flock placement timing, which commonly varies based on the timing needs 
of the growers. For example, growers may need additional time between 
flocks for cleaning, maintenance, vacation, or other similar reasons.
    Paragraph (b)(1)(iii) of this rule serves to identify practices or 
circumstances that diverge from these ordinary reasons for determining 
settlement groupings. While legitimate reasons exist for deviating from 
a strict chronological availability-based grouping, this provision is 
principally meant to ensure that LPDs do not use league composition to 
interfere with fair comparison by intentionally grouping specific 
growers together to lower the pay of one or more members of the 
settlement group, or to otherwise manipulate pay to deliberately 
benefit certain growers over others.
    Under Sec.  201.110(b)(1)(iv) of the final rule, ``Evaluation 
period,'' the LPD is required to maintain written documentation of how 
it establishes a reasonable time period over which the LPD evaluates 
the duty of fair comparison. This provision was proposed with slightly 
different phrasing as paragraph (b)(1)(iii)(A). This provision requires 
the LPD to describe its process for how it determines the number of 
settlement groupings over which grower comparisons will be made. The 
duty of fair comparison requires that LPDs design and operate their 
poultry growing ranking systems to provide a fair comparison among 
growers. This means that the comparison must genuinely reflect effort 
by the growers, not variability in inputs or flock production 
practices, which are outside of the growers' control and thus not 
criteria that form the basis of a fair comparison. It may be that over 
the course of a year variations in inputs or flock production practices 
will cancel each other out. The evaluation period must account for the 
length of its growers' contracts and the reasonable expectation of 
renewal. If the duty of fair comparison requires five flocks, then the 
contracts need to span at least five flocks, or if they do not, there 
must be a very high likelihood that the contract will be renewed such 
that the growers will receive the five flocks and thus be subject to a 
fair comparison that evens out fluctuations in input quality or 
quantity or flock production practices.
    In the final rule, Sec.  201.110(b)(1)(v), ``Non-comparison,'' 
requires that an LPD's written processes explain when the LPD might 
remove a grower from a ranking group, and how the LPD will compensate 
growers removed from a ranking group to satisfy the non-comparison 
compensation method required under Sec.  201.110(a)(3). This provision 
was proposed as paragraph (b)(1)(iii)(B) in similar language. There are 
myriad reasons why an LPD may decide to remove a grower from a ranking 
group. For example, LPDs may not have enough comparable growers with 
which to make a reliable comparison in the current grouping and may use 
growers settling in previous periods to make a reliable comparison. 
Likewise, a specific grower may have received undesirable inputs or an 
assignment of production practices that materially impacted the 
grower's performance, necessitating the removal of the grower from the 
grouping and compensation under a non-comparison compensation method. 
Under this provision, the LPD is required to explain how and when the 
LPD removes a grower from a ranking group because the grower received 
unfavorable inputs or production practices and how it will fairly 
compensate such growers through a non-comparison compensation method.
    In the final rule, Sec.  201.110(b)(1)(vi), ``Communication and 
cooperation,'' is very similar to the provision as proposed, with the 
only notable change being the paragraph designation: in the proposed 
rule, the paragraph was designated paragraph (b)(1)(iv); in the final 
rule, the paragraph is designated paragraph (b)(1)(vi). This paragraph 
requires LPDs to create written processes for how the LPD will resolve 
a grower's concerns with the LPD's exercise of discretion over the 
implementation of the policies required by this section, including the 
timeliness of the resolution. A tournament system cannot be fair if it 
fails to permit growers to contest, without fear of retribution, 
negligent or malicious actions taken by the LPD that may impact grower 
performance. The rule provides flexibility on how LPDs can satisfy this 
requirement. A range of procedures are available, such as timely 
communication with complex management, communication with LPD 
headquarters, and grower councils, wherein disputes are resolved with 
input from other growers. The implementation of processes to manage and 
resolve grower disputes can serve to alert LPDs to potential unfairness 
in their comparison of growers and enable them to resolve issues in a 
timely manner.
    In the final rule, AMS removed proposed Sec.  201.110(b)(2), 
``Compliance review.'' In the proposed rule, this paragraph delineated 
detailed compliance review procedures for the processes set out in 
paragraph (b)(1) of this section. AMS removed this requirement in 
response to comments that such self-audits are a somewhat burdensome 
requirement for LPDs that can be eliminated with minimal effect on 
effective compliance. Rather than requiring self-audits, AMS will 
review the policies and procedures required under Sec.  201.110(b)(1) 
through its ongoing compliance review process. This will ensure regular 
review of LPDs' compliance with the provisions of this

[[Page 5164]]

regulation with minimal additional recordkeeping burden on LPDs.
    In the final rule, Sec.  201.110(b)(2), ``Record retention,'' 
mirrors that which was proposed, with the only notable change being the 
paragraph designation: in the proposed rule, the paragraph was 
designated paragraph (b)(3); in the final rule, the paragraph is 
designated paragraph (b)(2). This paragraph requires LPDs to retain all 
written records relevant to their compliance with paragraph (b) for no 
less than five years from the date of record creation. These records 
should be made available to AMS upon request. Relevant records include, 
for example, copies of existing processes (policies and procedures); 
written documentation of LPD processes used within the last five years, 
including documentation of inputs and flock production practices 
provided to growers; written documentation of league composition; 
written documentation of grower complaints and their resolution; board 
minutes discussing compliance with this section for five years from the 
date of the board meeting; current and expired grower contracts for 
five years for the date of last effectiveness of the contract; 
disclosures provided to growers for five years from the date of the 
disclosure is provided to the grower; information on payments to 
growers or other forms of adjustment made to ensure a fair tournament, 
etc. Under the regulation, LPDs must retain these records for five 
years to enable the Agency 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. As noted earlier 
in this section, section 401 of the P&S Act authorizes AMS to prescribe 
the manner and form in which LPDs keep business records. This 
recordkeeping requirement will enhance LPD management's ability to 
establish and monitor compliance, as well as AMS's ability to supervise 
and enforce the rule.
iii. Compliance and Enforcement
    Compliance with Sec.  201.110(b) requires LPDs to retain records 
that document the LPD's design and operation of broiler grower ranking 
systems in a manner that is consistent with the duty of fair 
comparison. These policies and procedures are necessary to document 
compliance precisely because the options for delivering a fair 
comparison are so diverse. Policies and procedures developed pursuant 
to this rule should describe the LPD's framework for assigning inputs 
and LPD-determined flock production practices, comparing grower 
performance, and resolving growers' concerns regarding the LPDs' 
implementation of its policies and procedures. Recordkeeping should 
enable periodic review by the LPD to examine and report on the LPD's 
compliance with its established written processes and, as such, with 
its compliance with the duty of fair comparison.
    Enforcement of Sec.  201.110 can occur in several ways. Growers can 
contact AMS-PSD to submit a complaint regarding an alleged violation of 
Sec.  201.110. PSD would then investigate, which could lead to referral 
to DOJ for appropriate action or, where failure to pay is implicated, 
to USDA enforcement through administrative action.\25\ AMS will also 
review LPD contracts, along with other required records from the LPD, 
in connection with routine compliance reviews and investigations to 
ensure LPD compliance. Injured individuals also have a right to proceed 
directly in Federal court.
---------------------------------------------------------------------------

    \25\ Additional information on reporting violations of the P&S 
Act can be found here: https://www.ams.usda.gov/services/enforcement/psd/reporting-violations (last accessed 11/13/2023).
---------------------------------------------------------------------------

C. Broiler Grower Capital Improvement Disclosure Document (Sec.  
201.112)

    AMS is finalizing new Sec.  201.112, ``Broiler grower Capital 
Improvement Disclosure Document,'' which requires that LPDs provide 
growers with a Capital Improvement Disclosure Document (Disclosure 
Document). Paragraph (a) requires that when an LPD requests that a 
grower make an additional capital investment, the LPD must provide the 
grower with a Disclosure Document. Paragraph (b) describes the required 
disclosures in the Disclosure Document. AMS made slight modifications 
to provisions of paragraph (b), which will be described below. AMS also 
modified proposed Sec.  201.112 in response to public comment by adding 
a new paragraph (c), which requires the LPD to assist with translating 
the Disclosure Document.
    The inclusion of Sec.  201.112 is necessary because LPDs often 
request or require that growers make costly additional capital 
investments, which may benefit LPDs and growers in some ways, but may 
also be problematic and unfair. The LPD requesting an additional 
capital investment may be deploying bargaining leverage and forcing the 
grower to bear unreasonable risk, and the purposes, processes, and 
outcomes of the additional capital investment may be opaque, 
complicated, or otherwise difficult to evaluate. Additional capital 
investments can also further serve to lock in growers to specific LPDs, 
making it harder to switch. Growers, however, are often not in a 
position to choose not to make an additional capital investment. Many 
growers come under significant pressure from LPDs to make a requested 
additional capital investment. Even when a grower has sufficient 
bargaining leverage to negotiate the terms of compensation, the LPD may 
not provide sufficient information for the grower to assess the full 
risk and reward of undertaking the additional capital investment. 
Indeed, based on AMS's knowledge of industry disclosure practices and 
decades of hearing complaints from growers, growers today often 
undertake additional capital investments for the LPD without the 
opportunity to fully understand the additional capital investment's 
purpose, design, risks, and impacts on their financial well-being; or, 
are pressured in some way to make those investments.\26\ Information 
asymmetry impairs growers' ability to negotiate, effectively exercise 
independent decision-making to reject an additional capital investment, 
and, more broadly, manage their farming operation upon choosing

[[Page 5165]]

to make the additional capital investment. When information asymmetries 
prevent growers from evaluating whether they are able to recoup their 
investment or whether they can engage in other farming practices that 
could achieve the goals of the additional capital investment, growers 
cannot effectively protect their financial interests or freely exercise 
decision-making with respect to their farming operation. Growers and 
AMS may also be unable to identify circumstances where LPDs are seeking 
to compete through additional capital investment practices that shift 
or hide costs to growers, which subverts the competitive process.
---------------------------------------------------------------------------

    \26\ MacDonald, James M. 2014, Technology, Organization, and 
Financial Performance in U.S. Broiler Production, EIB-126, USDA 
Economic Research Service, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6 (In a 2011 survey of 
contract growers, sixty percent of growers making any capital 
expenditures reported that the LPD required those expenditures). 
AMS-FTPP-22-0046-0799 (``Poultry companies require capital 
improvements that do not improve my bottom line. I must pay for the 
capital improvements, which may not be a capital improvement that 
will benefit my operation. It will not benefit the quality of the 
bird. The benefit is not clearly proven or explained, just I am 
required to make the improvement or get paid less or dropped as a 
grower.''); AMS-FTPP-22-0046-0737 (``For years, I've been forced to 
upgrade my farms facilities at my own expense just to maintain 
contracts. These costly and often unnecessary upgrades, dictated by 
companies like [name redacted], have left me in debt and struggling 
to cover basic expenses. The financial burden is unsustainable and 
has made it incredibly challenging to keep my farm afloat''); AMS-
FTPP-22-0046-0176 (``For way too long these poultry integrators have 
been let off the hook for bullying, forcing their contract growers 
into making large investments in upgrades that will never see a 
payback beyond the initial investment to build the infrastructure to 
keep their growers under their total control and blaming growers for 
everything that goes wrong . . .''). United States Department of 
Justice, United States Department of Agriculture, (May 2010), Public 
Workshops Exploring Competition in Agriculture, https://www.justice.gov/archives/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10 (``It's 
typical for growers to be asked to do expensive upgrades on their 
poultry houses before this first loan of this building has been paid 
off. I know because I was one of those growers. The threats put 
before you, the communication, the threat is put before you, if you 
do not do this, they're not going to bring you any more chickens to 
grow'').
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    AMS has identified as deceptive those LPD contracting practices 
that fail to disclose key information about additional capital 
investments. Growers make critical investment decisions in reliance on 
the information required by this rule, most of which is not currently 
provided by LPDs. AMS emphasizes that disclosure under new Sec.  
201.112 is not, and is not intended to be, a remedy to unfairness in 
and of itself; rather, disclosure provides AMS and growers with 
information necessary to enforce their rights under existing Sec.  
201.216, ``Additional capital investments criteria,'' and the P&S Act 
more broadly, when terms are unfair. Without sufficient, simple, and 
clear disclosures, growers cannot assess the benefits or risks of 
making the investment. Indeed, given the role of performance pay in 
determining total grower compensation under the tournament, some 
voluntary additional capital investments may seem mandatory if growers 
want to maintain existing revenue levels, even if growers don't fully 
understand the purposes and expected outcomes of the requested 
additional capital investment. Furthermore, growers experience 
considerable pressure to accept LPDs' additional capital investment 
requests given LPDs' market power, or substantial bargaining power, and 
growers' relatively weak market position, including commonly a lack of 
meaningful choice among LPDs. A majority of broiler growers cannot 
change LPDs if their current relationship sours.\27\
---------------------------------------------------------------------------

    \27\ MacDonald, James M. 2014. Technology, Organization, and 
Financial Performance in U.S. Broiler Production, EIB-126, USDA 
Economic Research Service (Roughly 22 percent of growers operate in 
a pure monopsonistic local market, and that 52 percent of broiler 
growers (farms), accounting for 55 percent of broilers produced and 
56 percent of total production, report having only one or two LPDs 
in their local areas).
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    AMS notes that the existing regulation in Sec.  201.216 is intended 
to allow the Agency to partially mitigate additional capital investment 
problems for growers. The existing regulation sets forth criteria for 
whether additional capital investments would be an unfair practice or 
other violation of the Act, including whether the grower can decide 
against the additional capital investments; whether the additional 
capital investments were a result of coercion, retaliation, or threats 
by the LPD; and whether the additional capital investments can result 
in reasonable recoupment, or adequate compensation for the additional 
capital investments, among other non-exhaustive criteria. However, AMS 
has found that the presence of the criteria alone is insufficient to 
effectively address problems stemming from additional capital 
investments. For example, insufficient information about additional 
capital investments impacts the criteria at Sec.  201.216(a) that seek 
to preserve the grower's discretion to decline an additional capital 
investment. Lacking sufficient information about additional capital 
investments, a grower cannot effectively assess whether they would 
still be able to compete against other growers without the additional 
capital investment.
    The Act requires production contracts to disclose the possibility 
of additional capital investment (7 U.S.C. 197a(b)). However, the 
majority of contracts contain no information relating to when or how 
additional capital investments may be required, nor the costs or risks 
of any such additional capital investment, nor what, if any, limits 
there are on an LPD's ability to unilaterally impose additional capital 
investments that do not materially improve production efficiency or 
meet consumer demands. To better enable growers and AMS to guard 
against unfairness and to prevent deception, LPDs must disclose more 
information regarding the purposes, processes, and outcomes of 
additional capital investments they request from broiler growers. The 
disclosures must occur before growers take on the financial burden and 
risks of the additional capital investment. The provision of such 
information is not, in and of itself, the cure for unfairness, but 
rather a key tool for AMS and growers to halt abusive practices by 
arming them with the ability to identify those challenges sooner. The 
disclosures required in Sec.  201.112 accomplish these goals. 
Furthermore, the act of disclosing information does not, in and of 
itself, render the action lawful. Even if disclosed, certain actions 
may be unfair or deceptive practices under the P&S Act. Disclosure 
alone does not mitigate the legal or ethical ramifications of such 
practices.
    The Agency has an existing regulation, 9 CFR 201.216, which sets 
forth a non-exclusive list of criteria the Secretary may consider in 
determining if a required additional capital investment violates the 
Act. In future cases, the Sec.  201.112 disclosures on additional 
capital investments will improve the Secretary's analysis of Sec.  
201.216. Whether the Secretary considers recoupment of the additional 
capital investment to be reasonable includes consideration of the 
projected returns under Sec.  201.112(b)(6), the contract terms, and 
the return to an average grower operating under the LPD's contract. AMS 
underscores the importance of length of the contract to secure a full 
opportunity for recoupment. AMS recognizes that growers in many 
instances cannot avoid the LPD's unfair exercise of market power or 
bargaining leverage, and that the LPD failing to sufficiently and 
fairly compensate growers for an additional capital investment is not a 
cognizable benefit to growers or to competition.
i. Section 201.112(a)--Disclosure Requirement
    In the final rule, paragraph (a) of Sec.  201.112 requires that 
when an LPD requests that a broiler grower make an additional capital 
investment, the LPD must provide the broiler grower with a Disclosure 
Document that contains the information required by paragraph (b) of 
this section. AMS slightly modified this provision from the proposed 
rule by adding the paragraph heading, ``Disclosure requirement.'' 
Information provided in the Disclosure Document will help growers 
protect themselves at an earlier stage--before the investment--from 
unfair practices, by enabling them to report to AMS potentially unfair 
additional capital investment practices or bring their own action. 
Improved documentation will also enable AMS to take earlier and more 
effective action against problematic additional capital investment 
practices. Transparency will also enable some growers, where sufficient 
choice exists, to make better additional investment decisions. 
Importantly, clear disclosure of additional capital investment 
parameters will enhance growers' ability to enforce their rights 
relating to unfair practices under Sec.  201.216 (such as recoupment 
and discretion to refuse to make an additional capital investment), as 
well as other provisions of the P&S Act and regulations. Disclosure 
alone is

[[Page 5166]]

not a remedy for an additional capital investment that is unfair, but 
the disclosures required by new Sec.  201.112 will create a record that 
will facilitate the Agency's ability to enforce the Act under existing 
Sec.  201.216.
    This requirement applies prospectively to requests for additional 
capital investments. However, if the LPD has previously provided any 
disclosure to the grower that was incomplete or inaccurate, the company 
should consider revising it and providing an updated copy to the grower 
to minimize the risks of having engaged in a violation of deceptive 
practices.
ii. Section 201.112(b)--Disclosure Contents
    Section 201.112(b) lists the items the Disclosure Document is 
required to disclose. AMS slightly modified this provision from the 
proposed rule by adding the paragraph heading, ``Disclosure contents.'' 
The required disclosures must be prominently presented in a clear, 
concise, and understandable manner. Paragraph (b)(1) requires that the 
Disclosure Document provide the purpose of the additional capital 
investment for both the LPD and the grower and a summary of all 
research and other supporting material that the LPD has relied upon in 
justifying the additional capital investment. LPDs almost always have 
superior information regarding the outcomes of and risks around the 
contemplated additional capital investment. LPDs commonly research and 
design additional capital investments and usually have a plan or 
intended outcomes with respect to their request for the adoption of an 
additional capital investment. Growers have limited to no access to 
that information, yet they are often asked to expend hundreds of 
thousands or even millions of dollars to implement additional capital 
investments. As part of any assessment of risks or benefits relating to 
an additional capital investment, growers must be provided the 
information necessary to understand the intended purpose of the 
additional capital investment and have access to any research or other 
supporting material regarding that additional capital investment. For 
example, growers may make different decisions about their approach to 
additional capital investment depending on whether it is intended to be 
performance-enhancing (e.g., tunnel ventilation), whether it is 
intended to enable a change in the product offered (e.g., a switch to 
``No Antibiotics Ever''), or whether it changes the nature of the 
controls and risks (e.g., automation and monitoring). Omissions of this 
information prevent growers from making an informed business decision, 
negotiating effectively for adequate compensation, or determining if 
and how the original bargain for exchange has been modified or altered. 
Thus, an LPD's failure to adequately disclose this information is 
deceptive and harmful to growers because that failure imposes undue 
financial risk and increases the likelihood of a poor financial outcome 
on the investment.
    Paragraph (b)(2) of Sec.  201.112 requires LPDs to provide clear 
additional capital investment financial incentives and schedules to 
growers. Under paragraph (b)(2), LPDs are required to disclose to the 
grower all financial incentives and compensation associated with the 
additional capital investment. The Disclosure Document shall clearly 
delineate how long such financial incentives or changes in grower 
compensation will last and the degree to which benefits accruing to 
growers making such investments are contingent on how widely they are 
adopted by other growers. Compensation and financial incentives are 
broad terms and may include changes to grower base pay or performance 
pay, payments specifically linked to adoption of the particular 
technology resulting from the additional capital investment, and any 
other changes to the economics of the grower's relationship with the 
poultry company associated with making the additional capital 
investment or its implementation once made. Clearly disclosing 
financial incentives will assist the grower in assessing the relative 
risks of non-recoupment, as the reliability of those incentives may 
vary based on the duration of the contract and whether other growers 
are likely to incorporate the additional capital investment technology 
in a way that would make recoupment through performance pay less 
reliable.
    Paragraph (b)(3) of Sec.  201.112 requires that LPDs disclose all 
construction schedules related to the request for the additional 
capital investment. Clearly disclosing expected grower construction 
schedules and other repayment schedules also will assist the grower in 
assessing incentives and risks relating to borrowing, construction, and 
payment timing. This disclosure will position growers to better analyze 
the business risk in undertaking an additional capital investment, 
including the operational risks relating to implementing the additional 
capital investment and risks of LPD strict enforcement of these 
implementation requirements. For example, comments (discussed in 
further detail below in section V., ``Comment Analysis'') noted 
concerns about LPDs not being sufficiently lenient regarding 
construction schedules. By enabling growers to clearly understand each 
component of the additional capital investment requested by the LPD, 
the required disclosures will address key information asymmetries that 
exist between the LPD and the grower with respect to LPD's purposes, 
bases, and expectations for an additional capital investment. Growers 
will be better positioned to evaluate the true costs and risks from the 
additional capital investment, as well as the operational implications 
for their farming enterprise.
    As proposed, paragraphs (b)(1) through (3) of Sec.  201.112 
included language requiring that LPDs describe within their Disclosure 
Document: (1) ``any relevant'' research or other supporting material 
that the LPD has relied upon in justifying the additional capital 
investment; (2) ``all relevant'' financial incentives and compensation 
for the grower associated with the additional capital investment; and 
(3) ``all relevant'' construction schedules related to the request for 
additional capital investment. After consideration and review of public 
comments, it became clear that the term ``relevant'' as proposed was 
ambiguous and confusing. Commenters expressed uncertainty regarding how 
to determine compliance with these requirements. Some stakeholders 
believed that the term ``relevant'' created an ambiguous requirement 
that could result in the inclusion of unnecessary documents that may 
not in fact be ``relevant'' to satisfy the required disclosures. AMS 
finds these comments persuasive and, thus, AMS has struck the term 
``relevant'' from paragraphs (b)(1) through (3) of Sec.  201.112. After 
the change, paragraphs (b)(1) through (3) require LPDs to submit: (1) 
all research and other supporting material that the LPD has relied upon 
in justifying the additional capital investment; (2) all financial 
incentives and compensation for the grower associated with the 
additional capital investment; and (3) all construction schedules 
related to the request for additional capital investment. The removal 
of the word ``relevant'' will ease the burden on LPDs by removing 
ambiguity regarding which disclosures are required to be included in 
the Disclosure Document. This technical change does not increase the 
burden of the disclosure requirement; it merely removes ambiguous 
phrasing while retaining the same disclosure requirement proposed in 
the proposed

[[Page 5167]]

rule. This change will prevent inconstancies in LPDs' interpretation of 
what disclosures are required by paragraphs (b)(1) through (3).
    In the final rule, Sec.  201.112(b)(4) requires that LPDs disclose 
their expectations regarding housing specifications associated with the 
additional capital investment. LPD housing specifications are critical 
components to any additional capital investment. The provision of these 
basic details regarding the additional capital investment will enable a 
grower to understand the workings, process, and design characteristics 
of the requested additional capital investment. They thus would enable 
a grower to identify business risks associated with undertaking the 
additional capital investment, as well as any unfair or otherwise 
impermissible additional capital investment practices prohibited under 
Sec.  201.216. This provision remains unchanged from the proposed rule.
    In the final rule, AMS revised Sec.  201.112(b)(5). As proposed, 
paragraph (b)(5) required that LPDs disclose any required or approved 
manufacturers or vendors. In the proposed rule, AMS solicited comment 
on whether paragraph (b)(5) should also require the disclosure of any 
material financial benefits that the LPD, or any officer, director, 
employee or family member of any such person, receives from the use of 
the required or approved vendor.\28\ Commenters indicated that LPDs 
should not be allowed to require growers to use certain equipment or 
vendors, especially when those LPDs hold any amount of financial 
interest in those equipment companies or specifically required vendors. 
Therefore, in the final rule AMS expanded paragraph (b)(5) to require 
disclosure not only of required or approved manufacturers or vendors, 
but also all financial benefits that the LPD or any officer, director, 
decision-making employee, or close family member thereof receives from 
the use of the required or approved manufacturer or vendor.
---------------------------------------------------------------------------

    \28\ 89 FR 49002, 49025 (June 10, 2024).
---------------------------------------------------------------------------

    In the additional capital investment Disclosure Document, the LPD 
must disclose any required or approved manufacturers or vendors, and 
any financial benefits that the LPD or its officers (such as CEO, 
President, Secretary, etc.), members of its board of directors, 
decision-making employees, or close family members of any such person, 
will receive from using such a manufacturer or vendor. Decision-making 
employees refers to those employees who are involved with the decision-
making for the additional capital investment and its implementation. A 
close family member covers an immediate or other family member where a 
reasonable person would question the impartiality of the business 
judgment of the decision-maker. This component of the Disclosure 
Document applies to possible conflicts of interest that may influence 
specifications for required or approved manufacturers or vendors.
    The additional language is similar to an existing disclosure 
requirement under the Federal Trade Commission's Franchise Rule, but 
requires disclosure of benefits from more individuals.\29\ AMS found 
this addition persuasive because it is designed to promote a similar 
purpose by protecting the more financially vulnerable party--who is 
making a significant investment--from incurring debt or otherwise 
expending scare resources, not solely to achieve the investment's 
purpose, but rather as a reflection of the presence of a conflict of 
interest on the part of the less financially vulnerable party (the 
LPD).
---------------------------------------------------------------------------

    \29\ 16 CFR 436.5(h)(6).
---------------------------------------------------------------------------

    Section 201.112(b)(6) requires that LPDs provide a financial 
analysis of projected returns the grower can expect related to the 
additional capital investment, including any assumptions, risks, or 
uncertainties, sufficient to allow the grower to make their own 
projections. The language of the final rule is slightly simplified from 
that proposed to remove the hyphenated text and incorporate that same 
language closer to the end of the sentence. This technical change 
improves the readability of the provision without changing its meaning 
as proposed. This provision is designed to enable the grower to 
evaluate the reliability of the financial returns that the grower could 
receive over the duration of the contract. Such information would 
include, where relevant, assumptions regarding the expected likelihood 
of whether other growers will adopt the additional capital investment 
and the impacts on the reliability of returns in relation to the 
incentives. Financial analysis of projected returns is critical to 
enabling growers to understand the opportunities, and hence the risks, 
they may be taking on. For example, revenue projections should include 
assumptions that can be relied upon by growers in relation to annual 
flock placements, stocking density, and the expected distribution of 
performance pay. Omission of this information is central to the 
inability for growers to effectively identify whether they can 
adequately recoup the additional capital investment or whether the 
additional capital investment is otherwise unfair.
    Disclosure under Sec.  201.112 is more detailed than LPD disclosure 
under the existing regulation in Sec.  201.102(d)(2). The existing 
disclosures provide guidance to the grower with respect to the relative 
risks associated with contracting with the LPD to prevent deception 
before it harms the producer. The disclosures required in this final 
rule focus on ensuring that growers are aware of known or reasonably 
expected sources of returns, risks, and costs (including costs such as 
labor, operating, maintenance, and other costs associated with a 
request for an additional capital investment). Thus, Sec.  
201.102(d)(2)(i) and (ii) \30\ is a focused revenue disclosure, and 
references situations where contracts are modified due to additional 
capital investment or otherwise and requires a projection from LPDs 
when contract modifications dilute the value of the 5-year revenue 
tables required in Sec.  201.102(d)(1). If Sec.  201.112 is applicable 
to the LPD and incorporates what is otherwise required under Sec.  
201.102(d)(2)(i) and (ii), the LPD can use one set of disclosures for 
both Sec.  201.112 and Sec.  201.102(d)(2)(i) and (ii).
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    \30\ (2) If poultry housing specifications for broiler growers 
under contract with the complex are modified such that an additional 
capital investment may be required, or if the 5-year averages 
provided under paragraph (d)(1) of this section do not accurately 
represent projected grower gross annual payments under the terms of 
the applicable broiler growing arrangement for any reason, the live 
poultry dealer must provide the following information:
    (i) Tables providing projections of average annual gross 
payments to broiler growers under contract with the complex with the 
same housing specifications for the term of the broiler growing 
arrangement at five quintile levels or by mean and standard 
deviation expressed as dollars per farm facility square foot.
    (ii) An explanation of why the annual gross payment averages for 
the previous 5 years, as provided under paragraph (d)(1) of this 
section, do not provide an accurate representation of projected 
future payments, including the basic assumptions underlying the 
projections provided under paragraph (d)(2)(i) of this section.
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    Finally, Sec.  201.112(b)(7) requires that LPDs include in the 
Disclosure Document a specific statement that the Disclosure Document 
has not been reviewed by USDA, and that false and misleading statements 
or material omissions may violate State and/or Federal laws.\31\ The 
statement must also indicate that violations of Federal and State laws 
may be determined to be unfair, unjustly discriminatory, or

[[Page 5168]]

deceptive and unlawful under the P&S Act, as amended. AMS does not 
intend for the Disclosure Document to be a means by which LPDs may 
waive any unfairness provisions in law or regulation. AMS maintains 
that a determination of unfairness is dependent on the facts and 
circumstances of each case. The required statement must also include 
Packers and Stockyard Division contact information that growers can use 
to report violations and other concerns. Lastly, the statement must 
provide website contact information for those seeking additional 
information on rights and responsibilities under the P&S Act. This 
provision is unchanged from the proposed rule.
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    \31\ This mirrors language in the FTC Franchise Rule at 16 CFR 
436(e)(2) that refers to the FTC's position on Francise Disclosure 
Documents (FDDs), specifying that while the FTC requires franchisors 
to provide accurate disclosures, it does not verify the content of 
the FDD, nor does it endorse the franchise offering.
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    AMS underscores that the information required to be set out in the 
Disclosure Document is not currently provided to most growers or in all 
circumstances. These omissions present material risk of deceiving 
growers, as well as subjecting them to potentially unfair practices 
which they are unable to identify at an early enough stage to halt them 
in their incipiency.
iii. Section 201.112(c)--Translation
    In the final rule, Sec.  201.112 contains a new paragraph (c). In 
the proposed rule, AMS asked commenters what considerations, if any, 
AMS should take into account with respect to the timing, delivery, or 
readability with respect to the Disclosure Document.\32\ AMS also 
specifically asked commenters whether it should include a provision 
requiring that LPDs make reasonable efforts to assist growers in 
translating the Disclosure Document and to ensure that growers are 
aware of their right to request translation assistance.\33\ In response 
to the proposed rule, including specific questions posed related to 
translation, some commenters requested that translations of the 
Disclosure Document be made available in languages other than English. 
Therefore, AMS is adding paragraph (c) to Sec.  201.112, which requires 
that, upon delivery of the Disclosure Document to the grower the LPD 
must make reasonable efforts to ensure that the grower is aware of 
their right to request translation assistance and must assist the 
grower in translating the Disclosure Document. Reasonable efforts 
include, but are not limited to, providing current contact information 
for professional translation service providers, trade associations with 
translator resources, relevant community groups, or any other person or 
organization that provides translation services in the poultry grower's 
geographic area. Depending on the facts and circumstances (such as 
convenience, expense, and timeliness of the translation), reasonable 
efforts may also include allowing the grower access to a computer-
generated translation of the Disclosure Document and additional time to 
review any translated Disclosure Document. An LPD may not restrict a 
broiler grower or prospective broiler grower from discussing or sharing 
the Disclosure Document for purposes of translation with a person or 
organization that provides language translation services. Nothing in 
the rule prevents companies from providing a translation, provided it 
is complete, accurate, and not misleading.
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    \32\ 89 FR 49002, 49025 (June 10, 2024).
    \33\ Ibid.
---------------------------------------------------------------------------

    This addition of translation assistance is necessary because 
language barriers can prevent poultry growers from understanding the 
Disclosure Document, which would thwart the purpose of Sec.  201.112. 
If growers do not have a reasonable opportunity to understand the 
Disclosure Document due to language barriers, the goal of remedying 
deception is thwarted. Notably, the translation requirements under 
Sec.  201.102(g)(4) apply to Sec.  201.112 if the latter is applicable 
to the LPD and incorporates what is otherwise required under Sec.  
201.102(d)(2)(i) and (ii) in a single disclosure that meets the 
requirements of both Sec.  201.112 and Sec.  201.102(d)(2)(i) and (ii).
iv. Compliance and Enforcement
    Compliance with Sec.  201.112 requires LPDs to include the 
information and topics described in Sec.  201.112(b)(1) through (7) in 
the Disclosure Document and provide that document to growers when 
requesting an additional capital investment. LPDs are also required to 
inform growers of their right to request translation assistance and/or 
assist growers with translation of the Disclosure Document, if 
necessary.
    Enforcement of Sec.  201.112 could occur in several ways. Growers 
could contact AMS (PSD) to submit a complaint regarding an alleged 
violation of Sec.  201.112. PSD would investigate, which could lead to 
a referral to DOJ for appropriate action or, where failure to pay is 
implicated, USDA enforcement through administrative action.\44\ As 
necessary for compliance enforcement or during investigations, PSD will 
review Disclosure Documents to ensure completeness. Injured individuals 
also have a right to proceed in Federal court.

D. Severability (Sec.  201.290)

    AMS is adding Sec.  201.290, ``Severability,'' to subpart N to 
confirm that if any provision of this rule, any component of any 
provision, or any provision of subpart N 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 the 
provision 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 different topics and 
is included here as a matter of housekeeping.
    This rule aims to address different harms common in the broiler 
production industry: lack of payment transparency in broiler growing 
arrangements, unfairness in tournament operations, and lack of 
disclosure from LPDs regarding additional capital investments. Each of 
the new sections can operate independently in the absence of the 
others. Conduct that violates one section is not dependent on 
protections put in place by other sections. For example, if an LPD 
discounts the rate of compensation provided in a broiler grower 
arrangement in violation of Sec.  201.106, the Agency would still be 
able to enforce this provision even if the provision requiring the fair 
operation of broiler grower ranking systems (Sec.  201.110) were struck 
down. These are not inextricably connected regulations: Sec.  201.110 
focuses on establishing a fair comparison among growers in a 
tournament, while the focus of Sec.  201.106 is ensuring clear (no 
discounting) and reliable (not unreasonably variable) rates of 
compensation disclosed in the contract. As another example, if the 
provision regarding additional capital investments (Sec.  201.112) was 
struck, AMS would still retain criteria under Sec.  201.216 to evaluate 
whether requiring an additional capital investment constitutes a 
violation of the P&S Act.
    AMS intends that the severability provision operate to the fullest 
extent possible. For example, under Sec.  201.110(b)(1), ``Policies and 
procedures,'' if the league composition requirement in paragraph 
(b)(1)(iii) is severed, this does not necessarily negate the benefits 
or make unenforceable the other processes requirements contained in 
paragraphs (b)(1)(i) (inputs under LPD control), (ii) (flock production 
practices under LPD control), and (iv) (evaluation period), etc. 
Similarly, AMS intends that the severability provision apply to all of 
subpart N. If one of the new regulations implemented via this final 
rule is severed, this does not make

[[Page 5169]]

unenforceable the existing provisions in subpart N. In other words, if 
the benefits of a section in subpart N remain intact without the 
unenforceable provision, AMS's intent is to retain the enforceable 
provisions of the section. AMS notes that this discussion is 
illustrative and not exhaustive.

V. Comment Analysis

Overview

    The Poultry Grower Payment Systems and Capital Improvement Systems 
proposed rule, published on June 10, 2024, received 758 comments, some 
with multiple signatories, over a 60-day comment period. Of these 
comments, 671 were in clear support of the rule (the majority of these 
consisting of form letters from advocacy campaigns), while 13 comments 
were in clear opposition to the rule and the remaining 74 were 
ambiguous or unclear. A variety of stakeholders commented on the 
proposed rule, including farmers' coalitions, government entities, 
advocacy organizations, industry trade organizations, processors, 
producers, and other non-affiliated, individual parties. Topics that 
garnered considerable attention in the proposed rule, both positive and 
negative, included the rate of compensation, transition and 
implementation costs, the duty of fair comparison, and reasonable 
recoupment of required additional capital investments. A common theme 
among the majority of supportive comments, particularly by growers, was 
the fear of retaliation underlying their concerns about LPD practices.
    Many farmers' coalitions, advocacy groups, and individual producers 
argued that LPDs would easily find ways to deny producers fair payment, 
especially during the industry's transition to adopt the proposed 
changes. For example, while many commenters supported Sec.  201.106's 
25 percent comparison-based compensation presumption, most of these 
supporters requested other changes to the final rule, such as requiring 
performance-based pay to be applied at the individual level and pairing 
it with a requirement of a fair minimum base pay. Other common 
recommendations for financial safeguards included making the option for 
non-comparison-based pay more accessible to producers and requiring 
that producers' contracts be long enough to ensure a reasonable rate of 
return for their loans.
    Another common theme among commenters was the fear of LPD 
retaliation against producers who made unfairness claims, requested 
non-comparison-based pay, refused to take on an additional capital 
investment, etc. Many individual producers shared personal experiences 
of retaliation, often in the form of intentionally unequal inputs and 
threatened or actual contract termination, for speaking out against 
unfair practices. Many commenters emphasized the inherent power 
imbalance between both parties, pointing out that producers, who carry 
high amounts of debt, depend on LPDs for paying down the debt. 
Moreover, commenters described feeling or receiving intimidation 
against making unfairness claims and pressure to adhere to unfair 
terms. For instance, commenters described receiving unexpected 
deductions or variability in pay and had no choice but to accept their 
circumstance. Commenters recounted struggling to make ends meet as a 
result. If they ranked lower than other growers for one or more 
settlements, the resulting decrease(s) in compensation left them unable 
to afford necessary expenses. Some commenters stated that experiencing 
these losses forced them to sell their families' farms, driving them 
out of the industry entirely. Many commenters requested that the final 
rule include specific protections against retaliation for producers who 
made unfairness claims against their LPD or who refused to take on an 
additional capital investment required by their LPD. Many other 
commenters requested greater protections for producers who receive 
unequal inputs from their LPDs, describing numerous input variables 
that can be and have been exploited by LPDs to deliberately lower 
producers' placement in their tournament.
    Conversely, comments in opposition, many from industry 
representatives, defended the current system and expressed concerns 
about the proposed rule. These commenters asserted that the rule is 
unfair to growers who are successfully operating in the current system 
and that the rule would unfairly punish high performers. These 
commenters also stated that the rule disregarded the self-interest of 
LPDs in ensuring grower success. Opposing commenters further stated the 
rule would be overly burdensome for the industry to implement.

