The Transparency Rule is the first to be finalized of several planned USDA rulemakings expanding requirements on integrators under the Packers and Stockyards Act (PSA).¹ From the outset, the Biden Administration has prioritized a series of rulemakings intended to promote competition, reduce consolidation, and fight inflation in agricultural markets.  These rulemakings largely resurrect earlier Obama-era PSA rulemaking efforts, even drawing on parts of the same historical record.  In addition to the just-released Transparency Rule, USDA continues to pursue a rulemaking characterized as intended to foster “inclusive competition,” and USDA has also announced through the Unified Agenda plans to pursue a rulemaking addressing injury to competition under the PSA and a rulemaking further expanding requirements on ranking-based broiler-grower compensation systems.

AMS explains the Transparency Rule is intended to provide growers with more information about the potential costs and risks and likely outcomes associated with a particular broiler growing arrangement.  AMS believes this information will enable growers to make more-informed decisions about potential revenue streams, better assess whether a particular broiler growing arrangement is an appropriate business decision, and better understand what factors may have affected outcomes at settlement.  AMS references historical broiler grower complaints to justify the rulemaking, although specifics about these complaints are not provided.   

The Transparency Rule creates four main requirements: 

• Disclosure Documents.  At certain points in the contracting process, specific disclosures must be provided to broiler growers, including information about past or at times projected payments.
• Governance Framework.  Integrators must establish governance frameworks to ensure the accuracy of data provided through the Disclosure Documents.
• Placement and Settlement.  Integrators using a poultry grower ranking system to determine compensation must provide certain information about the flock at placement and all flocks in the settlement pool at settlement.
• Contractual Terms.  Broiler grower contracts must specify the minimum guaranteed number of annual placements and the minimum guaranteed stocking density. 

Each is described in more detail below after first addressing the updated scope of the final rule.  The final rule also creates a number of new definitions and re-organizes the definitions section of the regulations.  Key definitions are addressed as relevant in this memorandum, and companies should carefully review all the new definitions added to 9 C.F.R. § 201.2. 

I. Scope of the Transparency Rule  

The Transparency Rule applies only to contracts with broiler growers.  Although the proposed rule would have applied to all poultry growing arrangements, AMS explained that because the alleged conduct it was concerned about was primarily associated with the broiler industry, the final rule would apply only to broiler production contracts.  Production contracts involving turkeys or other species of poultry besides broilers are not covered.  AMS also clarifies that the final rule applies only to chickens raised for slaughter, not breeder or layer flocks.  In this memorandum, references to “grower” are intended to mean “broiler grower” unless otherwise indicated.

II. Live Poultry Dealer Disclosure Document Requirements

The Transparency Rule creates a new disclosure document called a “Live Poultry Dealer Disclosure Document” (referred to here as the Disclosure Document).  The Disclosure Document contains various mandatory disclosures, and it must be provided when contracts are offered, renewed, revised, or replaced, or when housing specifications are changed.  There are specific timing requirements for when the Disclosure Document must be provided, explained further below. 

a. Contents of the Disclosure Document

The Disclosure Document must contain a cover page, followed by additional pages covering specific types of information. 

Contents of the Cover Page

The Disclosure Document must include a cover page, with the following information in the following order:

