Advocates, USDA warn against industry coercing chicken farmers to oppose transparency rule

The proposed rule would require poultry processors to disclose more information on how they pay farmers contracted to raise chickens.

BY: MARCIA BROWN POLITICO| 08/19/2022 05:00 AM EDT | UPDATED 08/19/2022 10:32 AM EDT

A chicken peers out from a cage at a chicken farm.

As of Aug. 18, the USDA had received at least 350 public comments on its draft rule.Paula Bronstein/Getty Images

Advocates and former growers are accusing some of the country’s largest poultry companies of pressuring farmers to oppose a proposed USDA rule they say could help raise their pay and give them more control over their farms.

Growers contracted to raise chickens are increasingly weighing in against that rule through form letters. Some poultry processors have acknowledged sharing the pre-written letters with farmers, urging them to submit them through the public comment process or asking them to weigh in individually. In an industry already under scrutiny for wage fixing and other practices, that’s raised concerns among advocates and USDA. The large processors hold significant sway over contract growers who often take on immense debt to raise chickens for these companies under contract.

The Agriculture Department raised red flags about the potential pressure campaign when it announced an extension of the public comment period for the proposed rule earlier this month. The agency emphasized the need for “all parties” to be able to comment on the rule free from “coercive actions that compromise the free flow of facts and viewpoints into important agency actions.” Comments are due Aug. 23.

USDA confirmed that it did receive “multiple complaints about fear of coercion.”

“If a farmer is against this rule proposal I’m totally fine with that, but I’m not fine with the company pretending he’s too stupid to write his own comments,” said Craig Watts, a former poultry grower for Perdue based in North Carolina. Since USDA’s announcement, the rate of form letter submissions has slowed.

At issue is a proposed USDA rule that would add more transparency to what’s known as the “tournament system” for determining how contract chicken growers are paid. Under the system, growers contract with the processor companies, who provide chicks and feed and medicine needed for raising the animals. The growers provide labor and invest millions to build specialized barns with highly-controlled interiors to raise the birds. When the company returns to pick up the chickens, the growers are paid per pound on how efficiently they raised the birds on the feed they were provided. More effective growers earn bonuses while poorer performers are docked penalties.

The proposed rule, published in May, is the first of three USDA has said are necessary to strengthen the nation’s antitrust laws among an increasingly concentrated agricultural industry that has seen corporate profits grow amid rising food prices.

As of Aug. 18, the USDA had received at least 350 public comments on its draft rule. Around 120 were comments opposing the rule, at least 90 of which were form letters from growers opposing the rule. Still other, unique public comments from poultry companies and contract growers also oppose the rule. According to a POLITICO analysis, at least 200 of public comments support the rule, though some supporters have significant reservations and are imploring USDA to go further.

Differing views

According to documents reviewed by POLITICO, chicken processor Mountaire Farms, a privately-held company which describes itself as the nation’s fourth-largest chicken processor, provided growers with form letters and step-by-step instructions on how to submit the comments. Mountaire’s role in distributing the form letters was first reported by Reuters.

“As a chicken company we have an obligation to our family farmers to make them aware of proposed regulations that are likely to increase food costs and have a negative financial impact on their business,” said Mountaire spokesperson Catherine Bassett in a statement. She declined to say if the company wrote the letter in-house. “With the opportunity for public comment pending, we wanted our farmers to have access to the information they needed to make an informed decision about whether to provide their own views on the regulations.”

A sticky note affixed to the printed instructions for public comments reads, “This is from the USDA. Not Mountaire.” [Emphasis original.] The regulations, Mountaire wrote, “propose more needless regulations and paperwork that promises only to shoulder our industry with even more regulatory costs and to line the pockets of trial lawyers, all the while harming the men and women who own the family farms that make our industry great.” The company tells growers in its instructions that USDA’s proposal would allow foreign competitors to “compete for our business and jobs.”