A. Section 201.106

i. Transparency in Pay
    Comment: Many commenters, especially growers and advocacy 
organizations, highlighted the need for stronger protections, greater 
transparency, and a more equitable balance of power within the poultry 
industry. Commenters emphasized that greater transparency from LPDs is 
essential for a fair and equitable payment system. Specific concerns 
stemming from inadequate transparency included the inability to predict 
income due to fluctuations in flock-to-flock payments, and payments 
below the base price due to factors outside of growers' control. 
Commenters also suggested safeguards to prevent unfair payment 
deductions related to stocking density and other external factors. 
Advocacy groups raised concerns about the potential for LPDs to exploit 
the system and drive down grower base pay.
    Other commenters, especially industry stakeholders, emphasized 
existing measures and cautioned against government intervention. These 
commenters asserted that growers face no uncertainty regarding income 
or input costs and opposed a fixed base price. They also asserted that 
most contracts already include minimum compensation floors and 
expressed concern that raising base pay would be unsustainable and lead 
to higher consumer prices. One commenter suggested that AMS identify 
and address potential gaps in grower education and outreach.
    AMS response: AMS agrees with the comments that asserted the need 
for stronger protections, greater transparency, and a more equitable 
balance of power. Accordingly, AMS modified the proposed Sec.  201.106 
to include provisions that further these goals. Paragraph (a) will 
prevent LPDs from reducing a poultry grower's compensation based on the 
grower's ranking, grouping, or comparison to others. This will improve 
growers' ability to predict income. As discussed below, paragraph (b) 
will establish a presumptive limit on comparison-based performance pay, 
which will enhance growers' ability to predict their income from a 
contract by reducing variability from that rate due to fluctuations in 
flock-to-flock payments. Paragraph (c) works to prevent LPDs from 
exploiting their market power and associated bargaining power by 
requiring LPDs to notify the Administrator if there are any contract 
modifications that result in a reduced payment to poultry growers.
    Existing regulation fails to protect poultry growers from injury in 
the manner Congress intended. Contrary to LPDs' claims, growers do face 
uncertainty regarding income, because the payment they will receive is 
not known until the growing cycle is complete and all growers' outputs 
are compared and performance payments are distributed. AMS has 
consistently heard reports from growers receiving

[[Page 5170]]

deductions or excessively variable compensation from LPDs such that 
their compensation does not align with the LPDs' initial 
representations.\34\ Accordingly, a high percentage of growers' 
operations have sustained net negative incomes--an outcome that growers 
most likely do not anticipate before agreeing to contract with their 
LPDs.\35\ Moreover, AMS has reviewed broiler growing contracts for 
decades during routine regulatory reviews of LPD's payment practices. 
While many contracts that AMS has reviewed already include minimum 
compensation provisions, these provisions are not an industry-wide 
practice, and do not cure the deception or unfairness arising from 
deductions in the rates of compensation in the contract, especially the 
base price, because the minimum price could be far below the base price 
or even the lower bounds of base plus performance pay. Moreover, 
requiring that minimum compensation be disclosed allows growers who 
have the option of contracting between multiple LPDs to meaningfully 
compare their options, enhancing competition in the market for grower 
services in certain geographies. Nor is this an unworkable or 
unreasonable requirement; some LPDs have already adopted the reforms 
included in this final rule, and so this regulation builds on existing, 
successful models that that commenters said some LPDs have already 
found workable and effective.
---------------------------------------------------------------------------

    \34\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022) (LPDs did not adequately disclose 
the risk inherent in the tournament systems to growers, so growers 
could not reasonably evaluate the range of potential financial 
outcomes, manage their risks, or compare competing poultry 
processors); AMS-FTPP-22-0046-0777 (``[W]e were told our houses 
would be paid off raking in the money in 10 years[.] I am now out to 
twice that still in debt. . .''); AMS-FTPP-22-0046-0876 (``In our 
communications with growers, we have learned that when they signed 
their initial poultry contract, most had expectations that their 
contract relationship with a poultry company would be one of mutual 
respect where both parties shared in the risks and rewards of 
producing chicken for consumers. They expected a transparent system 
that would reward them for their hard work and management services. 
Instead, what they quickly found was a dictatorial system that gives 
growers an unpredictable and often inadequate income stream, and 
allows poultry companies to shift risks onto growers, without fairly 
sharing in the economic rewards commensurate with their financial 
investment and services provided''); AMS-FTPP-22-0046-0156 
(``Frequently, that deception begins even before poultry growers 
sign their contracts. It is a common story for growers to be 
attracted by unrealistic financial models and integrators' promises 
of support. Once the contracts are signed, though, growers find 
themselves on the short end of a massive power imbalance'').
    \35\ MacDonald, James, Technology, Organization, and Financial 
Performance in U.S. Broiler Production, EIB-126, USDA Economic 
Research Service (2014), https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6 (In 2011, nearly a 
third of smaller farms and nearly a fifth of larger farms realized 
negative net farm income); AMS-FTPP-22-0046-0780 (``I've been a 
poultry grower for almost 15 years and it is a shame that you have 
to have multiple jobs just to make ends meet. . . Everyone is 
struggling in this economy right now and we have massive debt loads, 
insurance and utilities have skyrocketed parts are extremely high 
and even just the basic necessities to live are at critical levels. 
. .'').
---------------------------------------------------------------------------

    Also, contrary to some commenters' claims, nothing in the 
regulation requires the base pay to be increased or otherwise be fixed 
in a manner that would affect supply or the price of chicken for 
consumers; rather, it is designed to address inadequate poultry grower 
compensation arising from deceptive and unfair practices by LPDs. 
Simply, Sec.  201.106(a) enables LPDs to continue to set a base pay and 
provide bonuses based on a grower's grouping, ranking, or comparison to 
others, or through other payment incentives schemes. AMS acknowledges 
that grower education and outreach may be useful but believes that the 
responsibility to eliminate deception starts with the legal 
responsibilities Congress placed on the LPDs when it amended the 
Packers and Stockyards Act. This includes clear contract terms and 
transparent communication between LPDs and growers.
    AMS notes that Sec.  201.102 requires disclosure of stocking 
density in production contracts. Reductions in stocking density are 
best addressed under those disclosure requirements. AMS acknowledges 
that Sec.  201.106 may not address every form of unfair practice that a 
grower may experience, such as reductions in flock placements or 
stocking density, and AMS remains committed to robust enforcement of 
section 202 of the Act to address the full range of potentially unfair 
practices that growers may face.
    AMS agrees that USDA-sponsored education and outreach helps 
growers' make informed decisions. AMS is taking steps to increase 
producer education and outreach, including, for example, by 
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. Disclosure and 
education, although beneficial, are unlikely to address unfairness 
because of the substantial difference in bargaining power between LPDs 
and growers. AMS's responsibility, however, is to enforce the Act. 
Better information concerning an unfair practice does not make the 
practice fair, nor alleviate the need for regulation.
ii. Performance Pay
    Comment: Growers and supporting organizations highlighted the need 
for a more balanced system that protects growers from income volatility 
and unfair deductions related to factors outside of their control. Many 
commenters explicitly endorsed a 25 percent cap, citing the potential 
to curb the negative impacts of the tournament system while preserving 
performance-based incentives. Several advocacy groups supported 
calculating the variance at the individual grower level rather than the 
complex level to allow growers to make more informed financial 
calculations, better determine whether they are being treated unfairly 
by LPDs, and to limit the potential for favoritism and retaliation 
against individual growers. To strengthen fairness and transparency, 
commenters emphasized the need for objectively measurable bonus 
criteria and the importance of pairing the cap with a fair minimum base 
pay. One commenter suggested allowing exceptions for exceeding the 25 
percent cap with proper justification. Another pointed to the bonus cap 
model in the turkey industry and a farm bureau suggested a 20 percent 
pay difference between growers. Several commenters indicated that 
bonuses should be linked to factors within a grower's control.
    Some industry representatives emphasized the role of performance 
incentives in driving productivity. Commenters argued that limiting 
performance bonuses would disincentivize growers and negatively impact 
productivity. Some commenters questioned the basis for the 25 percent 
figure.
    Many stakeholders expressed concern about the feasibility of case-
by-case enforcement to ensure fair comparison-based bonuses. Comments 
reveal a consensus among stakeholders that case-by-case enforcement 
alone is insufficient to guarantee fair comparison-based compensation. 
Advocacy organizations argued that case-by-case enforcement is 
ineffective and inefficient and places an undue burden on growers who 
seek redress. These organizations cited past instances in which this 
approach failed to adequately protect grower interests. One commenter 
raised a concern about case-by-case enforcement's vulnerability to 
changing political landscapes, thereby creating uncertainty for growers 
and potentially discouraging them from reporting unfair practices. Many 
stakeholders advocated for clear regulations and proactive measures to 
prevent unfair bonuses rather than

[[Page 5171]]

relying solely on enforcement. For example, one commenter requested 
that USDA establish guidelines defining unfair performance payment 
structures, proposing a presumption of unfairness for bonuses exceeding 
25 percent of total compensation. The commenter also suggested that 
contracts offered to indebted growers could serve as potential evidence 
of anti-competitive practices, particularly by processors with 
significant market power.
    AMS response: In the proposed rule, AMS specifically inquired 
whether it is presumptively unfair for comparison-based compensation to 
equal or exceed 25 percent of total compensation (base pay rate plus 
comparison-based) for any grower and asked a range of questions around 
the appropriateness of the specific threshold, how to calculate it, and 
how it would affect the industry. These questions included inquiries 
highlighting the role of the 25 percent presumption as a potentially 
binding constraint and how LPDs might respond in the compensation 
structures.
    AMS agrees with the majority of commenters suggesting that 
comparison-based performance pay should be presumptively limited in 
order to balance the interests of growers and LPDs and prevent unfair 
outcomes. Grower concerns regarding thin margins, debt load, input 
variability, and tournament composition invoke equity issues that must 
be balanced with performance and productivity incentives. While useful 
as an incentive and a means to allocate pay, flock performance metrics, 
specifically feed conversion, as a proxy to grower effort are 
imperfect. Feed conversion itself is affected by variables beyond 
grower effort. AMS is not aware of existing technological innovations 
that could serve to better isolate grower effort or a measurement that 
would be exclusively under grower control.
    Flock performance metrics serve some purposes in the assessment of 
grower effort and the allocation of grower payments. AMS's experience 
in analyzing performance payments suggest that ranking systems can be a 
useful and reasonably equitable mechanism for pay allocation with 
proper regulation in magnitude. Performance payments can reward grower 
effort without being an unlawfully deceptive or unfair practice.
    In considering the appropriate form of regulation, AMS considered 
the variety of grower ranking systems currently in practice and the 
possible evolution and redesign of those systems, such that the purpose 
of the regulation would be resistant to circumvention while also 
providing an appropriate level of flexibility to maintain an incentive 
structure. As referenced in the proposed rule, a presumptive limitation 
on performance pay magnitude strikes that balance. As a presumption, 
enforcement will occur based on an inquiry into specific factual 
circumstances. Based on currently available information, a bright line 
standard is likely to be overly rigid and may serve to deprive 
successful growers of the expected value of their services. Allowing 
LPDs to provide a rebuttal to justify exceeding the prescribed 
performance pay magnitude is a desirable feature for growers and LPDs 
alike because payment systems may reflect different circumstances at 
different complexes. Again, facts and circumstances matter, in 
particular around the variability of performance for the birds in 
question, the housing specifications, etc., as 25 percent may still be 
an appropriate limit. Whether the LPD took appropriate measures to 
comply with the duty of fair comparison under Sec.  201.110 or 
otherwise mitigated other identifiable risks of unfair variability 
relating to the larger magnitude of the tournament will also be 
important. To underscore, AMS expects the presumption will not be 
easily overcome.
    AMS acknowledges that some commenters preferred application of the 
presumption at the individual settlement level. AMS is concerned that 
application at the individual level will be difficult to monitor and 
enforce and could also result in overly rigid limitations on individual 
performance outcomes in flock settlements. That could dilute or distort 
grower performance incentives, including through capturing statistical 
outliers, which could result in restriction of performance payments 
that reduce aggregate grower revenue in ways that AMS believes are not 
presently necessary to address unfairness and deception under the 
tournament. Applying the presumption as an aggregate analysis at the 
complex-wide level offers several benefits to LPDs and growers. It 
allows smoothing of outliers from individual settlements and allows 
LPDs to focus on the design of the incentive system without requiring 
compliance on a grower-by-grower, individual settlement basis. An 
application at the complex-wide level will, nevertheless, have 
sufficient limitation on the available funds for comparison-based 
performance payments for individuals--owing simply to the constraint on 
funds for those purposes--so as to achieve the desired goal of right-
sizing the magnitude of the tournament for individual growers.
    In considering the appropriate threshold at which to institute the 
presumption, AMS first reviewed a limited sample of existing ranking 
systems. AMS reviewed one to five years of confidential grower 
compensation data for four individual broiler complexes that AMS 
gathered in prior investigations. This sample included small, medium, 
and large bird sizes and some of the largest broiler LPDs that operate 
several other complexes across the U.S. Aggregate performance payments 
at these four complexes were 11.4, 17.4, 20.5, and 25.4 percent of 
total grower payments. AMS is not aware of any complex with performance 
payments that are as much as 26 percent of total payments. As noted 
above, in the proposed rule, AMS solicited comment regarding a 25 
percent limitation on comparison or ``performance'' payments. 
Additionally, Wayne-Sanderson Farms, one of the three largest LPDs, 
recently agreed to a similar performance pay limitation at the 25 
percent.\36\ Governmental commenters noted the 25 percent cap has 
proven workable for both a major LPD and the growers contracted with 
Wayne-Sanderson. As numerous LPDs will likely need to modify contracts 
to achieve compliance under Sec.  201.106(a) of this rule, finding that 
the industry upper bound of performance pay magnitude approaches 25 
percent is also a relevant data point in AMS's determination that 25 
percent is appropriate as the presumptive threshold for this 
regulation.
---------------------------------------------------------------------------

    \36\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022); United States v. Cargill Meat 
Solutions Corp., et al. (2022). Proposed final judgments and 
competitive impact statement. Federal Register. Retrieved from 
https://www.federalregister.gov/documents/2022/09/16/2022-20014/united-states-v-cargill-meat-solutions-corp-et-al-proposed-final-judgments-and-competitive-impact.
---------------------------------------------------------------------------

    With respect to objectively measurable bonus criteria, AMS agrees 
that comparisons must be fair, and Sec.  201.110 below sets out AMS's 
approach to mitigating comparisons based on inappropriate approaches to 
inputs, production practices, and related matters. AMS is not adopting 
further specificity with respect to bonus criteria in Sec.  201.106 
because AMS has designed this portion of the rule to operate in a 
simpler, more easily enforceable manner, including Sec.  201.106(a)'s 
prohibition on deductions to any rate of compensation and Sec.  
201.106(b)'s limitation on the magnitude of performance pay overall.

[[Page 5172]]

    With respect to the importance of pairing the cap with a fair 
minimum base pay, AMS has adopted transition rules under Sec.  
201.106(c) to monitor and guard against unfair changes to aggregate 
compensation for growers. AMS sets out additional views on rates of 
return below.
    AMS appreciates the commenter's suggestion regarding the bonus cap 
model in the turkey industry and the farm bureau suggestion of a 20 
percent pay difference between growers. AMS did not consider the turkey 
industry in this final rule because contracting practices in the turkey 
industry are more diverse, in part owing to the biological differences 
in the birds which to some extent mute differences in outcomes, and so 
this rule would not necessarily be sufficiently tailored for that 
sector. However, the comment underscores the reasonableness of AMS's 
approach of a presumptive 25 percent limitation on aggregate 
performance compensation.
iii. Rate of Return
    Comment: Grower and grower association commenters expressed concern 
around ensuring a reasonable rate of return for their labor and 
investments. Many commenters expressed broad concerns of monopsony 
power suppressing grower compensation. Some commenters stated the 
minimum base pay should reflect more competitive conditions, such as 
geographies where growers have the option to contract with three or 
more LPDs. Commenters stated that the minimum base pay should be 
sufficient to allow growers to make a reasonable return over the course 
of the contract, provided that the grower follows the LPD's required 
management practices and contract guarantees. One commenter suggested 
defining reasonable return as, at a minimum, enough net income to 
compensate poultry growers' labor hours at the state minimum wage rate. 
Others called for set minimum base pay, minimum flock placements and 
flock densities combining to allow growers to comfortably make loan 
payments plus a reasonable return. Commenters called for a more 
equitable and transparent compensation system that guarantees a 
reasonable rate of return, provides greater financial security, and 
addresses the power imbalance between growers and LPDs.
    Grower commenters reported being underpaid and struggling to cover 
production costs, service debt, and earn a livable wage. Commenters 
highlighted a lack of adjustments for inflation, and penalties for 
factors outside their control as contributors to insufficient 
compensation. They assert that the current payment structure often 
makes necessary capital improvements financially risky for growers, 
thereby hindering their ability to reinvest in their operations. 
Commenters also claimed that the current payment system lacks 
transparency regarding how performance payments are determined, the 
minimum price per pound rates, feed quality and ingredient details, 
breeder flock age and health, and chick hatch times and temperatures. 
Some commenters urged AMS to include in the final rule a presumption 
that an LPD is in violation of the P&S Act if the LPD does not offer a 
minimum base pay rate that is reasonably expected to cover the costs of 
operation, service debt associated with initial investments and capital 
improvements, and provide a reasonable rate of return. Commenters also 
advocated for a fairer system of deductions for condemned birds, 
arguing that deductions should be based on the actual weight of 
condemned birds rather than the flock's average weight.
    To ensure fairness and sustainability, commenters proposed several 
solutions to the proposed question regarding whether AMS should 
prescriptively require grower base pay to earn ``reasonable return,'' 
assuming they follow production practices. Many commenters recommended 
establishing a minimum base pay that: (1) ensures a livable income and 
covers basic production costs; (2) includes provisions for inflation 
adjustments to maintain real income over time; (3) allows for debt 
service, enabling growers to invest in their operations without undue 
financial strain; and (4) provides an opportunity for a reasonable 
return on investment, recognizing the inherent risks and capital 
requirements in poultry growing. Several commenters suggested a shift 
toward a base pay based on square footage, potentially with a bonus 
component determined through a tournament system. This approach aims to 
provide a more stable and predictable income stream for growers. 
However, one producer expressed concern that square foot pay would 
lower bird quality and reduce animal welfare.
    Commenters also called for increased transparency from LPDs, 
including more detailed documentation and reporting requirements. This 
would provide growers with a clearer understanding of how their pay is 
calculated and enable better monitoring of potential unfair practices. 
Finally, commenters emphasized the need for mechanisms that protect 
growers from debt burdens and provide a greater assurance of a return 
on their investments. Suggested measures include limiting the financial 
burden on growers for capital improvements mandated by processors and 
establishing mechanisms to share the risks associated with market 
fluctuations or unforeseen events.
    AMS response: AMS appreciates the challenges that many growers face 
in negotiating fair pay, especially given the levels of concentration 
in many local markets, the take-it-or-leave it form of LPD contracts, 
and the prevalence of the reports on troubling practices in the poultry 
industry. AMS aims to promote an industry market structure that can 
secure payment rates and contract terms for all growers that: (1) 
ensure a livable income and covers basic production costs; (2) include 
provisions for inflation adjustments to maintain real income over time; 
(3) allow for debt service, enabling growers to invest in their 
operations without undue financial strain; and (4) provide an 
opportunity for a reasonable return on investment, recognizing the 
inherent risks and capital requirements in poultry growing. AMS also 
recognizes the value of basing payment, in many circumstances, on 
square footage, potentially with a bonus component determined through a 
tournament system. In many cases, such a compensation structure could 
create a more stable and predictable income stream for growers because 
there would be a guaranteed payment rate based on factor that does not 
change.
    This final rule seeks to make targeted reforms based on the 
information and strategies available to AMS at this time. In this final 
rule, AMS does not purport to alleviate all potential unfair aspects of 
the tournament system or of the integrated model of broiler production 
in concentrated markets. AMS believes that general principles of 
unfairness prohibit an unlawful exercise of market power or bargaining 
power that injures growers, including by providing returns that are 
below a reasonable return. AMS does not, however, identify a strict 
framework that prescribes exactly how to ensure competitive 
compensation. Rather, at present, AMS will apply a case-by-case 
enforcement approach to protect growers from unfair and unlawful market 
power or bargaining that denies growers reasonable compensation. In 
conducting its analysis, AMS expects to rely heavily on the facts and 
circumstances, including but not limited to:
     Relative levels of market power (including the number of 
LPDs growers can contract with in a given geography, whether there is 
meaningful choice in

[[Page 5173]]

contracting practices among LPDs in a given locality, the extent to 
which risk or other unfair contract terms are shifted to growers, the 
extent to which contracts are meaningfully negotiated, etc.), and other 
differences in bargaining power between growers and relevant LPDs;
     The type and nature of the unfair conduct (e.g., express 
or tacit collusion via information sharing, the presence of express or 
implied no-poach agreements, whether the tournament system was being 
utilized in a manner to prevent growers from negotiating or securing 
competitive compensation, the LPD's treatment of days out and 
condemnation within the tournament system, etc.);
     What constitutes competitive pay for growout services, 
especially in geographies where more LPDs are present;
     The rates of payment under the contract; in particular, 
whether the base rate a grower can expect to receive for performing 
fully under the contract can ensure a reasonable return;
     The costs of providing growout services over the contract, 
including appropriately and reasonably measured labor costs;
     The levels of contractually guaranteed and otherwise 
relied upon flock placements and density;
     Whether the length of the contract and reliance 
expectations on renewal are sufficient to assure reasonable return;
     The inclusion of cost-of-living adjustments or 
opportunities to secure those adjustments in contract renewals; and
     Where additional capital investment is required, factors 
relevant to additional capital investment, including those set forth in 
Sec.  201.216 and the information set forth as required under Sec.  
201.112.
    AMS underscores that many growers face high levels of local market 
power or bargaining power by LPDs, exacerbated by hold-up concerns 
arising from high levels of investment and reliance on LPDs for 
critical inputs. Moreover, growers face limited opportunities to avoid 
take-it-or-leave-it terms from their LPDs, including cuts to flocks or 
nonrenewals of contracts. In general, AMS expects this enforcement 
approach will, in practice, reinforce the principle that an LPD must 
provide a reasonable opportunity for a grower that delivers under the 
contract to earn a reasonable return over the life of the contract if 
they comply generally with the specified production practices.
    AMS appreciates the commenters' interest in further enhancing 
transparency. AMS notes that this final rule increases transparency for 
growers around rates of compensation (Sec.  201.106) and additional 
capital investments (Sec.  201.112), and also sets more fair standards 
around, and enhances transparency into, LPD practices relating to input 
and production practice distribution. It also complements other 
regulatory initiatives that AMS has already finalized to provide 
transparency around contracting and input distribution (88 FR 83210, 
November 28, 2023). AMS intends now to turn its focus to the important 
task of monitoring the implementation of existing mandates to evaluate 
the remaining gaps and needs.
    AMS also appreciates grower comments around the challenges that 
debt burdens place on growers and on the importance of more fairly 
sharing the burden of market fluctuations or unforeseen events. A 
central purpose of Sec.  201.112 is to enhance the information 
available to growers and to AMS to ensure the fairness of additional 
capital investments, and therefore LPDs' accountability, under Sec.  
201.216 and section 202 of the Act. For example, an LPD's failure to 
ensure the reasonable ability for a grower to recoup the cost of a 
required (including ostensibly requested but in practice coerced) 
additional capital investment would, on its own, be dispositive to show 
a violation of Sec.  201.216. AMS recognizes that growers cannot avoid 
the unfair exercise of market power. Failing to sufficiently and fairly 
compensate growers is not a cognizable benefit to growers or to 
competition. (AMS's approach is discussed below in section V.C.ii., 
``Additional capital investment unfairness.'')
    With respect to new housing, as opposed to additional capital 
investments, AMS has also separately finalized the Transparency in 
Poultry Grower Contracting and Tournaments (Transparency Rule) rule 
that provides significantly enhanced transparency over the preexisting 
system.\37\ As described in the Transparency Rule, these disclosures 
include returns broken out by quintile and other information delivered 
in a disclosure document when the grower receives any housing 
specifications and would be contemplating making additional 
investments. AMS expects to monitor the implementation of that rule and 
would, for example, examine circumstances where the disclosures were 
deceptive or misleading relating to securing the new grower's 
commitment to invest in housing.
---------------------------------------------------------------------------

    \37\ 88 FR 83210, November 28, 2023.
---------------------------------------------------------------------------

iv. Transition and Implementation
    Comment: AMS asked what risks growers and/or LPDs might face during 
any transition to the proposed Sec.  201.106. Concerns about transition 
and implementation risks for growers and LPDs centered on potential 
shifts in the market power dynamics and the administrative compliance 
burdens. Some commenters, especially grower advocates, farmers' 
coalitions, and legal institutions, were concerned about the potential 
for LPDs to exploit the new regulations by arbitrarily lowering base 
pay rates. They argued that this could undermine the intended fairness 
that the rule aims to achieve and called for explicit prohibitions 
against such practices.
    A governmental commenter suggested that, for the duration of a 
reasonable transition period, USDA require that current payments remain 
overall comparable, so that LPDs cannot arbitrarily lower grower base 
pay or overall compensation during the transition period or impose 
other unfair contract terms. This commenter also suggested that USDA 
require that modified contracts have, at a minimum, the same length as 
the period covered by the grower's initial contract.
    Advocacy associations urged USDA to closely monitor the industry's 
transition and establish fair minimum rates that are not lower than the 
average pay under the current comparison system. To minimize transition 
risks to growers, one advocacy association noted that AMS should not 
require submission of all contracts that are modified to comply with 
new Sec.  201.106, in order to avoid a bottleneck in contract 
negotiations. Instead, they recommend that AMS require LPDs to submit 
representative contracts that show how they are calculating a fair base 
pay. The commenter also suggested an accountability mechanism rather 
than a pre-approval process so that LPDs can deliver to AMS the 
information necessary for the Agency to determine whether contract 
modifications are happening in compliance with Sec.  201.106 and the 
Act.
    Another advocacy association urged AMS to presume undue buyer power 
exists whenever an LPD offers a grower in debt a contract that, based 
on the minimum income possible from the contract's guaranteed flock 
placements, stocking density, and firm base price, does not give the 
grower enough income to pay off their debt. The commenter also stated 
that AMS should include a requirement that LPDs submit to AMS for 
review any contracts modified or revised to comply with new Sec.  
201.106

[[Page 5174]]

and should also require all LPDs to submit compensation data for 
review. This data can be used as a basis for requiring all integrators 
to offer base prices that rise to a truly competitive level, and that 
are consistent with grower cash flow and loan servicing expectations 
under original contracts.
    AMS response: In response to these concerns, AMS is adding 
paragraph (c) to the final rule, so that if an LPD modifies a contract 
and reduces aggregate compensation to growers,\38\ the LPD must submit 
notice of the change to AMS and include copies of the original contract 
and new contract, as well as any related Disclosure Documents. AMS can 
then adequately assess that reductions in aggregate grower compensation 
does not violate section 202 of the Act. Aggregate compensation enables 
sufficient flexibility for LPDs to adjust supply and deliveries based 
on changing market conditions. In any case, AMS regularly conducts 
compliance reviews of LPDs.
---------------------------------------------------------------------------

    \38\ Defined as ``less than the prior annual-calendar year's 
complex-wide average gross payment to the grower.''
---------------------------------------------------------------------------

    AMS has also considered the concerns that industry stakeholders 
have presented regarding the importance of LPDs having the ability to 
adjust payment to maintain a functioning market. This regulation allows 
for reductions to compensation that do not otherwise violate section 
202 of the P&S Act. The LPDs are required to submit the prior contract, 
the new contract, and any Disclosure Documents related thereto. This is 
not a time-consuming or costly requirement as this information is 
already readily available to LPDs. It also does not stifle innovation 
as it does not impact novel contracting practices so long as they are 
fair and not deceptive. The regulation does not prevent contracts from 
being updated; it only requires a minimum level of review to ensure 
that the changes are not unfair or deceptive.
    AMS is not, at this time, specifically requiring that modified 
contracts have, at a minimum, the same length as the period covered by 
the grower's initial contract. Instead, AMS is focusing on ensuring the 
grower compensation in aggregate remain unchanged for the initial 
period of compliance, as AMS views that factor as being at greater risk 
of immediate, unavoidable abuse from LPDs than the length of contract 
per se.
v. Benefit, Burden, and Cost
    Comment: Several commenters emphasized the need for safeguards 
against LPDs leveraging their market power or bargaining power to 
offset any losses incurred due to the rule. They argued that such 
protections are needed to ensure fair compensation for growers. On the 
other hand, industry stakeholders were concerned about the 
administrative burden of compliance. Processor commenters were opposed 
to submitting revised contracts and compensation data to USDA on the 
grounds that it is unnecessary and could lead to delays and increased 
costs and stifle innovation in contract structures. They argued that 
allowing LPDs to adjust base pay rates, within reason, is necessary to 
maintain a functioning market. An industry commenter stated the rule 
would require renegotiation of thousands of grower contracts, a 
potentially disruptive and costly process. The commenter pointed to the 
potential for uncertainty, economic risk, and nullification of lawful 
contracts.
    AMS response: AMS acknowledges that this regulation would require 
renegotiation of many existing grower contracts. Due to sunk capital 
costs and thin margins, poultry growers are generally at a distinct 
disadvantage in the face of contract renegotiation and renewal. As 
explained in this final rule, however, AMS has determined the current 
structure of many contracts is unfair and deceptive and therefore 
unlawful under the Act. AMS is providing an extended effective date for 
the provisions of this final rule to provide additional time for LPDs 
and growers to modify contracts or otherwise renew under a new, legally 
compliant system. In addition, AMS recognizes that growers may be at 
risk of unfairness during any transition period and, accordingly, is 
adopting a transition requirement for LPDs to submit contracts upon 
modification or renewal if those contract changes result in decreased 
grower compensation. This requirement is designed to enable a smooth 
transition to the new system. AMS review will not delay contracts, as 
AMS will not be approving the contracts under Sec.  201.106(c), but 
rather will be identifying unfair practices and potentially commencing 
enforcement. AMS's purpose is, as commenters urged, to safeguard 
growers against LPDs leveraging their market power to offset any costs 
they incur due to the rule's fairer and less deceptive approach to 
payment systems.
    AMS rejects the view that this rule would stifle innovation in 
contract structures. It provides a small number of basic safeguards for 
the protection of growers, but otherwise does not dictate the specific 
manner in which LPDs compensate growers for their services. AMS is 
aware of a wide variation of existing contractual approaches to 
compensation which would remain permissible under this final rule. For 
example, some contracts compensate on a per pound base rate while 
others use a square footage contract for base payments or a 
combination. Performance pay will still be permitted at an appropriate 
magnitude, and LPDs may continue to use a range of approaches for 
comparison-based pay, including flock-by-flock comparisons or longer 
rolling averages as some contracts currently do.
    LPDs are also free to adjust base pay rates upwards based on 
grouping, ranking or comparison, which aligns with some industry views 
that the tournament system, within reason, is necessary to maintain a 
functioning market. LPDs can also continue to deduct growers' payment 
for noncompliance with contractual requirements, provided it is not 
based on the outcomes of the tournament.

B. Section 201.110

i. Input Variability
    Comment: Overall, commenters broadly agreed that input variability 
poses a significant challenge to fair grower compensation within 
performance-based payment systems. While commenters acknowledged the 
difficulty of controlling certain inputs such as chick quality, 
stakeholders disagreed on the degree of control and intentionality 
surrounding input variability. Generally, growers pointed to examples 
of inconsistencies that impacted their performance, including 
inconsistencies in chick quality and hen age, which suggest a lack of 
control and potential for unfair outcomes. Industry commenters 
emphasized the challenges of controlling the inputs, such as chick 
quality, countering that they also lack control over certain inputs, 
particularly when ordered in bulk, which would make intentional 
manipulation difficult. One commenter challenged the assumption that 
input variability is intentional, controllable, and material, and 
asserted that USDA lacked evidence to prove the assumptions.
    Regarding the impact of input variability on grower performance and 
fairness, commenters argued that since growers have limited control 
over key inputs (e.g., chick quality, feed delivery, or disease 
management), basing payments on performance relative to these inputs is 
inherently unfair. They emphasized that settlement outcomes under these 
conditions do not accurately reflect grower management skills or 
effort. Other commenters expressed concern that excessive variability 
in inputs such as chick

[[Page 5175]]

health, feed delivery, and flock pickup within a settlement group 
creates significant financial risk for growers, especially over 
multiple flocks.
    Industry stakeholders argued that requiring LPDs to control all 
input variations is impractical and could lead to inflexible systems 
that ultimately harm growers.
    AMS response: AMS has gathered significant evidence from poultry 
growers that input variability in poultry tournaments can lead to 
unfair comparisons, and lead to inappropriate burdening of risk onto 
growers. AMS does not need to find that input and production practice 
variability is intentional, fully controllable, or material in all 
instances by the LPD to reach the conclusion, based on academic 
evidence, regulatory experience, and complaints from growers, that it 
exists and can and should be mitigated by LPDs. AMS has identified at 
least the following differences that may affect grower performance: 
breed,\39\ bird sex,\40\ breeder stock age,\41\ stocking density,\42\ 
consistency of feed availability,\43\ and the type and administration 
of veterinary medicines.\44\ AMS also notes that chick genetics are 
currently proprietary and largely controlled by two companies, one of 
which is owned by one of the nation's largest LPDs.\45\
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    \39\ See, e.g., Muir, W.M. and SE Aggrey. Poultry Genetics, 
Breeding, and BioTechnology (2003).
    \40\ See Burke, William, and Peter J. Sharp. ``Sex Differences 
in Body Weight of Chicken Embryos.'' Poultry Science 68.6 (1989): 
805-810; and Beg, Mah, et al. Effects of Separate Sex Growing on 
Performance and Metabolic Disorders of Broilers. Diss. Faculty of 
Animal Science and Veterinary Medicine, Sher-e-Bangla Agricultural 
University, Dhaka, Bangladesh, 2016.
    \41\ Breeder stock age: See Washburn, K.W., and R.A. Guill. 
``Relationship of Embryo Weight as a Percent of Egg Weight to 
Efficiency of Feed Utilization in the Hatched Chick.'' Poultry 
Science 53.2 (1974): 766-769; Weatherup, S.T.C., and W.H. Foster. 
``A Description of the Curve Relating Egg Weight and Age of Hen.'' 
British Poultry Science 21.6 (1980): 511-519; Wilson, H.R. 
``Interrelationships of Egg Size, Chick Size, Posthatching Growth 
and Hatchability.'' World's Poultry Science Journal 47.1 (1991): 5-
20; Goodwin, K. ``Effect of Hatching Egg Size and Chick Size Upon 
Subsequent Growth Rate in Chickens.'' Poultry Science 40 (1961): 
1408-1409; Morris, R.H., D.F. Hessels, and R.J. Bishop. ``The 
Relationship Between Hatching Egg Weight and Subsequent Performance 
of Broiler Chickens.'' British Poultry Science 9.4 (1968): 305-315; 
Peebles, E. David, et al. ``Effects of Breeder Age and Dietary Fat 
on Subsequent Broiler Performance. 1. Growth, Mortality, and Feed 
Conversion.'' Poultry Science 78.4 (1999): 505-511. AMS notes 
additionally that research in this and related areas has 
limitations. It is older and results are mixed. AMS is concerned 
that publicly available research has stagnated, despite the 
introduction of new breed strains in the intervening years. Because 
integrators now own the genetics companies, AMS has additional 
concerns that research has, in effect, been privatized, creating 
informational asymmetries. Based on regulatory experience and on 
public comments, growers believe these factors affect performance.
    \42\ Dozier III, W.A., et al. ``Stocking Density Effects on 
Growth Performance and Processing Yields of Heavy Broilers,'' 
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler 
performance at different stocking densities.'' Journal of Applied 
Poultry Research 4.1:55-60 (1995).
    \43\ Dozier III, W.A., et al. ``Effects of Early Skip-A-Day Feed 
Removal on Broiler Live Performance and Carcass Yield.'' Journal of 
Applied Poultry Research 11.3 (2002): 297-303.
    \44\ Treatments may be necessary to mitigate disease within a 
single poultry house or an entire flock, or to boost the performance 
of suboptimal progeny from impaired breeder flocks, as described 
above. These treatments may affect the flock's growth rate or 
mortality. See Wells, R.G., and C.G. Belyawin. ``Egg quality-current 
problems and recent advances.'' Poultry science symposium series. 
No. 636.513 W4. 1987. (citing Spackman, D. ``The Effects of Disease 
on Egg Quality.'').
    \45\ Hendrickson, M. et al, ``The Food System: Concentration and 
Its Impacts,'' 3, (2020), https://farmaction.us/concentrationreport/
, (``Globally, just two firms control 99% of turkey genetics, 94% of 
laying hen genetics, and 91% of broiler genetics, and just three 
firms control 47% of swine genetics (ETC Group 2013; Shand and 
Wetter 2019)'').
---------------------------------------------------------------------------

    This rule aims to set conditions on performance-based payment 
systems in contract poultry growing such that poultry growers are 
compared based on factors under their control. When poultry companies 
take appropriate measures, as prescribed in this rule to ensure a fair 
comparison, then contract poultry growing reduces a significant amount 
of risk to growers because the LPD provides the inputs.
    The purpose of this rule is to establish a framework for fair 
comparisons to prevent unfair and deceptive practices that reduce pay. 
To the extent that input variability is creating unfairness, the rule 
requires LPDs to mitigate the impacts of input variability on the 
comparison. AMS recognizes that LPDs have an incentive to get full 
economic value of less productive chicks. Yet it is incumbent upon them 
under the Packers and Stockyards Act--and this rule's explicit duty of 
fair comparison--to structure their comparison-based compensation 
system to make a fair comparison among growers. Input differences 
should not be a significant variable over time in the determination of 
grower compensation. As commenters noted, excessive variability in 
input quality, timing, and flock pickup can cause significant harm to 
growers, hence the inclusion of explicit duties imposed on LPDs in this 
rule with respect to the design and operation of comparison-based 
poultry compensation schemes. Furthermore, LPDs must institute a non-
comparison-based system when it is impossible for the LPD to conduct a 
fair comparison due to extenuating circumstances.
ii. Application, Material Difference, and Non-Comparison Method
    Comment: While there was broad agreement on the importance of fair 
compensation for all growers, some commenters expressed concern about 
the rule's practicality, administrative burdens, and potential 
confusion regarding the definition of ``material differences in 
performance.'' Commenters, especially farmers' coalitions and advocacy 
groups, endorsed the duty of fair comparison, viewing it as a key step 
toward ensuring equitable treatment for growers operating outside of 
tournament systems. They emphasized the need for transparent, data-
driven mechanisms that guarantee fair compensation regardless of 
payment model.
    Commenters both in support of and in opposition to the proposed 
rule requested further clarity for the definition of ``material 
differences in performance'' so that growers know when they have 
suffered a specific prohibited harm and can confidently request an 
investigation. Commenters also favored a presumption of unfairness 
rather than a material threshold for change in pay. One commenter 
asserted that any material or numeric threshold for change in pay would 
be inappropriate, and that AMS should establish the presumption that 
providing unequal inputs to growers within the same settlement group is 
material to grower performance, and another commenter advocated for the 
use of a presumption to provide greater clarity and notify growers of 
problems to be addressed.
    AMS response: The preamble to this final rule explains that 
``Material differences in performance are differences that meaningfully 
(from the perspective of the grower) impact grower payments.'' AMS 
chose not to publish a dollar amount because a given change in 
performance may have disparate impacts on growers, depending on the 
ratio of performance pay to total pay, the overall size of the grower's 
operation, their level of indebtedness, or other factors pertaining to 
a grower's financial position.
    AMS is not adopting a presumption of unfairness for differences in 
inputs because there are always differences in inputs in natural 
systems. The use of a presumption would be overinclusive and unhelpful 
in guiding LPDs in improving the fairness of their comparisons in 
relation to inputs, production practices, and related factors set out 
in the duty of fair comparison. Material change in pay is a more

[[Page 5176]]

appropriate target because the comparison affects the grower's pay.
    Comment: Commenters stressed the importance of clearly outlining 
non-comparison methods within production contracts before they become 
necessary to provide growers with a clear understanding of their rights 
and options should tournament-based comparisons become unfair or 
impractical. Both industry stakeholders and advocacy groups acknowledge 
the need for clearer guidance on determining when fair comparison is no 
longer feasible and advocated for more specific criteria to guide both 
LPDs and growers. Commenters also expressed concern that implementation 
should appropriately address growers' circumstances.
    AMS response: Fair comparison of growers requires that growers do 
not receive a distribution of inputs or assignment of production 
practices that causes material differences in performance from other 
growers to whom they are being compared. Factors outside of a grower's 
control should not meaningfully (from the perspective of the grower) 
impact grower payments. This is a facts and circumstances analysis.
    Per Sec.  201.110(a)(3), the non-comparison method must be included 
in the contract; therefore, growers will know what this method is 
before it is used. Per Sec.  201.110(b)(1)(v), ``Non-comparison,'' 
requires that an LPD's written processes explain when the LPD might 
remove a grower from a ranking group, and how the LPD will compensate 
growers removed from a ranking group to satisfy the non-comparison 
compensation method required under Sec.  201.110(a)(3). There are 
myriad reasons why a grower may need to be removed from a ranking 
group. For example, there may not be enough comparable growers with 
which to make a reliable comparison in the current grouping and the LPD 
may use growers settling in previous periods to make a reliable 
comparison. Likewise, a specific grower may have received undesirable 
inputs or an assignment of production practices that materially 
impacted the grower's performance, necessitating the removal of the 
grower from the grouping and compensation under a non-comparison 
compensation method. Under this provision, the LPD must explain how and 
when the LPD removes a grower from a ranking group because the grower 
received unfavorable inputs or production practices and how it will 
fairly compensate such growers through a non-comparison compensation 
method.
    Comment: A common theme across comments was addressing the inherent 
power imbalance between growers and LPDs, including the need to protect 
growers from retaliation. Commenters advocated for independent 
compliance reviews, potentially involving grower feedback, to ensure 
LPDs comply with the duty of fair comparison. However, some commenters 
contend that such requirements would create excessive paperwork burdens 
for LPDs, potentially hindering their ability to address grower needs 
effectively.
    AMS response: AMS monitors and regulates power imbalances in the 
poultry industry in accordance with the Act and associated regulations. 
AMS's regulations at Sec.  201.304 prohibit retaliation for asserting 
any of the rights granted under the Act or part 201 or asserting 
contract rights (9 CFR 201.304(b)(2)(vii)). AMS's regulations also 
prohibit retaliation by LPDs against poultry growers for speaking with 
government officials for the purposes of seeking redress for grievances 
brought under the Acts (9 CFR 201.304(b)(2)(i)). Moreover, this 
regulation aims to prevent injury from specific practices by LPDs--who 
possess local market power or bargaining power over growers. Out of 
concern that the compliance review process will divert poultry 
technicians from their primary responsibility to assist poultry growers 
with production issues, AMS has simplified the documentation 
requirements under Sec.  201.110(b)(1). This new streamlined 
documentation requirement gives LPDs the needed flexibility to 
efficiently incorporate compliance with this rule into their standard 
business practices. Additionally, this section was streamlined in part 
because the Transparency Rule had similar documentation 
requirements.\46\
---------------------------------------------------------------------------

    \46\ 88 FR 83210, November 28, 2023.
---------------------------------------------------------------------------

    Comment: To refine comparison-based payment systems, one commenter 
suggested using shorter rolling averages for performance comparisons; a 
short rolling average mitigates the impact of seasonal variations and 
new breeder flocks on grower pay, and therefore might create a more 
level playing field and prevent unfair disadvantages stemming from 
factors outside a grower's control. Another commenter advocated for 
contract provisions that would automatically adjust grower pay or 
provide avenues for redress when external factors, such as chick 
quality, veterinary care access, and feed quality negatively impact 
performance.
    AMS response: AMS agrees that the duty of fair comparison requires 
integrators to use an appropriate time period for comparing growers. 
Use of an inappropriate time period for the comparison-based 
compensation may be unfair or deceptive, and therefore constitute a 
violation of the Act. The final regulatory text indicates that one 
factor for the Secretary to consider when determining if a fair 
comparison has been made in the design or operation of a poultry grower 
ranking system is ``whether the designated time period used in the live 
poultry dealer's comparison is appropriate, including whether the live 
poultry dealer uses one or more groupings, rankings, or comparisons of 
growers to mitigate the effects of any differences in inputs over the 
designated time period.'' Under the duty of fair comparison provision, 
growers will be compensated through a non-comparison method when a fair 
comparison-based compensation scheme is impossible.
iii. Appeal, Dispute Resolution
    Comment: An industry stakeholder expressed concern that the 
language surrounding ``reasonable efforts'' was not detailed enough and 
that this could create uncertainty for LPDs, potentially leading to 
inconsistent application and legal challenges. To provide greater 
clarity and specificity regarding the definition of ``reasonable 
efforts,'' one commenter suggested defining the term through concrete 
examples of both reasonable and unreasonable behavior to provide 
clearer expectations for both growers and LPDs. Another commenter 
proposed specific actions that LPDs should take to demonstrate 
``reasonable efforts,'' including (1) allowing for grower-installed 
feed scales to verify feed amounts, (2) permitting third-party 
veterinarian selection for sick flock assessments, (3) providing 
options for growers to independently assess LPD-controlled inputs, and 
(4) offering non-comparison compensation without fear of retaliation. 
Emphasizing grower agency, one commenter recommended empowering growers 
with the ability to independently verify inputs and performance 
factors.
    An industry commenter noted that, in order to fairly address and 
resolve a situation, an LPD will always depend on the facts and 
circumstances of each case. The commenter noted that there are a 
multitude of factors for each situation, making a set policy or 
procedure not conducive to the dispute resolution process.
    AMS response: As noted above, fairness requires a poultry ranking 
system that meets a reasonably reliable standard. LPDs must properly 
adjust the comparison-based compensation systems used in their poultry 
grower