• The title, “LIVE POULTRY DEALER DISCLOSURE DOCUMENT” in capital letters and bold type.
• The following information about the live poultry dealer:
  • Name
  • Type of business organization
  • Principal business address
  • Telephone number
  • Email address
  • Primary Internet website address (if applicable)
• The length of the term of the broiler growing arrangement
• The following statement, verbatim:
  • The income from your poultry farm may be significantly affected by the number of flocks the poultry company places on your farm each year, the density or number of birds placed with each flock, and the target weight at which poultry is caught. The poultry company may have full discretion and control over these and other factors. Please carefully review the information in this document.
• The following minimums as established under the terms of the broiler growing arrangement:
  • Minimum number of placements annually
  • Minimum stocking density for each flock
• Whichever of the two following statements is applicable, verbatim, based on whether the disclosure is being provided in a situation where capital investments would be required:
  • [Capital investments not required:]  This disclosure document summarizes certain provisions of your broiler growing arrangement and other information. You have the right to read this disclosure document and all accompanying documents carefully. At least 14 calendar days before the live poultry dealer executes the broiler growing arrangement (provided that the grower may waive up to 7 calendar days of that time period), the poultry company is required to provide you with: (1) this disclosure document, and (2) a copy of the broiler growing arrangement.
  • [Capital investments are or could be required:]  This disclosure document summarizes certain provisions of your broiler growing arrangement and other information. You have the right to read this disclosure document and all accompanying documents carefully. The live poultry dealer is required to provide this disclosure document to you simultaneously with (a) a copy of the broiler growing arrangement, (b) any new or modified housing specifications that would require you to make an original or additional capital investment, and (c) a letter of intent.
• The following statement, verbatim:
  • Even if the broiler growing arrangement contains a confidentiality provision, by law you still retain the right to discuss the terms of the broiler growing arrangement and the Live Poultry Dealer Disclosure Document with a Federal or State agency, your financial advisor or lender, your legal advisor, your accounting services representative, other growers for the same live poultry dealer, and your immediate family or business associates. A business associate is a person not employed by you but with whom you have a valid business reason for consulting when entering into or operating under a broiler growing arrangement.
• The following statement, verbatim and in bold type:
  • Note that USDA has not verified the information contained in 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.

AMS does not specifically explain whether additional information or language may be included in the cover page.  The regulation likewise states only that, “The order, form, and content of the cover page shall be an include” the above information. 

Additional Pages of Disclosures

The Transparency Rule requires additional disclosures following the cover page:

• Litigation Summary
  • A summary of litigation over the prior 5 years between the live poultry dealer and any broiler grower.
  • The summary must include:
    • The nature of the litigation
    • Its location
    • The initiating party
    • A brief description of the controversy
    • Any resolution
  • AMS does not explain how nonpublic information or confidential settlements are to be handled.  AMS views all litigation with growers as being relevant, not only litigation related to PSA or contracting issues. 
• Bankruptcy Summary
  • A summary of all bankruptcy filings in the prior 5 years by the live poultry dealer and any parent, subsidiary, or related entity.
• Sale-of-Farm Contract Assignment
  • A statement describing the live poultry dealer’s policies and procedures regarding the potential sale of the grower’s farm, assignment of the contract to another party, and the circumstances under which the live poultry dealer would offer the buyer a broiler growing arrangement.
  • AMS clarifies in the preamble that an integrator is not required to have such a policy and can indicate that no policy exists if that is in fact the case.  However, AMS also suggests it would scrutinize closely situations in which an integrator says it has no policy to ensure AMS agrees that is true.  AMS explains that when an integrator typically looks to certain facts and circumstances to determine whether to assign or offer a contract to a farm buyer, those would be viewed as the integrator’s policy.  AMS also recognizes that an integrator might not know every factor in advance and characterizes the rule as requiring disclosure of policies and procedures in advance, not requiring a commitment to assign or offer a contract.
• Other Policies and Procedures
  • A statement describing the live poultry dealer’s policies and procedures, as well as any appeal rights, for specific events identified in the regulation:
    • Increased lay-out time;
    • Sick, diseased, and high early-mortality flocks;
    • Natural disasters, weather events, and other events that adversely affect the physical infrastructure of the complex or grower facility;
    • Other potential depopulation events that affect grower payments;
    • Feed outages, including outage times; and
    • Grower complaints related to feed quality, formulation, or suitability.
  • As with the sale-of-farm contract assignment disclosure, AMS explains that it does not require that integrators have policies on any of these issues, but rather that integrators must identify those policies they do have.  An integrator without a policy would need to disclose that there is no policy.  AMS implies it would view lack-of-policy statements critically and in light of actual practices.
• Grower Turnover Rate
  • A table showing the average annual broiler grower turnover rates for the previous year and the average of the 5 previous years at both the company and local complex level.

