KANSAS CITY, Mo. – Federal regulators are set to release the most sweeping antitrust rules covering the meat industry in decades, potentially altering the balance of power between meat companies and the farmers who raise their animals.
Activists, farmers and meat industry officials have been anxiously awaiting the new rules, which will be released this spring for public comment and are set to take effect this summer. The regulations are seen as a kind of litmus test for the Obama administration and how far it will go in regulating competition in the meat industry.
At issue is how much power farmers have as they produce cattle, hogs and chickens for large companies such as JBS SA, Smithfield Farms and Tyson Foods. The new rules will govern how meatpackers buy their cattle on an open market and what demands poultry companies can make on the independent contractors who raise their chickens.
"We have high hopes for them," said Mike Weaver, a West Virginia poultry farmer who raises chickens under contract for Pilgrim's Pride. "We've been promised that there will be sweeping changes in these new rules, but nobody's seen them."
The 2008 Farm Bill required updated rules but left the specifics to the U.S. Department of Agriculture. Farm state lawmakers such as Sen. Tom Harkin, D-Iowa, had long been concerned a lack of competition among meat companies was driving down prices farmers were paid for their cattle and poultry.
Just four companies buy and slaughter 80 percent of all U.S. beef, limiting competition in the meat industry. Meanwhile, big poultry companies dictate chicken prices and can demand farmers take on debt to upgrade their chicken houses for the companies' benefit.
Farmers such as Weaver, who has met with Agriculture Secretary Tom Vilsack, think the new leaders in the USDA's antitrust division will push for tougher and more far-reaching regulations than previous administrations. Some believe the new rules could be the strongest antitrust protections imposed since the Great Depression.
There's also a risk they will drive up the cost of meat, eating into meatpackers' profits or pushing up prices at grocery stores if companies pass on the expense.
The USDA wouldn't say when its proposed rules will be released, but the Farm Bill requires new regulations be in place by this summer. The bill lays out a broad outline of what the rules must address, but the all-important details won't be known until a proposal becomes public.
The regulations come at a time when the Obama administration has begun a series of meetings across the country to examine competition in agriculture. Officials with the Agriculture and Justice Departments, who are conducting the hearings, have said they don't know what kind of action could result, but it's clear the meat industry is under more scrutiny than it has been for years.
Among issues expected to be addressed in the new rules is when it's illegal for companies to choose one producer's cattle or hogs over another's.
Ranchers have complained that meatpackers make their choices with an aim toward keeping prices low. For example, meatpackers might pass by independent ranchers to buy cattle raised under contracts that guarantee processors a lower price.
Iowa hog farmer Chuck Wirtz is torn about the rules. He sells most of his hogs on the open market and feels squeezed by big meatpackers. At the same time, he wouldn't want the rules to restrict the market too much.
"I personally probably get preferential treatment, because I'm rather large," he said, noting that meatpackers will pay him more for hogs if he can deliver several hundred at a time.
Wirtz is worried the new rule could say such a deal is illegal if another farmer is passed over.
Such details have been worked over for months within the obscure USDA agency that regulates competition in the meat industry, called the Packers and Stockyards Administration. The PSA was formed in 1921 to limit the power of big meatpackers that dominated the industry.
Ranchers have long criticized the agency as toothless. A 2006 government report said the agency was slow to bring cases and understaffed. But some hope it will be tougher under the direction of its new administrator, Dudley Butler, a lawyer who specialized in suing poultry companies.
Butler declined to comment on the rules.
The new rules also would determine when poultry companies could require farmers to take out additional loans and improve chicken houses by adding new equipment. Farmers resist the investments because although they might earn more money after the upgrades, the extra income doesn't offset the extra debt and cost of operating the houses.
"Eighty percent or more of the upgrade benefits the company and not the grower. And the growers are the ones who pay for it. And that's unfair, plain and simple unfair," Weaver said.
Richard Lobb, a spokesman for the National Chicken Council, said farmers and poultry companies share the benefit when farmers upgrade a house. Birds grow faster, which can allow more flocks a year to be grown on a farm, he said.
Companies such as Tyson Foods, which produces beef, chicken and pork, will be ready to challenge rules they consider too strict.
"We're already in one of the most heavily regulated industries in the nation and take compliance with the law very seriously," Tyson spokesman Gary Mickelson said in an e-mail. "However, we don't believe additional rules are needed to control the relationship between livestock and poultry producers and food companies like ours."