[[Page 5177]]

ranking systems to reasonably neutralize the impact of inequitable 
distribution of inputs and assignment of flock production practices on 
poultry grower compensation, as well as to reasonably neutralize the 
impact of communication and dispute resolution challenges that are not 
effectively and timely addressed.
    Reasonableness is intended to be viewed as an objective test that 
accounts for standard industry practice, growers' contract 
expectations, basic considerations of equity, and the LPD's ability and 
willingness to prevent harms to growers resulting from factors outside 
growers' control. This objective test should also provide some 
flexibility to LPDs in particular facts and circumstances to achieve 
distinct goals in management of their operations, provided the LPD's 
goals are reasonably designed, appropriately documented, and not 
otherwise unfair or deceptive to growers.
    Although ``reasonable efforts'' follows the typical standard 
applied for reasonable behavior in the law--what a reasonable person 
would do under similar circumstances--AMS also recognizes that enough 
circumstances are recurring in nature that an LPD should in many if not 
most cases be expected to have a regularized approach to the concern. 
Ultimately, what constitutes reasonable efforts will depend on the 
facts and circumstances of each case, with the LPD's duty focused on 
the fairness of the comparison(s) for the grower.
    For example, if a grower raises immediate and urgent concerns about 
feed quality, such as the delivery of feed meant for older chicks than 
the grower has, the LPD should resolve this concern as soon as possible 
to minimize any additional undue damage to the grower's flock due to 
lack of proper nutrition. Or if a grower raises concerns about feed 
consistently being delivered late or in an insufficient quantity, the 
Agency would examine the LPD's effort to adjust the method of delivery. 
Failure to do so would likely justify placing the grower into a non-
comparison method.
    Without a doubt, an LPD is prohibited from retaliating against a 
grower in any manner for raising concerns as to whether a fair 
comparison method was used. Whether or not reasonable efforts 
specifically include LPDs allowing for grower-installed feed scales to 
verify feed amounts, permitting third-party veterinarian selection for 
sick flock assessments, or providing options for growers to 
independently assess LPD-controlled inputs is not something that AMS 
intends to determine in this rule for all circumstances. However, to 
the extent that LPDs face repeated grower complaints and concerns 
regarding these matters and a track record of problems in resolving 
those complaints, reasonable efforts under particular facts and 
circumstances could point to the need for solutions such as those, 
although other less intrusive options may also be available.
    Regarding the comment stating that set policies and procedures are 
not appropriate for how LPDs resolve issues with growers, AMS agrees 
that every growing operation is different, and LPDs must be careful in 
designing processes for resolving issues with growers that are context 
specific. Yet a wide range of problems are commonplace enough that LPDs 
should have regularized means for dealing with them. To strike an 
appropriate balance and enable LPD complex staff to retain focus on the 
important work of helping growers, AMS has changed the documentation 
requirements under Sec.  201.110(b) to be less specific and, instead, 
simply require LPDs to describe how they account for similarities and 
differences in quality or quantity of inputs delivered to growers and 
how they account for differences in production practices across growers 
in a poultry grower ranking system.
iv. Benefit, Burden, and Cost
    Comment: Commenters highlighted the perceived need for greater 
transparency and fairness in grower compensation. While grower 
advocates believe the rule is necessary to address systemic issues, 
LPDs expressed concern about potential cost increases and impacts on 
grower pay. Comments revealed a clear divide between grower advocates 
and industry representatives. Grower organizations argued that the duty 
of fair comparison is crucial for addressing the unfair and deceptive 
practice of shifting costs and risks from LPDs to growers. Advocacy 
groups suggested including a list of presumptive violations, such as 
providing unequal inputs within the same settlement group, to 
strengthen the rule's effectiveness. Several commenters emphasized the 
importance of robust anti-retaliation protections for growers who 
report rule violations or seek non-comparison compensation. An industry 
commenter expressed concern that requiring non-comparison-based pay 
could lead to lower overall compensation for growers.
    AMS response: AMS agrees with commenters that the duty of fair 
comparison plays a critical role in addressing the unfair and deceptive 
risk-shifting of costs and risks from LPDs to growers. Regarding non-
comparison-based pay, the rule clearly states that when a fair 
comparison-based system is impossible, the LPD must implement a non-
comparison method for calculating pay to ensure that factors outside of 
the growers' control do not cause harm to growers through decreased 
compensation for grow-out services. Even where adopted, non-comparison-
based pay is not intrinsically likely to reduce average grower pay; the 
total amounts of pay are entirely dependent on the LPD's choices, and 
this rule does not ban bonuses for increased productivity or greater 
investment.
    AMS agrees that a presumptive list of violations would assist with 
enforcement and has included some examples of potential violations in 
the appropriate section of the preamble of the final rule addressing 
the duty of fair comparison. Moreover, AMS agrees that growers cannot 
be retaliated against for reporting a violation of the duty of fair 
comparison and have indicated as such in this final rule. AMS included 
a prohibition against retaliation in the Inclusive Competition and 
Market Integrity Under the Packers and Stockyards Act final rule (89 FR 
16092, March 6, 2024). LPDs cannot retaliate against growers for 
speaking with government officials for the purposes of seeking 
redresses for grievances brought under the Act.
    Comment: Several commenters were concerned about the feasibility of 
implementing the documentation requirements for the new duty of fair 
comparison. Growers emphasized the need to access detailed, house-
specific data on bird weights, feed consumption, and other key metrics. 
Some other commenters recommended additional requirements pertaining to 
LPD-controlled factors and assessing compliance, and one commenter 
recommended USDA to require LPDs to equally distribute inputs and 
adjust performance-based pay to account for differences in inputs and 
treatment. An industry commenter argued that requiring LPDs to control 
all variations in inputs, as implied in Sec.  201.110(b)(1)(i), would 
be overly prescriptive and impractical given the scale, speed, and 
complexity of input delivery. The commenters argued that this could 
lead to inflexible systems that would ultimately harm growers. Other 
commenters criticized the provision for being vague, unfounded and 
lacking necessary explanation.
    AMS response: AMS finds that comparison-based pay using factors 
outside growers' control constitutes an unfair practice under section 
202(a) of the Act. While it is true that inputs cannot be delivered on 
a 100 percent

[[Page 5178]]

equal basis to all growers all the time, that does not mean that LPDs 
cannot construct payment systems that appropriately account for and 
mitigate the impact of input and flock production variability on grower 
compensation. The LPD does not need to control all variations in 
inputs; instead, the rule as proposed and finalized here merely 
requires the LPD to account for this variation in the design of a 
comparison-based payment system. AMS has been careful to specifically 
not require, nor expect, that identical inputs are delivered to all 
growers.
    Also, the compliance reviews have been removed from the final rule 
because of the speed and complexity of the poultry growing process. 
Instead, AMS will incorporate audits of records pertaining to the duty 
of fair comparison into its regular audits of LPDs to lessen the 
compliance burden of this rule.
    AMS expects the duty of fair comparison to substantially prevent 
unfair and deceptive practices when comparison-based pay is linked to 
input or flock production variation. This provision is written with 
sufficient specificity to tackle the problem at hand, while also 
allowing LPDs enough flexibility to design and operate a comparison-
based compensation system that causes minimal disruption to their 
business operations. In fact, several LPD comments indicated they 
already have processes in place for addressing situations where a 
comparison-based pay system is not appropriate. This rule is codifying 
what industry stakeholders recognize as a best practice to create a 
level playing field and uphold the purpose of the tournament system in 
contract poultry growing. AMS has created new Sec.  201.110(b)(1)(iii), 
``League composition,'' which requires written documentation regarding 
how LPDs determine groupings of growers for settlement. AMS has also 
created new Sec.  201.110(b)(1)(iv), ``Evaluation period,'' requiring 
LPDs to have a reasonable time period over which they shall evaluate 
the duty of fair comparison, and new Sec.  201.110(b)(1)(v), ``Non-
comparison,'' which requires LPDs to specify when they may remove 
growers from a ranking group and how they will compensate such growers 
to satisfy the non-comparison compensation method requirement under 
Sec.  201.110(a)(3). This is meant to account for fluctuations across 
flocks while also ensuring that poultry growers do not face material 
harm resulting from input quality or timing variation.
    Comment: Some commenters asserted that the proposed documentation 
requirements were burdensome and potentially litigious. One commenter 
argued that AMS lacked authority to require LPDs to conduct and 
document self-audits to evaluate P&S Act compliance.
    AMS response: As explained above in section IV., ``Provisions of 
the Final Rule,'' AMS agrees that some of the proposed documentation 
requirements can be streamlined. In the final rule, AMS is focused on 
only the most important documentation requirements that would assist 
AMS in reviewing LPDs' compliance with the duty of fair comparison. 
Requirements for policies and procedures are not new or particularly 
controversial and are used widely across in the financial regulatory 
context to ensure firms are appropriate managing risks that cannot be 
entirely eliminated through regulation or otherwise. The situation is 
similar in the operation of broiler growing arrangements, where LPDs 
need to distribute inputs, production practices, and manage the needs 
of growers. To the extent that an LPD improves its management practices 
through maintaining policies and procedures, that should reduce 
litigation risk from unfair comparisons.
    AMS is removing the provision requiring self-audits and will 
incorporate inspection of documentation required under Sec.  201.110(b) 
into its regular compliance process. The compliance process undertaken 
by AMS to ensure compliance with the Act is routine, flexible, and 
comprehensive, thereby making it the ideal mechanism by which the 
provisions of this section shall be enforced. AMS regulatory staff 
already perform regular compliance audits of LPDs, so they are well 
positioned to review documentation describing the design and operation 
of LPDs' poultry grower ranking systems and ensure that it complies 
with the duty of fair comparison.
v. Alternatives
    Comment: Several stakeholders offered alternative approaches to 
address unfair compensation practices in the poultry industry. An 
advocacy group for growers proposed exploring non-comparison-based 
compensation models, such as contracts based on square footage, to 
mitigate the inherent issues of tournament systems. Another group 
advocated for a complete ban on tournament systems, based on the need 
for more stable and predictable grower income that is decoupled from 
relative performance within a group.
    A number of commenters expressed concerns about LPDs manipulating 
input distribution (e.g., chick quality, feed) as a form of retaliation 
against growers who challenge them or refuse to make capital 
investments. One commenter recommended explicitly defining unequal 
inputs within a settlement group as an unfair practice under the Act. 
Another commenter argued there are no simpler alternatives to directly 
addressing unfair comparisons, and that focusing on alternative 
compensation models or banning tournament systems wouldn't fully 
address the root issue of unequal bargaining power and the potential 
for exploitation within the poultry industry.
    AMS response: AMS is not at this time adopting the alternative 
approaches to address unfair compensation practices in the poultry 
industry because it believes that the final rule's approaches are more 
effective at addressing the identified concerns around unfairness and 
deception given the available evidence. While AMS recognizes that non-
comparison-based compensation models, such as contracts based on square 
footage, are popular with growers and mitigate the inherent issues of 
tournament systems, they have other limitations around recognizing 
skill, effort, and investment. AMS is not at this time, based on the 
available evidence, able to say that tournaments should be banned in 
all circumstances and replaced with those non-comparison methods, 
especially when AMS believes that the approaches set forth in this 
final rule, including prohibiting deductions and setting a presumption 
of 25 percent limitation on tournament magnitude, along with a clearer 
duty of fair comparison, offer a more narrowly tailored approach. If 
the approaches set forth in this final rule do not yield sufficient 
change in the treatment of growers, AMS will evaluate whether those 
facts necessitate other actions.
    AMS acknowledges concerns about LPDs manipulating input 
distribution (e.g., chick quality, feed) as a form of retaliation 
against growers who challenge them or refuse to make capital 
investments. In a previous final rule, Inclusive Competition and Market 
Integrity Under the Packers and Stockyards Act (89 FR 16092, March 6, 
2024), AMS specifically set out a range of circumstances where 
retaliation is prohibited (9 CFR 201.304(b)). Moreover, new Sec.  
201.110, which includes requirements for maintaining and complying with 
policies and procedures relating to input distribution, is designed to 
better protect growers against precisely those kinds of abuses. Were an 
LPD to adopt

[[Page 5179]]

policies and procedures that permitted inputs to be distributed in a 
retaliatory manner and compared growers on that basis, it would be in 
violation of the duty of fair comparison. And, if the LPD failed to 
comply with its policies and procedure requiring the equitable 
distribution of inputs and compared growers on that basis, that would 
also be in violation. AMS underscores that these principles (of pay not 
being affected by unfair input distribution) apply regardless of 
whether a tournament is present. Indeed, as AMS inquired in the 
proposed rule and affirms here, a practice (including, but not limited 
to, intentional, arbitrary, or punitive distribution) of unequal, 
dissimilar, or inappropriate inputs or flock production practices would 
be an unfair practice under the Act under any payment system that 
relies upon grower performance relative to inputs or production 
practices provided by the LPD (such as feed efficiency) irrespective of 
whether the payment system was a tournament.

C. Section 201.112

i. Additional Capital Investment Disclosure Document
    Comment: Commenters including several farmers' coalitions supported 
the proposed additional capital investment disclosure requirements, 
asserting they would increase transparency and reduce deception. 
Several farmers' coalitions indicated the proposed transparency 
requirements should provide lenders with more consistent information 
for justifying investment viability, help prevent producers from being 
misled to make unviable investments, deter LPDs from making unnecessary 
upgrade requests, and may increase incentive pay for additional capital 
investments. However, industry associations and LPDs stated that it is 
outside USDA's statutory authority under the Act to require disclosures 
for additional capital investment requests. One commenter asserted that 
section 401 of the Act only allows AMS to require LPDs to maintain 
business records for AMS's benefit, not to require disclosure of 
records to growers, and that under section 401 AMS can only prescribe 
the manner and form in which regulated entities must keep transaction 
records if the Secretary finds that the records ``do not fully and 
correctly disclose all transactions involved in the dealer's 
business.'' Another commenter asserted that AMS has failed to establish 
that disclosures are always necessary to avoid an unfair or deceptive 
practice or device.
    AMS response: The Agency believes that the additional disclosure 
information will help mitigate the information asymmetry between LPDs 
and poultry growers when entering into an additional capital investment 
agreement. When LPDs ask contract poultry growers to make additional 
capital investments but fail to be transparent regarding the purpose, 
risks, financial incentives and rates of return, those growers cannot 
make an informed business decision. Any failure to disclose material 
information essential to making critical business decisions is 
deceptive and also inhibits growers from identifying unfair practices 
in their incipiency, and so violates the Act's prohibition in section 
202(a) against unfair and deceptive practices. Section 407 of the Act 
specifically authorizes the Secretary to implement regulations to carry 
out the provisions of the Act. This provision is one instance of this 
authority. Accordingly, AMS disagrees with the notion that the Agency 
lacks statutory authority to promulgate the additional capital 
investment disclosure requirements.
    In this regulation, AMS enables growers to better detect the risks 
in contracting because the LPDs' contracts will now show the grower the 
real value of the LPDs' offer, which they obscure in tournament 
contracts. Preventing deception and stopping unfairness in its 
incipiency enhances competition among dealers by enabling growers to 
compare offers and reasonably assess entry into the business. 
Preventing unfairness and deception improves how markets function by 
forcing LPDs to compete for growers' services based on the merits of 
the producer's offer and prevents likely injuries to competition. 
Preventing deception enables growers to better assess their performance 
vis-[agrave]-vis other growers. 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.'' \47\ In its report on the 1958 amendments to the Packers and 
Stockyards Act, the U.S. House of Representatives explained that the 
statute promotes both ``fair competition and fair trade practices'' and 
is designed to guard ``against [producers] receiving less than the true 
market value of their livestock.'' \48\
---------------------------------------------------------------------------

    \47\ Federal Trade Commission, ``FTC Policy Statement on 
Unfairness'' (1980), available at https://www.ftc.gov/public-statements/1980/12/ftc-policy-statement-unfairness. Last viewed 
October 9, 2024.
    \48\ H.R. Rep. No. 85-1048 (1957), reprinted in 1958 
U.S.C.C.A.N. 5212, 5213.
---------------------------------------------------------------------------

    Moreover, other agencies that enforce laws prohibiting unfairness 
and deception often have used disclosure to prevent deception. For 
example, the FTC enforces prohibitions against unfair practices, unfair 
methods of competition, and deceptive practices arising under the FTC 
Act.\49\ Effective disclosure is well-established as a cure for 
deceptive practices that arise from information gaps in the 
marketplace, as exemplified by AMS's existing disclosure requirements 
under Sec. Sec.  201.100 and 102, the FTC's franchisor-to-franchisee 
disclosure requirements, and a range of other mandated disclosures by 
Federal and State regulators. Although disclosure will not remedy an 
unfair practice, robust disclosure can help identify such practices, 
enabling remediation of unfairness at earlier stages, and so help stop 
harms in their incipiency. AMS believes that the parallels between the 
FTC's section 5 authority on deceptive and unfair practices greatly 
outweigh any differences between the statutes because the language of 
both statutes is similar,\50\ and it is generally recognized that 
Congress wrote the Act with broader application than the original FTC 
Act.\51\ It is plain from the statutory language Congress wrote--and in 
the floor debates and Congressional reports--that the Act empowered the 
Secretary to prevent unfair and deceptive practices, and not merely 
enforce existing antitrust law.\52\
---------------------------------------------------------------------------

    \49\ Letter from FTC Chair Lina Khan to AMS, ``Poultry Grower 
Tournament Systems: Fairness and Related Concerns,'' Docket No. AMS-
FTPP-22-046, at https://www.regulations.gov/comment/AMSFTPP-22-0046-0143; Michael Kades, ``Protecting livestock producers and chicken 
growers,'' Washington Center for Equitable Growth (May 2022). 
Federal Trade Commission, Policy Statement on Deception, (1983), 
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf. 15 U.S.C. 45(n); Fed. Trade Comm'n, Policy 
Statement on Unfairness, (1980), https://www.ftc.gov/legal-library/browse/ftc-policy-statement-unfairness; Fed. Trade Comm'n, Policy 
Statement Regarding the Scope of Unfair Methods of Competition Under 
Section 5 of the FTC Act, 9 (2022), https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission.
    \50\ 15 U.S.C. 45(a)(1) (``Unfair methods of competition in or 
affecting commerce, and unfair or deceptive acts or practices in or 
affecting commerce, are hereby declared unlawful.'').
    \51\ FTC comment, submitted to Regulations.gov on September 10, 
2024, posted on September 11, 2024. https://www.regulations.gov/document/AMS-FTPP-21-0046-12413.
    \52\ The House of Representatives' report on the P&S Act stated 
that the P&S Act 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.'' The 
Conference Report on the P&S Act stated that: ``Congress intends to 
exercise, in the bill, the fullest control of the packers and 
stockyards which the Constitution permits . . .'' See, Shively, J. 
and Roberts, J., ``Competition Under the Packers and Stockyards Act: 
What Now?'' 15 Drake Journal of Agricultural Law 419, 422-423 
(2010); and Current Legislation, 22 Columbia Law Review 68, 69 
(1922).

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[[Page 5180]]

    AMS emphasizes that disclosure under new Sec.  201.112 is not, and 
is not intended to be, a remedy to unfairness in and of itself; rather, 
disclosure provides AMS and growers with information necessary to 
enforce their rights under existing Sec.  201.216, ``Additional capital 
investments criteria,'' and the P&S Act more broadly, when terms are 
unfair. This rule is meant to both cure deception and to identify 
unfairness in its incipiency to make enforcement under Sec.  201.106 
possible.
    A commenter grounded opposition to the additional capital 
investment disclosure requirement in section 401 of the Act and argued 
that section 401 requires dealers to maintain records for AMS's 
benefit, not for the benefit of growers. The commenter also argued that 
AMS is not authorized to control the content of the records required 
under section 401. AMS disagrees. Section 202 of the Act prohibits 
unfair and deceptive practices. The disclosures required in this rule 
seek to identify or prevent those harms. Section 401 complements these 
goals to the extent that disclosure is based on recordkeeping. Section 
401 statutorily requires LPDs to maintain complete records of all their 
business transactions. Moreover, LPD obligations to retain information 
do not affect AMS's ability to require the LPD to share the information 
to prevent unfair and deceptive practices under section 202(a) and (b) 
of the Act. Growers have informed the Agency that LPDs systematically 
withhold information that the LPDs possess concerning the design, 
purposes, impacts, and other aspects of the contracts the LPDs make 
regarding additional capital investments. This regulation targets 
material omissions under section 202, and the commenter's assertions 
regarding section 401 ignore how additional capital investment requests 
fit into the business relationship between LPDs and growers. When an 
LPD asks a grower to make an additional capital investment, that is 
fundamentally a request to modify the contract that the grower must 
consider under circumstances where the LPD has all the information on 
its benefits, and the grower has none. Therefore, when the LPD requests 
that the grower spend money to advance the LPD's business interests, 
the grower may incorrectly infer that an additional capital investment 
must also be in the grower's interest. The regulation is remedial in 
purpose and effect, exactly as Congress intended the Secretary to 
regulate when the Act passed in 1921, and when Congress amended that 
statute in 1987.\53\
---------------------------------------------------------------------------

    \53\ Public Law 100-173, 101 Stat. 918.
---------------------------------------------------------------------------

    Regarding the comment that asserted AMS has not proven that 
disclosures are always necessary to avoid an unfair or deceptive act or 
practice, Congress did not require that regulation be ``always'' 
necessary. AMS is not required to adduce individualized evidence that 
the disclosure was necessary to every grower--the regulation simply 
must be necessary to prevent deception or identify unfairness for some 
growers. As a factual matter, AMS concludes that the unequal bargaining 
terms between growers and LPDs requires LPDs to disclose key 
information regarding additional capital investment requests to 
mitigate asymmetric information gaps that result in unfair and 
deceptive practices. Furthermore, transparency in the market requires 
disclosure of this information when LPDs request an additional capital 
investment in order to prevent deceptive practices.
    Comment: One commenter commented on the rule explaining that AMS 
lacks the authority under ``Section 410'' to ``require dealers to make 
a variety of ``disclosures'' to growers.''
    AMS Response: Section 410 of the cited material, entitled ``Final 
date for making payment to cash seller or poultry grower'' deals with 
(a) ``Delivery of full amount due,'' (b) ``Delay or attempt to delay 
collection of funds as `unfair practice, ' '' and (c) ``Definition of 
cash sale.'' Section 410 makes clear that Congress expected the 
Secretary to protect growers from receiving less than full payment. The 
mechanism for reducing or delaying that payment is immaterial.
    The Congressional purpose of the Act was to stop unfair practices 
in their incipiency.\54\ When an LPD fails to make available the 
required disclosures here, the unfair practice of reducing pay, banned 
by section 410, becomes undetectable because the terms surrounding 
payment are not clearly expressed. In other words, without having the 
necessary foundational terms, as per the required disclosure, there is 
no way for aggrieved party or for USDA to see a reduction of pay as 
there has been no set baseline. Congress expected USDA to take a 
proactive approach to prevent this sort of harm, which hurts both the 
grower and the market, because it destroys the ability of growers to 
continue in the business and reduces the supply of growers willing to 
contract. Thus, among the other authorities in the Act, USDA also 
believes this regulation implements provisions of section 410 of the 
Act.
---------------------------------------------------------------------------

    \54\ See In Re: Corn State Meat Co., Inc.; Terrance P. (Terry) 
Prince, Jr. & James L. Wiggs., 45 Agric. Dec. 995, 1023 (U.S.D.A. 
May 8, 1986); c.f. In Re: Danny Cobb & Crockett Livestock Sales Co., 
Inc., 48 Agric. Dec. 234, 234 (U.S.D.A. Feb. 13, 1989) (finding 
bonds protect against incipient violations); In Re: Paul Rodman & 
David Rodman, 47 Agric. Dec. 885, 903-04 (U.S.D.A. May 27, 1988) 
(finding there is a duty to prevent all unlawful acts under the P&S 
Act, including the potential losses from failing to maintain a 
custodial account).
---------------------------------------------------------------------------

    Comment: Several advocacy organizations suggested additional 
disclosure of cost and liability burden for environmental compliance.
    AMS response: AMS appreciates these comments and understands the 
importance of properly allocating cost and liability burden for 
environmental compliance in the poultry industry. However, AMS did not 
consider that in the proposed rule, and P&S Act regulations in general 
do not impact the environment.\55\ To the extent that the costs of 
environmental compliance are grower variable costs under particular 
poultry growing arrangements, they should be disclosed by the LPD under 
the requirement to disclose information relating to grower variable 
costs (9 CFR 201.102(d)(3)). Therefore, AMS made no changes to the rule 
as proposed based on these comments.
---------------------------------------------------------------------------

    \55\ See 7 CFR 1b.4 (Listing the USDA agencies and agency units 
found to have no individual or cumulative effect on the human 
environment.).
---------------------------------------------------------------------------

    Comment: One commenter suggested that AMS make additional capital 
investment requests and disclosures public to other growers and track 
the frequency of additional capital investment requests and grower 
complaints of coercion, retaliation, or arbitrariness.
    AMS response: This rule is not designed to make private business 
arrangements and agreements public information. Furthermore, AMS is not 
contemplating such a shift as the dissemination of private business 
arrangements and agreements would require additional regulatory 
provisions, justifications, and safeguards that do not fall under the 
purview of this rule. Rather, this rule is designed to help poultry 
growers understand why they are being requested to make additional 
capital investments, how entering into those contracts will impact 
their pay, how long it will take to complete additional capital 
investments, potential conflicts of interest with LPD personnel or 
their family members, required vendors/manufacturers, and expected 
returns from the investment. This information will help growers make

[[Page 5181]]

effective business decisions, and, when shared with AMS, identify 
circumstances that may be unfair.
    With respect to AMS tracking the frequency of additional capital 
investment requests and grower complaints of coercion, retaliation, or 
arbitrariness, AMS agrees that market monitoring is important and 
invites growers to contact AMS at farmerfairness.gov or call 1-833-
DIAL-PSD (1-833-342-5773) when they have concerns regarding additional 
capital investments they encounter and especially if they feel they are 
being subject to coercion, retaliation, or arbitrariness.
    Comment: An advocacy association suggested that all additional 
capital investments should be subject to the same disclosures and 
prohibitions.
    AMS response: The requirement to provide the disclosure will be 
triggered when the LPD requests the grower make an additional capital 
investment. There is no threshold below which this disclosure 
requirement does not apply. Nor are there any exclusions or exemptions 
for additional capital investment disclosures for other reasons.
    Additional capital investment prohibitions, however, will be 
considered on a facts-and-circumstances basis under the criteria set 
forth in Sec.  201.216 of AMS's regulations and generally under section 
202 of the Act. AMS does not in this rule identify specific 
prohibitions. To the extent that AMS identified an additional capital 
investment practice that was unfair, AMS would seek to stop the 
practice through an enforcement action and communicate its intent to 
stop such practices in similar circumstances.
    Comment: Several commenters suggested that LPDs should be required 
to make all additional capital investment contracts guaranteed for the 
duration of the loan required to pay for the additional capital 
investment.
    AMS response: AMS acknowledges the concerns of the commenters and 
advocacy groups. If an LPD requests additional capital investments 
without guaranteeing that the grower will have a contract that is 
sufficient to recoup the costs of the investment or loan, such conduct 
could violate section 202 of the P&S Act, including by being unfair 
under section 202(a). AMS will monitor these practices and enforce on a 
case-by-case basis.
    Comment: Several advocacy organizations supported the inclusion of 
LPDs' motives for the additional capital investment request in the 
Disclosure Document.
    AMS response: AMS agrees that it is important for growers to know 
why an LPD requests an additional capital investment. As proposed, AMS 
included in Sec.  201.112(b)(1) language requiring the LPD to disclose 
the purpose of the additional capital investment to both the LPD and 
the grower. Although AMS underscores that the inquiry should be focused 
on objective purposes and desired outcomes rather than a potentially 
vague concept of motives, the paragraph (b)(1) disclosures would 
mandate the full and complete presentation of any purposes of the 
additional capital investment. Partial disclosure of anything less than 
the LPD's full range of purposes would not be considered compliance 
with the provision because growers need to understand the full range of 
risks they are taking on, including to be able to identify potential 
sources of unfairness.
    The provision also requires a summary of all research or other 
supporting material that the LPD has relied upon in justifying the 
additional capital investment. This requirement seeks to elicit the 
basis of the additional capital investment and permit the grower the 
ability to better understand, as well as evaluate, the reliability of 
that basis.
    Overall, AMS has included this provision around purpose, research, 
and supporting material because alleviating some of the information 
asymmetry between LPDs and growers through the disclosure of purposes 
and motivations for an additional capital investment will help poultry 
growers make better business decisions. Furthermore, the requirement 
for information regarding purposes and motivations will help poultry 
growers know if that particular additional capital investment request 
is for experimental or research purposes, and thus appreciate the 
degree of risk the grower is taking on in the additional capital 
investment. AMS did not make any changes to the regulation as proposed 
in response to this comment.
    Comment: Farmers' coalitions indicated a clear disclosure of 
financial incentives is essential to a grower's cashflow modeling. 
Advocacy associations requested further requirements for the analysis 
of projected returns. These suggested requirements include (1) a review 
of the projected returns by a disinterested third party and (2) the use 
of a standardized projected return form.
    AMS response: The Agency agrees with the comment that clear 
disclosure of financial incentives is essential. Under the final rule, 
LPDs must disclose all financial incentives and compensation for the 
grower associated with the additional capital investment (Sec.  
201.112(b)(2)), along with any financial benefits that the LPD or any 
of its officers, directors, decision-making employees (as discussed 
above), or close family members receive from the use of an LPD-required 
manufacturer or vendor in connection with an additional capital 
investment (Sec.  201.112(b)(5)). AMS added the requirement regarding 
financial benefits accrued to an LPD or its affiliates as a result of 
an additional capital investment in the final rule to provide greater 
transparency regarding the financial components of an additional 
capital investment. For the time being, AMS is making no further 
changes to Sec.  201.112.
    Comment: Several commenters suggested AMS should require the use of 
plain language in disclosure documents, especially the descriptions of 
financial terms. Advocacy organizations stressed the importance of 
standardizing disclosure documents (e.g., the format for reporting 
projected returns and delivery expectations). Industry commenters 
requested that AMS clarify certain aspects of the disclosure document, 
including the description of ``relevant'' information and of the 
summary justifying an additional capital investment.
    AMS response: Section 201.112(b) requires that the Disclosure 
Document present disclosures in a ``clear, concise, and understandable 
manner.'' The Agency acknowledges the potential benefits of 
standardizing Disclosure Documents but is not requiring a specific form 
for this required disclosure.
    AMS appreciates the commenters' interest in additional clarity. 
However, AMS declines to adopt more specific terms in the regulatory 
text because specificity reduces the LPDs' and growers' contracting 
flexibility. The nature and circumstances of additional capital 
investment varies. Some additional capital investments may be oriented 
on technology designed to enhance the efficient use of inputs or to 
deliver more uniform growout of birds. Other additional capital 
investments may be oriented towards delivering particular production 
practices that consumers seek, such as no antibiotics use. In those 
examples, the purpose and construction of the additional capital 
investments are quite different. Rigid specificity in the disclosure 
requirements may create confusion or even limit the disclosures' 
effectiveness. AMS's purposes for the disclosure of this information in 
Sec.  201.112 is to help poultry growers understand how the additional 
capital investment is

[[Page 5182]]

intended to affect their operation and the risks and opportunities they 
may be taking on as a whole. AMS values comprehensive coverage rather 
than standardization.
    With respect to the term ``relevant,'' AMS agrees that its 
inclusion in paragraphs (b)(1) through (3) is superfluous to meaning of 
the sentences as drafted. Accordingly, AMS is removing it in this final 
rule and is revising paragraph (b)(1) slightly from ``any research or 
other supporting material'' to ``all research and other supporting 
material'' to be consistent with the phrasing in paragraphs (b)(2) and 
(3). There is no change in the intended meaning.
    Comment: Some commenters requested that translations of the 
Disclosure Document be made available in languages other than English.
    AMS response: AMS appreciates this comment and acknowledges that 
disclosure has a basis in understanding; after all, the proposal 
included a requirement that the disclosure be ``clear, concise, and 
understandable.'' Language can be a barrier to effective disclosure. To 
mitigate the barriers to this disclosure, we have added paragraph Sec.  
201.112(c), which requires the LPD to ``make reasonable efforts to 
ensure that growers are aware of their right to request translation 
assistance and to assist the grower in translating the Capital 
Improvement Disclosure Document.'' AMS takes note of the Civil Rights 
Impact Analysis located in section VI.G. of this rule that highlights 
the disproportionate impact of the rule on Asian-Pacific Island 
persons. Some commenters also indicated a need to ensure growers who 
are not native speakers of English can understand the disclosures. As 
noted by multiple commenters, non-native speakers of English are 
engaged in poultry growing. For example, in the early 2000s, large 
numbers of first-generation immigrant Hmong people, many of whom had 
been farmers in their native Laos, moved from urban areas in 
California, Minnesota, and North Carolina to the Ozark region in and 
around southwest Missouri and started growing poultry. Pew Research 
Center studies show that the English proficiency of the Hmong 
population in the U.S. in 2019 was only 68 percent and, among foreign-
born Hmong, English proficiency is just 43 percent.\56\ Data supports 
the concerns expressed by commenters regarding providing poultry 
growers information in a manner growers are able to understand. AMS 
agrees that providing documents in the language growers best understand 
ensures fairness and reduces the risk of deception. Therefore, AMS 
added new language to the final rule to require that LPDs must make 
reasonable efforts to ensure that growers are aware of their right to 
request translation assistance and to assist the grower in translating 
the Disclosure Document. Historically, many growers have been 
immigrants who may not be fully proficient in English; hence, this 
rule's goal of preventing deception would not be fully accomplished 
without LPDs providing reasonable assistance to help growers understand 
the disclosures in their most competent language upon its delivery. 
Notably, the translation requirements under Sec.  201.102(g)(4) would 
apply to disclosures made under Sec.  201.112 if the latter is 
applicable to the LPD and incorporates what is otherwise required under 
Sec.  201.102(d)(2)(i) and (ii) in a single disclosure that meets the 
requirements of both Sec.  201.112 and Sec.  201.102(d)(2)(i) and (ii).
---------------------------------------------------------------------------

    \56\ Abby Budimen, ``Hmong in the U.S. Fact Sheet,'' Pew 
Research Center's Social & Demographic Trends Project (May 24, 
2022), available at https://www.pewresearch.org/social-trends/fact-sheet/asian-americans-hmong-in-the-u-s/.
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ii. Additional Capital Investment Unfairness
    Comment: Growers stated the disclosure provisions should prioritize 
preventing harm to growers rather than focusing on enforcement after 
the fact. They further asserted that full transparency from poultry 
companies is crucial to ensure a level playing field. Several 
commenters were concerned that the proposed rule did not address the 
power imbalances that exist when negotiating additional capital 
investments. This imbalance creates an inherent pressure for producers 
to comply with LPD requests; even ``optional'' or ``voluntary'' terms 
in a producer's contract may amount to an unfair burden on producers 
given their fear of retaliation. Advocacy organizations and other 
commenters requested further provisions to protect growers from 
unfairness, excessive debt, and retaliation.
    AMS response: AMS appreciates and agrees with the comments that 
preventing harm to growers is preferable to enforcement after the fact. 
Indeed, the purpose of this disclosure rule is to help equalize the 
negotiating powers between poultry growers and LPDs. There is an 
asymmetric power imbalance between LPDs and poultry growers when 
deciding to undertake an additional capital investment and the goal of 
the new regulation is to equalize the footing of these parties prior to 
agreeing to an additional capital investment. To better enable AMS and 
growers to protect against unfairness and deception, the rule requires 
that LPDs disclose and record more information regarding the additional 
capital investments they request from broiler growers. The disclosures 
must occur before growers take on the financial burden and risks of the 
additional capital investment. The provision of such information is 
not, in and of itself, the cure for unfairness, but rather a key tool 
for AMS and growers to halt abusive practices by arming them with the 
ability to identify those challenges sooner. Indeed, disclosure has 
historically been one of the most powerful tools for preventing harms 
to growers by bringing practices to light early, and also subjecting 
those practices to the clarifying light of transparency.
    AMS further underscores that leveling the playing field for growers 
is one of the main purposes of this provision. This rule is designed to 
reduce deception, strengthen poultry growers' negotiating position, and 
aid in their ability to identify and address unfair practices. The 
Agency believes that this disclosure requirement for requested 
additional capital investments will reduce information asymmetry 
between LPDs and poultry growers, thus helping poultry growers make 
more informed business decisions about additional capital investments. 
Reducing information asymmetry, by definition, helps mitigate power 
imbalances.
    However, AMS also acknowledges that this rule does not solve all 
challenges that growers may face arising from power imbalances between 
LPDs and growers, especially in concentrated local markets and in the 
context of hold-up risks and dependency arising from vertical 
contracting arrangements. To that end, AMS underscores its commitment 
to vigorous enforcement of Sec.  201.216, which sets out criteria that 
AMS utilizes in identifying and enforcing against unfair additional 
capital investment practices. When the cost of the required additional 
capital investments cannot reasonably be expected to be recouped by the 
poultry grower, that failure is likely to be dispositive that the 
investment is unfair (Sec.  201.216(f)). AMS agrees with the 
commenter's perspective on the importance of protecting growers from 
unfairness, excessive debt, and retaliation (discussed more fully below 
in the next comment response). Indeed, AMS is adopting this disclosure 
rule to enhance growers' and AMS's ability to identify and take swift 
action against unfair practices and the risk of unfair additional 
capital investment under existing Sec.  201.216. That regulation sets

[[Page 5183]]

forth criteria for whether additional capital investments would be an 
unfair practice or other violation of the Act. These criteria include 
whether the grower can decide against the additional capital 
investments; whether the additional capital investments were a result 
of coercion, retaliation, or threats by the LPD; and whether the 
additional capital investments can result in reasonable recoupment, or 
adequate compensation for the additional capital investments, among 
other non-exhaustive criteria. However, AMS has found that the presence 
of the criteria alone is insufficient to effectively address problems 
stemming from additional capital investments. AMS and growers lack the 
data necessary to analyze whether an additional capital investment 
violates the criteria. Moreover, if an additional capital investment is 
unfair, the grower has both investment and debt, and the additional 
capital investment is impossible to unwind. Technical specifications 
can make switching costly (where even possible), and alternative uses 
at similar compensation rates are nearly nonexistent.
    Comment: Several commenters requested additional protection against 
retaliation for growers who refuse additional capital investment 
requests. Some commenters expressed concern regarding retaliation if 
additional capital investment requests are refused. One commenter 
requested AMS monitor complaints of coercion in relation to additional 
capital investment request refusals.
    AMS response: AMS agrees that retaliation is likely to harm 
competition and growers. AMS's regulations at Sec.  201.304 recognize 
that retaliation for asserting any of the rights granted under the Act 
or part 201, or asserting contract rights (9 CFR 201.304(b)(2)(vii)), 
violates the Act. LPDs also violate the Act if they retaliate against 
poultry growers for speaking with government officials for the purposes 
of seeking redress for grievances brought under the Acts (9 CFR 
201.304(b)(2)(i)). AMS fully agrees that without those existing 
retaliation protections, poultry growers are in a weak position to 
refuse additional capital investment requests making the disclosure 
requirement ineffective.
    AMS regularly reviews LPDs for P&S Act compliance, and AMS expects 
to review Disclosure Documents for compliance. Growers who experience 
coercion should contact AMS regarding possible violations of the Act. 
AMS also notes that existing Sec.  201.216 would help address these 
problems. The regulation sets forth criteria for whether additional 
capital investments would be an unfair practice or other violation of 
the Act. These criteria include whether the growers can choose to 
decline additional capital investments; whether the additional capital 
investments were a result of coercion, retaliation, or threats by the 
LPD; and whether the additional capital investments can result in 
reasonable recoupment, or adequate compensation for the additional 
capital investments, among other non-exhaustive criteria. AMS did not 
make any changes to the regulations as proposed in response to this 
comment.
    Comment: Many commenters emphasized the need for grower protection 
against debt and assurance of return on investments. Advocacy 
organizations and others also suggested adding a requirement that LPDs 
shall not mandate additional capital investments unless the cost can be 
reasonably recouped by the grower. Advocacy organizations indicated 
that projected recoupment should only be evaluated based on non-
performance (base) pay. Many commenters also suggested contracts should 
be guaranteed to match the duration of loans or ensure a reasonable 
rate of return to recover additional capital investment costs. Advocacy 
organizations suggested growers should reserve the right to renew 
contracts until additional capital investment debt is fully serviced.
    AMS response: Under Sec.  201.112(b)(2) and (3), LPDs would be 
required to disclose all relevant financial incentives and compensation 
associated with an additional capital investment and establish a 
schedule of expected grower construction for new additional capital 
investments. Financial incentives would include all incentives relating 
to the additional capital investment, including explicit incentive 
payment additions to base pay rates or performance compensation 
amounts, as well as what assumptions and risks undergird or may put at 
risk those incentives. Clearly disclosing financial incentives would 
assist the grower in assessing the relative risks of non-recoupment, as 
the reliability of those incentives may vary based on the duration of 
the contract and whether other growers are likely to incorporate the 
additional capital investment technology in a way that would make 
recoupment through performance pay less reliable. Clearly disclosing 
expected grower construction schedules and other repayment schedules 
also would assist the grower in assessing incentives and risks relating 
to borrowing, construction, and payment timing. Similarly, the 
requirement under Sec.  201.112(b)(4) and (5) for LPDs to clearly 
disclose their expectations regarding housing specifications and 
required or approved manufacturers or vendors will position growers to 
better analyze the business risk in undertaking an additional capital 
investment. An important goal of this rule is to give the poultry 
grower adequate information so that they may make an informed decision, 
identify risks and opportunities based on their knowledge of their own 
costs and earning opportunities, including as disclosed in existing 
regulations such as Sec.  201.102.
    AMS remains committed to protecting growers to the maximum extent 
possible from practices that prevent growers from fully recouping their 
additional capital investment. An LPD's failure to provide a reasonable 
opportunity for a grower to recoup the cost of a required (including 
ostensibly requested but in practice coerced) additional capital 
investments would be expected to violate Sec.  201.216. AMS recognizes 
that growers cannot avoid the unfair exercise of market power and 
failing to sufficiently and fairly compensate growers is not a 
cognizable benefit to growers or to competition. Any reasonable 
recoupment analysis is fact-specific, but it principally relies on the 
following criteria: (1) the information required to be disclosed under 
Sec.  201.112; (2) whether the contract term, including sufficient 
flock placements and density, extends at least as long as the projected 
timeline for returns set forth in that analysis; and (3) whether basic 
returns would cover the costs of the additional capital investment for 
the reasonable grower in the complex that performs under the contract. 
AMS is not adopting a requirement that projected recoupment only be 
evaluated based on non-performance (base) pay. The actual purpose of 
performance pay can vary greatly across different LPDs and even between 
complexes.
    AMS recognizes the grower concerns that give rise to those 
comments, but at this time intends to take a case-by-case approach to 
enforcement in part because the range of grower situations require any 
unfairness analysis to be tailored to the particular facts and 
circumstances.
    As noted in the paragraph above, contract term and renewals 
opportunities are relevant considerations in any recoupment or rate of 
return analysis owing to the heavy reliance interest that the grower 
has in the broiler growing arrangement, but AMS declines at this time 
to set forth a rule for all cases. AMS may revisit this determination 
following implementation of this rule and additional familiarity with 
the success