Financial Disclosures

The Disclosure Document will also have to include certain financial disclosures:

• Historical Payment Tables
  • Tables showing average annual gross payments to broiler growers at the local complex for each of the past 5 years, expressed in dollars per farm facility square foot.
  • The tables must include the following:
    • Year
    • Housing specification tier (lowest to highest)
    • Payment distributions, either:
      • By quartile (lowest to highest), if the local complex has 10 or more growers, or
      • Mean and one standard deviation, if the local complex has 9 or fewer growers
  • AMS states in the preamble that it does not prohibit including disclaimers, such as that past performance does not predict future results, so long as the statement does not cause confusion or deception.  AMS implies it may take a critical view toward disclaimers. 
• Forward-Looking Tables
  • If broiler housing specifications are modified such that additional capital investment may be required, or if the historical averages “do not accurately represent projected grower gross annual payments . . . for any reason,” forward-looking tables must be provided.
  • The forward-looking tables must show the average projected annual gross payments to broiler growers at the complex with the same housing specifications.  The projections must be organized by quintile or using the mean and standard deviation, as described above for the historical tables, and expressed as dollars per farm facility square foot.
  • The integrator must provide:
    • An explanation of why the historical payments “do not provide an accurate representation of projected future payments”; and
    • The “basic assumptions” underlying the projections.
  • AMS explains in the preamble that the assumptions used to prepare the projections must be reasonable and must be applied in a reasonable manner to the specific situation.  As explained above, AMS does not prohibit adding disclaimers to projections, but AMS has signaled it may review disclaimers to prevent confusion or deception.
• Broiler Grower Variable Costs
  • A summary of information the live poultry dealer collects related to grower variable costs inherent in broiler production.
  • “Grower variable costs” is defined as costs related to poultry production that may be borne by the grower, which may include without limitation utilities, fuel, water, labor, repairs and maintenance, and liability insurance.
  • AMS’s commentary in the preamble suggests it may view grower variable costs broadly.  For example, AMS notes that if an integrator maintains animal welfare or other special growout requirements that “give rise to profitability and financial risks” to the grower, those would be considered grower variable costs subject to disclosure.
  • AMS explains that it is not requiring integrators to maintain this information but that any such information collected must be provided. 
• Contact Information for Support
  • Current contact information for the state university extension service office or the county farm advisor’s office that can provide relevant information on broiler farming financial issues.

Certification by Executive

As described further below, the Transparency Rule requires broiler integrators to establish governance frameworks to oversee the accuracy of disclosure information.  The Disclosure Document must contain a certification by a principal executive officer (e.g., a CEO or similar) that

• The live poultry dealer has established, maintains, and enforces a governance framework; and
• Based on the officer’s knowledge, the Disclosure Document does not contain any untrue statement of material fact or a material omission that would render it misleading.

The regulations do not provide a specific format for this certification.

Signature Page

The Disclosure Document must contain a broiler grower’s signature page.  The signature page must include the following statement, verbatim:

If the live poultry dealer does not deliver this disclosure document within the timeframe specified herein, or if this disclosure document contains any false or misleading statement or a material omission (including any discrepancy with other oral or written statements made in connection with the broiler growing arrangement), a violation of Federal and 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.

As described immediately below, integrators must obtain a grower’s signature on this page or, if that is not possible, document delivery of the Disclosure Document. 

b. Receipt by Growers

The integrator must obtain the dated signature of the broiler grower or prospective broiler grower on the above-mentioned signature page.  AMS views this as evidence of receipt by the grower, so best practice would appear to be to obtain a signature upon delivery.  If the integrator is unable to obtain the grower’s signature, the integrator must obtain alternative documentation to demonstrate that the Disclosure Document was delivered and that the integrator used best efforts to obtain a signature. 

