Dive Brief:
- Poultry companies would be barred from deducting pay from chicken farmers who underperform compared to their peers under a Biden administration effort to overhaul a controversial payment structure that critics say pits growers against one another.
- The proposed rule, released by the U.S. Department of Agriculture on Monday, would only allow chicken farmers who participate in so-called "tournament" systems to receive performance bonuses, prohibiting processors from making deductions to the base contract price.
- Processors would also be required to document how they ensure they're making "fair" comparisons between growers. The rule would additionally direct companies to provide supplemental information when asking growers to make capital investments, such as an analysis of financial returns.
Dive Insight:
Income for farmers that raise chickens for Pilgrim's Pride and other major processors can vary largely because of a complicated, incentive-based pay structure that bases earnings on performance compared to other growers.
Under tournament systems, processors provide chicks to multiple growers at the same time, for delivery in the same week. Once a farmer's chickens are ready for processing, the company weighs the flock, tallies the costs associated with raising the birds and compares those metrics to other growers in the same tournament.
Farmers whose costs were lower than the average grower can receive a bonus in addition to the contract's base fee. Growers can also receive deductions from their base fee when their costs exceed the tournament average.
The USDA's proposal to overhaul the payment structure aims to make the tournament system fair by ensuring farmers all receive base payments and have access to information that would allow them to make more informed decisions before taking on the risks associated with a contract.
The rule is similar to the terms of a landmark settlement agreement between Cargill and the Department of Justice in 2022, in which the poultry giant agreed to reform its use of the payment system after being accused of illegally exchanging wage and benefit information. The settlement also included Wayne Farms and Sanderson Farms, which Cargill purchased with Continental Grain the same year.
The Biden administration has looked to level the playing field for chicken farmers as part of a wider push to foster competition and break up consolidation in the meat industry. The proposal, yet to be published in the Federal Register, is the third in a suite of rules looking to revamp the century-old Packers and Stockyards Act governing fair markets in agriculture.
“For too long, the largest poultry companies have utilized abusive tools, like the tournament system, to control and unfairly target individual poultry growers," said Sarah Carden, research and policy development director for Farm Action, which fights corporate monopolies in agriculture. "This rule frees growers from a decades-long corporate stranglehold.”
The National Chicken Council, which represents major poultry processors, said in a statement Monday that the proposed rules are "solutions in search of problems." Poultry processors assume the majority of economic risk by paying for feed and veterinary costs, and they have argued that a firm base payment could impact compensation for farmers who make greater investments in their facilities.
“This rule – which Congress never asked for – will lead to rigid, one-size-fits-all requirements on chicken growing contracts that would stifle innovation, lead to higher costs for consumers, decrease competition, and cost jobs by driving some of the best farmers out of the chicken business," NCC President Mike Brown said.