[[Page 5184]]

or limitations of its current case-by-case enforcement approach.
    Comment: Some commenters suggested growers should be ensured 
leniency for delays in construction schedules due to labor and supply 
shortages outside their control.
    AMS response: AMS acknowledges this comment regarding leniency for 
construction schedules, and the disclosure of the construction schedule 
under Sec.  201.112(b)(3) is designed to help growers identify their 
risks in implementing an additional capital investment. However, as a 
disclosure requirement, it is intended to aid poultry growers by 
obligating that LPDs share relevant information regarding an additional 
capital investment request, so that the growers can make better 
decisions. It is also designed to help growers address potential 
unfairness relating to additional capital investment. To the extent 
that growers conclude that an LPD's failure to provide leniency on 
construction schedules caused an unavoidable harm, the grower may 
consider reporting the matter to AMS for investigation into whether the 
LPD has committed an unfair practice.
    Comment: Some commenters indicated that LPDs should not be allowed 
to require growers to use certain equipment or vendors, especially when 
those LPDs hold any amount of financial interest in those equipment 
companies or specifically required vendors.
    AMS response: AMS appreciates the concerns that this comment raises 
around grower freedom to operate and especially regarding conflicts of 
interest around additional capital investment. The Agency recognizes 
that growers rely on construction schedules, housing specification 
requirements, and approved manufacturers or vendors when implementing 
an additional capital investment. In this final rule, AMS is enhancing 
the disclosure of required equipment and vendors in Sec.  201.112(b)(5) 
with an additional conflict of interest provision requiring the 
disclosure of ``all financial benefits, if any, that the live poultry 
dealer or any officer, director, decision-making employee, or close 
family member of any such person, receives from the use of the required 
or approved manufacturer or vendor.''
    In the proposed rule, AMS asked, ``Should proposed Sec.  
201.112(b)(5), which requires LPDs to disclose required or approved 
manufacturers or vendors, also require the disclosure of any material 
financial benefits that the LPD, or any officer, director, employee or 
family member of any such person, receives from the use of the required 
or approved vendor? If so, please explain why for each party 
recommended to be covered, including examples and explanation where 
available.'' \57\ In adopting this provision, which is similar to a 
disclosure that the Federal Trade Commission requires under its 
Franchise Rule (16 CFR 436.5(h)), AMS's goal is to help enable a grower 
to identify certain risks relating to the additional capital investment 
and potentially unfair or otherwise impermissible additional capital 
investment practices under Sec.  201.116. For example, the disclosure 
should help growers identify conflicts of interest, favoritism, 
kickbacks, or financial benefits that may call into question the 
purposes of the additional capital investment. This should help combat 
the incentive problem inherent where one party has the decision-making 
power (LPDs) and another bears the costs (growers). LPDs are 
incentivized to seek out manufacturers and vendors that offer them the 
best incentives, not necessarily the manufacturers and vendors that 
offer the best deal for growers. This problem has been reported to AMS 
over the years to exist even at the level of complex managers who may 
have discretion over certain aspects of additional capital investment 
implementation.
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    \57\ 89 FR 49002, 49025, June 10, 2024.
---------------------------------------------------------------------------

    Disclosure of a relationship between an LPD and its equipment or 
vendors does not mean that the relationship is lawful. An LPD's choice 
of vendor may be unfair or even anticompetitive in violation of the 
Act, such as contracting in bad faith or engaging in anticompetitive 
tying. But, at this time, AMS has designed this regulation to protect 
growers from unfairness and deception--for example by omissions or 
conflicts of interests--and not to specifically ban an LPD's choice of 
vendor.
iii. Benefit, Burden, and Cost
    Comment: A number of stakeholders commented on the rule stating 
that it is similar to the Transparency Rule and that much of the 
information being requested in this rule is already provided to the 
poultry growers and that this rule is therefore frivolous. An industry 
commenter suggested there is sufficient regulation regarding additional 
capital investment issues.
    AMS response: AMS recognizes the value of the Transparency Rule, 
including in helping growers understand financial opportunities 
relating to contract modifications and additional capital investment. 
However, the Transparency Rule does not require the disclosure of 
information specific to the additional capital investment request, nor 
does it prohibit certain practices relating to base pay and unfair 
comparisons which this final rule does. LPDs possess information about 
the expected purposes, processes, and outcomes relating to additional 
capital investments that growers do not have and cannot obtain 
independently. Therefore, LPDs exert substantial control over growers' 
ability to evaluate the economic and financial feasibility of an 
additional capital investment while possessing the power to impose all 
additional capital investment costs on growers. Growers lack the 
bargaining power to demand the information they need to make decisions 
for their financial benefit. The inability to access this information 
frustrates growers' and AMS's ability to identify and therefore halt 
unfair practices in a timely manner. AMS has found transaction records 
around the financial incentives and the financial analysis insufficient 
to evaluate the compliance of additional capital investments under the 
Act generally. Therefore, even with the additional information that AMS 
and poultry dealers receive because of the Transparency Rule, this 
additional capital investment disclosure requirement is meant to 
ascertain different information than the information that results from 
compliance with the Transparency Rule.
    AMS also disagrees with the position that there is sufficient 
regulation on this issue overall. Although Sec.  201.216 sets out 
criteria around unfair additional capital investment, AMS has found 
Sec.  201.216 challenging to implement in practice without sufficient 
real-time transparency into additional capital investment programs as 
they occur. As noted above, this is the first rule that addresses the 
information divide between poultry growers and LPDs regarding 
additional capital investment requests. Previous rules, namely the 
Transparency Rule, have required different kinds of information, such 
as settlement sheets, summaries of the LPD's litigation history with 
broiler growers and its bankruptcy filings over the past 5 years, 
whereas this rule covers only additional capital investment requests 
and related materials.
    Comment: Some commenters were concerned about unnecessary 
additional capital investment requests. Farmers' coalitions proffered 
that transparency requirements would result in fewer unnecessary 
additional capital investment requests.

[[Page 5185]]

    AMS response: The extent to which additional transparency may 
reduce the amount of additional capital investment requests that are 
either unnecessary or that do not add clear value to farms is not a 
determination that AMS can make. This final rule is a transparency rule 
to address deceptive conduct, but it is also designed to assist growers 
in identifying potential unfairness in additional capital investments. 
An additional capital investment with a speculative purpose or one not 
grounded in research and reasonable estimates--a concern that growers 
have reported to AMS regarding additional capital investments--would be 
more apparent if AMS and growers are able to review an LPD's 
representations about the purpose of an additional capital investment, 
the research associated with it, and an LPD's expectation of costs, 
construction schedules, and approved vendors for the additional capital 
investment. AMS emphasizes that disclosure under new Sec.  201.112 is 
not, and is not intended to be, a remedy to unfairness in and of 
itself; rather, disclosure provides AMS and growers with information 
necessary to enforce their rights under existing Sec.  201.216, 
``Additional capital investments criteria,'' and the P&S Act more 
broadly, when terms are unfair. Without sufficient, simple, and clear 
disclosures, growers cannot assess the benefits or risks of making the 
investment. Indeed, given the role of performance in determining 
compensation under the tournament, growers often cannot determine 
whether a program presented as voluntary is, for all practical 
purposes, mandatory without understanding the purposes, processes, and 
outcomes. Unfair practices, which can encompass additional capital 
investments, are illegal under section 202(a) of the Act, even if fully 
disclosed.\58\ AMS did not make any changes to the rule as proposed in 
response to these comments.
---------------------------------------------------------------------------

    \58\ See, e.g., 9 CFR 201.216, ``Additional capital investments 
criteria.''
---------------------------------------------------------------------------

D. Other Comments About the Proposed Rule

    Comment: One processor pointed to a study prepared for the National 
Chicken Council that captured live chicken production statistics from 
2021.\59\ The survey results indicated that ``current poultry grower 
contracting relationships are mutually beneficial, successful, and 
profitable for both growers and integrators.'' The survey found that 
among growers polled, despite options to work with different 
integrators, most growers have been with their current integrator for 
over five years and that the default rates on loans for poultry growers 
and integrators are low. Overall, the commenter argued that the current 
poultry grower compensation system works well, resulting in a highly 
efficient market and lower prices for consumers.
---------------------------------------------------------------------------

    \59\ Elam, Thomas, ``Live Chicken Production Trends,'' March 
2022, Live-Chicken-Production-FARMECON-LLC-2022-revision-FINAL.pdf 
(nationalchickencouncil.org).
---------------------------------------------------------------------------

    AMS response: The comment indicates that current poultry grower 
contracting relationships are mutually beneficial to growers and 
integrators and utilizes survey results showing how long current 
farmers have been with their company and loan default rates to 
demonstrate this. This rule addresses specific components of the 
broiler growing compensation system that AMS has received multiple 
complaints and comments about and that the Agency has determined 
constitute unfair or deceptive acts or practices. The rule does not 
prohibit incentive payments, which some commenters would like to retain 
and suggest are a beneficial part of the tournament system. The 
comment, however, does not necessarily measure if growers support or 
oppose specific provisions of this rule. Other reasons may explain the 
duration farmers have been with their current dealer or experience low 
rates of default. AMS notes that growers may not switch because of 
barriers to switching: even when growers have other competitor LPDs, 
the competitor may not be recruiting or may require LPD-specific 
equipment changes, among other reasons. The commenter says that, 
according to a survey of farmers associated with member companies of 
the organization submitting the comment, a small percentage of farmers 
depart due to contract terminations. The described methodology does not 
say if the survey represents all growers, including dissatisfied 
growers or ex-growers. This methodological consideration aside, the 
survey results do not address specific provisions of the rule.
    The comment also cites data showing higher median incomes for 
broiler growers and lower loan deficiency and charge-off rates for 
chicken farmers compared to other types of farming operations to 
indicate the mutual benefits of the current poultry contracting system. 
While such comparisons provide some insight into the financial 
condition of poultry growers, they do not capture the full picture. For 
example, poultry growers carry the highest debt to asset ratios of all 
agricultural commodity operations.\60\ Additionally, the income 
variability for broiler growers is much higher than that for all 
agricultural producers or U.S. households.\61\
---------------------------------------------------------------------------

    \60\ Giri, Anil and Subedi, Dipak, Farm Businesses Well-
Positioned Financially Despite High Interest Rates, U.S. Department 
of Agriculture, Economic Research Service (2024), https://www.ers.usda.gov/amber-waves/2024/july/farm-businesses-well-positioned-financially-despite-high-interest-rates/ (In 2022, 
poultry farms carried the highest average debt-to-asset ratio in 
2022: 26.7 (6 times that for all farm businesses), 28.7 (2.6x), and 
17.4 (1.3x) percent for small, midsize, and large family farm 
businesses, respectively; while all farm businesses caried average 
debt-to-asset ratios of 4.2, 10.8, and 13.1 percent, respectively).
    \61\ Whitt, Christine, USDA Economic Research Service, Fees paid 
to growers for raising broiler chickens varied widely in 2020, 
(2022), https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=104642 (Median income does not tell 
the whole story. The range of household incomes earned by contract 
broiler growers is wider than other groups. The bottom 20 percent of 
contract broiler growers earns $170,871 less than those in the top 
20 percent, compared to $123,094 for all farm households, and 
$114,084 for all U.S. households. The wider range reflects, in part, 
the financial risks associated with contract broiler production); 
MacDonald, James M. 2014, Technology, Organization, and Financial 
Performance in U.S. Broiler Production, EIB-126, USDA Economic 
Research Service, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6.
---------------------------------------------------------------------------

    Comment: Industry associations commented on the rule, explaining 
that AMS only has the authority to prohibit conduct with an 
anticompetitive effect.
    AMS response: Section 202(a) of the Act prohibits any unfair 
practice or device. As noted earlier, in section 407 of the Act 
Congress granted to the Secretary the authority to write regulations to 
effectuate the Act's purposes. Under the Act, this authority includes 
issuing regulations to, among other things, define the obligations that 
the Agency is charged with enforcing. AMS believes this includes the 
power to prevent LPDs from engaging in unfair, unjustly discriminatory 
or deceptive practices or devices in their contracts.
    No court has held the Secretary does not have this rulemaking 
authority. Been v. O.K. Indus., Inc., 495 F.3d 1217, 1227 (10th Cir. 
2007), for example, recognized that the Secretary had the authority to 
promulgate rules relevant to that case, but that USDA had not done 
so.\62\ Been quoted, with approval, Excel Corp. v. United States 
Department of Agriculture, which held the Department's implementing 
regulation on grading prohibited a practice that was harmful to 
competition but the court did not require evidence of harm to 
competition in case itself.\63\ Further,

[[Page 5186]]

the Supreme Court, in Mahon v. Stowers, 416 U.S. 100, 112 (1974), 
recognized that USDA has the authority to issue substantive 
regulations.
---------------------------------------------------------------------------

    \62\ See Been v. O.K. Indus., Inc., 495 F.3d 1217, 1227 (10th 
Cir. 2007).
    \63\ Id. at 1230 citing Excel Corp. v. U.S. Dept. of 
Agriculture, 397 F.3d 1285, 1293 (10th Cir. 2005) (`` `Congress and 
the USDA are the arbiters of what practices will impede 
competition.' '').
---------------------------------------------------------------------------

    Congress designed the P&S Act to provide broader protections than 
existing antitrust laws, such as the Clayton and Sherman Acts, in 
response to specific challenges in agricultural markets. More 
specifically, Congress intended to regulate practices that would 
violate those two antitrust laws and practices that would be unfair 
under the FTC Act, as well as the ``special mischiefs and injuries 
inherent in livestock and poultry traffic.'' \64\ AMS rejects the 
comments that the statute or case law limits violations of the Act to 
conduct that causes an anticompetitive effect, as that term is used in 
the antitrust laws. Such an approach would abrogate the scope of the 
plain meaning of section 202 of the Act.
---------------------------------------------------------------------------

    \64\ See Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451, 
1455 (9th Cir. 1988); Armour & Co. v. United States, 402 F.2d 712 
(7th Cir. 1968).
---------------------------------------------------------------------------

    The existence of the P&S 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.\65\ The statutory text, case 
law, and legislative history make plain that the Act's protections 
extend beyond antitrust laws.\66\ Accordingly, it has been the Agency's 
longstanding position that because the Act addresses more and different 
types of harmful conduct than antitrust laws, the Agency has authority 
over a plethora of market behaviors, and is not limited to conduct with 
an anticompetitive effect.\67\ Additionally, as discussed elsewhere in 
this document, evidence of anticompetitive injury is not required under 
this rule to establish violations of section 202(a) and (b).
---------------------------------------------------------------------------

    \65\ See, e.g., Bruhn's Freezer Meats of Chicago, Inc. v. U.S. 
Dep't of Agric., 438 F.2d 1332, 1336 (8th Cir. 1971) (citing cases); 
Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 1968) 
(``The Act is remedial legislation and is to be construed liberally 
in accord with its purpose to prevent economic harm to producers and 
consumers at the expense of middlemen.'').
    \66\ 61 Cong. Rec. 1801 (1921), statement of Rep. Haugen; see 
also Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 1961): 
``The legislative history shows Congress understood the sections of 
the [Act] under consideration were broader in scope than the 
antecedent legislation.'' (citing 61 Cong. Rec. 1805 (1921)). If the 
antitrust laws were sufficient, then DOJ's 1920 settlement with the 
major packers would have been sufficient; Congress understood the 
words ``unfair practices'' to have an obviously broader effect on 
regulating competition than antitrust injury.
    \67\ Luke Herrine, ``Cutthroat Business,'' U. of Alabama Legal 
Studies Research Paper Forthcoming, Aug. 2024, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4936628; Michael Kades, 
``Protecting livestock producers and chicken growers,'' Washington 
Center for Equitable Growth (May 2022); Peter C. Carstensen, ``The 
Packers and Stockyards Act: A History of Failure to Date,'' The CPI 
Antitrust Journal (2) (2010), available at https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf; Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn 
Law, 2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
---------------------------------------------------------------------------

    Market abuses such as unfair or deceptive business practices by 
regulated entities are illegal 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. Moreover, the 
Secretary, exercising authority to define the scope of section 202(a) 
and (b), has determined that the prohibited practices are likely to 
prevent producers from earning the full value of their services and 
push some producers out of the market caused by coercive or deceptive 
practices by LPDs.
    Comment: One commenter said that AMS lacks the statutory authority 
to promulgate rules that have significant economic or political 
repercussions due to the major questions doctrine. The commenter 
expressed the idea that, in light of the U.S. Supreme Court decision in 
West Virginia v. EPA, 597 U.S. 697 (2022), AMS may not expand its 
regulatory framework to change or undermine currently used poultry 
growing compensation systems because it lacks clear Congressional 
authorization.
    AMS response: AMS disagrees that the major questions doctrine 
applies to this rule. The Supreme Court has held that, ``in certain 
extraordinary cases, both separation of powers principles and a 
practical understanding of legislative intent make us `reluctant to 
read into ambiguous statutory text' the delegation claimed to be 
lurking there.'' \68\ Under such circumstances, courts may conclude 
that Congress does not ``typically use oblique or elliptical language 
to empower an agency to make a radical or fundamental change to a 
statutory scheme.'' \69\ The major questions doctrine thus applies to 
some ``significant cases all addressing a particular and recurring 
problem: agencies asserting highly consequential power beyond what 
Congress could reasonably be understood to have granted.'' \70\ This 
final rule does not fall within this category for two independent 
reasons: USDA is not construing an ambiguous statute, but rather is 
applying a statute that explicitly confers upon it the power to make 
necessary regulations in the context of a scheme that comprehensively 
regulates unfair practices in certain industries; and, even if the 
relevant statutory authorities are ambiguous--and they are not--this 
final rule does not represent the type of ``transformative expansion'' 
of the Agency's regulatory authority that animates the major question 
doctrine.
---------------------------------------------------------------------------

    \68\ West Virginia v. Env't Prot. Agency, 597 U.S. 697, 723 
(2022).
    \69\ Id. at 723 (citation and quotation marks omitted).
    \70\ Id. at 724.
---------------------------------------------------------------------------

    First, the major questions doctrine applies only when there is 
ambiguity over the power conferred. Here, there is none. Congress 
prohibited unfair, deceptive, discriminatory, and other practices in 
section 202 of the Act. Further, it explicitly gave power to the 
Secretary to comprehensively regulate unfair practices in meatpacking 
and broiler production. The Secretary has the power to enforce the 
provisions of the Act, including sections 202 and 410.\71\ And 
separately, pursuant to section 407 of the Act, the Secretary was 
provided broad authority to ``make such rules, regulations, and orders 
as may be necessary to carry out the provisions of this chapter.'' The 
broad language here reflects Congress' effort to grant the Secretary 
the flexibility necessary to prevent the P&S Act from becoming 
obsolete.\72\ Congress was clear in the authority it had granted, and 
that authority includes issuing regulations and orders relating to the 
Act and its remedial purposes--including, as here, the power of the 
Agency to construe the relevant provisions of the Act so as to provide 
clarity in enforcement. The Secretary has extensive power to regulate, 
and therefore has the authority to issue regulations such as this one. 
So, unlike cases where there has been some heretofore unforeseen 
``unheralded power,'' there is no reason to believe that Congress 
understated the breadth of the authority it granted to the Agency to 
issue regulations construing the Act.
---------------------------------------------------------------------------

    \71\ See 7 U.S.C. 193(a) (``Whenever the Secretary has reason to 
believe that any packer or swine contractor has violated or is 
violating any provision of this subchapter'' he may take appropriate 
enforcement actions as set out in the statute).
    \72\ See Massachusetts v. E.P.A., 549 U.S. 497, 532 (2007) (`` 
`[T]he fact that a statute can be applied in situations not 
expressly anticipated by Congress does not demonstrate ambiguity. It 
demonstrates breadth.' '').
---------------------------------------------------------------------------

    Second, this final rule does not constitute the type of 
``transformative expansion'' of Agency authorities that animates the 
major question doctrine. The rule codifies USDA's interpretation

[[Page 5187]]

of section 202 consistent with much of the caselaw: the P&S Act is a 
remedial statute with a purpose that is broader than the antitrust 
acts.\73\ The Agency has used its section 228 authority for the 
issuance of a great variety of regulations to specify obligations for 
bonding, registration, accounting, recordkeeping, ownership, public 
communications, disclosures, limitations on commissions, credit sales, 
weighing, payment practices and other responsibilities under the 
statute--so this is not a newfound substantive power; and, in any 
event, this is not the type of consequential rule to which the major 
questions doctrine would otherwise apply.
---------------------------------------------------------------------------

    \73\ See, e.g., Bruhn's Freezer Meats of Chicago, Inc. v. U.S. 
Dep't of Agric., 438 F.2d 1332, 1336 (8th Cir. 1971) (citing cases); 
Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 1968) 
(``The Act is remedial legislation and is to be construed liberally 
in accord with its purpose to prevent economic harm to producers and 
consumers at the expense of middlemen.'').
---------------------------------------------------------------------------

    As discussed above, Congress enacted the P&S Act after many years 
of concern about farmers and ranchers being cheated and mistreated. 
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.
    Section 407 of the Act (7 U.S.C. 228) gives the Secretary authority 
to ``make such rules, regulations, and orders as may be necessary to 
carry out the provisions of this Act.'' 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.'' \74\ 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. . . .'' \75\ Congress 
considered this a power beyond the authority of the FTC and the 
Interstate Commerce Commission. The Supreme Court said of sections 407 
and 202 of the P&S Act that Congress gave: ``authority [to] the 
Secretary of Agriculture to promulgate appropriate rules and 
regulations to carry out the provisions of the Act.'' And, 
``Enforcement of [section 202 of the Act] is the responsibility of the 
Secretary of Agriculture, who is given authority to hold hearings and 
enter binding orders.'' \76\ The major questions doctrine is an 
extraordinary application of statutory interpretation, because it has 
the potential to reverse an act of Congress, and, therefore, the 
Supreme Court has already noted that the doctrine does not apply 
generally. It has so far only applied in cases where the regulation 
would have been a questionable application of regulations with billions 
of dollars of effects, from regulating tobacco packaging, a nation-wide 
moratorium on eviction, and setting limits on the carbon dioxide 
emissions from millions of small sources.\77\ Here, however, the rule 
does not meet these standards. The Department has consistently 
interpreted unfair practices--and thus applied the Act--to protect 
producer welfare and advance fair-trade practices in the livestock, 
meat, and poultry industries in accordance with Congressional intent 
upon passage of the Act. The Department's policy on unfair practices 
has not changed throughout the course of its enforcement of the Act.
---------------------------------------------------------------------------

    \74\ House Report No. 67-77, at 2 (1921).
    \75\ House Report No. 67-324, at 3 (1921).
    \76\ Mahon v. Stowers, 416 U.S. 100, 107 (1974).
    \77\ West Virginia, 597 U.S. at 722.
---------------------------------------------------------------------------

    The final rule continues this policy approach of protecting 
producer welfare and advancing fair trade practices in the poultry 
industry. This final rule advances these goals by prohibiting certain 
payment practices under poultry grower ranking systems, requires LPDs 
to adopt policies and procedures regarding their processes for 
operating a fair ranking system for broiler growers, and requires LPDs 
to provide certain information to broiler growers when the LPD requests 
or requires the grower to make additional capital investments. These 
regulations will increase transparency and address deception and 
unfairness in broiler grower payments, tournament operations, and 
capital improvement systems. The Act advances fair trade and 
competitive markets for the broiler industry.
    Notably, commentors generally appear to assert that the 2008 Farm 
Bill, and the decade of rulemaking that followed, either limits the 
Department's general authority to issues rules, or shows that the 
Department did not have that authority. This is not an accurate version 
of events. Starting in 1997, a series of OIG and GAO reports were 
highly critical of USDA's failure to pursue unfair practices and cases 
of antitrust injury in meatpacking under the P&S Act. At a Senate 
hearing in March of 2006, Senator Chambliss noted, ``[t]his act is a 
critical law that assures farmers and ranchers that business 
transactions are conducted under the principles of fair competition, 
open and honest trade practices, and prompt payments to producers.'' 
These criticisms culminated in an April 2007 hearing in the House of 
Representatives where advocates requested, inter alia, that the 
Secretary be required to issue rules on undue preferences and 
advantages, because regulation was perceived ``to ensure that small and 
midsized farmers and ranchers are not forced to accepted volume-based 
price discrimination.'' The thrust of the 2008 Farm Bill was not that 
the Secretary did not have the power to regulate, but that Congress 
demanded that power be used.
    Comment: Producers were both in opposition to and in support of the 
tournament system. Industry associations and processors generally 
supported the tournament system, claiming the tournament system 
incentivizes and rewards high performance, resulting in market 
efficiency, and also removes costs and economic risk from growers by 
providing inputs. Industry stakeholders asserted the rule undermines 
the tournament system, leading to inefficiencies and potentially higher 
prices. Commenters cited unintended consequences including increased 
production costs passed on to consumers; barriers to entry for small 
farmers, leading to further industry consolidation; and shift in 
production to countries with less stringent regulations. Additionally, 
industry commenters claimed that capping performance-based payments 
might create an undesirable redistribution of income from high-
performing to lower-performing growers. Lastly, the industry 
anticipates substantial legal and administrative costs associated with 
compliance, including contract amendments and legal counsel. Some 
producers and an industry trade organization claimed the tournament 
system promotes animal welfare.
    Farmers' coalitions, advocacy associations, and many individual 
commenters were largely opposed to the tournament system, expressing 
that the tournament system shifts economic risks to growers, locks them 
into inescapable cycles of debt, and enables retaliation. Some 
commenters were concerned that the tournament system appeared to pit 
farmers against each other, limiting knowledge sharing. Other 
commenters felt the tournament system is unfair due to the grower's 
lack of control over production variables.
    AMS response: It is important to note that AMS is not banning the 
tournament system. Rather, AMS is prohibiting those parts of tournament 
systems that are unfair practices and ensuring that those agreements 
serve the competitive operation of the market in a fair and non-
deceptive manner. Additionally, increased transparency through this 
final rule should improve confidence in

[[Page 5188]]

the tournament system rather than undermine it.
    In theory, the tournament system insulates growers from variation 
in the cost of feed and other inputs, encourages growers to perform to 
the best of their ability, and rewards better-performing growers. In 
practice, however, the tournament system also raises a number of 
fairness concerns for growers. If an LPD treats individual growers in a 
tournament differently, for example providing a grower with inferior 
inputs, the grower's skill does not determine their compensation.
    Information asymmetry in contracting arrangements is another cause 
for concern. LPDs have information related decision-making that impacts 
grower compensation, including the methods for calculating grower 
payment. These methods are often intended to limit total grower 
compensation while maximizing production efficiency. LPDs also have 
information relating to the factors that are under their control and 
the influence of performance elements on grower compensation. LPDs have 
internal knowledge about the types of additional capital investments 
that they typically require, which growers may not anticipate. 
Moreover, without a guaranteed base pay rate, the complexity of the 
tournament system makes it difficult for growers to clearly understand 
what the minimum amount is that they could actually receive in payment. 
If the comparison-factor (i.e., the bonus or deduction) is a large 
percentage of the total compensation, that variance in total could put 
the growers at significant financial risk. Tournament pay systems are 
also not an effective incentive system when factors outside of the 
grower's control determine the grower's performance.
    Finally, LPDs have substantial bargaining power, and as a result, 
LPDs can require growers to make additional capital investments that 
will increase the grower's debt, and subsequently increase the grower's 
reliance on the LPD's contract. Such a dynamic can unfairly impose risk 
on the grower (for example by creating a difference in the term of the 
grower's loan and the grower's contract). Another concern is the 
variation in the quality of inputs (e.g., feed or chicks) supplied by 
the LPD, which can impact the performance of the grower's flock. 
Similarly, LPDs determine the production practices on growers' farms 
(e.g., density of bird placement, age at harvest, and weight at 
harvest), which greatly impact grower compensation. These factors can 
result in the grower's becoming financially dependent on LPDs, 
therefore losing the power to negotiate, and to move to different LPDs 
if the terms of the growing contract are not ideal.
    AMS is not aware of any evidence that tournament systems promote 
animal welfare, nor did the commentors provide specific examples 
explaining the connection beyond the general assertion that performance 
payments through a tournament encourage grower effort. The tournament 
systems control how poultry growers are compensated for their output, 
but the quality of inputs or production practices on farms, and even 
the quality of the housing and equipment, is determined by the LPD. 
These requirements may have the effect of improving animal welfare, but 
they may well also have the opposite effect. Moreover, AMS in this rule 
does not prohibit performance payments nor ban the tournament. Rather, 
the rule sets standards around the reasonable design of payment systems 
and scope of the operation of tournaments. These standards provide 
ample opportunity for LPDs to incentivize grower effort, while 
minimizing the downsides of the current payment systems and tournament 
operations as they have been reported to AMS by growers.
    Comment: An industry representative stated that the proposed duty 
of fair comparison creates the untenable situation of extending P&S Act 
liability to a situation without determining whether the outcome was 
unfair, much less whether competition was harmed overall. The commenter 
cited an example in which a grower might receive a payment that aligns 
with the contract terms, meets the grower's expectations, and is 
entirely fair when viewed objectively, but the LPD does not follow 
written policy; in this case, under the proposed rule, the commenter 
asserts that the LPD would potentially be liable for an unfair 
practice.
    AMS response: The comment appears to suggest that the regulation 
bans reasonable conduct. It does not.
    The duty of fair comparison provision (Sec.  201.110(a)) 
establishes a violation of the Act for either failure to design or 
failure to operate the comparison system in a fair manner. Failing in 
that responsibility is not contract compliance; it is bad faith and 
failure to make the full payment to the grower.
    In the first instance, AMS might bring an enforcement action for an 
LPD's failure to design the ranking system in a manner that would 
deliver a fair comparison; such an action would be based upon the 
processes set forth in the documentation required under paragraph (b) 
of Sec.  201.110. In the second instance, AMS might bring an 
enforcement action based upon an LPD's failure to operate the ranking 
system in a manner consistent with the duty of fair comparison. Such a 
failure could be because the LPD was not following the documented 
processes or because in practice the documented processes did not 
deliver a fair comparison.
    The requirement to design the ranking system in a manner consistent 
with the duty of fair comparison is intended to prevent injury before 
it occurs, consistent with P&S precedent and the Act's remedial 
purpose. USDA, through the P&S Act, has broad authority to ensure fair 
practices prevail in the poultry industry, and AMS concludes this 
includes preventing LPDs from designing a poultry grower ranking system 
that can be expected to produce an unfair comparison of growers. AMS 
did not make any revisions to the rule as proposed in response to this 
comment.
    Comment: Some commenters asserted that the proposed rule's 
disclosure requirements violate the First Amendment because they 
restrict and prescribe what LPDs can say to their contract growers 
through their contracts.
    AMS response: The P&S Act prohibits unfairness and deception, and 
this final rule addresses harms caused by unfair and deceptive 
practices. While some commercial speech may be protected under the 
First Amendment, withholding material facts from a contracting party 
has never been protected speech. The rule does not restrict information 
that LPDs may provide to growers, rather it encourages full disclosure 
of material information to the grower. A disclosure requirement can be 
justified either because without the disclosure there is a risk of 
deception or there is another substantial government interest at issue. 
This rule's disclosure requirements meet both justifications; absent 
the disclosures there is a risk of deception by regulated entities and 
the government is otherwise advancing its interest in a fair 
marketplace for poultry. To this end, AMS has narrowly tailored the 
required disclosures to protect the growers from the types of deception 
and unfair practices that many growers themselves have commented occurs 
in LPD contract performance and negotiation and which the Act seeks to 
prevent.
    With respect to compelled speech, AMS believes that the provision 
of additional factual information, related specifically to the growing 
arrangement, to growers is consistent with Congressional intent to 
benefit competition in the industry and provides growers with 
information needed to make informed business decisions. AMS concludes 
that

[[Page 5189]]

alleviating the asymmetric information problems in these contracts 
enables growers to identify the practices relating to additional 
capital investments that can lead to potential underpayment or other 
unfair and deceptive practices under the Act. Additionally, the Agency 
believes that the additional transparency and equalization of 
information asymmetry is critical for the longevity of the poultry 
business because it would allow poultry growers to accumulate a history 
of previous contracts, additional capital investment requests, and 
other information, which is good for long-term market conditions 
Congress designed the Act to promote. The First Amendment does not 
protect corporations from practices that deceive, and this final rule 
requires LPDs to share factual and uncontroversial information related 
to additional capital investments, contracts, and schedules with their 
growers to prevent deception and unfair practices. The information 
shared should achieve contracts that are both equitable and rely on 
facts, which is also consistent with the Act's prohibition on unfair 
and deceptive practices.
    Comment: One commenter supported the proposal for the rule to be 
effective 180 days after publication in the Federal Register, unless it 
disrupts contract renewals or seasonal production pauses. One industry 
representative suggested that the 180-day implementation period is the 
minimum timeframe necessary for compliance, and another expressed 
concern that short effective dates create challenges for managing 
grower relationships and suggested AMS develop outreach and educational 
programs. Two advocacy groups suggested shorter effective dates, one at 
60 days and one at 30 days. One trade association requested a 2-year 
implementation period.
    AMS response: AMS agrees with commenters that the final rule should 
provide sufficient time to implement any changes it requires, and 
broadly with the comment that 180 days is sufficient time for 
compliance with the rule. However, out of an abundance of caution, AMS 
is setting the effective date for this rule at July 1, 2026, which is 
approximately 18 months following publication in the Federal Register. 
LPDs will need to amend contracts in some instances, create records 
processes, format the incorporation of new information in existing 
documents, and create Disclosure Documents using the new format. 
Eighteen months provides more than the length of five flocks to prepare 
for implementation of the rule. AMS will have resources available to 
answer questions as appropriate. Additionally, based in part on the 
experience of recent settlements between DOJ and a large poultry 
company, AMS believes this period will provide sufficient time for LPDs 
to update their compliance systems and policies and procedures and 
comments complying with the rule. AMS's approach has been to address 
the regulatory needs of the poultry industry systematically and as 
swiftly as possible. And while the 2-year period suggested by a 
commenter would unnecessarily delay implementation, thus denying 
growers the benefit of the rule and exposing them to continued 
uncertainty, AMS acknowledges additional time beyond 180 days will help 
facilitate an effective transition. Accordingly, AMS is extending the 
effective date to July 1, 2026, which is approximately 18 months post 
publication.
    AMS agrees that it should conduct outreach to growers and LPDs 
regarding these changes, implementation, and enforcement. Over the 
course of this rulemaking, AMS has published informational materials, 
including a fact sheet and a video webinar, to help the public 
understand the proposed rule. AMS intends to conduct further education 
and outreach following the finalization of the rule.

VI. Regulatory Analysis

A. Executive Orders 12866, 13563, and 14094

    AMS is issuing this final rule in conformance with Executive Orders 
12866, 13563, and 14094. Executive Order 12866, as supplemented by 
Executive Order 13563, directs 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 
further emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
Executive Order 14094 amended Executive Order 12866 and 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'' under 
Executive Order 12866, as supplemented by Executive Order 13563 and 
amended by Executive Order 14094, and, therefore, has been accordingly 
reviewed by the Office of Management and Budget (OMB). As a required 
part of the regulatory process, Agricultural Marketing Service (AMS) 
prepared an economic analysis of the costs and benefits of Sec. Sec.  
201.106, 110, 112, and 390.

B. Regulatory Impact Analysis

    AMS prepared an economic analysis of the costs and benefits of the 
final Sec. Sec.  201.106, 110, and 112 as a required part of the 
regulatory process.
    As described previously elsewhere in this final rule, the 
organization and structure of broiler production is characterized by a 
high degree of vertical integration, market power in regional markets, 
substantial investment in production capital that is specific to a 
single production purpose, nearly universal use of production 
contracts, and use of complex grower compensation systems based on 
relative performance. Important factors that affect grower performance, 
including inputs (chicks, feed, medication, etc.) and some production 
practices (placement density, age and weight at harvest, etc.) are 
controlled by the LPD. In addition, the percentage of poultry producing 
farms considered to be in ``extreme financial stress'' (defined as term 
debt coverage ratio less than one and a debt-to-asset ratio greater 
than 55 percent) is among the highest of all types of commodity 
production operations.\78\ Market failures caused by asymmetric 
information, incomplete contracts, and hold-up in poultry contracting 
motivate specific interventions as discussed in this final rule.
---------------------------------------------------------------------------

    \78\ Nigel Key, Christopher Burns, and Greg Lyons, ``Financial 
Conditions in the U.S. Agricultural Sector: Historical 
Comparisons,'' EIB-211, U.S. Department of Agriculture, Economic 
Research Service (2019), https://www.ers.usda.gov/webdocs/publications/95238/eib-211.pdf?v=4876.5.
---------------------------------------------------------------------------

Comments From the Proposed Rule and Changes to the Final Rule
    After consideration of public comments, AMS decided to adopt the 
proposed rule as a final rule with several modifications. Live poultry 
dealers (LPDs) commented that the regulation would be particularly 
challenging if the period of time allowed for regulated entities to 
comply with the provisions is too short. In addition, they stated that 
a shortened period for implementing changes would require greater 
expenditures of resources to make required modifications and 
communicate with growers. To allow sufficient time for regulated 
entities to comply with the final rule and avoid excess

[[Page 5190]]

implementation costs, AMS is setting July 1, 2026, as the effective 
date for this rule, which is approximately 18 months following 
publication in the Federal Register. This extended time frame will not 
impact the amount or timing for estimated costs of the final rule; 
regulated entities are expected to incur first year costs during the 12 
months preceding the effective date.
    Industry trade organizations and LPDs commented that the full cost 
of implementing the proposed rule would be far greater than estimated 
by AMS. The commenters asserted that AMS greatly underestimated the 
costs that will be required for employing teams with highly specialized 
legal and technical expertise to implement the proposed rule by 
modifying or replacing grower contracts and communicating changes to 
growers. Commenters suggested that AMS did not adequately consider the 
total number of hours needed, but none provided quantified estimates. 
LPDs also commented that hourly rates paid to specialized industry 
professionals. Commenters also suggested that implementation of the 
rule would require LPDs to hire and train additional staff and pull 
resources away from other important activities.
    AMS consulted subject matter experts who are familiar with LPDs, 
integrators, and broiler complex operations. These experts were 
auditors and supervisors with many years of experience at AMS in 
auditing LPDs for compliance with the Act. The final rule provides an 
extended period of approximately 18 months following publication in the 
Federal Register before the effective date, to permit sufficient time 
for implementation. Hourly rates used in cost analysis for the proposed 
rule were based on averages for legal, management, administrative, and 
information technology labor categories specifically within the 
agricultural sector as published and annually updated by the U.S. 
Bureau of Labor Statistics.\79\ Although the largest corporations 
likely employ lawyers and other specialists at hourly rates much higher 
than the National average, contract development and review efforts at 
those companies are spread across many complexes. AMS expects that 
average hourly rates provide an appropriate benchmark for estimating 
industry average costs. AMS revisited the estimated hours to implement 
all provisions of the final rule based on comments that costs were 
underestimated. After further discussion with subject matter experts, 
AMS added a modest amount of time to account for the cost of IT work in 
preparing Sec.  201.112 disclosures. AMS subject matter experts who are 
familiar with the operations of LPDs, integrators, and broiler 
complexes through their experience conducting regulatory reviews of 
LPDs confirmed that all other costs of the proposed rule are accurate 
estimates and accordingly, AMS made no other changes to hourly costs or 
estimated numbers of hours for implementation of the rule based on this 
comment.
---------------------------------------------------------------------------

    \79\ See U.S. Bureau of Labor Statistics, May 2023 National 
Occupational Employment and Wage Estimates, May 2023. https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------

    AMS received numerous comments from growers, grower groups, and 
advocate commenters in support of additional limitations on grower risk 
from excessive variability in compensation. Based on these comments, 
AMS has added provision Sec.  201.106(b), which establishes a 
presumption that a regulated entity is in violation of the Act when 
aggregate gross annual payments based upon a grouping, ranking, or 
comparison of growers (performance pay) exceed 25 percent of total 
gross payments (including performance and all other types of grower 
pay). AMS again consulted its internal subject matter experts and added 
costs for LPDs to implement and monitor this new provision, which are 
discussed and quantified as direct costs. Other expected additional 
benefits and indirect costs resulting from this new provision cannot be 
quantified and are discussed separately.
    AMS also solicited comment in the proposed rule on whether there 
was a need to protect growers against the risk that LPDs might unfairly 
reduce broiler grower total compensation during a transition period 
after implementation of the final rule. Comments on the proposed rule 
reflected support for adding such protections. Based on comments 
received, AMS added Sec.  201.106(c), which will require LPDs to submit 
copies of the prior and modified contracts and disclosures to AMS if 
average gross grower payments at a complex show year-over-year decline 
following a contract modification in any of the three calendar years 
commencing with and including the effective date of the rule. AMS will 
review the information provided by LPDs to identify any potentially 
unfair practices related to broiler grower compensation. AMS consulted 
with its internal subject matter experts and added direct 
administrative costs for LPDs to provide information in compliance with 
this provision during the three-year period. AMS is not able to 
quantify the potential benefits and the potential indirect costs to 
LPDs of this provision--these will also be discussed separately.
    AMS received comments suggesting that some of the detailed 
documentation requirements under proposed Sec.  201.110(b) were similar 
to existing documentation requirements and might create unnecessarily 
burdensome and complex paperwork that could burden service technicians 
at broiler complexes and keep them from other important 
responsibilities such as assisting growers. In response to these 
comments, AMS made several changes to Sec.  201.110(b) in the final 
rule that included consolidating and streamlining the documentation 
requirements and removing some detailed requirements delineated under 
subparagraphs in the proposed rule.\80\ AMS expects that these 
adjustments to final Sec.  201.110(b) will add clarity and minimize 
potential confusion about the documentation requirements, thereby 
making them more effective, and that these changes will reduce 
recordkeeping requirements by some amount. However, based on 
consultation with its internal subject matter experts, AMS chose to 
attempt to avoid underestimating costs and did not reduce the total 
recordkeeping requirements or the time cost of the information 
collection for LPDs. Accordingly, these changes did not affect the 
estimation of costs or benefits in the final rule.
---------------------------------------------------------------------------

    \80\ As described in the preamble section III., ``Summary of the 
Proposed Rule and Changes in the Final Rule,'' these changes to 
proposed Sec.  201.110(b) included simplifying 17 combined 
paragraphs and subparagraphs in proposed Sec.  201.110(b)(1), 
``Policies and procedures,'' into six simple paragraphs in final 
Sec.  201.110(b)(1) and removing proposed Sec.  201.110(b)(2), 
``Compliance review,'' and redesignating Sec.  201.110(b)(3), 
``Record retention,'' as paragraph (b)(2).
---------------------------------------------------------------------------

    The proposed rule included Sec.  201.110(b)(2), ``Compliance 
review,'' which required LPDs to conduct a bi-annual review of the 
processes set out in Sec.  201.110(b)(1). AMS removed this requirement 
in response to comments that self-audits would be burdensome for LPDs, 
and that elimination of this requirement would not substantially 
diminish effective compliance with Sec.  201.110. Compliance will be 
enforced through regular AMS review of the policies and procedures, as 
newly enhanced documentation, which LPDs are required to establish and 
maintain under Sec.  201.110(b). Accordingly, removal of Sec.  
201.110(b)(2) eliminated the burden of compliance review on LPDs and 
reduced costs from the proposed to the final rule by the cost estimate 
in the proposed rule for that provision.