AMS explains in the preamble that it expects integrators to be in regular contact with growers throughout the contract negotiation process and that the agency anticipates it will be “a rare circumstance requiring exceptional justification” for an integrator to not be able to obtain a grower signature.  But if an integrator is unable to obtain a signature, AMS suggests that appropriate alternative documentation could include proof of delivery and statements or affidavits supporting the communication and the grower’s refusal to sign or unavailability to sign.

The integrator must provide a copy of the signed signature page or alternative documentation to the grower, and the integrator must maintain a copy in its records for 3 years following expiration, termination, or non-renewal of the broiler growing arrangement.

c. Presentation of Disclosures and Translations

The information in the Disclosure Document must be presented in a “clear, concise, and understandable manner for growers.”  AMS does not further describe what would render a disclosure unclear.  AMS has developed instructions and a template in Form PSD 6100, which will be available online and which contains further guidance on how AMS believes information should be presented and how certain calculations should be performed.  Form PSD 6100 includes a template Disclosure Document that companies may use if they wish.

The Transparency Rule requires that live poultry dealers make “reasonable efforts” to ensure that broiler growers are aware of their right to translation assistance and to assist growers in translating Disclosure Documents in advance of the delivery timeframes described further below.  This in practice may require providing additional materials or providing Disclosure Documents earlier for certain farmers.  AMS describes reasonable efforts as including steps such as providing contact information for professional translation services, trade associations with translation resources, community groups, or other persons in the area who may provide translation services.  Integrators are not required to provide translated contracts, although in the preamble AMS notes they are “strongly encouraged” to do so.  Integrators may not prohibit a broiler grower from sharing the Disclosure Document for purposes of translation. 

d. Small Dealer Disclosures

Small live poultry dealer are subject to fewer disclosure requirements.  AMS considers a live poultry dealer to be small if the dealer, together with all companies controlled by or under common control with the dealer, slaughters fewer than 2 million live pounds of broilers weekly (104 million pounds annually).  Small live poultry dealers have to provide a Disclosure Document only when changing housing requirements or entering into a contract that will require new or additional capital investments.  They are not required to provide a Disclosure Document if offering, renewing, revising, or replacing a contract that does not require a capital investment.

III. Governance Framework

The Transparency Rule requires that broiler dealers implement a governance framework that is “reasonably designed” to (i) audit the accuracy and completeness of the disclosures required in the Disclosure Document; and (ii) ensure compliance with all PSA requirements.  This includes auditing the accuracy of any grower variable costs data maintained by the integrator as well as the accuracy of the explanations and assumptions underlying any forward-looking financial projections. 

The “principal executive officer”, which AMS appears to view as the CEO or a similar executive, is required to certify in the Disclosure Document that the dealer has “established, maintains, and enforces the governance framework” and that, based on the officer’s knowledge, the Disclosure Document does not contain any untrue statement of a material fact or material omission that would render it misleading. 

AMS explains that that the company official is required to certify that an appropriate governance framework is in place and was used to develop the disclosures, not necessarily that the disclosures themselves are accurate.  AMS also contemplates that a senior official such as a CEO may rely on statements and oversight work by officials reporting into the official. 

IV. Contract Terms – Minimum Placements

Although positioned as a disclosure rule, the Transparency Rule requires that broiler production contracts specify two minimums:

• The minimum number of placements annually; and
• The minimum stocking density for each flock placed under the agreement.

These minimums have to be repeated in the Disclosure Document, as described above.

In the preamble, AMS explains that the rule does not prevent integrators from setting guaranteed minimums below projected placement levels.  AMS goes so far as to note that “should dealers wish to indicate that the guaranteed value is zero, this rule would not prohibit such a disclosure, provided that such disclosure is accurate and not misleading.” 

AMS does not clearly explain how it views these required provisions as applying to contracts already in effect as of the effective date.  The final rule presents these requirements by requiring they be included “in the true written copy of the broiler growing arrangement,” which must be provided at contract offer, renewal, revision, or replacement.  It is therefore possible that AMS intends for this provision to apply only to contracts as they are presented for renewal, but AMS is silent on this in the lengthy discussion of the final rule.