Perdue Farms, one of the nation’s largest poultry processors, declined to confirm whether the company provided form letters to its contract growers. But Perdue spokesperson Andrea Staub did confirm that Perdue “invited contract farmer partners to voice their views on the rule.”

At the time of publication, at least two public comments are form letters with the document title “Perdue” in the Federal Register. Nevertheless, some Perdue growers wrote comments supporting the rule. “As a poultry farmer I am against the tournament style system,” wrote one grower in the comments, describing a situation where a “bad flock rating” could be used to “get rid” of the grower.

Another grower that used a form letter opposing the rule added in his comment, “I like the system the way it is. I have paid for my farm and sent 5 kids to college.”

The National Chicken Council, the trade association that represents chicken processing companies, declined multiple requests to comment on the form letters. The trade group has not yet submitted formal comments on the rule, but did submit a request for an extension of the comment period.

“This is a solution in search of a problem,” NCC President Mike Brown said in a statement when the proposed rule was first published. “These proposals were determined to be poor policy ideas under the Obama administration – and continue to be worn and tired ideas today.”

The proposed rule does not go so far as to eliminate the tournament system, but it would require companies to disclose the true top and bottom incomes a grower might earn and how much it might vary from flock to flock through the tournament system. The rule would also require companies guarantee an annual minimum number of flocks and stocking densities. Critically, the rule would require companies to disclose more information per paycheck, such as pay per pound and the average weight of a farmer’s chickens.

In one public comment, new contract growers described imagining how they could profit from hard work after investing over $1 million to build their chicken farm and signing a contract to grow for Sanderson Farms. But after raising ten flocks, they wrote they were not breaking even despite being high performers. “Sadly [we are] on a pay scale we could apply for food stamps and get them, but we own too much land to receive food stamps,” they wrote. “That is just how bad the pay is for poultry farmers.”

“We see in the news that the integrators we grow for have record quarters making billions of dollars and we have to dig in to family money and rake and scrape to try and make sure every vendor is paid within the 49 days we grow birds,” they added.

USDA has also issued a separate request for comments for general information on the tournament system and potential unfair or anticompetitive behavior that the agency may correct through further rulemaking. Comments for the advanced notice of proposed rulemaking are due Sept. 6.

Grower advocates say that the tournament system conceals growers’ true take-home pay and gives the companies immense control over growers’ lives. But the system’s defenders argue that it’s a sterling example of how healthy competition can work and motivates farmers to take better care of their chickens. Several public comments opposing the rule also argued that eliminating performance incentives might have a deleterious effect on animal welfare because farmers would be less incentivized to care for their chickens.

Even if the companies do not explicitly require farmers to oppose the rule in the public comments, growers may not think they have a choice, advocates and former growers said in interviews.

“This transparency rule is trying to create some sunlight and transparency to address at least part of the deception and the retaliatory opportunities that there are as a result of the tournament pricing system,” explained Steve Etka, policy director for the Campaign for Contract Agriculture Reform. “So to use that power and that fear of retaliation to get farmers to oppose the rule that would give them the transparency that would give them the ability to even begin to fight back against the system is so diabolically circular.”

Open Markets Institute, an anti-monopoly group, said in its public comment that it supports the increased transparency but argued that the “disclosures alone will not be sufficient to address the fundamental power imbalances between contract growers and poultry integrators.” Similarly, 10 state attorneys general submitted a comment urging the USDA to go further and insisting that the enforcement mechanisms for the proposed rule are inadequate.

Running the same playbook

This is not the first time the industry has rallied to oppose regulations like this. In 2010, USDA proposed a similar rule that would have ended the tournament system, garnering more than 60,000 comments. At the time, advocates and former growers alleged that companies provided postcards growers could mail to USDA with similar instructions to oppose the rule. Although USDA finalized the rule, after Republicans took the house in the midterms they added a rider to the Appropriations bill preventing USDA from enforcing the rule.