[[Page 5191]]

    Based on comments received, AMS added a provision at Sec.  
201.112(c) to require that the LPD make reasonable efforts to ensure 
that growers are aware of their right to request translation assistance 
and to assist the grower in translating the Capital Improvement 
Disclosure Document. Reasonable efforts include, but are not limited 
to, providing current contact information for professional translation 
service providers, trade associations with translator resources, 
relevant community groups, or any other person or organization that 
provides translation services in the poultry grower's geographic area. 
Reasonable efforts, depending on the facts and circumstances (such as 
convenience, expense, and timeliness of the translation), may also 
include allowing the grower access to a computer-generated translation 
of the Disclosure Document and additional time to review any translated 
Disclosure Document.
    A similar requirement was established for LPDs in Sec.  
201.102(g)(4) of the ``Transparency in Poultry Grower Contracting and 
Tournaments'' final rule.\81\ As LPDs already have all necessary 
information to make reasonable efforts to assist growers in translating 
disclosure documents and have made it available to growers who request 
the information, AMS did not add any time to its cost estimates for 
LPDs to comply with this new requirement.
---------------------------------------------------------------------------

    \81\ 88 FR 83210, 83301 (Nov. 28, 2023).
---------------------------------------------------------------------------

    The following analysis describes the anticipated impacts of the 
final rule. The value of broiler production in the U.S. for 2023 was 
approximately $50.6 billion.\82\ Our analysis finds that the total 
direct cost of final Sec. Sec.  201.106, 110, and 112 will be greatest 
in the first year at $26.0 million or 0.051 percent of revenues. The 
broiler industry is a mature industry, and margins are likely 
relatively low. If profit margins are 1 to 5 percent of revenues, then 
first-year direct costs would be 1.0 to 5.1 percent of margins. The 
total direct costs are low in relation to total industry size, but they 
do not include any potential costs from changes in supply or demand 
caused by final Sec. Sec.  201.106, 110, and 112. The final rule is 
also expected to provide many benefits of importance to broiler growers 
that could not be quantified. These include the value to broiler 
growers of improved fairness, reduced income variability, and reduced 
risk of fraud and deception. As a result of many factors that AMS is 
unable to measure due to insufficient data or which cannot be predicted 
with reasonable certainty, AMS is unable to quantify benefits or 
indirect costs and therefore cannot make a determination about the sign 
or magnitude of net benefits to the industry from final Sec. Sec.  
201.106, 110, and 112.
---------------------------------------------------------------------------

    \82\ USDA-NASS. Poultry--Production and Value 2023 Summary 
(April 2024).
---------------------------------------------------------------------------

Regulatory Alternatives Considered
    AMS expects final Sec. Sec.  201.106, 110, and 112 to mitigate 
costs associated with asymmetric information and LPD unfairness and 
deception by establishing a duty of fair comparison for LPDs in poultry 
grower ranking system administration, requiring LPDs to establish and 
document processes, requiring LPDs to adopt transparent methods of 
presenting grower compensation in broiler grower contracts, limiting 
excess income variability, and requiring LPDs to provide important 
information to broiler growers. Final Sec.  201.106 will prohibit the 
LPD from using a grower's grouping, ranking, or comparison to other 
growers to reduce a rate of compensation disclosed in a broiler growing 
arrangement, establishes a presumption of violation when performance 
compensation for growers at a complex exceeds 25 percent of total 
compensation, and implements a three-year transition pay period with 
additional grower protections. Final Sec.  201.110 will require LPDs to 
provide a fair comparison among growers when basing compensation upon a 
grouping or ranking of growers delivering during a specified period of 
time and to document how they comply with that duty. Final Sec.  
201.112 will require LPDs to produce and distribute disclosures when 
they request growers to make additional capital investments.
    AMS considered four alternatives to final Sec. Sec.  201.106, 110, 
and 112, with the second and preferred alternative being the final 
rule. The first alternative is the ``do nothing'' approach or 
maintaining the status quo. All regulations under the Packers and 
Stockyards Act would remain unchanged. This first alternative forms the 
baseline against which AMS will compare the second alternative, final 
Sec. Sec.  201.106, 110, and 112.
    AMS considered a third alternative that would leave all 
requirements in final Sec. Sec.  201.106, 110, and 112 the same, but 
entirely exempt LPDs that meet the criteria to be classified as small 
businesses by the Small Business Administration.\83\ This third 
alternative would exempt smaller LPDs. However, since larger LPDs do 
most of the contracting (as quantified later in this analysis), most 
poultry growers would still receive the benefits of new protections 
under final Sec. Sec.  201.106, 110, and 112. AMS considered a fourth 
alternative, which would be to adopt proposed Sec. Sec.  201.106, 110, 
and 112--this alternative also includes all small and large LPDs. 
Below, AMS provides estimates and comparisons of the costs and benefits 
of the alternatives and an explanation for why the Agency selected 
final Sec. Sec.  201.106, 110, and 112 as the preferred alternative.
---------------------------------------------------------------------------

    \83\ The Small Business Administration (SBA) defines small 
businesses by their North American Industry Classification System 
Codes (NAICS). Live poultry dealers, NAICS 311615, are considered 
small businesses by SBA if they have fewer than 1,250 employees (13 
CFR 121.201).
---------------------------------------------------------------------------

Benefits of Final Sec. Sec.  201.106, 110, and 112
    AMS expects that final Sec. Sec.  201.106, 110, and 112 will 
provide benefits to growers by reducing the risk of potential fraud, 
deception, and reduced payment for grower services by LPDs during the 
first three years of the final rule, improving clarity in grower 
payment systems, limiting excess variation in grower compensation, 
protecting growers against unfair reductions in compensation by LPDs 
during implementation of the rule, establishing a duty for fair 
comparison in the administration of broiler grower ranking systems, and 
making more information available to growers. These benefits are 
difficult to quantify. They depend on the extent to which the 
interventions will mitigate some existing unfairness and deception that 
results from incomplete contracts, inadequate and asymmetric 
information, and hold-up problems in an environment where LPDs are able 
to exert market power or bargaining power. Some of the benefits may 
vary based on the extent of competitive choice for growers in local 
markets. For example, in more competitive markets, increased 
transparency might benefit growers by empowering them to negotiate 
better terms with LPDs. In less competitive markets, increased 
transparency might assist growers in identifying potential unfairness 
from low compensation or abusive practices and allow them to seek 
assistance from AMS in more quickly remedying these problems. The size 
of benefits will be directly related to the extent to which the final 
rule will mitigate or reduce these practices. AMS is unable to quantify 
the benefits and will present a qualitative discussion of the potential 
types of benefits that growers would receive from final Sec. Sec.  
201.106, 110, and 112. The following discussion of unquantified 
benefits will proceed by final rule section.

[[Page 5192]]

Benefits of Final Sec.  201.106
    Section 201.106(a) prohibits LPDs from reducing a grower's rate of 
compensation based upon a grouping, ranking, or comparison of growers. 
The practice of discounting or reducing disclosed contract ``rates'' 
creates problems for growers in assessing and comparing broiler 
production contracts. Growers commonly expect that based on ordinary 
efforts, they will be able to obtain at least the average rate of pay 
for growers in a settlement group, which is typically known as the 
``base'' pay. If growers are evaluating the expected value of these 
contracts based upon ``base'' or ``average'' pay rates, downside risk, 
which affects half of the settlement pool per flock, would be ignored. 
These are the types of problems that create income expectations that 
are unlikely to be met for a large segment of broiler growers. Growers 
thus cannot effectively evaluate their risks on a settlement payment by 
settlement payment basis, through presentation of base pay rate at the 
mid-point. Growers are harmed when they incur costs as a result of 
entering a contract with an LPD and the actual revenue and the range of 
payment outcomes realized are below those the grower was led to believe 
they would receive when reviewing the contract based on reasonably 
expected efforts within the control of the grower. In addition, 
competition in the market for broiler grower services is harmed when 
such deception and unfairness prevent growers from comparing competing 
offers from LPDs for the services of growers.
    Final Sec.  201.106(a) applies to LPDs that calculate grower 
compensation based upon a grouping, ranking, or comparison of growers 
delivering poultry during a specified period. LPDs using such a system 
are prohibited from using that grouping, ranking, or comparison to 
reduce a rate of compensation disclosed in a broiler growing 
arrangement. Final Sec.  201.106(a) requires that any performance or 
incentive payments made to broiler growers under a poultry ranking 
system must be in addition to a disclosed rate of compensation (i.e., 
any adjustments to rates of pay must be non-negative). Growers will 
benefit from increased certainty about the lowest possible revenue 
outcome under the growing arrangement. Greater certainty about minimum 
rate for their service can lead to improved financial planning and 
ability to manage financial risk. More transparent methods of 
presenting payments and compensation systems would also facilitate 
comparisons between alternative LPDs and benefit growers who may be 
evaluating offers or considering agreements from more than one LPD.
    In accordance with final Sec.  201.106(a), LPDs will be expected to 
redefine grower payment calculation systems as appropriate to express 
all payments in the form of bonuses added to a stated pay rate. AMS 
expects that existing schedules of grower payments can be recreated 
such that they conform to this final rule change, assuming that no 
additional modifications are needed to comply with final Sec.  
201.106(b). Existing LPD methods of grower payment calculation can be 
expressed in an alternative format that includes only bonus adjustments 
added to an existing minimum rate.\84\ AMS is aware that several of the 
largest LPDs currently have existing payment systems that express all 
ranking bonuses as positive adjustments added to a stated pay rate and 
would conform to this requirement.
---------------------------------------------------------------------------

    \84\ All contracts that AMS has previously reviewed include 
provisions for a minimum grower payment that is greater than zero.
---------------------------------------------------------------------------

    Changes to presentation of grower compensation rates as required by 
final Sec.  201.106(a) are not expected to change the basic structure 
of grower compensation schedules for relative performance payments. The 
benefits that will accrue to growers from the changes will result from 
increased clarity as growers will be better informed of minimum 
compensation outcomes that can occur under the broiler growing 
arrangement. Growers in some circumstances may, therefore, be able to 
negotiate more appropriate compensation systems for themselves, in the 
form of higher base rates, for example. There is no expectation, 
however, that aggregate payments to growers will increase. Clearer 
presentation of grower compensation methods will benefit growers by 
improving grower understanding of potential revenue outcomes, thereby 
reducing problems of inadequate and asymmetric information and 
improving the clarity of defined terms to address incompleteness in 
contracting.
    Final Sec.  201.106(b) will establish a presumption that an LPD is 
in violation of the Act if more than 25 percent of total compensation 
paid to all growers in a complex on an annual basis is based on 
performance. If a complex is in violation of this provision, in order 
to comply an LPD may either raise grower base pay, reduce grower 
performance pay, shift some performance pay to mechanisms not covered 
by the provision, or a combination of all of these. Although other 
alternatives would be possible, AMS expects that the most likely 
outcome will be for LPDs to restructure compensation systems while 
keeping total grower compensation at approximately the same level. In 
this case, a grower compensation structure that includes less 
comparison-based performance pay would limit the range of potential 
compensation outcomes that an individual grower might observe and 
reduce risk from income variability.
    Benefits of Sec.  201.106(b) will accrue to broiler growers in the 
form of reduced income variability. For a given level of total income, 
growers would be likely to benefit if they receive a larger percentage 
of expected compensation based on fixed non-performance pay--which may 
include minimum base pay, fixed incentive payments for equipment 
standards and housing, fixed bonuses for adherence to clearly defined 
management practices, or other fixed targets--and a smaller percentage 
of compensation that is variable based on a grouping, ranking, or 
comparison to other growers, which makes up most forms of performance 
pay at present in the industry.
    When income is variable, growers will likely see trade-offs in the 
value to them of reducing income variability compared to mean incomes. 
Risk neutral growers will be made better off if they value any increase 
they receive in less variable pay not based on performance more than 
they value any decrease they experience in the expected value of 
performance-based pay. However, a risk averse grower would value a one 
dollar increase in less variable but more certain compensation more 
than they would value a one dollar decrease in the expected value of 
performance-based compensation that involves risk. Overall, individual 
growers are likely to benefit if the value to them of any increase they 
receive in less variable income--from compensation that is not based on 
performance--is greater than the value to them of any decrease they 
experience in the expected value of more variable performance-based 
compensation.
    The magnitude of benefits to growers that will result from Sec.  
201.106(b) depends on several factors that cannot be predicted with any 
reasonable degree of confidence. These factors include uncertainty 
about the number of complexes that will modify grower compensation 
structures in response to Sec.  201.106(b), the manner in which such 
modifications would be implemented, and the number of growers at 
affected complexes that would be impacted by any changes. AMS is unable 
to analyze comprehensive grower data for all

[[Page 5193]]

broiler complexes and cannot predict with certainty how regulated 
entities will respond to this provision. For this reason, potential 
benefits of Sec.  201.106(b) are discussed qualitatively and not 
quantified.
    AMS does not have sufficient data to make an industry-wide 
inference on the number complexes that will need to reduce performance 
payments relative to total payments or the magnitude of any reductions 
that will be required. AMS reviewed one to five years of confidential 
grower compensation data for four individual broiler complexes that AMS 
gathered in prior investigations. This sample included small, medium, 
and large bird sizes and some of the largest broiler LPDs that operate 
several other complexes across the U.S. Aggregate performance payments 
at these four complexes were 11.4, 17.4, 20.5, and 25.4 percent of 
total grower payments. AMS is not aware of any complex with performance 
payments that are as much as 26 percent of total payments, and it is 
possible that no complex will need to reduce performance payments 
relative to total payments by a substantial amount to comply with final 
Sec.  201.106(b).
    To the extent that the complexes AMS reviewed are representative of 
the other complexes owned by the same firms, two or possibly three of 
the firms would likely already be in compliance with final Sec.  
201.106(b). In addition, the terms of a 2022 consent agreement between 
Wayne-Sanderson Farms, USDA, and the U.S. Department of Justice 
informed final Sec.  201.106(b). In the Wayne-Sanderson Farms consent, 
performance payments that Wayne-Sanderson Farms pays to broiler growers 
was limited to 25 percent of total payments. Section 201.106 
establishes a presumption that poultry growing arrangements with 
variable pay greater than 25 percent is presumptively unfair. It is 
unlikely that the unfairness presumption will have any effect on these 
firms, which combined account for up to 35 percent of the complexes. It 
is possible that other firms already limit performance payments to less 
than 25 percent of total payments, but AMS does not have sufficient 
information to confirm this with a reasonable degree of confidence.
    Growers will benefit directly from changes in variability of 
compensation as a result of Sec.  201.106(b) only at complexes where 
LPDs modify existing compensation structures to comply with the 25 
percent presumption of unfairness. However, growers will also benefit 
from ongoing protection to the extent that this provision causes LPDs 
to forego future changes that would increase performance-based 
compensation beyond 25 percent of total compensation.
    For a given level of grower performance-based compensation at a 
complex, the presumption of unfairness also indirectly limits 
reductions to grower base pay rates. A reduction in the base pay rate 
will reduce the total amount of grower compensation not based on 
performance and must be accompanied by a proportional decrease in 
performance-based compensation to maintain an equivalent percentage. 
The presumptive limitation therefore provides an incentive for LPDs to 
maintain or increase existing levels of base grower compensation. This 
provides another benefit to growers: it serves as a backstop against 
the potential harm to growers that would occur if LPDs were to 
substantially and unfairly lower base pay rates when modifying pay 
structures to comply with Sec.  201.106(a).
    The distributional effects of final Sec.  201.106(b) are likely to 
be unequal across individual growers: not all growers will benefit or 
benefit equally from this provision. Current contracting practices can 
vary widely between complexes even of the same LPD. As previously 
noted, AMS expects that the most likely outcome at complexes where 
grower compensation structure modifications occur will be for LPDs to 
keep total grower compensation at approximately the same level and 
reduce the percentage of compensation based on performance payments. 
This would change the distribution of total compensation among growers 
at the complex. Depending heavily upon the strategy for compliance 
chosen by the LPD, AMS would expect these changes to result in benefits 
to some growers, welfare transfers between some growers, and no change 
in welfare for some growers. At some complexes, AMS would expect that 
some amount of welfare transfer from higher performing growers to lower 
performing growers would result from payment structure modifications 
implemented to comply with the 25 percent presumption of unfairness. 
AMS expects some complexes to shift some performance pay to non-
comparison methods, such as fixed metric performance, or to other 
innovative systems. Another possibility is that modifications could 
result in LPDs terminating or not renewing some marginally performing 
growers. This will be most likely to occur if LPDs seek to reduce the 
overall variation in grower performance at a complex as a means to 
comply or if payment structure modifications include increases in 
minimum grower payments that exceed the marginal value of services 
provided by some growers. Some LPDs may seek to utilize technology to 
more greatly standardize outcomes, thus reducing the need to utilize 
higher magnitudes of performance payment. AMS underscores that actual 
outcomes will depend upon how LPDs respond at different complexes owing 
to local factors on the ground.
    Performance-based compensation structures based on a grouping, 
ranking, or comparison of growers determine individual grower 
compensation using relative performance metrics that typically include 
feed efficiency and chick livability. Some aspects of performance can 
be controlled or influenced by the grower through effort and 
management, and to some extent investment (subject to the concerns 
highlighted by this rule), in the broiler operation. Other determinants 
of grower performance depend on actions of the LPD or other factors 
outside the control of the grower. Section 201.110 of this rulemaking 
addresses factors under control of the LPD by establishing a duty of 
fair comparison. As discussed elsewhere, this provision is expected to 
benefit producers by reducing unfair impacts on growers attributable to 
these factors. Nonetheless, the influence of factors controlled by LPDs 
on grower compensation will not and cannot be eliminated without 
eliminating performance-based methods of compensation. Natural 
variation and randomness will persist for certain production factors 
that influence relative performance, such as breed, sex, age of 
breeding flock, health at placement, and the performance of other 
growers, even if the LPD strictly adheres to the duty of fair 
comparison in the distribution of them. These factors therefore will 
continue to be important in determining compensation in a performance-
based pay system. Provision Sec.  201.106(b) benefits growers by 
establishing a presumption of unfairness based on the magnitude of 
performance-based compensation, thereby also limiting the share of 
income that will be affected by risk factors out of their control.
    Growers are vulnerable to hold-up in the broiler contracting 
relationship: once a grower makes a housing and equipment investment to 
grow broilers for an LPD, that capital cannot be repurposed and the 
grower's choices become limited. In addition, many broiler operations 
operate in areas where they can potentially contract with only a very 
small number integrators, which severely limits the grower's ability to 
switch integrators. Data cited in the preamble of this final rule 
(MacDonald 2014) shows that more than

[[Page 5194]]

half of broiler growers have only one or two LPDs (integrators) in 
their local areas. As a result, growers lack bargaining power to 
protect their existing level of compensation when LPDs change contract 
terms. In requiring LPDs to provide the prior and modified contracts 
and required disclosures when contract modification or renewal results 
in lower year over year gross annual average grower payments at a 
complex, Sec.  201.106(c) facilitates AMS intervention in unfair 
treatment. During a three-year transition period, LPDs will report 
changes to existing grower payment systems that reduce average 
compensation for growers at a complex.
Benefits of Final Sec.  201.110
    Market power gives LPDs a considerable bargaining advantage 
relative to growers in poultry contracting arrangements. As a result, 
growers lack negotiating power to demand, among other things, 
transparency around, and completeness in, and reasonable performance 
under contracts that would likely reduce the potential for deception 
and unfairness. The interventions aim to reduce potential adverse 
impacts of market power by establishing a duty of fair comparison that 
would provide protections to growers that they do not have bargaining 
leverage to demand. Currently, most broiler production contracts are 
incomplete in that they fail to clearly state important terms and 
provisions related to input distribution and flock production 
practices, how grower compensation will be handled in certain variable 
circumstances, settlement grouping procedures, and other aspects of 
broiler grower ranking system administration. LPDs commonly seek to 
disclaim under these contracts what should be express or implied duties 
and warranties around the usability or appropriateness of inputs or 
production practices and other aspects of broiler grower ranking system 
administrations. LPDs frequently offer broiler contracts to growers on 
a take it or leave it basis, providing growers with little insight as 
to methods the LPD will use to compare growers for purposes of 
determining compensation, including whether growers will be compared to 
other growers provided with similar inputs and assigned similar 
production practices. Moreover, during performance, growers have little 
to no ability to demand LPDs actually perform as could be reasonably 
expected under the contracts, including promptly addressing problems 
that may emerge during ordinary operations.
    Even under a reasonable level of transparency around specific input 
differences, growers are often unable to make sufficient modifications 
to their individual efforts to manage risks to how payments are 
affected under a poultry grower ranking system. Nor can they avoid 
harms from disputes that may arise under the poultry growing 
arrangement. Growers reasonably assume that they will be fairly 
compared to other growers under a broiler grower ranking system. They 
are deceived if LPDs do not make a good faith effort to ensure fair 
comparison among participating growers when operating broiler grower 
ranking systems. Given the extent of LPD control over grower outcomes 
through the distribution of inputs such as feed and chicks or 
production practices such as placement density, target weight, etc., 
growers are forced to rely heavily on LPD good faith efforts in 
performing fair comparisons under broiler growing arrangements.
    Consistent delivery of fair comparison requires LPDs to incur 
monitoring costs and take corrective actions when operating poultry 
grower ranking systems. In fact, many LPDs implicitly acknowledge a 
responsibility to fairly compare growers when they use procedures to 
identify and correct imbalances and provide remedies when factors 
beyond the growers' control affect grower payments. These include, for 
example, provisions to remove a grower from a broiler grower ranking 
system pool and to pay that grower according to another metric (such as 
a multi-flock average) if the LPD discovers that inputs provided to the 
grower were inferior--such as sick chicks. Another example would be a 
policy of the LPD to avoid providing a grower with inferior inputs on 
consecutive flocks--such as chicks from excessively young layer flocks 
that are considered to be lower performing, at least when using the 
broiler grower ranking system to determine performance pay in those 
circumstances. Although such policies are not uncommon, they are not 
currently required to be universally employed or uniformly applied by 
LPDs. LPDs may have legitimate business interests in providing certain 
growers, sometimes higher skilled growers in fact, with lower 
performing inputs. Yet care needs to be taken to ensure that any 
comparison-based method for determining performance pay be established 
under circumstances that do not permit or enable the LPD to 
intentionally disadvantage one or more growers in the ranking system.
    Growers also have no means by which to ensure that LPDs 
consistently carry out their responsibility under the contract or to 
enforce it. Further, the benefits of monitoring and correcting for 
unfair grower outcomes accrue to growers and not to the LPD. Therefore, 
LPDs have insufficient incentive to uphold their end of the bargain, 
especially in markets where growers have few options of alternative 
LPDs with whom they could contract. LPDs can therefore 
opportunistically minimize their costs of delivering a fair comparison 
at the expense of growers and, as a result, fail to deliver on their 
obligation for good faith and fair dealing under the contract.
    Final Sec.  201.110 addresses these problems by establishing a duty 
for LPDs to provide a fair comparison among growers when basing 
compensation on a grouping or ranking of growers delivering poultry 
during a specified period and requiring LPDs to document how they 
comply with that duty. The fair comparison requirement in final Sec.  
201.110(a) ensures that LPDs will not compare growers to other growers 
who have been supplied with inputs or assigned production practices 
that result in material differences in performance metrics used in 
payment calculations. Duty of fair comparison also requires that LPDs 
compare growers over appropriate time periods and use appropriate non-
comparison payment methods. Final Sec.  201.110(b) establishes 
documentation requirements in the form of processes, commonly known as 
policies and procedures, to facilitate LPD effective broiler grower 
ranking system operation under that duty, effective recordkeeping of 
transactions, and facilitates AMS supervision and enforcement. These 
provisions will benefit growers by reducing deception and unfairness in 
the operation of poultry grower ranking systems.
    Expressly requiring LPDs to implement written processes that 
promote fair comparison of growers, whether through more consistent 
allocation of inputs and production practices or adjustments to methods 
and formulas, will foster more transparent, accurate, and reliable 
broiler grower ranking systems, and hold LPDs accountable for 
divergences from lawful action. Growers will benefit from this 
regulation because they will be less vulnerable to intentional harm due 
to deception, retaliation, or bad faith by LPDs. An LPD, AMS, or 
enforcement body can more easily evaluate grower complaints of 
intentional harm--for example, LPD employees targeting growers by 
providing inferior inputs--when they are able to consider whether the 
LPD has complied with its own stated policies and procedures for

[[Page 5195]]

ensuring fair comparison. Ongoing monitoring of the broiler grower 
ranking system by LPDs to fulfill the duty of fair comparison required 
by final Sec.  201.110(a) will also provide safeguards to prevent 
growers from being substantially disadvantaged by unintentional or 
inadvertent outcomes. For example, an LPD will be compelled to take 
prescribed corrective action if it discovers that a particular grower 
has randomly received an unusual share of inferior inputs over multiple 
flocks. Procedures designed to ensure fair comparison will include 
monitoring to prevent natural variation in input quality and LPD-
determined flock production practices among growers within a single 
settlement group from being allowed to persist as a pattern that 
disadvantages a particular grower over multiple settlement groups. By 
establishing a basic duty for LPDs to deliver fair comparison of 
growers, final Sec.  201.110 is structured to provide LPDs flexibility 
in fulfilling that duty within the context of individual circumstances 
and complex production processes.
    Benefits of Sec.  201.110 deriving from the value to growers of 
fairness and equity are important. AMS is unable to quantify these 
benefits. However, as a result of this provision, compensation for 
individual growers will more closely match the level of individual 
grower effort, skill, and investment relative to other growers under a 
poultry grower compensation system that guarantees fair comparison. 
This provision will benefit growers by removing some of the unfairness 
in the distribution of grower compensation within poultry ranking 
payment systems. When LPDs fulfill a duty to ensure fair comparisons, 
no individual grower will receive consistently poor inputs while other 
growers with whom that grower is compared receive consistently good 
inputs. The expected benefits of ensuring fair comparisons among 
growers are highlighted by the consistent widespread reports of harm to 
individual growers resulting from existing unfair comparisons.\85\ A 
reduction in the occurrence of such harms could potentially lead to 
reduced grower turnover.
---------------------------------------------------------------------------

    \85\ Section II of this final rule, ``Background,'' documents 
decades of grower comments to USDA that highlight concerns of 
persistent unfairness resulting from unfair comparisons in broiler 
grower tournaments.
---------------------------------------------------------------------------

    Provisions included in final Sec.  201.110(b)(1)(vi) will also 
require LPDs to maintain written processes for communication and 
resolution of grower concerns with the design or operation of a system 
that is consistent with the duty of fair comparison. These processes 
should address timely resolution of such disputes. Providing an 
effective method of dispute resolution has the potential to help 
resolve disagreements involving personality conflicts which can lead to 
avoidable inefficiencies.
Benefits of Final Sec.  201.112
    LPDs encourage and often require broiler growers to make additional 
capital investments in assets that are specific to producing poultry 
for that LPD. Growers cannot exert bargaining power to demand essential 
information that would inform such investments. As a result, LPDs can 
induce growers to make additional investment decisions that do not 
benefit growers when they do not supply sufficient information for 
evaluation of requested upgrades. Such investments can cause financial 
harm to growers and increase the extent of their investments in capital 
that is specific to poultry production for nearby LPDs (thereby also 
increasing grower hold-up exposure) while still benefiting those LPDs. 
Moreover, broiler growers bear all the costs and risks of additional 
capital improvement investment. LPDs do not own the farm-based 
production capital and therefore do not share in these risks, although 
they frequently dictate grower investments. Because poultry production 
capital is largely owned by growers, LPDs have limited incentive to 
carefully consider how much required additional capital investments 
will improve individual grower production efficiency and whether they 
are likely to lead to financial success or failure. This misalignment 
of incentives is consistent with grower complaints that LPDs sometimes 
require costly investments that are unnecessary or in some cases merely 
cosmetic.\86\ When a broiler considers a new investment, the broiler 
grower considers gains in productivity relative to the cost of the 
investment. However, when LPDs do not bear investment cost, they have 
incentive to maximize only their benefits and encourage growers to 
over-invest in poultry-specific production capital to the point of 
negative returns for the grower.
---------------------------------------------------------------------------

    \86\ AMS sought feedback on proposed rulemaking in a 2022 ANPR 
(87 FR 34814, June 8, 2022). Some commenters noted that LPDs often 
supply insufficient information with respect to requested or 
required upgrades and deceptively induce growers to make costly 
additional capital investments. One commenter, for example, asserted 
that LPDs demand costly upgrades that some growers have reported to 
be arbitrary and apparently untethered to any reasonable assurance 
of increased compensation.
---------------------------------------------------------------------------

    AMS has sought to address similar concerns through prior action. 
Finalized in 2011, Sec.  201.216 sets out criteria for when the 
Secretary will find additional capital investment violated the Act (76 
FR 76874, December 9, 2011). However, AMS's experience since has found 
that the rule is insufficient to help growers or the Agency to identify 
problematic additional capital investment in time to act. Accordingly, 
the Agency in this final rule has prioritized disclosure of critical 
information to growers in a timely manner, to enable growers and the 
Agency to have ready access to the necessary information to conduct 
analyses under Sec.  201.216 and under the Act generally, including to 
stop additional capital investment that cause unavoidable harms. AMS 
also is adopting final Sec.  201.112 to prevent deception of growers 
related to additional capital investment, as the information being 
required is critical to their decision-making around the additional 
capital investment, whether or not the additional capital investment 
gives rise to unavoidable harms separate and apart from the failure to 
disclose.
    LPDs prevent growers from making fully informed decisions and 
understanding the true extent of over-investment when they withhold 
important information about additional capital improvement investments. 
An increase in grower investment leads to increased grower dependency 
on LPDs to generate returns on that investment through poultry 
contracting. The presence of few or no other poultry contracting 
options in a grower region further focuses dependence on a single LPD. 
The use of incentive payments by LPDs to compensate growers for 
additional capital investment can help to align investment incentives. 
For these arrangements to work properly, growers must clearly 
understand the parameters of the investment and the breakdown of 
payment components and financial incentives offered by the LPD.
    Final Sec.  201.112 will require LPDs to provide a Capital 
Improvement Disclosure Document when requesting an additional capital 
investment over the identified threshold of $12,500 (as defined in 
Sec.  201.2(n)). This disclosure will provide information to existing 
growers contemplating additional capital investments about the goal or 
purpose of the investment, grower financial incentives, construction 
schedules, description of changes to housing specifications, approved 
manufacturers or vendors, and analysis of projected returns including 
the assumptions, risks, and uncertainties upon which those projections 
are based (paragraphs (b)(1) through (6)). As such, the Capital 
Improvement Disclosure Document will clearly state the

[[Page 5196]]

intended and expected outcome of LPD additional investment 
requirements.
    Requiring LPDs to provide this information to growers will reduce 
asymmetric information that contributes to inefficient investment and 
resource allocation decisions, where such choice exists by growers. 
LPDs providing this additional information related to grower 
requirements reduces the cost to growers of identifying and qualifying 
manufacturers and vendors when making capital improvements. To the 
extent that disclosures assist growers in understanding the purpose of 
additional capital investments, those growers will be more likely to 
realize any potential benefits from the additional capital investment. 
For example, growers will be able to tailor additional capital 
investments to their particular operation so as to be better positioned 
to implement the additional capital investment and produce intended 
production improvements. The clarity provided by additional capital 
investment disclosure will reduce the likelihood of costly errors 
caused by miscommunication and misunderstanding and increase the 
likelihood that growers will be able to correctly implement additional 
capital investments. Final Sec.  201.112 will generate economic 
benefits by addressing certain limitations on market functioning 
arising in part from asymmetric information. Growers operating with 
better information are less likely to be deceived or unfairly misled by 
LPDs when additional capital improvement investments are required.
    Even where growers may not be able to avoid or negotiate around 
these terms, growers may be better able to effectuate their rights 
under the Act, and AMS would benefit from earlier identification of 
potentially unfair practices. To the extent this occurs, by addressing 
asymmetric information this section of the final rule will help 
alleviate additional hold-up of growers by LPDs. Even in cases where 
grower refusal may still result in other adverse consequences, growers 
may still be better off by preventing additional financial loss and 
increased specific investment and dependence on the LPD. Financial 
projections and other analyses of additional capital improvement 
investments developed by LPDs along with more complete information 
about investment purpose, expected benefit, and grower performance will 
be superior to analysis based on limited grower information.
    Final Sec.  201.112(c) will benefit growers who require translation 
assistance by requiring LPDs to make reasonable efforts to ensure that 
growers are aware of their right to request translation assistance and 
to assist growers in translating the Capital Improvement Disclosure 
Document.
Summary of Benefits of Final Sec. Sec.  201.106, 110, and 112
    AMS expects that the final rule would provide substantial benefits 
to the industry and address issues of extreme importance to broiler 
growers. However, these benefits are unquantified. AMS cannot measure 
any impact or shift in total industry supply or any corresponding 
indirect effects on industry supply and demand, including price and 
quantity effects.
Estimation of Costs of the Final Regulations
    AMS estimates cost for three alternatives. The first is the final 
Sec. Sec.  201.106, 110, and 112, which is the preferred alternative. 
The second alternative is the same as final Sec. Sec.  201.106, 110, 
and 112 with a complete exemption for LPDs that are considered small 
businesses by the Small Business Administration.\87\ All LPDs are also 
included in the third alternative, which is adoption of the proposed 
Sec. Sec.  201.106, 110, and 112. All three alternatives are compared 
against a baseline of status quo, which has no costs or benefits.
---------------------------------------------------------------------------

    \87\ The Small Business Administration (SBA) defines small 
businesses by their North American Industry Classification System 
Codes (NAICS). Live poultry dealers, NAICS 311615, are considered 
small businesses by SBA if they have fewer than 1,250 employees.
---------------------------------------------------------------------------

    The direct costs of final Sec. Sec.  201.106, 110, and 112 
primarily consist of the time required for LPDs to: (1) modify and 
monitor grower contracts to determine compensation in a manner 
consistent with final Sec.  201.106; (2) develop, document, and comply 
with policies and procedures for ensuring that growers are fairly 
compared to other growers in poultry grower ranking systems; and (3) 
gather and document information pertaining to grower additional capital 
investments and distribute it among the growers. The costs of the final 
rules will fall on LPDs as they modify existing contracts and 
compensation systems, develop and comply with new policies, and collect 
and disseminate required information. Costs will also fall on poultry 
growers based on the value of the time they put into reviewing the 
disclosures. Though poultry growers are expected to incur costs in 
reviewing information, they will be the primary beneficiaries of the 
information, which may be reflected in their ability to make more 
informed decisions (where they may have more than one or two 
integrators as options in certain geographic areas). Further, growers 
will be able to better identify additional capital investment programs 
that are unfair, which either AMS or growers can challenge as a 
violation of the Packers and Stockyards Act. This may result in a more 
efficient allocation of capital within the poultry growing industry.
    There were 42 LPDs in the broiler chicken market that filed a 
fiscal year 2023 Annual Report with AMS, and their reports indicate 
that they had 20,014 contracts with poultry growers during fiscal year 
2023.\88\ Of these, 21 LPDs are considered small businesses according 
to SBA classification, and these have a total of 1,208 grower 
contracts. Small LPDs are expected to differ from large LPDs in 
structure and complexity, particularly with regard to the number of 
contract types used, management, use of legal services, and divisions 
of labor. Where noted below, some components of cost estimates are 
calculated separately for large and small LPDs to reflect these 
differences.\89\
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    \88\ All live poultry dealers are required to annually file PSD 
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control 
number 0581-0308. The annual report form is available to public at 
https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
    \89\ Unless otherwise noted, estimated cost or hours estimates 
for small and large live poultry dealers are the same.
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    AMS expects the direct costs of the final rule will be small in 
relation to overall production costs and will not measurably alter 
poultry supply. AMS also expects that neither LPDs nor poultry growers 
will measurably change any production practices that will impact the 
overall supply of poultry as a result of these direct costs.
    Expected direct costs are estimated as the value of the time 
required to develop and implement new broiler grower contracts and 
grower payment systems to comply with requirements of final Sec.  
201.106; develop, implement, and maintain compliance with processes 
reasonably designed by the LPD to deliver fair comparisons among 
broiler growers in the operation of broiler contract tournament systems 
as required by final Sec.  201.110; and produce and distribute 
disclosures when LPDs request or require growers to make additional 
capital investments as required by final Sec.  201.112, as well as the 
time required to create and maintain any necessary additional records. 
Grower payment systems required by final Sec.  201.106(a) are 
substantively similar to many current payment systems already in use 
and will therefore not require large adjustments

[[Page 5197]]

for most LPDs. AMS does not have sufficient data to predict whether the 
presumption of unfairness based on 25 percent performance-based grower 
pay will cause any LPDs to make substantial changes to grower 
compensation structures. The policies and procedures that LPDs would be 
required to develop in response to final Sec.  201.110 are expected to 
result in formalization, in many cases, of existing practices LPDs are 
currently following, albeit sporadically or inconsistently. Nearly all 
of the information and records required for disclosure to growers under 
final Sec.  201.112 are already kept by and/or available to LPDs.
    Although LPDs will need to take several actions to comply with new 
requirements under final Sec. Sec.  201.106, 110, and 112, these 
provisions are not expected to require LPDs to substantially change 
their existing business practices. The exception to this would occur if 
some LPDs currently exceed the 25 percent presumption of unfairness on 
performance-based grower compensation set by Sec.  201.106(b) and will 
be unable to comply without substantial changes. The changes to comply 
would result in indirect costs. Non-quantifiable potential indirect 
costs to LPDs who exceed the 25 percent presumption of unfairness on 
performance-based grower compensation will be discussed separately 
within this section. AMS expects total direct costs of adjustments, 
contract modifications, records creation, and compliance under the 
final rule to be small relative to the overall size of the industry.
    AMS also estimates the amount of time that growers would take to 
review the information provided to them by LPDs. Estimates of the 
amount of time required by LPDs to modify existing contracts, develop 
and comply with new policies, and collect and distribute required 
information, and for growers to review the information were provided by 
AMS subject matter experts. These experts were supervisors and auditors 
with many years of experience with AMS in auditing LPDs for compliance 
with the Packers and Stockyards Act. Estimates for the value of time 
are U.S. Bureau of Labor Statistics Occupational Employment and Wage 
Statistics estimates released May 2023 and costs are therefore 
expressed in 2023 dollars.\90\ Throughout the discussion that follows, 
``first year'' costs refers to costs that are estimated to be incurred 
during the 12 months immediately preceding the effective date of the 
rule.
---------------------------------------------------------------------------