V. Right to Discuss Contract Terms

Under the Transparency Rule, an integrator may not permit a poultry grower or a prospective poultry grower from discussing either the terms of the poultry growing arrangement or the Disclosure Document with the following parties:

• A federal or state agency;
• The grower’s financial advisor or lender;
• The grower’s legal advisor;
• An accountant;
• Other growers for the same live poultry dealer; or
• A member of the grower’s immediate family or a business associate.

A “business associate” is a defined as a person not employed by the grower but with whom the grower has a valid reason for consulting. 

VI. Poultry Grower Ranking System Disclosures

In addition to the requirements described above, which apply to all broiler contracting, the Transparency Rule applies additional disclosure requirements to broiler integrators using ranking systems to compensate broiler growers, such as tournament systems.

The final rule defines a “poultry grower ranking system” as “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.” 

When operating a poultry grower ranking system, the integrator must provide specific disclosures at placement and again at settlement.

Placement Disclosures

Within 24 hours after placement, the integrator must provide the broiler grower the following information:

• Stocking density
• Names and ratios of breeds for the birds placed
• All ratios of male to female birds delivered, if the birds have been sexed
• The breed facility identifier
  • AMS explains that this can be a unique and consistent identification code and need not be the actual name of the breeder facility
• Breeder flock age
• Information regarding any known health impairments of the breeder flock or the delivered flock
  • AMS does not define “health impairments,” referencing without explaining the “generally understood” meaning of the term
• Adjustments, if any, the integrator may make to pay calculations based on the above
  • AMS notes the final rule does not require pay adjustments. 
  • AMS further explains that the specific adjustment does not need to be described, but if the integrator knows that certain factors will be applied, such as specific formulas or procedures, those must be disclosed.  If the integrator knows merely that the inputs will likely result in the pay being adjusted up or down in some unknown amount, AMS believes that must be disclosed. 

Settlement Disclosures

At settlement, the Transparency Rule requires integrators to provide the below disclosures for all broiler growers in the ranking group.  The integrator is neither required to nor prohibited from listing the actual names of the other growers in the ranking group. 

• Housing specifications for each broiler grower in the group during the period
• Stocking density for each placement in the ranking group
• The names and all ratios of breeds for each placement
• All ratios of male to female birds for each placement, if the birds have been sexed
• All breeder facility identifiers for each placement in the ranking
• The breeder flock ages for each placement in the ranking
• The number of feed disruptions each ranked broiler grower endured during the period, where the grower was completely out of feed for at least 12 hours

These disclosures must be provided to each grower in the ranking group, and they must include information for all growers ranked in the group. 

VII. When The Various Disclosures Must Be Provided

The Transparency Rule requires that the various new disclosures, as well as other documents, must be provided under the following situations and within certain timeframes:

VIII. Effective Date

The Transparency Rule is scheduled to take February 12, 2024.  AMS specifically rejected comments recommending that all planned PSA rulemakings be given a uniform effective date.  AMS provides little information on its planned approach to phasing in enforcement, although AMS noted that in “most circumstances, and as would expected to be the case in the enforcement of good faith compliance with this final rule, AMS initially delivers a Notice of Violation that provides the live poultry dealer with the opportunity to engage with AMS around the nature of violation and take compliance steps necessary to cure the violation before formal remedial actions are commenced.” 

Next steps

The Transparency Rule imparts significant disclosure and oversight obligations on broiler integrators and provides a very short period of time to put into place the necessary compliance systems.  Broiler integrators should begin preparing for its implementation immediately.  We will continue to monitor PSA rulemaking developments.  Please do not hesitate to contact us if you have any questions. 

Authored by Brian D. Eyink and Connie Potter.

References

1. 88 Fed. Reg. 83210 (Nov. 28, 2023).

2. Under existing AMS regulations, an additional capital investment is defined as $12,500 or more.