Mountaire referenced the industry’s history opposing similar regulatory changes in its instructions to growers to oppose the new rulemaking. “The last time USDA tried to impose a rule like this, we were proud that so many of our growers took the time to make their voices heard in opposition to needless government regulation.”

An image of a farm bill comment from June 22, 2010.

Advocates and former growers allege that companies asked growers to sign and mail in the postcards to USDA as part of a campaign to oppose the rulemaking that they say would have made contracts more transparent and given farmers a fair shake. | Obtained by POLITICO

“They’re running the same playbook,” said Aaron Johnson, Program Manager for the Challenging Corporate Power Program at the farmer advocacy group RAFI-USA, of the campaign the processing companies are running against the rulemaking.

Advocates believe there are fewer farmer comments in this rulemaking because farmers are more distrustful after the 2010 rulemaking. Even contract chicken growers who support changes to or the elimination of the tournament system are worried that change might just enable companies to find new ways to squeeze farmers.

“These companies are not taking care of these growers,” said Trina McClendon, a Mississippi contract grower for Wayne-Sanderson Farms. “Why would we even trust them to do the right thing? They haven’t proven themselves farmer-friendly at all.” McClendon said she had not been asked to sign a form letter opposing the proposed rule. She added that, if asked to sign such a letter prior to becoming an advocate for growers, she likely would have felt pressured to sign.

The chicken industry, which has faced numerous price-fixing allegations, has more recently come under fire for allegations of wage-fixing and of misclassifying its growers as contractors. Last month, the Justice Department allowed a major merger between Sanderson Farms and Wayne Farms, but required significant concessions for how the companies pay contract growers. The deal, in which companies agreed to pay nearly $85 million for alleged wage-fixing, also eliminated parts of the tournament system, going further than USDA’s proposed rule. The companies did not admit wrongdoing.

The settlement bars the new Wayne-Sanderson Farms, which now controls 15 percent of the poultry industry, from administering penalties to growers and effectively creates a pay floor companies must disclose to growers in their contracts.

The demise of the tournament system for a large segment of the chicken industry demonstrates a significant challenge to the status quo. The Wayne-Sanderson settlement signaled a renewed interest from an activist antitrust division in enforcing agriculture’s competition law, the 1921 Packers and Stockyards Act.

Although the tournament system is far from eliminated, its central role in how supply chains have been organized ensures a rulemaking garners attention from other industries, too. In its comment to the proposed rule, the National Pork Producers Council, which represents pork processing companies, urged USDA to consider that greater information transparency required in the proposed rule also risks collusion among competitors. NPPC maintains it has no position on the poultry rule. NPPC’s comments “frame importance considerations as AMS continues its rulemaking process,” an NPPC spokesperson wrote in a statement.

But during the 2010 rulemaking period, advocates allege that industry was involved in providing postcards to contract hog farmers opposing the proposed rule, arguing that it would negatively impact the pork industry, a sector which has become increasingly vertically integrated. In 20 years, the number of hogs sold under contract as opposed to on the cash market doubled to 63 percent in 2017.

“It seems clear that the rule would make it harder to buy and sell livestock, and that will only increase costs and lead to lost farm and farm-related jobs and higher meat prices for consumers,” the postcard reads.

An image of a comment opposing the proposed rule.

During the 2010 rulemaking period, advocates allege that industry was involved in providing postcards to contract hog farmers opposing the proposed rule, arguing that it would negatively impact the pork industry, a sector which has become increasingly vertically integrated. | Obtained by POLITICO

Peter Carstensen, professor of law emeritus at the University of Wisconsin-Madison, said that NPPC has a point that sharing information can be anticompetitive — though he’s not convinced this rule presents that problem. NPPC’s contracts with pork producers have information asymmetries similar to those in the tournament system.

“They want to preserve informational dominance,” Carstensen explained. “It’s not just having access to the information but who you’re able to discuss it with and can help you understand it and interpret it.”

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