    \90\ See U.S. Bureau of Labor Statistics, May 2023 National 
Occupational Employment and Wage Estimates, May 2023. https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------

Direct Costs of Final Sec.  201.106--Preferred Alternative
    Under final Sec.  201.106(a), LPDs will be required to redefine 
grower payment calculation systems as appropriate to express all 
payments in the form of bonuses added to a stated pay rate. AMS expects 
that existing schedules of grower payments can be recreated such that 
they comply with this final rule change. Existing LPD methods of grower 
payment calculation can be expressed in an alternative format that 
includes only bonus adjustments added to from an existing minimum pay 
rate. AMS expects that most LPDs will be required to make one-time 
changes to existing grower contracts and develop new payment systems 
that are consistent with these provisions. This process will also 
include producing and filing grower documents and communicating 
information about the new contract and payment system to growers and 
staff at each complex.
    AMS estimates that the aggregate one-time costs to LPDs of updating 
grower contracts and developing new grower payment systems, including 
modifying information systems to include new calculations as well as 
filing, and reporting to comply with final Sec.  201.106(a), will 
require 17,664 legal hours,\91\ 57,750 management hours, 7,360 
administrative hours, and 7,360 information technology hours, costing a 
total of $9,106,000 \92\ in the first year.\93\
---------------------------------------------------------------------------

    \91\ Small live poultry dealers are estimated to require 50% as 
many legal hours as large live poultry dealers on a per company 
basis for one-time cost of developing Sec.  201.106 one-time changes 
to grower contracts and payment systems.
    \92\ 17,664 legal hours x $139.96 per hour + 57,750 management 
hours x $96.40 per hour + 7.360 administrative hours x $49.36 per 
hour + 7,360 information technology hours x $95.58 per hour = 
$9,106,112.
    \93\ Average hourly wage rates used to estimate dealer costs 
include a 41.79% markup for benefits and are as follows: 
Management--$96.40, Legal--$139.96, Administrative--$49.36, and 
Information Technology--$95.58. Hourly wage rates were established 
using the following BLS classifications for each labor category as 
follows (NAICS Code--OCC code--OCC Title): Management (3116--11-
1020--General and Operations Managers) for live poultry dealers' 
managers, Legal (3110--23-1011--Lawyers) for attorneys for live 
poultry dealers and for growers, Administrative (3116--43-6011--
Executive Secretaries and Executive Administrative Assistants) for 
live poultry dealers' administrative assistants, and Information 
Technology (3116--11-3020--Computer and Information Systems 
Managers) for information technology managers.
---------------------------------------------------------------------------

    Once LPDs have incurred a one-time cost of developing, documenting, 
and communicating new contracts and a new system of grower payments, 
AMS does not expect additional ongoing costs of implementing final 
Sec.  201.106(a). Once in place, new provisions and modifications 
resulting from this one-time update are not expected to lead to an 
increase in costs associated with the ongoing maintenance and updating 
of grower contracts that would occur in the normal course of business.
    Final Sec.  201.106(b) establishes a presumption of unfairness 
when, for a given complex, aggregate payments based upon a grouping, 
ranking, or comparison of growers (performance pay) exceed 25 percent 
of gross payment to growers on an annual basis. LPDs will need to 
analyze grower compensation structures at the complex-level and 
calculate annual performance-based grower compensation as a percentage 
of total compensation to ensure compliance with the 25 percent 
presumption established by final Sec.  201.106(b). LPDs may choose to 
re-design and modify existing compensation structures where greater 
than 25 percent of the total grower compensation is based on 
performance pay These LPDs may choose to create processes for 
monitoring compliance on an ongoing basis. Modifications to grower 
compensation structures will need to be incorporated into broiler 
contracts and communicated to growers.
    AMS estimates that the aggregate one-time costs to LPDs of 
examining and evaluating existing grower compensation structures and 
making modifications as required to ensure ongoing compliance with 
final Sec.  201.106(b), will require 7,360 legal hours, 52,500 
management hours, 7,306 administrative hours, and 14,720 information 
technology hours, costing a total of $7,861,000 in the first year.\94\
---------------------------------------------------------------------------

    \94\ 7,360 legal hours x $139.96 per hour + 52,500 management 
hours x $96.40 per hour + 7,360 administrative hours x $49.36 per 
hour + 14,720 information technology hours x $95.58 per hour = 
$7,861,333.
---------------------------------------------------------------------------

    LPDs will implement and maintain processes for monitoring ongoing 
compliance with Sec.  201.106(b). AMS expects these annual ongoing 
costs to require in aggregate 736 legal hours, 5,250 management hours, 
736 administrative hours, and 1,472 information technology hours for an 
aggregate annual cost of $786,000.\95\
---------------------------------------------------------------------------

    \95\ 736 legal hours x $139.96 per hour + 5,250 management hours 
x $96.40 per hour + 736 administrative hours x $49.36 per hour + 
1,472 information technology hours x $95.58 per hour = $786,133.
---------------------------------------------------------------------------

    Final Sec.  201.106(c) requires that for each of the three calendar 
years commencing with and including the effective date for Sec.  
201.106, LPDs must submit to USDA a copy of the prior and modified 
contracts and associated disclosures if any contract modification

[[Page 5198]]

or renewal results in less than the prior annual-calendar year's 
complex-wide average gross payment to the grower. LPDs will be required 
to monitor changes in average annual gross payments to growers at the 
complex and, if necessary, provide documentation.
    AMS does not expect any costs to LPDs in the first year in response 
to Sec.  201.106(c). For each of the three calendar years following the 
effective date, LPDs will monitor grower compensation and submit any 
necessary documentation on an annual basis. AMS expects these annual 
ongoing costs to require in aggregate 736 legal hours, 5,250 management 
hours, 736 administrative hours, and 1,472 information technology hours 
for an aggregate annual cost of $786,000.\96\
---------------------------------------------------------------------------

    \96\ 736 legal hours x $139.96 per hour + 5,250 management hours 
x $96.40 per hour + 736 administrative hours x $49.36 per hour + 
1,472 information technology hours x $95.58 per hour = $786,133.
---------------------------------------------------------------------------

    Final Sec.  201.106 concerns potential changes to the method of 
payment calculation and compensation structure used in grower 
tournament settlement systems. LPDs will provide new contracts that 
include these updated provisions for review by broiler growers. AMS 
expects that the first time a grower receives a new contract containing 
these modifications, he or she will require about 4 hours to review and 
consider all new terms and provisions. At $62.13 per hour,\97\ the 
total one-time cost for all broiler growers to review the new contract 
is $4,974,000.\98\ AMS expects that the updated contract provisions and 
payment systems developed by LPDs pursuant to Sec.  201.106 will not 
contribute to additional ongoing contract review time by growers beyond 
an initial one-time review. Therefore, no ongoing future costs of 
grower contract review have been included for Sec.  201.106. The ten-
year aggregate total costs of final Sec.  201.106 to LPDs are estimated 
to be $26,401,000, the ten-year aggregated total costs of final Sec.  
201.106 to poultry growers are estimated to be $4,974,000, and the 
combined ten-year aggregate total costs of final Sec.  201.106 to LPDs 
and poultry growers are estimated to be $31,375,000.
---------------------------------------------------------------------------

    \97\ The average hourly wage rate of $62.13 per hour used to 
estimate costs for a poultry grower includes a 41.79% markup for 
benefits. The wage rate was established using BLS classification 
(1152--11-0000--Management Occupations).
    \98\ 4 hours to review each disclosure x $62.13 per hour x 
20,014 contracts = $4,973,879.
---------------------------------------------------------------------------

Unquantified Indirect Costs of Sec.  201.106--Preferred Alternative
    Many factors will affect the costs to LPDs of changing existing 
compensation structures to comply with a 25 percent presumption as 
defined in Sec.  201.106(b). The scope of comprehensive data that would 
be required for AMS to accurately measure and quantify these costs 
makes collection of sufficient data infeasible if such exists. Further, 
the nature of these costs will depend on future choices made by 
industry participants that cannot be predicted with reasonable 
certainty. The potential indirect costs--other than those direct 
administrative costs which are quantified separately--will be discussed 
qualitatively in this section.
    If LPDs substantively modify existing structures of grower 
compensation to reduce performance-based compensation to less than 25 
percent of total grower compensation, additional costs must be 
considered. The likelihood and magnitude of these additional indirect 
costs will depend on the number of complexes that will modify existing 
compensation structures as a result of Sec.  201.106(b), the extent of 
those modifications, and resulting cost increases.
    As discussed in the benefits section, AMS does not have sufficient 
data to make an inference on the number complexes that will reduce 
performance payments relative to total payments or the magnitude of any 
reductions that will be required. As previously discussed, at four 
complexes, aggregate performance payments were 11.4, 17.4, 20.5, and 
25.4 percent of total grower payments. AMS is not aware of any complex 
with performance payments that are as much as 26 percent of total 
payments, and it is possible that no complex will reduce performance 
payments relative to total payments by a substantial amount to avoid 
the presumption of unfairness established in final Sec.  201.106(b).
    To the extent that the complexes AMS reviewed are representative of 
the other complexes owned by the same firms, two or possibly three of 
the firms would likely already be in compliance with final Sec.  
201.106(b). And due to the Wayne-Sanderson Farms consent agreement with 
U.S. Department of Justice, it is unlikely that the regulation will 
have an effect on Wayne-Sanderson's existing contracts. Therefore, it 
is unlikely that the presumption of unfairness on performance payments 
will have any effect on these firms, which combined account for up to 
35 percent of broiler complexes. It is possible that at other firms, 
performance payment makes up less than 25 percent of total payments as 
well, but AMS does not have sufficient information to confirm this with 
a reasonable degree of confidence.
    Conceptually, where firms modify existing grower compensation 
structures at a complex in response to this rule, if reductions in 
performance-based payments relative to total payments adversely affect 
grower performance incentives and cause growers to produce broilers 
less efficiently, that could result in increased production costs for 
the firms. In general, the ``tournament'' system of broiler grower 
compensation bases payments to individual growers on their performance 
relative to other growers. Performance payments provide an incentive 
for growers to optimize factors under their control, such as effort and 
management, and to some extent investment (subject to the concerns 
around investments highlighted by this rule), to improve their own 
relative performance efficiency and increase income. The strength of 
individual performance incentives is related to the size of expected 
(potential) grower performance payments, which will be limited by the 
total amount of performance-based pay distributed among all growers. 
The effectiveness of incentives is also limited by the extent to which 
the grower can control performance. Decreasing the relative size of 
performance payments available to all growers at a complex might, at or 
above a certain level, in theory, therefore weaken performance 
incentives of individual growers and could result in reduced overall 
grower efficiency in broiler production.
    AMS has no reason to believe that the 25 percent presumption 
adopted in this final rule would significantly change incentives. As 
noted above, the third largest LPD is already in compliance with the 
provision and some LPDs do not use the tournament system. No evidence 
was produced by commenters regarding the level of tournament 
compensation needed to optimize grower performance. Other factors, 
including inputs and production practices, the level of prudence and 
professionalism of growers, their risks of termination, and non-
comparison performance payments can, for example, provide incentives 
for growers. Additionally, LPDs already closely monitor grower 
performance with a range of information they already have. Finally, the 
concern arises only if both the 25 percent presumption would affect 
incentives and if an LPD could not otherwise overcome the presumption.
    AMS cannot rule out the possibility that incentives may be 
affected, and AMS is unable to predict specific effects with certainty. 
Were production efficiency in some manner to be

[[Page 5199]]

reduced, economic principles suggest that cost of production would 
increase, causing an inward shift of a firm's marginal cost curve and 
that those costs could be passed on to consumers. Increases in cost 
structures could, under that same hypothetical, affect demand for 
broiler growing services in certain areas, for example possibly 
resulting in LPDs terminating some marginal growers. As noted above, 
based on the regulatory record and the Agency's expert judgment based 
on the information and data available to AMS during the rulemaking 
process, AMS does not view these outcomes as likely to any material 
degree.
    Furthermore, LPDs have tools to incentivize grower effort that 
would partially or entirely avoid the risks outlined above. LPDs may 
shift some performance pay to non-comparison methods, such as fixed 
metric performance or to other innovative systems, which could retain 
the incentives where necessary and appropriate. Other LPDs, however, 
may believe that the performance incentive delivered by the tournament 
is misplaced given the particularities of their business model or the 
type of bird being grown at a complex (e.g., growout of ``no 
antibiotics ever'' may require different incentives and management than 
commoditized product). Depending on the needs of the complex, LPDs may 
seek to utilize technology, training, or other approaches to improve 
outcomes, thus reducing the need to utilize higher magnitudes of 
performance payments.
    LPDs currently use many variations of relative performance 
compensation systems at broiler complexes and some LPDs do not use 
tournament performance compensation systems. This suggests that that 
setting comparison pay above 25 percent is not the only way to optimize 
incentives for all complexes, growers, or circumstances. AMS does not 
have data for every payment structure currently in use. Limited data 
analysis from the small sample of complexes described above shows that 
performance compensation at a number of complexes is less than 25 
percent of total pay. This suggests that regulated entities can 
optimize incentives without setting comparison performance pay above 25 
percent. Ultimately, AMS does not expect that LPDs will choose to 
abandon the tournament compensation system entirely as a result of this 
regulation and does not expect materially adverse effects on production 
efficiency.
    Final Sec.  201.106(c) requires that within a three-year transition 
period following the effective date, LPDs must provide the prior and 
modified contracts and grower disclosures if complex-wide average gross 
payment to growers falls below the level of the prior calendar year. 
AMS considered that LPDs could face additional costs if they were 
prevented from lowering grower compensation for a three-year period and 
were not able to adjust payment structures to meet challenging and 
unforeseen industry conditions in the broiler industry. For example, a 
sharp decline in broiler demand or other type of event disrupts the 
broiler industry could potentially create conditions in which aggregate 
average grower compensation at a complex temporarily falls below its 
level in the prior year.
    In analyzing information submitted by LPDs, AMS will consider all 
relevant factors, including industry conditions, when investigating 
unfairness. As a result, AMS expects that LPDs will be constrained only 
from unfair reductions in grower compensation and will not be prevented 
from adjustments to grower compensation that reflect legitimate 
business operations, such as responding to a decline in broiler demand 
or higher feed costs. In addition, the tendency for base levels of year 
over year inflation to naturally erode real grower compensation will 
also attenuate the need for nominal decreases. Given the restructuring 
of how payment calculation methods and compensation structures will be 
presented to growers as LPDs comply with Sec.  201.106(a), review and 
analysis of documentation by AMS under this provision will focus on the 
unfair reductions in compensation resulting from contract modification 
which this provision is intended to prevent. Therefore, AMS does not 
expect additional costs for LPDs as a result of Sec.  201.106(c) beyond 
the direct administrative costs of assessing and monitoring revised 
payment systems for potential reductions in grower compensation and 
providing documentation when required as explicitly described in the 
previous section.
Direct Costs of Final Sec.  201.110--Preferred Alternative
    Final Sec.  201.110 will require LPDs to develop, maintain and 
comply with a set of policies and procedures that ensure the operation 
of a poultry grower ranking system that is consistent with the duty of 
fair comparison among growers, including describing processes for 
supplying or assigning inputs and production practices, communication 
and cooperation, and facilitating the conduct of ongoing compliance 
reviews with those processes.
    Final Sec.  201.110(a) and (b)(1)(i) through (v) describe 
objectives and minimum requirements for written documentation of 
processes, including how LPDs will operate poultry grower ranking 
systems that are consistent with the duty of fair comparison. 
Information obtained during previous AMS investigations suggests that 
LPDs may already have some informal policies and practices or perhaps 
even some contract provisions in place to address and attempt to remedy 
situations in which growers have been inadvertently disadvantaged by 
such factors. For example, AMS is aware of situations where an LPD has 
removed a grower that received an unreasonable share of lower quality 
inputs from the grower pool and paid them by another method that would 
not penalize relative performance (e.g., a five-flock average). Under 
final Sec.  201.110(a) and (b)(1)(i) through (v), all LPDs will be 
required to develop formal written processes that meet specific 
criteria outlined in the regulation.
    AMS estimates that the one-time aggregate cost of developing new 
policies and procedures in response to final Sec.  201.110(a) and 
(b)(1)(i) through (v) for LPDs will require 4,128 legal hours, 28,500 
management hours, 1,472 administrative hours, and 1,472 information 
technology hours, costing a total of $3,539,000 in the first year.\99\ 
Due to differences in their structure, estimates for small LPDs were 
calculated with the expectation that they would employ relatively fewer 
legal (attorney) hours that are offset by a larger share of management 
hours.\100\
---------------------------------------------------------------------------

    \99\ 4,128 legal hours x $139.96 per hour + 28,500 management 
hours x $96.40 per hour + 1,472 administrative hours x $49.36 per 
hour + 1,472 information technology hours x $95.58 per hour = 
$3,538,507.
    \100\ Small live poultry dealers are estimated to require 33% as 
many legal hours and 133% as many management hours as large live 
poultry dealers on a per-complex basis for one-time cost of 
developing Sec.  201.110 tournament fairness policies and 
procedures.
---------------------------------------------------------------------------

    LPDs will implement, monitor, and comply with new written processes 
for the design and operation of a poultry grower ranking system that is 
consistent with the duty of fair comparison; they will also maintain 
and update these written processes. AMS expects these annual ongoing 
costs to require in aggregate 1,400 legal hours,\101\ 28,336 management 
hours which include renewing and updating written processes at the 
corporate level as well as monitoring activities conducted by

[[Page 5200]]

managers at each complex to ensure ongoing compliance, 736 
administrative hours, and 736 information technology hours for an 
aggregate annual cost of $3,034,000.\102\
---------------------------------------------------------------------------

    \101\ Small live poultry dealers are estimated to require 50% as 
many legal hours as large live poultry dealers on a per-complex 
basis in ongoing compliance and maintenance of Sec.  201.110 
tournament fairness policies and procedures.
    \102\ 1,400 legal hours x $139.96 per hour + 28,336 management 
hours x $96.40 per hour + 736 administrative hours x $49.36 per hour 
+ 736 information technology hours x $95.58 per hour = $3,034,210.
---------------------------------------------------------------------------

    Final Sec.  201.110(b)(1)(vi) requires that the written processes 
developed must include a description of how LPDs communicate and 
cooperate to resolve grower concerns in a timely fashion. AMS expects 
that the aggregate one-time cost to LPDs of setting up communications 
and cooperation protocol and implementing them in the first year will 
require 840 legal hours, 546 management hours, 168 administrative 
hours, and 336 information technology hours \103\ for an aggregate one-
time cost of $211,000.\104\
---------------------------------------------------------------------------

    \103\ Small live poultry dealers are estimated to require 50% as 
many legal hours and 125% as many management hours, and 50% as many 
information technology hours as large live poultry dealers on a per 
company basis for one-time cost of developing Sec.  201.110 
communication, cooperation, and dispute resolution policies and 
procedures.
    \104\ 840 legal hours x $139.96 per hour + 546 management hours 
x $96.40 per hour + 168 administrative hours x $49.36 per hour + 336 
information technology hours x $95.58 per hour = $210,608.
---------------------------------------------------------------------------

    Final Sec.  201.110(b)(2) states the length of time for retaining 
the records relevant to an LPD's compliance with final Sec.  
201.110(b)(1) and (2). AMS considered record retention when estimating 
costs for final Sec.  201.110(b)(1) and final Sec.  201.110(b)(2) does 
not impose any costs independently.
    AMS expects the ongoing annual costs after the first year of 
implementing written processes regarding communication, cooperation, 
and dispute resolution policies and procedures described in final Sec.  
201.110(b)(1)(vi) to require, in aggregate, 336 legal hours, 168 
management hours, 84 administrative hours, and 84 information 
technology hours for an aggregate annual cost of $75,000.\105\
---------------------------------------------------------------------------

    \105\ 336 legal hours x $139.96 per hour + 168 management hours 
x $96.40 per hour + 84 administrative hours x $49.36 per hour + 84 
information technology hours x $95.58 per hour = $75,397.
---------------------------------------------------------------------------

    Written processes developed by LPDs are for internal use, to be 
complied with and maintained, to be provided to AMS, and as part of 
ongoing compliance monitoring. Under final Sec.  201.110, LPDs are not 
required to provide additional disclosures to contract growers. 
Therefore, final Sec.  201.110 will not impose any additional one-time 
or ongoing costs on growers to review additional disclosures, and total 
grower costs of final Sec.  201.110 are zero.
    The ten-year total costs of final Sec.  201.110 to all 42 live 
broiler poultry dealers are estimated to be $31,736,000. Since expected 
grower costs for this section are zero, these also represent the total 
aggregate costs of Sec.  201.110.
Direct Costs of FinalSec.  201.112--Preferred Alternative
    The new provisions in final Sec.  201.112 will require LPDs to 
provide a Capital Improvement Disclosure Document any time the LPD 
requests existing broiler chicken growers to make an additional capital 
investment ($12,500 or more per structure excluding maintenance or 
repair). The Capital Improvement Disclosure Document must include 
information about the goal or purpose of the investment, financial 
incentives and compensation for the grower associated with the 
additional capital investment, all schedules and deadlines for the 
investment, a description of changes to housing specifications, and 
analysis of projected returns.
    Final Sec.  201.112 will require LPDs to create a Capital 
Improvement Disclosure Document when new capital investments are 
required of growers. Based on information provided by subject matter 
experts, AMS estimates that capital upgrades will be required at 5 
percent of complexes each year, triggering creation of a new disclosure 
document for approximately 5 percent of growers annually. Therefore, 
AMS estimates the annual cost of creating disclosures for additional 
requested grower capital investment will require 74 legal hours, 368 
management hours, 74 administrative hours, and 92 information 
technology hours to create and provide a Capital Improvement Disclosure 
Document for all growers requiring additional capital improvement 
upgrades, for an aggregate annual cost of $58,000.\106\
---------------------------------------------------------------------------

    \106\ 74 legal hours x $139.96 per hour + 368 management hours x 
$96.40 per hour + 74 administrative hours x $49.36 per hour + 92 
information technology hours x $95.58 per hour = $58,203.
---------------------------------------------------------------------------

    With the exception of acknowledging receipt, the final rule will 
not impose any requirement on poultry growers to review the information 
provided by LPDs, but to benefit from the Capital Improvement 
Disclosure Document, growers will need to review the information 
provided. For final Sec.  201.112, AMS expects that growers will take 
about four hours to review these documents when they are disclosed as 
part of a capital improvement request or requirement by the LPD. LPDs 
will be required to provide disclosures to growers for any of 20,014 
contracts for which additional capital investment requests are 
made.\107\ AMS expects that LPDs will make additional capital 
investment requests for an average of 5 percent of grower contracts 
annually. At an estimated 4 hours of grower review time per disclosure 
at $62.13 per hour, growers' aggregate annual costs will be $249,000 
\108\ for reviewing documents required by Sec.  201.112 in the first 
year and in each successive year.
---------------------------------------------------------------------------

    \107\ Live poultry dealers reported a combined total of 20,014 
contracts for their fiscal year 2023.
    \108\ 4 hours to review each disclosure x $62.13 per hour x 
20,014 contracts x 5 percent of growers that require significant 
housing upgrades = $248,694.
---------------------------------------------------------------------------

    The ten-year aggregate total costs of final Sec.  201.112 to LPDs 
are estimated to be $582,000, the ten-year aggregated total costs of 
final Sec.  201.112 to poultry growers are estimated to be $2,487,000, 
and the combined ten-year aggregate total costs of final Sec.  201.112 
to LPDs and poultry growers are estimated to be $3,069,000.
Unquantified Indirect Costs of Sec.  201.112--Preferred Alternative
    If AMS enforcement of final Sec.  201.112 has the effect of 
preventing broiler growers from making unprofitable additional capital 
investments (those for which individual grower returns do not exceed 
costs), then such decisions to forgo investment will likely result in 
fewer benefits for LPDs, and more for growers. Because LPDs benefit 
from any productivity gain created by grower investments, whether or 
not the investment is profitable for the grower in the long-run, LPDs 
will not receive these benefits if additional information provided 
under this provision causes growers to avoid additional capital 
investments that they deem to be unprofitable and inefficient for their 
operation. AMS is not able to quantify these lost benefits to LPDs. 
They represent costs to LPDs, but these costs are at least partly 
offset by gains (or avoided losses) for growers. In addition, to the 
degree that an additional capital investment requires over-investment, 
eliminating it benefits society. Over-investment occurs when the cost 
of the investment exceeds the total value it generates (in terms of 
increased grower productivity, production cost efficiency, etc.) and 
the investment resources would be more productively employed in other 
ways. The benefits to growers and society of avoiding such investments 
would exceed the losses to LPDs.

[[Page 5201]]

Combined Costs of Final Sec. Sec.  201.106, 110, and 112--Preferred 
Alternative
    Combined costs to LPDs for final Sec. Sec.  201.106, 110, and 112 
are expected to be $20,775,000 in the first year, $4,740,000 in years 
two through four, and $3,954,000 in subsequent years thereafter. 
Information collection costs are also reported in the Paperwork 
Reduction Act section as the combined costs to LPDs for compliance with 
the reporting and recordkeeping requirements of final Sec. Sec.  
201.106, 110, and 112. The combined costs for poultry growers are 
expected to be $5,223,000 in the first year and $249,000 in subsequent 
years.
    The ten-year aggregate combined costs of final Sec. Sec.  201.106, 
110, and 112 to LPDs are estimated to be $58,719,000 and the present 
value of the ten-year total costs to be $54,230,000 discounted at a two 
percent rate. The annualized aggregate combined costs of the present 
value (PV) of ten-year costs to LPDs discounted at a two percent rate 
are expected to be $6,037,000.
    The ten-year aggregate combined costs of final Sec. Sec.  201.106, 
110, and 112 to poultry growers are estimated to be $7,461,000 and the 
present value of the ten-year total costs to be $7,110,000 discounted 
at a three percent rate. The annualized aggregate combined costs of the 
PV of ten-year costs to poultry growers discounted at a three percent 
rate are expected to be $792,000.
    The ten-year aggregate combined costs of final Sec. Sec.  201.106, 
110, and 112 to LPDs and poultry growers are estimated to be 
$66,179,000 and the present value of the ten-year aggregate combined 
costs to be $61,341,000 discounted at a two percent rate. The 
annualized aggregate costs of the PV of ten-year costs to LPDs and 
poultry growers discounted at a two percent rate are expected to be 
$6,829,000. The cost estimates of final Sec. Sec.  201.106, 110, and 
112 presented above appear in the following table.

           Table 1--Estimated Costs of Final Sec.  Sec.   201.106, 110, and 112--Preferred Alternative
----------------------------------------------------------------------------------------------------------------
                                                                                 Expected costs *
                                                                 -----------------------------------------------
                      Preferred alternative                        Live poultry       Poultry
                                                                      dealers         growers     Industry total
----------------------------------------------------------------------------------------------------------------
Sec.   201.106:
    First-Year..................................................     $16,968,000      $4,974,000     $21,941,000
    Ten-Year Total..............................................      26,401,000       4,974,000      31,375,000
    PV of Ten-Year Discounted at 2%.............................      25,148,000       4,876,000      30,025,000
    Ten-Year Annualized at 2%...................................       2,800,000         543,000       3,343,000
Sec.   201.110:
    First-Year..................................................       3,749,000               0       3,749,000
    Ten-Year Total..............................................      31,736,000               0      31,736,000
    PV of Ten-Year Discounted at 2%.............................      28,559,000               0      28,559,000
    Ten-Year Annualized at 2%...................................       3,179,000               0       3,179,000
Sec.   201.112:
    First-Year..................................................          58,000         249,000         307,000
    Ten-Year Total..............................................         582,000       2,487,000       3,069,000
    PV of Ten-Year Discounted at 2%.............................         523,000       2,234,000       2,757,000
    Ten-Year Annualized at 2%...................................          58,000         249,000         307,000
Sec.  Sec.   201.106, 110, and 112:
    First-Year..................................................      20,775,000       5,223,000      25,997,000
    Ten-Year Total..............................................      58,719,000       7,461,000      66,179,000
    PV of Ten-Year Discounted at 2%.............................      54,230,000       7,110,000      61,341,000
    Ten-Year Annualized at 2%...................................       6,037,000         792,000       6,829,000
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.

Estimated Costs-and Expected Benefits of Final Sec. Sec.  201.106, 110, 
and 112--Preferred Alternative
    The value of broiler production in the U.S. for 2023 was 
approximately $50.6 billion.\109\ Total direct costs of final 
Sec. Sec.  201.106, 110, and 112 are estimated to be greatest in the 
first year at $26.0 million, or 0.051 percent of revenues. A relatively 
small improvement in efficiency from improved allocation of capital and 
labor resources in the industry would more than outweigh the direct 
costs of this final rule. A reduction in information asymmetry 
(resulting in more useful information provided to growers), grower 
uncertainty and risk of potential adverse outcomes, and retaliatory and 
deceptive practices by LPDs will lead to benefits resulting from the 
final rule. The size of benefits will be directly related to the extent 
of these reductions. AMS expects that the final rule will provide 
substantial benefits the industry and address issues of extreme 
importance to broiler growers. However, these benefits are not 
quantifiable. Benefits and costs are summarized below for each 
provision of the rule.
---------------------------------------------------------------------------

    \109\ USDA-NASS. Poultry--Production and Value 2023 Summary 
(April 2024).
---------------------------------------------------------------------------

    Final Sec.  201.106(a) benefits broiler growers by requiring LPDs 
to implement payment structures that increase clarity and certainty 
about the lowest possible revenue outcomes under a growing arrangement. 
LPDs are expected to incur one-time direct costs of developing, 
documenting, and communicating new contracts and a new system of grower 
payments and no additional ongoing costs. Since most LPDs currently 
employ payment structures that allow for both bonuses and discounts, 
AMS expects these costs to be realized by LPDs at most complexes and 
the corresponding benefits to be realized by the vast majority of 
broiler growers.
    Final Sec.  201.106(b) establishes a presumption of unfairness when 
the amount of total grower compensation based on relative performance 
exceeds 25 percent and thereby protects growers from excess income 
variability. Some growers at complexes where LPDs modify compensation 
structures to reduce the percentage of grower pay based on relative 
performance may benefit from reductions in the variability of their 
income. The distribution of benefits is likely to be unequal, such that 
increases in compensation for some growers may correspond with 
decreases in performance-based compensation for other growers.

[[Page 5202]]

    In addition to direct costs to LPDs of implementing the rule, Sec.  
201.106(b) could result in additional indirect costs to broiler 
industry stakeholders (including LPDs, consumers, and growers) if LPDs 
modify existing compensation structures in ways that adversely affect 
grower incentives and lead to increased production costs. The magnitude 
of benefits and costs resulting from Sec.  201.106(b) will depend on 
two important factors that cannot be measured or predicted with a 
reasonable degree of certainty: the number of broiler complexes that 
will modify existing compensation structures as a result of final Sec.  
201.106(b) and the manner in which those change will be implemented by 
LPDs. If few or no complexes make substantial modifications to existing 
compensation structures as a result of Sec.  201.106(b), the resulting 
benefits to growers of reduced income variability and the indirect 
costs to the broiler industry will be small. All broiler growers will 
nonetheless benefit from ongoing protection against future increases in 
performance-based pay variability and reductions in base pay amounts.
    Growers will benefit from additional protections under Sec.  
201.106(c) that require LPDs to submit prior and modified contracts if 
contract modifications result in reduced average grower compensation 
during a three-year transition period. This requirement will facilitate 
AMS monitoring and intervention, when necessary, to protect growers 
from unfair treatment. AMS does not expect indirect costs to broiler 
industry stakeholders. AMS expects the benefits of Sec.  201.106(c) 
will accrue to all broiler growers and the direct costs of 
implementation over the three-year transition period will apply to all 
LPDs.
    By requiring that LPDs design and operate poultry grower ranking 
systems to provide a fair comparison among growers, final Sec.  201.110 
will benefit broiler growers through increased fairness and reduced 
deception. All broiler growers will benefit to the degree that this 
provision improves fairness and reduces deception within poultry grower 
ranking systems. The direct costs of implementing and maintaining 
compliance with Sec.  201.110 will be incurred by all LPDs, and AMS 
does not expect any other indirect costs of this provision.
    Disclosures concerning additional capital investments required by 
final Sec.  201.112 will provide broiler growers with better 
information to make financial decisions and reduce the likelihood the 
LPDs can deceive or mislead growers. Growers will also benefit to the 
extent that this requirement provides information that facilitates 
improved identification and enforcement of violations under Sec.  
201.116. LPDs will incur direct costs of preparing and distributing 
disclosures when additional capital investments are requested by the 
LPD. The provision could also cause some transfer of benefits from LPDs 
to growers if the provision causes growers to avoid making unprofitable 
investments that would have benefited the LPD more than the grower.
    Net total costs and benefits to the industry from final Sec. Sec.  
201.106, 110, and 112 cannot be quantified. Thus, AMS cannot measure 
any impact or shift in total industry supply or any corresponding 
indirect effects on industry supply and demand, including price and 
quantity effects.
Estimated Costs and Expected Benefits of the Small Business Exemption 
Alternative
    AMS estimated costs for an alternative to the preferred option for 
the final rule. It would be the same as final Sec. Sec.  201.106, 110, 
and 112, with the exception that the alternative would exempt LPDs that 
fall under the SBA definition of small businesses from all provisions 
of the two final rules. In the preferred alternative, the requirements 
in final Sec. Sec.  201.106, 110, and 112 would apply to all LPDs, 
including those classified as small businesses.
    The costs associated with this alternative are similar, but smaller 
than the preferred option. According to PSD records, small LPDs make up 
50.0 percent of all LPDs, but have only 6.0 percent of poultry growing 
contracts. The estimation of the costs of the small business exemption 
alternative will follow the same format as the preferred alternative.
Costs of Final Sec.  201.106--Small Business Exemption Alternative
    AMS estimates that the aggregate one-time costs to LPDs of updating 
grower contracts and developing new grower payment systems, including 
modifying information systems to include new calculations as well as 
filing, and reporting to comply with final Sec.  201.106(a), will 
require 15,936 legal hours, 54,780 management hours, 6,640 
administrative hours, and 6,640 information technology hours, costing a 
total of $8,474,000 in the first year under the small business 
exemption alternative. Once LPDs have incurred a one-time cost of 
developing, documenting, and communicating new contracts and a new 
system of grower payments, AMS does not expect additional ongoing costs 
of implementing final Sec.  201.106(a) under the small business 
exemption alternative.
    AMS estimates that the aggregate one-time costs to LPDs of 
examining and evaluating existing grower compensation structures and 
making modifications as required to ensure ongoing compliance with 
final Sec.  201.106(b), will require 6,640 legal hours, 49,800 
management hours, 6,640 administrative hours, and 13,280 information 
technology hours, costing a total of $7,327,000 in the first year under 
the small business exemption alternative.
    LPDs will monitor, maintain and comply with the processes for 
examining excessive variability. AMS expects these annual ongoing costs 
to require in aggregate 664 legal hours, 4,980 management hours, 664 
administrative hours, and 1,328 information technology hours for an 
aggregate annual cost of $733,000 under the small business exemption 
alternative.
    AMS does not expect any cost in the first year to set up and 
implement a plan in response to Sec.  201.106(c). For each of the three 
calendar years following the effective date for Sec.  201.106, AMS 
expects these annual ongoing costs to require in aggregate 664 legal 
hours, 4,980 management hours, 664 administrative hours, and 1,328 
information technology hours for an aggregate annual cost of $733,000 
under the small business exemption alternative.
    For final Sec.  201.106(a), AMS expects that growers will take 
about 4 hours to review new contract terms and provisions when they are 
provided in the first year. At $62.13 per hour, the total one-time cost 
for all broiler growers to review the new contract under the small 
business exemption alternative is $4,674,000.\110\ AMS expects that the 
updated contract provisions and payment systems developed by LPDs 
pursuant to final Sec.  201.106 (a) would not contribute to additional 
ongoing contract review time by growers beyond an initial one-time 
review. Therefore, no ongoing future costs of grower contract review 
are included.
---------------------------------------------------------------------------

    \110\ 4 hours to review each disclosure x $62.13 per hour x 
18,806 contracts = $4,673,667.
---------------------------------------------------------------------------

    The ten-year aggregate total costs to LPDs of final Sec.  201.106 
under the small business exemption alternative are estimated to be 
$24,593,000, the ten-year aggregate total costs to broiler growers of 
final Sec.  201.106 for the small business exemption alternative are 
estimated to be $4,674,000, and the first-

[[Page 5203]]

year and ten-year aggregate total costs to LPDs and poultry growers of 
final Sec.  201.106 for the small business exemption alternative are 
estimated to be $29,267,000.
Unquantified Indirect Costs of Sec.  201.106--Small Business Exemption 
Alternative
    AMS expects that indirect costs resulting from Sec.  201.106(b) and 
(c) for the small business exemption alternative will be nearly 
identical to those discussed for the preferred alternative, with the 
only difference being the number of complexes potentially affected. In 
particular, small LPDs would be exempt from the presumption of 
unfairness under Sec.  201.106(b) and will not incur indirect costs 
from modifying grower compensation structures to reduce the percentage 
of performance-based compensation for a complex below the presumptively 
unfair 25 percent of total compensation. The 10 percent of complexes 
that would be exempted from the regulation under this alternative are 
small by definition. AMS does not have access to data that would 
suggest whether these small LPD complexes are any more or less likely 
to require modifications to existing grower compensation structures 
that result in indirect costs than other complexes. Indirect costs for 
the small business exemption alternative could only be equal to or less 
than the preferred alternative but cannot be quantified for the same 
reasons.
Direct Costs of Final Sec.  201.110--Small Business Exemption 
Alternative
    AMS estimates that the one-time aggregate cost of developing new 
policies and procedures in response to final Sec.  201.110(a) and 
(b)(1)(i) through (v) for LPDs will require 3,984 legal hours, 24,900 
management hours, 1,328 administrative hours, and 1,328 information 
technology hours, costing a total of $3,150,000 in the first year for 
the small business exemption alternative.
    After new written processes have been developed, LPDs would be 
required to implement, monitor, and comply and to maintain and update 
them. AMS expects these annual ongoing costs for the small business 
exemption alternative to require in aggregate 1,328 legal hours, 25,564 
management hours which include renewal and updating of written 
processes at the corporate level as well as monitoring activities 
conducted by managers at each complex to ensure ongoing compliance, 664 
administrative hours, and 664 information technology hours for an 
aggregate annual cost of $2,746,000.\111\
---------------------------------------------------------------------------

    \111\ 1,328 legal hours x $139.96 per hour + 25,564 management 
hours x $96.40 per hour + 664 administrative hours x $49.36 per hour 
+ 664 information technology hours x $95.58 per hour = $2,746,477.
---------------------------------------------------------------------------

    Final Sec.  201.110(b)(1)(vi) requires that the written processes 
developed must include a description for how the LPD would resolve a 
grower's concerns with the LPD's design or operation of a poultry 
grower ranking system that is consistent with the duty of fair 
comparison that is required by this section, including the timeliness 
of the resolution. AMS expects that the aggregate one-time cost to LPDs 
of setting up communications and complaint resolution processes as 
described in Sec.  201.110(b)(1)(vi) for the small business exemption 
alternative will require 504 legal hours, 252 management hours, 84 
administrative hours, and 210 information technology hours for an 
aggregate one-time cost of $119,000.\112\
---------------------------------------------------------------------------

    \112\ 504 legal hours x $139.96 per hour + 252 management hours 
x $96.40 per hour + 84 administrative hours x $49.36 per hour + 210 
information technology hours x $95.58 per hour = $119,051.
---------------------------------------------------------------------------

    Costs associated with final Sec.  201.110(b)(2), ``Record 
retention,'' are included in cost estimates for final Sec.  
201.110(b)(1). AMS expects that this section does not incur any 
additional costs.
    AMS expects the ongoing annual costs of implementing communications 
and complaint resolution processes as described in Sec.  
201.110(b)(1)(vi) to require, for the small business exemption 
alternative, in aggregate, 168 legal hours, 84 management hours, 42 
administrative hours, and 42 information technology hours for an 
aggregate annual cost of $38,000.\113\ Because final Sec.  201.110 does 
not require LPDs to provide additional disclosures to contract growers, 
final Sec.  201.110 would not impose any additional one-time or ongoing 
costs on growers to review additional disclosures, and total grower 
costs of final Sec.  201.110 are also zero under the small business 
exemption alternative.
---------------------------------------------------------------------------

    \113\ 168 legal hours x $139.96 per hour + 84 management hours x 
$96.40 per hour + 42 administrative hours x $49.36 per hour + 42 
information technology hours x $95.58 per hour = $37,698.
---------------------------------------------------------------------------

    The ten-year total costs of final Sec.  201.110 to the 50.0 percent 
of live broiler poultry dealers impacted under the small business 
exemption alternative are estimated to be $28,327,000. Since expected 
grower costs for this section are zero, these also represent the total 
aggregate costs of final Sec.  201.110.
Direct Costs of Final Sec.  201.112--Small Business Exemption 
Alternative
    Final Sec.  201.112 would require LPDs to create a Capital 
Improvement Disclosure Document when new capital investments are 
requested of growers. Based on information provided by subject matter 
experts, AMS estimates a five percent annual average probability that 
capital improvement upgrades will be required for growers at a complex, 
which would trigger creation of a new Disclosure Document. Therefore, 
AMS estimates the annual ongoing cost of creating Capital Improvement 
Disclosure Documents for the small business exemption alternative will 
require 66 legal hours, 332 management hours, 66 administrative hours, 
and 83 information technology hours to create and provide Capital 
Improvement Disclosure Documents for all growers requiring additional 
capital improvement upgrades, for an aggregate annual cost of $53,000 
for the small business exemption alternative.\114\
---------------------------------------------------------------------------

    \114\ 66 legal hours x $139.96 per hour + 332 management hours x 
$96.40 per hour + 66 administrative hours x $49.36 per hour + 83 
information technology hours x $95.58 per hour = $52,509.
---------------------------------------------------------------------------

    For final Sec.  201.112, AMS expects that growers would take about 
four hours to review these documents when they are disclosed as part of 
a capital improvement request or requirement by the LPD. For the small 
business exemption alternative, LPDs would be required to provide 
disclosures to growers for any of the 18,806 contracts for which 
additional capital investment requests are made.\115\ AMS expects that 
LPDs will make additional capital investment requests for an average of 
five percent of grower contracts annually. Given that growers require 
an estimated 4 hours at $62.13 per hour, growers' aggregate annual 
costs would be $234,000 for reviewing documents required by final Sec.  
201.112 in the first year and in each successive year for the small 
business exemption alternative.\116\
---------------------------------------------------------------------------

    \115\ Live poultry dealers that exceed SBA classification 
criteria for small businesses reported a combined 18,806 poultry 
contracts in their Annual Reports to AMS.
    \116\ 4 hours to review each disclosure x $62.13 per hour x 
18,806 contracts x 5 percent of growers that require significant 
housing upgrades = $233,683.
---------------------------------------------------------------------------

    The ten-year aggregate total costs of final Sec.  201.112 under the 
small business exemption alternative for LPDs are estimated to be 
$525,000, and the ten-year aggregated total costs to poultry growers of 
final Sec.  201.112 under the small business exemption alternative are 
estimated to be $2,337,000. The combined first-year aggregate total 
costs to LPDs and poultry growers of final

[[Page 5204]]

Sec.  201.112 under the small business exemption alternative are 
estimated to be $286,000, and the ten-year aggregate total costs are 
estimated to be $2,862,000.
Combined Costs of Final Sec. Sec.  201.106, 110, and 112--Small 
Business Exemption Alternative
    Aggregate combined costs to LPDs for final Sec. Sec.  201.106, 110, 
and 112 for the small business exemption alternative are expected to be 
$19,123,000 in the first year, and $4,302,000 in subsequent years. The 
combined costs for poultry growers are expected to be $4,907,000 in the 
first year, $234,000 in subsequent years.
    The aggregate ten-year combined quantified costs to LPDs of final 
Sec. Sec.  201.106, 110, and 112 for the small business exemption 
alternative are estimated to be $53,445,000 and the present value of 
the ten-year combined costs $49,382,000 discounted at a two percent 
rate. The aggregate annualized costs of the PV of ten-year costs to 
LPDs discounted at a two percent rate are expected to be $5,498,000.
    The aggregate ten-year combined costs to poultry growers of final 
Sec. Sec.  201.106, 110, and 112 for the small business exemption 
alternative are estimated to be $7,011,000 and the present value of the 
ten-year combined costs are estimated to be $6,681,000 discounted at a 
two percent rate. The aggregate annualized costs of the PV of ten-year 
costs to poultry growers discounted at a two percent rate are expected 
to be $744,000.
    The aggregate combined costs of final Sec. Sec.  201.106, 110, and 
112 under the small business exemption alternative for LPDs and poultry 
growers are estimated to be $24,030,000 in the first year and 
$4,536,000 in subsequent years. The aggregate ten-year combined costs 
to LPDs and poultry growers of final Sec. Sec.  201.106, 110, and 112 
for the small business exemption alternative are estimated to be 
$60,456,000 and the present value of the ten-year combined costs are 
estimated to be $56,063,000 discounted at a two percent rate. The 
aggregate annualized costs of the PV of ten-year costs to LPDs and 
poultry growers discounted at a two percent rate are expected to be 
$6,241,000. The aggregate cost estimates of final Sec. Sec.  201.106, 
110, and 112 under the small business exemption alternative presented 
above appear in the following table. The quantified costs to the 
industry in the first year under the small business exemption 
alternative are $24.030 million.

   Table 2--Estimated Costs of Final Sec.  Sec.   201.106, 110, and 112--Small Business Exemption Alternative
----------------------------------------------------------------------------------------------------------------
                                                                                  Expected cost *
                                                                 -----------------------------------------------
                         SBE alternative                           Live poultry       Poultry
                                                                      dealers         growers     Industry total
----------------------------------------------------------------------------------------------------------------
Sec.   201.106:
    First-Year..................................................     $15,801,000      $4,674,000     $20,474,000
    Ten-Year Total..............................................      24,593,000       4,674,000      29,267,000
    PV of Ten-Year Discounted at 2%.............................      23,426,000       4,582,000      28,008,000
    Ten-Year Annualized at 2%...................................       2,608,000         510,000       3,118,000
Sec.   201.110:
    First-Year..................................................       3,269,000               0       3,269,000
    Ten-Year Total..............................................      28,327,000               0      28,327,000
    PV of Ten-Year Discounted at 2%.............................      25,485,000               0      25,485,000
    Ten-Year Annualized at 2%...................................       2,837,000               0       2,837,000
Sec.   201.112:
    First-Year..................................................          53,000         234,000         286,000
    Ten-Year Total..............................................         525,000       2,337,000       2,862,000
    PV of Ten-Year Discounted at 2%.............................         472,000       2,099,000       2,571,000
    Ten-Year Annualized at 2%...................................          53,000         234,000         286,000
Sec.  Sec.   201.106, 110, and 112:
    First-Year..................................................      19,123,000       4,907,000      24,030,000
    Ten-Year Total..............................................      53,445,000       7,011,000      60,456,000
    PV of Ten-Year Discounted at 2%.............................      49,382,000       6,681,000      56,063,000
    Ten-Year Annualized at 2%...................................       5,498,000         744,000       6,241,000
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.

Estimated Costs and Expected-Benefits of Final Sec. Sec.  201.106, 110, 
and 112--Small Business Exemption Alternative
    According to PSD records, only 6.0 percent of poultry growing 
contracts are between small LPDs and poultry growers. Thus, 94 percent 
of all poultry growers will receive the benefits of final Sec. Sec.  
201.106, 110, and 112 under the small business exemption alternative.
    As with the preferred option, net total costs and benefits to the 
industry from Sec. Sec.  201.106, 110, and 112 under the small business 
exemption alternative cannot be quantified. Thus, AMS cannot measure 
any impact or shift in total industry supply or any corresponding 
indirect effects on industry supply and demand, including price and 
quantity effects.
    The tables above indicate that the small business exemption 
alternative would cost the industry less than the preferred option. 
Although most growers contract with large poultry growers, AMS chose 
not to accept the alternative because exempting small business from 
complying with the regulations would also result in less benefits to 
growers.
Estimated Costs and Expected Benefits of Proposed Rule Alternative
    AMS estimated costs for a third alternative to the ``do nothing'' 
option and the last of four total alternatives presented. This 
alternative considers adopting Sec. Sec.  201.106, 110, and 112 for all 
small and large LPDs as originally proposed without including the 
changes in the final rule. These changes have already been described in 
extensively earlier in the document. The estimation of costs for the 
proposed rule alternative will proceed by describing differences in 
costs by major rule section and combined.

[[Page 5205]]

Costs of Sec.  201.106--Proposed Rule Alternative
    Final Sec.  201.106(a) is unchanged from Sec.  201.106 as it was 
proposed and as it is analyzed in this alternative. Final Sec.  
201.106(b), ``Excessive variability,'' and (c), ``Transition,'' were 
not included in proposed Sec.  201.106. Neither estimates of direct 
time costs nor other potential indirect costs or associated benefits 
for these provisions are included for the proposed rule alternative. 
Estimated costs for Sec.  201.106 under the proposed rule alternative 
are equal to one-time direct costs of final Sec.  201.106(a).
Costs of Sec.  201.110--Proposed Rule Alternative
    Final Sec.  201.110 requires LPDs to develop, maintain, and comply 
with a set of policies and procedures that are reasonably designed for 
the design and operation of a poultry grower ranking system that is 
consistent with the duty of fair comparison. As described in previous 
discussion of changes from the proposed to final rule, final Sec.  
201.110(a) is substantively unchanged from the proposed rule, text of 
final Sec.  201.110(b)(1) has been simplified from the proposed rule to 
improve clarity of documentation requirements, and proposed Sec.  
201.110(b)(2), ``Compliance review,'' has been removed. Two other 
provisions of proposed Sec.  201.110 relating to ``Communication and 
cooperation'' and ``Record retention'' have received paragraph number 
redesignations but are otherwise unchanged. Changes to Sec.  
201.110(b)(1) did not affect the estimation of hours or of costs and 
benefits to the rule. Estimated costs of Sec.  201.110 under the 
proposed rule alternative are therefore equal to estimated direct costs 
for the final Sec.  201.110 under the preferred alternative with costs 
for proposed Sec.  201.110(b)(2) added.
    Proposed Sec.  201.110(b)(2), would require LPDs to conduct a 
compliance review of each complex no less than once every two years to 
ensure compliance with policies and procedures established under 
proposed Sec.  201.110(a) and (b)(1). LPDs would need to first design a 
compliance review system to be used for conducting written review of 
compliance by complex managers, production supervisors, and field 
agents. Compliance reviews would then need to be conducted every two 
years at each complex.
    AMS estimates that the aggregate one-time costs of designing and 
initiating the compliance review process would require 2,208 legal 
hours, 14,720 management hours, 736 administrative hours, and 2,392 
information technology hours costing $1,993,000 \117\ in the first year 
for LPDs to initially set up their review and compliance policies and 
procedures and initiate their ongoing compliance review processes.
---------------------------------------------------------------------------

    \117\ 2,208 legal hours x $139.96 per hour + 14,720 management 
hours x $96.40 per hour + 736 administrative hours x $49.36 per hour 
+ 2,392 information technology hours x $95.58 per hour = $1,992,996.
---------------------------------------------------------------------------

    The ongoing cost for LPDs to conduct compliance reviews for each 
complex every two years has been converted to an annual cost by 
dividing the total cost of conducting reviews on all complexes in half. 
This could be consistent with, for example, a system where each LPD 
reviews half of their complexes each year on a rolling basis or, 
alternatively, where a sinking fund deposit is made each year and used 
every other year. AMS estimates that total ongoing annual costs on the 
part of LPDs will require 736 legal hours, 7,360 management hours, 368 
administrative hours, and 920 information technology hours to conduct 
and document written reviews of compliance of each complex no less than 
once every two years, for an aggregate annual cost of $919,000.\118\
---------------------------------------------------------------------------

    \118\ 736 legal hours x $139.96 per hour + 7,360 management 
hours x $96.40 per hour + 368 administrative hours x $49.36 per hour 
+ 920 information technology hours x $95.58 per hour = $918,613.
---------------------------------------------------------------------------

Costs of Sec.  201.112--Proposed Rule Alternative
    Text of Sec.  201.112(a) and (b) was changed from the proposed to 
final rule primarily for the purpose of clarification or to add 
paragraph titles; these changes did not affect the estimation of hours 
or of costs and benefits to the rule. The addition of final Sec.  
201.112(c), ``Translation,'' from the proposed to final rule is also 
not expected to change hours or costs because LPDs already have all 
necessary information to make reasonable efforts to assist growers in 
translating disclosure documents and have made it available to growers 
who request the information. Accordingly, AMS did not add any time to 
its cost estimates for LPDs to comply with this new requirement. AMS 
cost estimates to LPDs and growers of Sec.  201.112 under the proposed 
rule alternative are identical to those described under the preferred 
alternative.
Combined Costs of Sec. Sec.  201.106, 110, and 112--Proposed Rule 
Alternative
    Aggregate combined costs to LPDs for Sec. Sec.  201.106, 110, and 
112 for the proposed rule alternative are expected to be $14,906,000 in 
the first year, and $4,086,000 in subsequent years. The combined costs 
for poultry growers are expected to be $5,223,000 in the first year, 
$249,000 in subsequent years.
    The aggregate ten-year combined quantified costs to LPDs of 
Sec. Sec.  201.106, 110, and 112 for the proposed rule alternative are 
estimated to be $51,684,000 and the present value of the ten-year 
combined costs is $47,314,000 discounted at a two percent rate. The 
aggregate annualized costs of the PV of ten-year costs to LPDs 
discounted at a two percent rate are expected to be $5,267,000.
    The aggregate ten-year combined costs to poultry growers of 
Sec. Sec.  201.106, 110, and 112 for the proposed rule alternative are 
estimated to be $7,461,000 and the present value of the ten-year 
combined costs are estimated to be $7,110,000 discounted at a two 
percent rate. The aggregate annualized costs of the PV of ten-year 
costs to poultry growers discounted at a two percent rate are expected 
to be $792,000.
    The aggregate combined costs of final Sec. Sec.  201.106, 110, and 
112 under the proposed rule alternative for LPDs and poultry growers 
are estimated to be $20,129,000 in the first year and $4,335,000 in 
subsequent years. The aggregate ten-year combined costs to LPDs and 
poultry growers of Sec. Sec.  201.106, 110, and 112 for the proposed 
rule alternative are estimated to be $59,145,000 and the present value 
of the ten-year combined costs are estimated to be $54,425,000 
discounted at a two percent rate. The aggregate annualized costs of the 
PV of ten-year costs to LPDs and poultry growers discounted at a two 
percent rate are expected to be $6,059,000. The aggregate cost 
estimates of final Sec. Sec.  201.106, 110, and 112 under the proposed 
rule alternative presented above appear in the following table. The 
quantified costs to the industry in the first year under the proposed 
rule alternative are $20.13 million.

[[Page 5206]]



            Table 3--Estimated Costs of Sec.  Sec.   201.106, 110, and 112--Proposed Rule Alternative
----------------------------------------------------------------------------------------------------------------
                                                                                  Expected cost *
                                                                 -----------------------------------------------
                      Preferred alternative                        Live poultry       Poultry
                                                                      dealers         growers     Industry total
----------------------------------------------------------------------------------------------------------------
Sec.   201.106:
    First-Year..................................................      $9,106,000      $4,974,000     $14,080,000
    Ten-Year Total..............................................       9,106,000       4,974,000      14,080,000
    PV of Ten-Year Discounted at 2%.............................       8,928,000       4,876,000      13,804,000
    Ten-Year Annualized at 2%...................................         994,000         543,000       1,537,000
Sec.   201.110:
    First-Year..................................................       5,742,000               0       5,742,000
    Ten-Year Total..............................................      41,996,000               0      41,996,000
    PV of Ten-Year Discounted at 2%.............................      37,864,000               0      37,864,000
    Ten-Year Annualized at 2%...................................       4,215,000               0       4,215,000
Sec.   201.112:
    First-Year..................................................          58,000         249,000         307,000
    Ten-Year Total..............................................         582,000       2,487,000       3,069,000
    PV of Ten-Year Discounted at 2%.............................         523,000       2,234,000       2,757,000
    Ten-Year Annualized at 2%...................................          58,000         249,000         307,000
Sec.  Sec.   201.106, 110, and 112:
    First-Year..................................................      14,906,000       5,223,000      20,129,000
    Ten-Year Total..............................................      51,684,000       7,461,000      59,145,000
    PV of Ten-Year Discounted at 2%.............................      47,314,000       7,110,000      54,425,000
    Ten-Year Annualized at 2%...................................       5,267,000         792,000       6,059,000
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.

Estimated Costs and Expected Benefits of Sec. Sec.  201.106, 110, and 
112--Proposed Rule Alternative
    The expected benefits of proposed Sec. Sec.  201.106, 110, and 112 
as analyzed in the proposed rule alternative have been described in the 
discussion of benefits for the preferred option, final Sec. Sec.  
201.106, 110, and 112, with the exception of Sec.  201.110(b)(2), 
``Compliance review,'' which was removed from the proposed to final 
rule. Proposed Sec.  201.110(b)(2) would require a written review of 
each broiler complex at least every other year to ensure compliance 
with the policies and procedures developed under this section. While 
the proposed rule would not require that LPD documentation be 
distributed to growers, it would be subject to USDA review to ensure 
ongoing maintenance and compliance. This compliance review requirement 
would not provide benefits separate from those generated by 
establishing the duty in Sec.  201.110(a); however, documentation of 
regular review of LPD procedures could assist in ongoing enforcement of 
the proposed rule, thereby increasing the likelihood of compliance so 
that benefits of the proposed rule are realized by growers.
    All potential non-quantifiable benefits and indirect costs of final 
Sec.  201.106(b) and (c) are excluded from the proposed rule 
alternative. Net total costs and benefits to the industry from 
Sec. Sec.  201.106, 110, and 112 in the proposed rule alternative 
cannot be quantified in relation to the total value of industry 
production. Thus, AMS cannot measure any impact or shift in total 
industry supply or any corresponding indirect effects on industry 
supply and demand, including price and quantity effects.
    Comments from the proposed rule have been discussed and changes to 
the final rule have been explained previously in this regulatory 
analysis. Expected benefits and costs of adopting the proposed rule are 
presented in this section as a third regulatory alternative to final 
Sec. Sec.  201.106, 110, and 112. Estimated direct costs for the final 
rule preferred alternative are decreased by removal of proposed Sec.  
201.110(b)(2), ``Compliance review'' and increased by the addition of 
Sec.  201.106(b) and (c). As a net result of all changes, estimated 
direct costs are lower for the proposed rule alternative in comparison 
to the final Sec. Sec.  201.106, 110, and 112. The proposed rule 
alternative also excludes expected benefits and indirect costs of Sec.  
201.106(b) and (c). As discussed previously, commenters on the proposed 
rule expressed strong support for including these provisions. Under the 
proposed rule alternative, growers would be denied protection against 
excessive variation in compensation by establishing 25 percent as a 
presumptively unfair percentage of performance-based pay. Without 
protection during the transition period for implementation of these 
rule provisions, growers would be vulnerable to reductions in 
compensation by LPDs.
    After considering all four regulatory alternatives, AMS determined 
that the preferred alternative is the best alternative.

C. Regulatory Flexibility Act

    As part of the regulatory process, a Regulatory Flexibility 
Analysis (RFA) is conducted in order to evaluate the effects of this 
final rule on small businesses.
    AMS is adding final Sec. Sec.  201.106, 110, and 112 to the 
regulations under the Packers and Stockyards Act. The regulations will 
establish requirements for LPDs that produce broilers with grower 
ranking contracts. LPDs that only produce turkeys, ducks, geese, or 
other fowl will not be affected. Final Sec.  201.106 will require LPDs 
to develop and implement new broiler grower contracts and grower 
payment systems. Final Sec.  201.110 will impose a duty on LPDs that 
produce broilers to establish and maintain compliance with written 
processes for the design and operation of poultry growing ranking 
systems consistent with a duty of fair comparison. Final Sec.  201.112 
would require LPDs to produce and distribute disclosures when they 
request growers to make additional capital investments.
Summary of the Final Rule
    Final Sec.  201.106 will prevent LPDs reducing compensation rates 
based on a grower's grouping, ranking, or comparison to others. All 
payment adjustments related to grower performance will need to be 
positive adjustments. LPDs are prevented from taking deductions based 
on relative performance rankings.

[[Page 5207]]

    Final Sec.  201.106 will also establish a presumptive unfairness 
limitation on the share of grower payments that an LPD may determine by 
a grower's grouping, ranking, or comparison to others. The Secretary 
will presume that an LPD is in violation of the Act if a payment 
associated with a grower's grouping, ranking, or comparison to others 
is more than 25 percent of the total payments to growers in a calendar 
year.
    Final Sec.  201.106 also creates a transition period lasting three 
years after the regulation becomes effective. During the transition 
period, if an LPD reduces the price per pound, the LPD will be required 
to forward to the AMS Administrator a copy of the prior and the 
modified contract and any LPD Disclosure Document.
    Final Sec.  201.110 will require LPDs to provide for fair 
comparison among growers when basing compensation on a upon a grouping 
or ranking of growers delivering during a specified period. Final Sec.  
201.110 also lists factors that the Secretary will consider in 
determining whether the system was designed to deliver a fair 
comparison, which include: whether growers will be compared to growers 
supplied with inputs or assigned production practices that result in 
material differences in performance metrics used in payment 
calculations, whether growers will be compared over appropriate time 
periods, whether any non-comparison payment methods applied are 
appropriate, whether the LPD has made reasonable efforts to timely 
resolve concerns a grower raises regarding the LPD's design and 
operation of its poultry grower ranking system, and any other factor 
relevant to a fair comparison.
    Final Sec.  201.110 will further require that when an LPD uses a 
poultry grower ranking system and cannot conduct a fair comparison for 
one or more growers, the LPD must compensate those growers through an 
appropriate non-comparison method specified in the contract that 
reflects reasonable compensation to the grower for its services.
    Final Sec.  201.110 will also require LPDs to establish and 
maintain written documentation of poultry grower ranking system 
policies and procedures for the design and operation of a poultry 
grower ranking system that is consistent with the duty of fair 
comparison. The written documentation must include policies and 
procedures regarding the manner in which LPDs will work to ensure a 
fair comparison among contract growers taking into account the 
distribution of inputs and assignment of production variables that are 
controlled by the LPD, any flexibility the LPD has in performing these 
comparisons, and how the LPD resolves concerns regarding the design and 
operation of the poultry grower ranking system by the LPD.
    Final Sec.  201.112 will require LPDs to provide a Capital 
Improvement Disclosure Document any time the LPD requests or requires 
existing broiler chicken growers to make an additional capital 
investment that is $12,500 or more per structure excluding maintenance 
or repair. The Capital Improvement Disclosure Document must include 
information about the goal or purpose of the investment, all schedules 
and deadlines for the investment, a description of changes to housing 
specifications, and analysis of projected returns.
Comments on the Proposed Rule and Associated Changes to the Final Rule
    AMS did not receive comments from small LPDs. AMS received comments 
from trade associations that likely represent small LPDs, but none of 
their comments specifically addressed issues concerning small LPDs. 
After consideration of all the public comments, AMS chose to adopt the 
proposed rule as a final rule with several modifications. Large LPDs 
and trade associations commented that the regulation would be 
particularly challenging if the period of time allowed for regulated 
entities to comply with the provisions is too short.
    To allow sufficient time for regulated entities to comply with the 
final rule and avoid excess implementation costs, AMS is setting the 
effective date for this rule at July 1, 2026, which is approximately 18 
months following publication in the Federal Register. This extended 
time frame will not impact the amount or timing for estimated costs of 
the final rule because regulated entities are expected to incur costs 
during the year preceding the effective date.
    Industry trade organizations and large LPDs commented that the full 
cost of implementing the proposed rule would be far greater than 
estimated by AMS. The commenters asserted that AMS greatly 
underestimated the costs that will be required for employing teams with 
highly specialized legal and technical expertise to implement the 
proposed rule by modifying or replacing grower contracts and 
communicating changes to growers. Commenters suggested that AMS did not 
adequately consider the total number of hours needed, but none provided 
quantified estimates. Large LPDs also commented that hourly rates paid 
to specialized industry professionals such as attorneys should be much 
higher. Commenters also suggested that implementation of the rule would 
require LPDs to hire and train additional staff and pull resources away 
from other important activities.
    For the time that small LPDs would require to comply with the rule, 
AMS consulted auditors and supervisors as subject matter experts who 
are familiar with LPDs and broiler complex operations from many years 
of experience employed with AMS in auditing LPDs for compliance with 
the Act. Small LPDs may need to hire new staff to implement the changes 
required by final Sec. Sec.  201.106, 110, and 112, particularly in the 
first year. Hourly rates used in cost analysis for the proposed rule 
were based on averages within the agricultural sector as published and 
annually updated by the U.S. Bureau of Labor Statistics.\119\ AMS 
expects that average hourly rates provide an appropriate benchmark for 
estimating industry average costs. While some LPDs commented that AMS's 
estimates were too low, none of them recommended a different method of 
estimating costs.
---------------------------------------------------------------------------

    \119\ See U.S. Bureau of Labor Statistics, May 2023 National 
Occupational Employment and Wage Estimates, May 2023. https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------

    In preparation for the final rule AMS reviewed direct costs with 
the subject matter experts. After doing so, AMS added modest amount of 
time to account for the cost of IT work in preparing disclosures in 
Sec.  201.112.
    AMS received comments from growers, grower groups, government 
agencies, and advocates in support of additional limitations on grower 
risk from excessive variability in compensation. Based on these 
comments, AMS has added provision Sec.  201.106(b), which establishes a 
presumption that a regulated entity is in violation of the Act when 
aggregate gross annual payments based upon a grouping, ranking, or 
comparison of growers (performance pay) exceed of 25 percent of total 
gross payments (including performance and all other types of grower 
pay).
    AMS added costs for LPDs to implement and monitor this new 
provision, which are discussed and quantified as direct administrative 
costs. Other expected additional benefits and indirect costs resulting 
from this new provision cannot be quantified and are discussed 
separately.
    AMS also solicited comment in the proposed rule on whether there 
was a need to protect growers against the risk

[[Page 5208]]

that LPDs might unfairly reduce broiler grower total compensation 
during a transition period after implementation of the final rule. 
Based on comments, AMS added Sec.  201.106(c), which will require LPDs 
to submit copies of the prior and modified contracts and disclosures to 
AMS if average gross grower payments at a complex show year-over-year 
decline following a contract modification during the three calendar 
years commencing with and including the effective date of the rule. AMS 
will review the information provided by LPDs to identify any 
potentially unfair practices related to broiler grower compensation.
    AMS expects that requirements in final Sec.  201.106(c) will 
increase direct administrative costs for LPDs relative to the proposed 
rule. Final Sec.  201.106(c) may increase indirect costs as well, but 
AMS does not have sufficient data to quantify the potential indirect 
costs or benefits associated with final Sec.  201.106(c).
    AMS received comments suggesting that some of the detailed 
documentation requirements under proposed Sec.  201.110(b) were similar 
to existing documentation requirements and might create unnecessarily 
burdensome and complex paperwork. In response to these comments, AMS 
made several changes to Sec.  201.110(b) in the final rule that 
included consolidating and streamlining the documentation requirements 
and removing some detailed requirements that were included in the 
proposed rule. AMS expects these changes to modestly reduce the total 
recordkeeping requirements or time cost of the information collection 
for LPDs, but AMS is unable to estimate these effects with certainty. 
To limit the potential for underestimating costs, AMS did not reduce 
hours and accordingly these changes did not affect the estimation of 
costs or benefits in the final rule relative to the proposed rule.
    The proposed rule included Sec.  201.110(b)(2), ``Compliance 
review,'' which required LPDs to conduct a required bi-annual review 
process. AMS removed this requirement in response to comments that 
self-audits would be burdensome for LPDs, and that elimination of this 
requirement would not substantially diminish compliance with Sec.  
201.110. Compliance will be enforced through regular AMS review of the 
policies and procedures poultry dealers are required to establish and 
maintain under Sec.  201.110(b). Removing the compliance reviews 
reduced costs in the final rule relative to the proposed rule.
    Based on comments received, AMS added a provision at Sec.  
201.112(c) to require that the LPD make reasonable efforts to ensure 
that growers are aware of their right to request translation assistance 
and to assist the grower in translating the Capital Improvement 
Disclosure Document. Reasonable efforts include, but are not limited 
to, providing current contact information for professional translation 
service providers, trade associations with translator resources, 
relevant community groups, or any other person or organization that 
provides translation services in the poultry grower's geographic area. 
Reasonable efforts, depending on the facts and circumstances (such as 
convenience, expense, and timeliness of the translation), may also 
include allowing the grower access to a computer-generated translation 
of the Disclosure Document and additional time to review any translated 
Disclosure Document.
    A similar requirement was established for LPDs in Sec.  201.102 of 
the ``Transparency in Poultry Grower Contracting and Tournaments'' 
final rule.\120\ As LPDs already have all necessary information to make 
reasonable efforts to assist growers in translating disclosure 
documents and have made it available to growers who request the 
information. Similarly, AMS did not increase grower review time for the 
addition of Sec.  201.112 as growers who require translation assistance 
already should be connected with the resources from Sec.  201.102.
---------------------------------------------------------------------------

    \120\ 88 FR 83210, 83301 (Nov. 28, 2023).
---------------------------------------------------------------------------

Small Businesses Affected

    The Small Business Administration (SBA) defines small businesses by 
their North American Industry Classification System Codes (NAICS).\121\ 
SBA considers broiler producers small if sales are less than $3.5 
million per year. LPDs, classified under NAICS 311615, are considered 
small businesses if they have fewer than 1,250 employees.
---------------------------------------------------------------------------

    \121\ 13 CFR 121.201.
---------------------------------------------------------------------------

    AMS maintains data on LPDs from the Annual Reports these firms file 
with PSD.\122\ Currently, 42 LPDs would be subject to the regulation. 
Of these, 21 LPDs would be small businesses according to the SBA 
standard. In their fiscal year 2023, LPDs reported that they had 18,806 
production contracts with broiler growers. Small LPDs accounted for 
1,208 contracts (6.0 percent).
---------------------------------------------------------------------------

    \122\ All LPDs are required to annually file PSD form 3002 
``Annual Report of Live Poultry Dealers,'' OMB control number 0581-
0308. The Annual Report form is available to the public at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------

    Annual Reports from LPDs indicate they had 20,014 contracts, but a 
poultry grower can have more than one contract. The 2022 Census of 
Agriculture indicated that there were 14,144 contract broiler growers 
in the United States.\123\ AMS does not regulate poultry growers and 
has no record of the number of poultry growers that qualify as small 
businesses but expects that nearly all of them are small businesses.
---------------------------------------------------------------------------

    \123\ USDA, NASS. 2023 Census of Agriculture: United States 
Summary and State Data. Volume 1, Part 51. Issued February 2024 
Table 42. st99_1_042_044.pdf (usda.gov).
---------------------------------------------------------------------------

    The typical size of broiler grow-out operations has trended larger 
from the early 2000s--when a typical broiler farm consisted of a 
80,000-100,000 square foot operation--to a typical new farm today which 
``may have eight or more barns of over 30,000 square feet each on one 
site.'' \124\ Projected gross revenue for a newer farm receiving 
relatively high performance-based pay rates is $224,000 for two 36,000 
square foot barns.\125\ Extrapolating these projections on a per house 
basis, gross revenue for an eight barn 288,000 square foot operation 
would total just under $900,000 and an operation with 30 barns could 
still remain within the $3.5 million threshold for small business 
classification. However, this same study notes that, ``still, 80,000 to 
120,000 square feet of housing for most family farms is all a single 
farmer can successfully operate while limiting hired labor.''
---------------------------------------------------------------------------

    \124\ Brothers, D. Goeringer, P. Thompson, J. ``U.S. Broiler 
Growers Face Increasing Challenges on the Family Farm,'' Choices 
Magazine, December 2023. Available online at <https://www.choicesmagazine.org/choices-magazine/submitted-articles/us-broiler-growers-face-increasing-challenges-on-the-family-farm> last 
accessed 11/6/2024.
    \125\ Alabama A&M & Auburn University Extension ANR-2932, 
February 2024. Available online at <https://www.aces.edu/wp-content/uploads/2022/10/ANR-2932_FarmTypesandEstimatedBusinessReturns_021924L-G.pdf> last 
accessed 11/6/2024.
---------------------------------------------------------------------------

Direct Costs of Final Sec. Sec.  201.106, 110, and 112
    Direct costs of final Sec. Sec.  201.106, 110, and 112 to LPDs 
would primarily consist of the time required to modify existing 
contracts, develop and comply with new policies, and collect and 
distribute it among the growers. Final Sec. Sec.  201.106, 110, and 112 
would also cost poultry growers the value of the time they put into 
reviewing and acknowledging receipt of new contracts and disclosures.
    Expected direct costs are estimated as the total value of the time 
required by LPDs to modify existing contracts, develop and comply with 
new policies,

[[Page 5209]]

and collect and distribute required disclosures that would be required 
by final Sec. Sec.  201.106, 110, and 112 as well as the time to create 
and maintain any necessary additional records. Estimates of the amount 
of time required to create and distribute the disclosure documents were 
provided by AMS subject matter experts. These experts were auditors and 
supervisors with many years of experience in auditing LPDs for 
compliance with the Packers and Stockyards Act. Estimates for the value 
of the time are U.S. Bureau of Labor Statistics Occupational Employment 
and Wage Statistics estimate released May 2023.\126\ AMS marked up the 
wages 41.79 percent to account for benefits.
---------------------------------------------------------------------------

    \126\ See U.S. Bureau of Labor Statistics, May 2023 National 
Occupational Employment and Wage Estimates, May 2023 https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------

    AMS estimated one-time first-year investment to LPDs of updating 
grower contracts and developing new grower payment systems, including 
modifying information systems to include new calculations as well as 
filing, and reporting to comply with Sec.  201.106 would require 2,448 
legal hours at $139.96 per hour costing $342,000, 5,670 hours of 
management time at $96.40 per hour costing $547,000, 1,440 hours of 
administrative time at $49.36 per hour costing $71,000, and 2,160 hours 
of information technology staff time at $95.58 per hour costing 
$206,000. Aggregate total first-year setup costs are expected to be 
$1,167,000 \127\ for final Sec.  201.106.\128\
---------------------------------------------------------------------------

    \127\ 2,448 legal hours x $139.96 per hour + 5,670 management 
hours x $96.40 per hour + 1,140 administrative hours x $49.36 per 
hour + 2,160 information technology hours x $95.58 per hour = 
$1,166,741.
    \128\ Please note throughout the document that components may 
not sum exactly to aggregate amounts due to rounding.
---------------------------------------------------------------------------

    AMS expects that ongoing aggregate costs of implementation, 
maintenance, monitoring, and compliance with final Sec.  201.106 would 
annually require an additional 144 legal hours at $139.96 per hour 
costing $20,000, 540 hours of management time at $96.40 per hour 
costing $52,000, 144 hours of administrative time at $49.36 per hour 
costing $7,000, and 288 hours of information technology staff time at 
$95.58 per hour costing $28,000. Total aggregate ongoing costs to small 
LPDs for final Sec.  201.110 are expected to be $107,000 annually.\129\
---------------------------------------------------------------------------

    \129\ 144 legal hours x $139.96 per hour + 540 management hours 
x $96.40 per hour + 144 administrative hours x $49.36 per hour + 288 
information technology hours x $95.58 per hour = $106,845.
---------------------------------------------------------------------------

    AMS estimated the total costs of developing new policies and 
procedures, communications plans, and compliance review systems to 
comply with final Sec.  201.110 would require a one-time first-year 
aggregate investment of 480 legal hours at $139.96 per hour costing 
$67,000, 3,894 hours of management time at $96.40 per hour costing 
$375,000, 228 hours of administrative time at $49.36 per hour costing 
$11,000, and 270 hours of information technology staff time at $95.58 
per hour costing $26,000. Total aggregate first-year setup costs are 
expected to be $480,000 \130\ for final Sec.  201.110.
---------------------------------------------------------------------------

    \130\ 480 legal hours x $139.96 per hour + 3,894 management 
hours x $96.40 per hour + 228 administrative hours x $49.36 per hour 
+ 270 information technology hours x $95.58 per hour = $479,623.
---------------------------------------------------------------------------

    AMS expects that ongoing aggregate costs of implementation, 
maintenance, monitoring, and compliance with final Sec.  201.110 would 
annually require an additional 240 legal hours at $139.96 per hour 
costing $214,000, 2,856 hours of management time at $96.40 per hour 
costing $95,000, 114 hours of administrative time at $49.36 per hour 
costing $6,000, and 114 hours of information technology staff time at 
$95.58 per hour costing $11,000. Total aggregate ongoing costs to small 
LPDs for final Sec.  201.110 are expected to be $325,000 annually.\131\
---------------------------------------------------------------------------

    \131\ 240 legal hours x $139.96 per hour + 2,856 management 
hours x $96.40 per hour + 114 administrative hours x $49.36 per hour 
+ 114 information technology hours x $95.58 per hour = $325,432.
---------------------------------------------------------------------------

    Proposed Sec.  201.112 would require LPDs to provide a Capital 
Improvement Disclosure Document any time the LPD requests existing 
broiler chicken growers to make an additional capital investment.\132\ 
AMS estimated ongoing annual costs of final Sec.  201.112 to small LPDs 
would require on average an additional 7 legal hours at $139.96 per 
hour costing $1,000, 36 hours of management time at $96.40 per hour 
costing $3,000, 7 hours of administrative time at $49.36 per hour 
costing $400, and 9 hours of information technology staff time at 
$95.58 per hour costing $900. Total aggregate ongoing costs to small 
LPDs for final Sec.  201.110 are expected to be $6,000 annually.\133\
---------------------------------------------------------------------------

    \132\ Based on information provided by subject matter experts, 
AMS estimates that capital upgrades would be required at 5% of 
complexes each year, triggering creation of a new disclosure 
document for approximately 5% of growers annually.
    \133\ 7 legal hours x $139.96 per hour + 36 management hours x 
$96.40 per hour + 7 administrative hours x $49.36 per hour + 9 
information technology hours x $95.58 per hour = $5,694.
---------------------------------------------------------------------------

    Expected costs of final Sec. Sec.  201.106, 110, and 112 are 
associated with developing, maintaining, updating, and complying with 
policies and procedures that will be implemented at poultry growing 
complexes and communicating changes, and producing and distributing 
disclosure documents among contract growers. AMS expects that firms 
with fewer contract types and those that contract with few growers will 
have lower costs. Larger LPDs will tend to have larger numbers and 
types of contracts and will likely have more costs. Final Sec. Sec.  
201.106 and 201.110 only concern poultry grower ranking systems. 
Smaller LPDs that do not have grower ranking or tournament contracts 
will not have any of the costs associated with final Sec. Sec.  201.106 
and 201.110. Some LPDs have few contracts with poultry growers and 
raise poultry in their own facilities. Those dealers will have 
relatively lower costs.
    AMS does not regulate poultry growers, and, with the exception of 
reviewing and signing contracts that have been updated by LPDs to meet 
requirements of Sec.  201.106 and acknowledging receipt of Capital 
Improvement Disclosure Documents at the time of capital investment 
requests, the final rule imposes no requirements on poultry growers. To 
benefit from the disclosures and to understand the updated contracts, 
growers would need to review the new contracts and disclosure 
information provided. Growers that do not expect a benefit from 
reviewing the disclosure information likely would not review it.
    AMS estimates aggregate growers' costs for reviewing updated 
contracts and disclosures associated with final Sec. Sec.  201.106 and 
201.112 combined to be $315,000 in the initial year. After an updated 
contract has been reviewed and signed in the first year, AMS expects 
the annual aggregate cost for reviewing disclosures by growers making 
additional capital investments would be $15,000 each year. This amounts 
to $400 per grower in the first year. The table below summarizes costs 
of final Sec. Sec.  201.106, 110, and 112 to small LPDs and small 
poultry growers.
Indirect Costs Associated With Final Sec. Sec.  201.106, 110, and 112
    Final Sec.  201.106 will require all LPDs involved in broiler 
production with tournament or grower ranking contracts to redesign the 
way they pay broiler growers. It is likely that all LPDs will be 
required to change their contracts to make all performance base 
adjustments positive adjustments to the base prices. AMS does not have 
sufficient data to determine how many LPDs will need to change 
contracts to comply with the provision capping performance payments at 
25 percent of total payments at a complex. AMS is aware

[[Page 5210]]

that some firms would currently be in compliance with a 25 percent cap, 
and at least some firms will not.
    Any firms that modify existing grower compensation structures at a 
complex in response to this rule could experience increased production 
costs if reductions in performance-based payments relative to total 
payments adversely affect grower performance incentives and cause 
growers to produce broilers less efficiently. In general, the 
``tournament'' system of broiler grower compensation bases payments to 
individual growers on their performance relative to other growers. 
Performance payments provide an incentive for growers to optimize 
factors under their control, such as effort and management, and to some 
extent investment (subject to the concerns highlighted by this rule), 
to improve their own relative performance efficiency and increase 
income. Tournament systems have been described in economic literature 
as ``particularly economical means to provide incentive.'' The strength 
of individual performance incentives is directly related to the size of 
expected grower performance payments, which will be limited by the 
total amount of performance-based pay distributed among all growers. 
Any firms that modify existing grower compensation structures at a 
complex in response to this rule by decreasing the relative size of 
performance payments available to growers at a complex might therefore 
weaken performance incentives and could result in reduced grower 
efficiency in broiler production.
    Given the range of possible outcomes, AMS is unable to predict 
effects with any degree of certainty. For example, if production 
efficiency is reduced, economic principles suggest that cost of 
production would increase at the impacted broiler complex, causing an 
inward shift of a firm's marginal cost curve and an associated decrease 
in broiler production at the impacted complex. A decrease in production 
for a broiler complex would also be likely to reduce demand for broiler 
growing services in the area and could result in LPDs lowering overall 
rates of grower compensation and possibly terminating some marginal 
growers.
    AMS is not able quantify indirect costs related to capping 
performance payments. However, if the cap has any significant effect on 
grower productivity, it is likely that indirect costs of capping 
performance payments will be considerably larger than the direct costs 
that AMS has been able to estimate.

         Table 4--Estimated Direct Costs to Small Businesses of Final Sec.  Sec.   201.106, 110, and 112
----------------------------------------------------------------------------------------------------------------
                                                                  Regulated live
                          Type of cost                                poultry       Unregulated       Total *
                                                                      dealers         growers
----------------------------------------------------------------------------------------------------------------
Final Sec.   201.106:
    First-year Cost.............................................      $1,167,000        $300,000      $1,467,000
    First-year Cost per Firm....................................          56,000             351              NA
    PV of Ten-year Cost Discounted at 2%........................       1,722,000         294,000       2,017,000
    Ten-year Cost Annualized at 2%..............................         192,000          33,000         225,000
    Average Ten-Year Cost per Firm Annualized at 2%.............           9,000              38             N/A
Final Sec.   201.110:
    First-year Cost.............................................         480,000               0         480,000
    First-year Cost per Firm....................................          23,000               0              NA
    PV of Ten-year Cost Discounted at 2%........................       3,074,000               0       3,074,000
    Ten-year Cost Annualized at 2%..............................         342,000               0         342,000
    Average Ten-Year Cost per Firm Annualized at 2%.............          16,000               0              NA
Final Sec.   201.112:
    First-year Cost.............................................           6,000          15,000          21,000
    First-year Cost per Firm....................................             271              18              NA
    PV of Ten-year Cost Discounted at 2%........................          51,000         135,000         186,000
    Ten-year Cost Annualized at 2%..............................           6,000          15,000          21,000
    Average Ten-Year Cost per Firm Annualized at 2%.............             286              18              NA
Proposed Sec.  Sec.   201.106, 110, and 112:
    First-year Cost.............................................       1,652,000         315,000       1,967,000
    First-year Cost per Firm....................................          79,000             369              NA
    PV of Ten-year Cost Discounted at 2%........................       4,848,000         429,000       5,277,000
    Ten-year Cost Annualized at 2%..............................         540,000          48,000         587,000
    Average Ten-Year Cost per Firm Annualized at 2%.............          26,000              56              NA
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.
** Totals do not include indirect costs to associated with possible changes in supply or demand. AMS was not
  able to estimate indirect costs, but it is possible that they are larger than the direct costs in the table.

    LPDs report net sales in Annual Reports to AMS. Table 5 below 
groups small LPDs' net sales into quartiles, reports the average net 
sales in each quartile, and compares average net sales to average 
expected first-year direct costs per firm for each of final Sec. Sec.  
201.106, 110, and 112 and total first-year direct costs.\134\ Estimated 
first-year direct costs are higher than 10-year annualized costs, and 
for the threshold analysis, first-year costs will be higher than 
annualized costs as a percentage of net sales. Correspondingly, the 
ratio of ten-year annualized direct costs to net sales is lower than 
their corresponding first-year cost ratios listed in Table 5. If 
estimated costs meet the threshold in the first year, they will in the 
following years as well. AMS is able to perform a threshold analysis on 
based on direct costs. However, AMS was unable to estimate indirect 
costs associated with the final rule include indirect costs.
---------------------------------------------------------------------------

    \134\ AMS expects that recordkeeping costs will be correlated 
with the size of the firms. AMS ranked live poultry dealers by size 
and grouped them into quartiles.
---------------------------------------------------------------------------

    Estimated first-year direct costs per firm are less than 1 percent 
of average net sales in the three largest quartiles. Total first-year 
direct costs as a percent of net sales are estimated to be about 0.8 
percent for the smallest quartile. However, average first-year cost per 
entity in Table 5 is the average cost of

[[Page 5211]]

all of the small businesses. Costs for the LPDs in smallest quartile 
will likely be less than the average for small businesses.
    LPDs do not report to AMS whether any of their contracts are 
tournament-style contracts but evaluating the number contracts that 
LPDs listed in their Annual Reports to AMS, few of the LPDs in smallest 
quartile contracted with a sufficient number of growers to implement 
tournament contracts. It is unlikely that any of the LPDs in the 
smallest quartiles had any tournament contracts. It is unlikely that 
several of the smaller LPDs in the second quartile had any tournament 
contracts either.
    Since final Sec. Sec.  201.106 and 201.110 only apply to tournament 
contracts, none of the LPDs in the smallest quartile are likely to 
incur any costs from final Sec. Sec.  201.106 and 201.110. Their costs 
are likely only costs associated with final Sec.  201.112, which, as 
percentage of net sales would be 0.003 percent. Because the smallest 
LPDs have fewer contracts than the other small LPDs, their costs 
associated with final Sec.  201.112 are also likely less than average.
    Costs in the threshold analysis do not include indirect costs, 
which AMS was not able to quantify. The size of the indirect costs is 
not known, and AMS cannot state with any confidence that the total 
costs associated with final Sec. Sec.  201.106, 110, and 112 will be 
insignificant for any LPD.

     Table 5--Comparison of Small Live Poultry Dealers' Net Sales to Expected Annualized Direct Costs of Final Sec.  Sec.   201.106, 110, and 112 *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               First-year costs   First-year costs   First-year costs
                                                                               related to Sec.    related to Sec.    related to Sec.    Total first-year
                       Quartile (%)                        Average net sales     201.106 as a       201.110 as a       201.112 as a        costs as a
                                                                                percent of net     percent of net     percent of net     percent of net
                                                                                  sales (%)          sales (%)          sales (%)          sales (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0 to 25%.................................................        $10,017,311              0.559              0.230              0.003              0.789
25 to 50%................................................         34,567,539              0.162              0.067              0.001              0.229
50 to 75%................................................         92,380,634              0.061              0.025              0.000              0.086
75 to 100%...............................................        226,958,521              0.025              0.010              0.000              0.035
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in the table may not sum to one due to rounding.
** Costs do not include indirect costs to associated with possible changes in supply or demand. AMS was not able to estimate indirect costs, but it is
  possible that they are larger than the direct costs in the table.

Direct Cost Associated With an Alternative Sec. Sec.  201.106, 110, and 
112
    AMS also estimated costs of the original proposed rule as an 
alternative. Section 201.106(b) and (c) in the final rule were not 
include in the proposed rule. AMS estimated that alternative Sec.  
201.106 would require a one-time first-year investment of 1,728 legal 
hours at $139.96 per hour costing $242,000, 2,970 hours of management 
time at $96.40 per hour costing $286,000, 720 hours of administrative 
time at $49.36 per hour costing $36,000, and 720 hours of information 
technology staff time at $95.58 per hour costing $69,000. Aggregate 
total first-year setup costs are expected to be $633,000. AMS does not 
expect additional ongoing costs of implementing final Sec.  201.106 
under the proposed rule alternative.
    Under the proposed rule alternative, Sec.  201.110(b) includes a 
section dealing with compliance reviews. AMS estimated that alternative 
Sec.  201.110 would require a one-time first-year aggregate investment 
of 696 legal hours at $139.96 per hour costing $97,000, 5,334 hours of 
management time at $96.40 per hour costing $514,000, 300 hours of 
administrative time at $49.36 per hour costing $15,000, and 504 hours 
of information technology staff time at $95.58 per hour costing 
$48,000. Total aggregate first-year setup costs for small LPDs under 
the alternative are expected to be $675,000.
    AMS expects alternative Sec.  201.110 would annually require an 
additional 312 legal hours at $139.96 per hour costing $44,000, 3,576 
hours of management time at $96.40 per hour costing $345,000, 150 hours 
of administrative time at $49.36 per hour costing $7,000, and 204 hours 
of information technology staff time at $95.58 per hour costing 
$19,000. Total aggregate ongoing costs to small LPDs for final Sec.  
201.110 are expected to be $415,000 annually.
    All sections of Sec.  201.112 were included under the proposed rule 
alternative. AMS estimated that first-year and ongoing annual costs of 
final Sec.  201.112 to small LPDs would require on average an 
additional 7 legal hours at $139.96 per hour costing $1,000, 36 hours 
of management time at $96.40 per hour costing $3,000, 7 hours of 
administrative time at $49.36 per hour costing $400, and 9 hours of 
information technology staff time at $95.58 per hour costing $900. 
Total aggregate ongoing costs to small LPDs for final Sec.  201.110 are 
expected to be $6,000 annually.
    The alternative would have a relatively small effect on costs to 
poultry growers on a per grower basis, and growers will only review the 
disclosures if they perceive that they are beneficial. AMS estimates 
growers' aggregate costs for reviewing updated contracts and 
disclosures associated with final Sec. Sec.  201.106 and 201.112 
combined to be $315,000 in the initial year. AMS expects the annual 
aggregate cost to growers making additional capital investments to be 
$15,000 each year. Table 6 below summarizes costs of alternative 
Sec. Sec.  201.106, 110, and 112 to small LPDs and small poultry 
growers.

         Table 6--Estimated Costs to Small Businesses of Alternative Sec.  Sec.   201.106, 110, and 112
----------------------------------------------------------------------------------------------------------------
                                                                  Regulated live
                          Type of cost                                poultry       Unregulated       Total *
                                                                      dealers         growers
----------------------------------------------------------------------------------------------------------------
Final Sec.   201.106:
    First-year Cost.............................................        $633,000        $300,000        $933,000
    First-year Cost per Firm....................................          30,000             351              NA
    PV of Ten-year Cost Discounted at 2%........................         620,000         294,000         914,000
    Ten-year Cost Annualized at 2%..............................          69,000          33,000         102,000
    Average Ten-Year Cost per Firm Annualized at 2%.............           3,000              38             N/A

[[Page 5212]]

 
Final Sec.   201.110:
    First-year Cost.............................................         675,000               0         675,000
    First-year Cost per Firm....................................          32,000               0              NA
    PV of Ten-year Cost Discounted at 2%........................       3,266,000               0       3,266,000
    Ten-year Cost Annualized at 2%..............................         364,000               0         364,000
    Average Ten-Year Cost per Firm Annualized at 2%.............          17,000               0              NA
Final Sec.   201.112:
    First-year Cost.............................................           6,000          15,000          21,000
    First-year Cost per Firm....................................             271              18              NA
    PV of Ten-year Cost Discounted at 2%........................          51,000         135,000         186,000
    Ten-year Cost Annualized at 2%..............................           6,000          15,000          21,000
    Average Ten-Year Cost per Firm Annualized at 2%.............             286              18              NA
Final Sec.  Sec.   201.106, 110, and 112:
    First-year Cost.............................................       1,313,000         315,000       1,628,000
    First-year Cost per Firm....................................          63,000             369              NA
    PV of Ten-year Cost Discounted at 2%........................       3,937,000         429,000       4,366,000
    Ten-year Cost Annualized at 2%..............................         438,000          48,000         486,000
    Average Ten-Year Cost per Firm Annualized at 2%.............          21,000              56              NA
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.

    Net sales for small LPDs that would be required to make disclosure 
under alternative Sec. Sec.  201.106, 110, and 112 averaged $91 million 
for their fiscal year 2023. Expected first-year cost per LPD would be 
well below 0.1 percent.\135\
---------------------------------------------------------------------------

    \135\ The first-year cost per small live poultry dealer of 
$63,000 divided by the average net sales for all small live poultry 
dealers of $91 million is equal to 0.069 percent.

       Table 7--Comparison of Small Live Poultry Dealers' Net Sales to Expected Annualized Costs of Alternative Sec.  Sec.   201.106, 110, and 112
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               First-year costs   First-year costs   First-year costs
                                                                               related to Sec.    related to Sec.    related to Sec.    Total first-year
                         Quartile                          Average net sales     201.106 as a       201.110 as a       201.112 as a        costs as a
                                                                                percent of net     percent of net     percent of net     percent of net
                                                                                  sales (%)          sales (%)          sales (%)          sales (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0 to 25%.................................................        $10,017,311              0.299              0.319              0.003              0.629
25 to 50%................................................         34,567,539              0.087              0.093              0.001              0.182
50 to 75%................................................         92,380,634              0.032              0.035              0.000              0.068
75 to 100%...............................................        226,958,521              0.013              0.014              0.000              0.028
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Clearly, excluding Sec.  201.110(b)(1)(vi) and (b)(2) would reduce 
cost to small LPDs. AMS prefers final Sec. Sec.  201.106, 110, and 112 
because it reduces the amount of variation in payments that broiler 
growers might receive and provides protection against lower contract 
prices during the transition period of the first three years following 
implementation of the final rule.
    If direct costs were the only consideration, it is likely that 
final Sec. Sec.  201.106, 110, and 112 would not have a significant 
economic impact on a substantial number of small business LPDs. AMS 
does not have sufficient information to make a quantified estimate of 
the indirect costs associated with Sec. Sec.  201.106, 110, and 112, 
but the indirect costs have the potential to be much larger than the 
direct costs that AMS was able to quantify. If indirect costs are equal 
to direct costs, total costs would be about 1.26 percent for LPDs in 
the smallest quartile. It is possible that the indirect costs are 
considerably larger than direct costs, in which case larger LPDs would 
face significant costs. It is likely that costs will be significant for 
a substantial number of small business LPDs.
    Costs to growers will be limited to the time required to review and 
acknowledge receipt of updated grower contracts and disclosures. AMS 
expects that final Sec. Sec.  201.106, 110, and 112 will have effects 
on a substantial number of growers. However, the costs will not be 
significant for any of them. Because AMS does not regulate poultry 
growers, AMS does not have information regarding the business sizes of 
poultry growers similar to the information it has concerning LPDs.
    Based on the above analyses, it is unlikely that final Sec. Sec.  
201.106, 110, and 112 will create significant costs for a substantial 
number of small business broiler growers. AMS was not able to quantify 
indirect costs associated with final Sec. Sec.  201.106, 110, and 112 
but the rulemaking could cause significant costs for a substantial 
number of small LPDs.

D. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), AMS requested OMB approval of the new information 
collection and recordkeeping requirements related to this final rule 
when it was proposed in the Federal Register on June 10, 2024 (89 FR 
49002). The proposed information collection was for a total of 59,182 
hours for the first year, and 42,682 hours per year thereafter. The 
comment period was open for 60 days and closed on August 9, 2024. Below 
is a summary of the final rule's information collection requirements, 
the comments AMS received relating to the information

[[Page 5213]]

collection requirements of the proposed rule, and any changes AMS made 
in response to the comments. Additional detail can be found in the 
Regulatory Impact Analysis (RIA).
    Title: Poultry Growing Tournament Systems: Fairness and Related 
Concerns.
    OMB Number: 0581-0346.
    Expiration Date of Approval: This is a NEW collection.
    Type of Request: Approval of a New Information Collection.
    Abstract: The information collection requirements in this request 
are essential to improve transparency and forestall deception and 
unfairness in the use of broiler growing arrangements, in accordance 
with the purposes of the Packers and Stockyards Act, 1921. The 
revisions to the Packers and Stockyards regulations would require that 
live poultry dealers (LPDs) establish, maintain, and review written 
documentation regarding their processes for the design and operation of 
a poultry grower ranking system that is consistent with the LPD duty of 
fair comparison, provide information through disclosures to growers 
when requesting that growers make additional capital investments, and 
submit contract and disclosure documentation to USDA when contract 
modifications result in reduced annual grower compensation during a 
transition period.
    Under this final rule, LPDs must develop and document policies and 
procedures for the design and operation of their tournament system 
consistent with the duty of fair grower comparison. All LPD 
documentation will be provided to USDA on request, maintained for no 
less than five years, and used for ongoing internal compliance 
activities. The final rulemaking requires that LPDs provide a Capital 
Improvement Disclosure Document to growers when LPDs request that 
growers make additional capital investments. In addition, for each of 
the three years following the effective date, LPDs will be required to 
provide the prior and modified contracts as well as all related LPD 
Disclosure Documents to USDA if any contract modification or renewal 
results in less than the prior annual-calendar year's complex-wide 
average gross payment to the grower. The estimates provided below apply 
only to LPDs when they are required to provide the information to 
growers or create documentation for internal use and review. Poultry 
growers would not be required to provide information but would be able 
to use the information provided by LPDs to analyze additional capital 
investment decisions.
Broiler Grower Compensation Design Under Sec.  201.106(c)
    Estimate of Burden: Public burden for this collection of 
information is estimated to average 0.01 hours per response (years two 
through four), 0 hours per year thereafter.
    Respondents: Live poultry dealers.
    Estimated Number of Respondents: 42.
    Estimated Number of Responses: 20,014.
    Estimated Number of Responses per Respondent: 477.
    Estimated Total Annual Burden on Respondents: 0 hours in the first 
year, and 194 hours per year thereafter for years two through four.
Operation of Broiler Grower Ranking Systems Under Sec.  201.110(a) and 
(b)(1)(i) Through (v)
    Estimate of Burden: Public burden for this collection of 
information is estimated to average 193.33 hours per response (first 
year), 169.61 hours per year thereafter.
    Respondents: Live poultry dealers.
    Estimated Number of Respondents: 42.
    Estimated Number of Responses: 184.
    Estimated Number of Responses per Respondent: 4.
    Estimated Total Annual Burden on Respondents: 35,572 hours in the 
first year, and 31,208 hours per year thereafter.
Communication and Cooperation Under Sec.  201.110(b)(1)(vi)
    Estimate of Burden: Public burden for this collection of 
information is estimated to average 45.00 hours per response (first 
year), 16.00 hours per year thereafter.
    Respondents: Live poultry dealers.
    Estimated Number of Respondents: 42.
    Estimated Number of Responses: 42.
    Estimated Number of Responses per Respondent: 1.
    Estimated Total Annual Burden on Respondents: 1,890 hours in the 
first year, and 672 hours per year thereafter.
Broiler Grower Capital Improvement Disclosure Document Under Sec.  
201.112
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 0.61 hours per response (first 
year), 0.61 hours per year thereafter.
    Respondents: Live poultry dealers.
    Estimated Number of Respondents: 42.
    Estimated Number of Responses: 1,001.
    Estimated Number of Responses per Respondent: 24.
    Estimated Total Annual Burden on Respondents: 607 hours in the 
first year, and 607 hours per year thereafter.
    AMS estimates that 42 LPDs would each submit the prior and modified 
contracts as well any LPD Disclosure Documents prepared with respect to 
those contracts to AMS as required under final Sec.  201.106(c). AMS 
arrived at its estimate that 477 responses would be produced per LPD 
during each of years two, three, and four following the rule effective 
date in complying with the new requirements during a transition period 
following modification and renewal of broiler growing contracts by 
dividing the 20,014 grower contracts with broiler growers that were 
reported by 42 LPDs that filed fiscal year 2023 Annual Reports with 
AMS. AMS does not have access to sufficient data and cannot predict the 
number of complexes for which the annual calendar year's complex-wide 
average gross payment to the grower will be less than the prior year. 
Based on information provided by subject matter experts, AMS estimates 
that LPDs would be able to submit the required documentation for all 
contracts to USDA electronically once per year for a fixed annual time 
cost per complex. As a result, the estimate that all LPDs will provide 
477 responses per year in years two through four therefore likely 
overestimates the burden by a substantial amount given that average 
grower payments may not be less than the prior year at most complexes. 
AMS estimates the annual cost of collecting and submitting required 
contract documents in years two through four, including management, 
legal, administrative, and information technology time, will require an 
average 0.01 hours each. AMS arrived at the estimates of the number of 
hours on an annual basis to submit required contract documentation by 
dividing the number of hours to collect and submit the required 
documents (184 hours in each of years two through four) by the annual 
number of responses for all LPDs (20,014).
    AMS estimates that 42 LPDs would each establish, maintain, and 
review documentation of written processes for the design and operation 
of a poultry grower ranking system that is consistent with a duty of 
fair comparison as required under final Sec.  201.110.\136\ AMS arrived 
at its estimate that four (4) responses would be produced per LPD in 
complying with new requirements for

[[Page 5214]]

poultry grower ranking system fairness policies and procedures by 
dividing the 184 broiler plants (or complexes) indicated in the fiscal 
year 2023 Annual Report filed by 42 LPDs with broiler production.\137\ 
AMS estimates first-year development and production of Sec.  201.110 
policies and procedures, including legal, management, administrative, 
and information technology time, would require an average of 193.33 
hours for each response, while ongoing annual maintenance, compliance 
monitoring, production, and distribution would take 169.61 hours. AMS 
estimates first-year development and production of Sec.  201.110 
policies and procedures, including legal, management, administrative, 
and information technology time, would require an average of 193.33 
hours for each response, while ongoing annual maintenance, compliance 
monitoring, production, and distribution would take 169.61 hours. AMS 
arrived at the estimates of the number of hours per response on an 
annual basis to set up, produce, distribute, monitor, review, and 
maintain Sec.  201.110 policies and procedures by dividing the total 
number of hours required (35,572 first-year hours and 31,208 ongoing 
hours) by the annual number of responses for all LPDs (184).
---------------------------------------------------------------------------

    \136\ Responses and costs related to final Sec.  
201.110(b)(1)(vi), ``Communication and cooperation,'' are discussed 
below separately from the other paragraphs of Sec.  201.110. Costs 
associated with final Sec.  201.110(b)(2), ``Record retention,'' are 
included in cost estimates for Sec.  201.110(b)(1).
    \137\ All live poultry dealers are required to annually file PSD 
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control 
number 0581-0308. The Annual Report form is available to the public 
at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------

    AMS estimates that 42 LPDs would each develop and document one set 
of processes that address communication and cooperation when resolving 
grower concerns as required under final Sec.  201.110(b)(1)(vi). AMS 
estimates first-year set-up and implementation of the plan, including 
management, legal, administrative, and information technology time, 
would require approximately 45.00 hours. AMS estimates ongoing annual 
implementation of communication, cooperation, and dispute resolution 
processes would require an average of 16.00 hours.
    AMS estimates each of 42 LPDs would create and distribute an 
average of 24 Broiler Grower Capital Improvement Disclosure Documents 
each year for poultry growers relating to additional capital 
investments, as required under final Sec.  201.112. AMS arrived at its 
estimate of 24 developed disclosure documents per LPD per year from AMS 
records which show 42 LPDs filed fiscal year 2023 Annual Reports with 
AMS, and their reports indicate that they had 20,014 growing contracts 
with broiler growers during fiscal year 2023. Based on information 
provided by subject matter experts, AMS estimates that capital upgrades 
would be required at 5 percent of complexes each year, triggering 
creation of a new disclosure document for approximately 5 percent of 
growers annually. AMS multiplied the 20,014 growing contracts by 5 
percent and divided by the 42 LPDs to arrive at 24 disclosure documents 
per LPD. LPDs would only be required to provide the Broiler Grower 
Capital Improvement Disclosure Document to growers when requesting or 
requiring the grower to make an additional capital investment. AMS 
estimates first-year and ongoing development, production, and 
distribution of the disclosure documents, including management, legal, 
administrative, and information technology time, would require an 
average 0.61 hours each. AMS arrived at the estimates of the number of 
hours on an annual basis to set up, produce, and distribute the Broiler 
Grower Capital Improvement Disclosure Documents by dividing the number 
of hours to set up, produce, and distribute the disclosures (607 first-
year and annual ongoing hours) by the annual number of responses for 
all LPDs (1,001).
    Under Sec.  201.106(c) LPDs are required for a period for three 
years following the effective date to submit to USDA copies of the 
prior and modified contracts and any LPD Disclosure Documents prepared 
under Sec.  201.102 if the annual-calendar year's complex-wide average 
gross payments to growers at a complex of an LPD is less than the prior 
annual-calendar year's complex-wide average gross payments to growers 
at the complex.
    Final Sec.  201.110 would require LPDs to provide a fair comparison 
among growers when basing compensation on a grouping or ranking of 
growers delivering during a specified period of time and would also 
require LPDs to document how they comply with that duty of fair 
comparison. The policies and procedures documentation required under 
final Sec.  201.110 must describe the LPD's processes for the design 
and operation of a poultry grower ranking system for broiler growers 
that is consistent with the duty of fair comparison. The documentation 
of processes under final Sec.  201.110, must also include a plan for 
communication and cooperation between the LPD and growers. LPDs are 
required to document, maintain, and comply with all policies and 
procedures required under final Sec.  201.110 on an ongoing basis and 
provide them to USDA upon request. LPDs must retain all written records 
relevant to compliance with Sec.  201.110(b) for no less than 5 years 
from the date of record creation.
    Final Sec.  201.112 would require LPDs to provide a Broiler Grower 
Capital Improvement Disclosure Document any time the LPD requests 
existing broiler chicken growers to make an additional capital 
investment ($12,500 or more per structure excluding maintenance or 
repair). The Broiler Grower Capital Improvement Disclosure Document 
must include information about the goal or purpose of the investment, 
financial incentives and compensation for the grower associated with 
the additional capital investment, all schedules and deadlines for the 
investment, a description of changes to housing specifications, and 
analysis of projected returns.
Costs of Final Sec. Sec.  201.106, 110, and 112
    The combined costs to LPDs for compliance with the recordkeeping 
and disclosure requirements of final Sec. Sec.  201.106, 110, and 112 
are expected to be $3,807,000 in the first year, $3,181,000 in years 
two through four, and $3,168,000 in subsequent years. The total hours 
estimated for the LPDs to create, produce, distribute, and maintain 
these documents are 38,069 in the first year, 32,671 in in years two 
through four, and 32,487 in subsequent years. As stated previously, the 
estimates provided apply only to LPDs who would be required to provide 
the information to growers.
    The amount of time required for recordkeeping and disclosure was 
estimated by AMS subject matter experts. These experts were auditors 
and supervisors with many years of experience in AMS's Packers and 
Stockyards Division (PSD) conducting investigations and compliance 
reviews of regulated entities.
    AMS used the May 2023 U.S. Bureau of Labor Statistics (BLS) 
Occupational Employment and Wage Statistics for the time values in this 
analysis.\138\ BLS estimated an average hourly wage for general and 
operations managers in animal slaughtering and processing to be $67.99 
per hour; $34.81 per hour for administrative assistants; $67.41 per 
hour for IT system managers; and $98.71 per hour for lawyers in food 
manufacturing. In applying the cost estimates, AMS marked-up the wages 
by 41.79 percent to account for fringe

[[Page 5215]]

benefits. The average hourly wage rates, adjusted to include the 41.79 
percent markup for benefits, are as follows: $96.40 for managers, 
$49.36 for administrative assistants; $95.58 for IT system managers, 
and $139.96 for lawyers.
---------------------------------------------------------------------------

    \138\ Estimates are available at U.S. Bureau of Labor 
Statistics. Occupational Employment and Wage Statistics, available 
at https://www.bls.gov/oes/special-requests/oesm23all.zip (accessed 
9/14/2024). Featured OES Searchable Databases: U.S. Bureau of Labor 
Statistics (bls.gov) (accessed September 2024).
---------------------------------------------------------------------------

Comments From the Proposed Rule and Changes to the Final Rule
    After consideration of public comments, AMS determined to adopt the 
proposed rule as a final rule with several modifications. This section 
provides an overview of the comments made specifically on the costs and 
benefits and how the final rule differs from the proposed rule in that 
analysis.
    Industry trade associations and LPDs commented that the full cost 
of implementing the proposed rule would be far greater than estimated 
by AMS. The commenters asserted that AMS greatly underestimated the 
costs that will be required for employing teams with highly specialized 
legal and technical expertise to implement the proposed rule by 
modifying or replacing grower contracts and communicating changes to 
growers. Commenters suggested that AMS did not adequately consider the 
total number of hours needed, but none provided quantified estimates. 
LPDs also commented that hourly rates paid to specialized industry 
professionals such as attorneys should be much higher. Commenters also 
suggested that implementation of the rule would require LPDs to hire 
and train additional staff and pull resources away from other important 
activities.
    AMS consulted auditors and supervisors as subject matter experts 
who are familiar with LPDs, integrators, and broiler complex operations 
from many years of experience with AMS in auditing LPDs for compliance 
with the Act. The final rule provides an extended period of 
approximately 18 months following publication in the Federal Register 
before the effective date, to permit sufficient time for 
implementation. Hourly rates used in cost analysis for the proposed 
rule were based on averages for legal, management, administrative, and 
information technology labor categories specifically within the 
agricultural sector as published and annually updated by the U.S. 
Bureau of Labor Statistics. Although the largest corporations likely 
employ lawyers and other specialists at hourly rates much higher than 
the national average, contract development and review efforts at those 
companies are spread across many complexes. AMS expects that average 
hourly rates provide an appropriate benchmark for estimating industry 
average costs. After further discussion with subject matter experts, 
AMS added a modest amount of time to account for the cost of 
information technology work in preparing Sec.  201.112 disclosures. AMS 
subject matter experts confirmed that all other costs from the proposed 
rule are accurate estimates and accordingly, AMS made no other changes 
to the information collection requirements of the rule based on this 
comment.
    AMS also received comments on the proposed rule in support of 
adding measures to protect growers against the risk that LPDs might 
unfairly reduce broiler grower total compensation during a transition 
period after implementation of the final rule. Based on comments 
received, AMS added Sec.  201.106(c), which will require LPDs to submit 
copies of the prior and modified contracts and disclosures to AMS if 
average gross grower payments at a complex show year-over-year decline 
following a contract modification during the three calendar years 
commencing with and including the effective date of the rule. AMS will 
review the information provided by LPDs to identify any potentially 
unfair practices related to broiler grower compensation. AMS consulted 
with its internal subject matter experts and added direct information 
collection costs for LPDs to comply with this provision during the 
three-year period.
    AMS also received comments suggesting that some of the detailed 
documentation requirements of proposed Sec.  201.110(b) were similar to 
existing P&S documentation and disclosure requirements and might create 
unnecessarily burdensome and complex paperwork that could burden 
service technicians at broiler complexes and keep them from other 
important responsibilities such as assisting growers. In response to 
these comments, AMS made several changes to Sec.  201.110(b) in the 
final rule that included consolidating and streamlining the 
documentation requirements and removing some detailed requirements 
delineated under subparagraphs in the proposed rule. AMS expects that 
these changes in final Sec.  201.110(b) will add clarity and minimize 
potential confusion about the documentation requirements, thereby 
making them more effective. AMS expects these changes will somewhat 
reduce total recordkeeping requirements for LPDs. Based on consultation 
with internal subject matter experts, AMS determined that the precise 
amount of time savings is difficult to estimate. AMS therefore chose a 
cautious approach to avoid underestimating costs and did not reduce the 
total recordkeeping requirements or the time cost of the information 
collection for LPDs. Accordingly, these changes did not affect the 
estimation of costs or benefits in the final rule.
    The proposed rule included Sec.  201.110(b)(2), ``Compliance 
review,'' which required LPDs to conduct a required bi-annual review of 
the processes set out in Sec.  201.110(b)(1). AMS removed this 
requirement from the final rule in response to comments that self-
audits would be burdensome for LPDs, and that elimination of this 
requirement would not substantially diminish effective compliance with 
Sec.  201.110. Compliance will be enforced through regular AMS review 
of the policies and procedures LPDs are required to establish and 
maintain under Sec.  201.110(b). Accordingly, removal of Sec.  
201.110(b)(2) eliminated the burden of compliance review on LPDs and 
reduced costs from the proposed to the final rule by the cost estimate 
in the proposed rule for that provision.
    Based on comments received, AMS added a provision at Sec.  
201.112(c) to require that the LPD make reasonable efforts to ensure 
that growers are aware of their right to request translation assistance 
and to assist the grower in translating the Broiler Grower Capital 
Improvement Disclosure Document. Reasonable efforts include, but are 
not limited to, providing current contact information for professional 
translation service providers, trade associations with translator 
resources, relevant community groups, or any other person or 
organization that provides translation services in the poultry grower's 
geographic area. Reasonable efforts, depending on the facts and 
circumstances (such as convenience, expense, and timeliness of the 
translation), may also include allowing the grower access to a 
computer-generated translation of the Disclosure Document and 
additional time to review any translated Disclosure Document. A similar 
requirement was established for LPDs in Sec.  201.102(g)(4). As LPDs 
already have all necessary information to make reasonable efforts to 
assist growers in translating disclosure documents and have made it 
available to growers who request the information, AMS did not add any 
time to its information collection cost estimates for LPDs to comply 
with this new requirement.

E. Executive Order 12988--Civil Justice Reform

    Executive Order 12988 instructs each executive agency to adhere to 
certain

[[Page 5216]]

requirements in the development of new and revised regulations to avoid 
unduly burdening the court system. This rule has been reviewed under 
Executive Order 12988 and complies with these requirements. 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. Executive Order 13175--Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 requires Federal agencies to consult with 
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. The 
following is a summary of activity to date.
    AMS engaged in a Tribal Consultation in conjunction with a previous 
rulemaking also under the Act (Inclusive Competition and Market 
Integrity Under the Packers and Stockyards Act (87 FR 60010, October 3, 
2022)) on January 19, 2023, in person in Tulsa, Oklahoma, and 
virtually. AMS received multiple Tribal comments from that 
Consultation, many of which were specific to and considered in that 
rulemaking. In that consultation, Tribes raised legal concerns with 
respect to the jurisdiction of the AMS enforcement of the P&S Act. 
Tribes commented that the P&S Act does not apply to Tribes and Tribal 
entities. Those comments raise a legal issue of statutory 
interpretation, but these concerns are not directly implicated by this 
final rule. This final rule provides additional standards for 
individual LPDs or growers, and AMS does not find that this rule 
carries substantial direct effects on one or more Indian Tribes beyond 
the purely legal issue raised during consultation.
    AMS recognizes and supports the Secretary's desire to incorporate 
Tribal and Indigenous perspectives, remove barriers, and encourage 
Tribal self-determination principles in USDA programs, including 
hearing and understanding Tribal views on legal authorities and cost 
implications as facts and circumstances develop. If a Tribe requests 
additional consultation, AMS will work with USDA's Office of Tribal 
Relations to ensure meaningful consultation is provided in accordance 
with Executive Order 13175.

G. Civil Rights Impact Analysis Statement

    AMS has considered the potential civil rights implications of this 
final rule on members of protected groups to ensure that no person or 
group would be adversely or disproportionately at risk or discriminated 
against on the basis of race, color, national origin, religion, sex, 
gender identity (including gender expression), sexual orientation, 
disability, age, marital status, family/parental status, income derived 
from a public assistance program, political beliefs, reprisal or 
retaliation for prior civil rights activity, in any program or activity 
conducted or funded by USDA. This final rule does not contain any 
requirements related to eligibility, benefits, or services that would 
have the purpose or effect of excluding, limiting, or otherwise 
disadvantaging any individual, group, or class of persons on one or 
more prohibited bases.
    In its review, AMS conducted a disparate impact analysis, using the 
required calculations, which resulted in a finding that Asians and 
Native Hawaiian or Other Pacific Islanders could be disproportionately 
impacted by the rule, insofar as fewer farmers in those groups 
participate in poultry production than would be expected by their 
representation among U.S. farmers in general and therefore are less 
likely to benefit, as a whole, from the protections provided by this 
rule.\139\ However, the regulations would provide benefits equally to 
all individual poultry growers across demographic characteristics, with 
some demographic groups being more or less represented among poultry 
growers. AMS will enhance efforts to notify the groups found to be more 
significantly impacted of the regulations and their implications. AMS 
will conduct mitigation and monitoring strategies and reach out to 
several organizations that represent the interests of the impacted 
groups.
---------------------------------------------------------------------------

    \139\ Among Asian and Native Hawaiian or Other Pacific Islander 
growers, a smaller percent participates in livestock or poultry 
agriculture (animal agriculture) than in other types of agriculture. 
A larger percent of American Indian or Alaskan Native growers 
participates in animal agriculture than in other types of 
agriculture. The other demographic groups' participation in animal 
agriculture tended to fall within 10 percentage points of their 
participation in agriculture overall.
---------------------------------------------------------------------------

H. 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.

I. Unfunded Mandates Reform Act

    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 of State, local, and Tribal governments, or 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 will not compel the expenditure in any one year 
of $100 million or more (adjusted for inflation) by State, local, and 
Tribal governments, in the aggregate, or by the private sector. 
Therefore, a statement under 2 U.S.C. 1532 is not required.

J. 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 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 stated 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 Sec.  201.106 to subpart N to read as follows:

[[Page 5217]]

Sec.  201.106  Broiler grower compensation design.

    (a) Rate transparency. When a broiler growing arrangement between 
the live poultry dealer and the broiler grower compensates the grower 
based upon a grouping, ranking, or comparison of growers delivering 
poultry during a specified period, the live poultry dealer may not use 
the grower's grouping, ranking, or comparison to others to reduce any 
rate of compensation under the broiler growing arrangement.
    (b) Excessive variability. The Secretary presumes that a live 
poultry dealer violates the Act when aggregate gross annual payments 
based upon a grouping, ranking, or comparison of growers exceed 25 
percent of total gross payments to growers in a complex on an annual-
calendar year basis.
    (c) Transition. For modified or renewed broiler growing 
arrangements subject to paragraph (a) of this section, for each of the 
three calendar years commencing with and including the year this 
section becomes effective, if the annual-calendar year's complex-wide 
average gross payments to growers at a complex of a live poultry dealer 
is less than the prior annual-calendar year's complex-wide average 
gross payments to growers at the complex, the live poultry dealer must 
submit to the Secretary the following:
    (1) A copy of the prior broiler growing arrangement and the 
modified or renewed growing arrangement; and
    (2) Any Live Poultry Dealer Disclosure Document prepared under 
Sec.  201.102 with respect to the prior broiler growing arrangement and 
the modified or renewed broiler growing arrangement for the growers at 
the complex.

0
3. Add Sec.  201.110 to subpart N to read as follows:


Sec.  201.110  Operation of broiler grower ranking systems.

    (a) Fair comparison.--(1) Duty of fair comparison. Live poultry 
dealers providing compensation to broiler growers based upon a 
grouping, ranking, or comparison of growers delivering poultry must 
design and operate their poultry grower ranking system to provide a 
fair comparison among growers.
    (2) Fair comparison factors. In determining whether the live 
poultry dealer reasonably designed or operated its poultry grower 
ranking system to deliver a fair comparison among growers or whether 
the live poultry dealer must utilize a non-comparison compensation 
method, the Secretary shall consider the following:
    (i) Whether the distribution of inputs by the live poultry dealer 
causes material differences in performance, and whether appropriate 
adjustments to grower compensation will be made.
    (ii) Whether the assignment of flock production practices by the 
live poultry dealer causes material differences in performance, and 
whether appropriate adjustments to grower compensation will be made.
    (iii) Whether the designated time period used in the live poultry 
dealer's comparison is appropriate, including whether the live poultry 
dealer uses one or more groupings, rankings, or comparisons of growers 
to mitigate the effects of any differences in inputs over the 
designated time period.
    (iv) Whether conditions and circumstances outside the control of 
the live poultry dealer render comparison impractical or inappropriate.
    (v) Whether the live poultry dealer has made reasonable efforts to 
timely resolve concerns a grower raises regarding the live poultry 
dealer's design and operation of its poultry grower ranking system to 
deliver a fair comparison among growers.
    (vi) Any other factor relevant to a fair comparison.
    (3) Non-comparison compensation method. When a live poultry dealer 
uses a poultry grower ranking system and cannot conduct a fair 
comparison for one or more growers, the live poultry dealer must 
compensate those growers through a non-comparison method specified in 
the contract that reflects reasonable compensation to the grower for 
its services.
    (b) Documentation.--(1) Policies and procedures. A live poultry 
dealer must establish and maintain written documentation of its 
processes for the design and operation of a poultry grower ranking 
system for broiler growers that is consistent with the duty of fair 
comparison. The written documentation must include the following:
    (i) Inputs under live poultry dealer control. How and when the live 
poultry dealer assigns, adjusts, or otherwise accounts for similarities 
and differences of quality and quantity in the delivery of inputs to 
growers.
    (ii) Flock production practices. How and when the live poultry 
dealer assigns, adjusts, or otherwise accounts for differences in 
production practices.
    (iii) League composition. How the dealer determines groupings of 
growers for settlement.
    (iv) Evaluation period. A reasonable time period over which the 
dealer evaluates the duty of fair comparison.
    (v) Non-comparison. When a live poultry dealer may remove growers 
from a ranking group, and how the live poultry dealer compensates the 
growers to satisfy the non-comparison compensation method under 
paragraph (a)(3) of this section.
    (vi) Communication and cooperation. How the live poultry dealer 
resolves a grower's concerns with the design or operation of a poultry 
grower ranking system for broiler growers that is consistent with the 
duty of fair comparison, including the timeliness of the resolution.
    (2) Record retention. The live poultry dealer must retain all 
written records relevant to its compliance with this paragraph (b) for 
no less than 5 years from the date of record creation.

0
4. Add Sec.  201.112 to subpart N to read as follows:


Sec.  201.112  Broiler grower Capital Improvement Disclosure Document.

    (a) Disclosure requirement. When a live poultry dealer requests 
that a broiler grower make an additional capital investment, the live 
poultry dealer must provide the broiler grower with a Capital 
Improvement Disclosure Document, as described in paragraph (b) of this 
section.
    (b) Disclosure contents. The Capital Improvement Disclosure 
Document must disclose the following in a clear, concise, and 
understandable manner:
    (1) The purpose of the additional capital investment for both the 
live poultry dealer and the grower, and a summary of all research and 
other supporting material that the live poultry dealer has relied upon 
in justifying the additional capital investment.
    (2) All financial incentives and compensation for the grower 
associated with the additional capital investment.
    (3) All construction schedules related to the request for 
additional capital investment.
    (4) The housing specifications associated with the additional 
capital investment.
    (5) Any required or approved manufacturers or vendors, and all 
financial benefits, if any, that the live poultry dealer or any 
officer, director, decision-making employee, or close family member of 
any such person, receives from the use of the required or approved 
manufacturer or vendor.
    (6) An analysis of projected returns the grower can expect related 
to the additional capital investment, including any assumptions, risks, 
or uncertainties, sufficient to allow the grower to make their own 
projections.
    (7) This statement that ``USDA has not verified the information 
contained in

[[Page 5218]]

this document. If this disclosure by the live poultry dealer contains 
any false or misleading statement or a material omission, a violation 
of Federal and/or State law may have occurred. Violations of Federal 
and State laws may be determined to be unfair, unjustly discriminatory, 
or deceptive and unlawful under the Packers and Stockyards Act, as 
amended. You may file a complaint at farmerfairness.gov or call 1-833-
DIAL-PSD (1-833-342-5773) if you suspect a violation of the Packers and 
Stockyards Act or any other Federal law governing fair and competitive 
marketing, including contract growing, of livestock and poultry. 
Additional information on rights and responsibilities under the Packers 
and Stockyards Act may be found at www.ams.usda.gov.''
    (c) Translation. Upon delivery to the grower, the live poultry 
dealer must make reasonable efforts to ensure that growers are aware of 
their right to request translation assistance and to assist the grower 
in translating the Capital Improvement Disclosure Document.

0
5. Add Sec.  201.290 to subpart N to read as follows:


Sec.  201.290  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. 2025-00508 Filed 1-15-25; 8:45 am]
BILLING CODE P`