To Help the Little Guy, the Government Proposes New Rules for Big Meatpackers

The Obama administration proposed new rules on Friday seeking to increase competition and rein in potentially unfair practices by large meatpackers and poultry processors. The move is aimed at helping small livestock and poultry farmers survive in an industry dominated by corporate giants.

The rules could give farmers and ranchers new leverage in suing meat companies that they believe have treated them unfairly. They would end practices among cattle and hog buyers that may lower prices paid to farmers and feedlot owners. And they would set new protections for poultry farmers, who often must go deeply into debt to build the chicken houses needed to win contracts from processors.

“As this market has become more consolidated and vertically integrated for efficiency’s sake it lends itself to unfair practices and practices that are not particularly transparent,” the agriculture secretary, Tom Vilsack, said in an interview.

The goal, he said, is to promote “a fair and more transparent relationship between the folks on the farm and the businesses that are packing and processing what’s raised on the farm.”

Mr. Vilsack said the rules could increase the payments farmers receive for their livestock or poultry, but added that those higher costs would not necessarily be passed on to consumers, who might benefit from increased competition.

The regulatory move comes as the Agriculture and Justice Departments have been holding a series of public workshops to discuss allegations of anticompetitive behavior in agriculture.

The rules apply largely to how the Agriculture Department enforces the Packers and Stockyards Act, a 1921 law governing the livestock and poultry industry. The U.S.D.A. will evaluate public comment before issuing a final set of rules, which could take many months.

Groups representing the meat industry criticized the proposed rules.

“These rules would require a packer to treat everybody the same regardless of capability, regardless of quality of product,” said Mark Dopp, a senior vice president and the general counsel of the American Meat Institute, which represents the meatpacking industry. “We’re afraid this is going to stifle the progress and innovation we’ve seen over the last 20 or 30 years.”

Richard Lobb, a spokesman for the National Chicken Council, which represents poultry processors, said the new rules would “open the floodgates to litigation.”

“We believe the majority of growers are satisfied with the way the system is set up now,” he said. “Clearly there are some who are not but we think they are in the minority and this set of regulations is clearly aimed at that minority.”

In the past, farmers have been stymied in efforts to sue meat processors for unfair practices as judges have ruled in several cases that they must prove that a packers’ actions harm not just individual producers but also stifle competition on a broader scale.

In an outline of the proposed rules, the U.S.D.A. said the courts had set an unreasonable standard. It called for “judicial re-examination” of the issue in light of specific examples of unfair practices spelled out in the new rules.

“We’ve been fighting this bear forever and we finally got a breakthrough,” said Fred Stokes, executive director of the Organization for Competitive Markets, a group that advocates for small farmers and livestock producers.

The new rules would also change industry practices.

They would bar cattle dealers from acting as exclusive buyers for more than one meat packer in order to keep packers from sharing information on pricing, which could lead to collusion to keep prices down.

They would enhance market transparency by requiring processors to submit to the U.S.D.A. samples of contracts they offer producers.

And they address the concerns of many poultry growers that they must go deeply into debt to build poultry houses required by processors. The rules would require that processors give growers contracts that last long enough for them to recoup 80 percent of their capital investment.

In describing the consolidation in the livestock industry, the U.S.D.A. said the number of hog farms in the United States had fallen to 71,000 today, from 666,000 in 1980. A hog farmer today is paid on average 25 percent of the retail value of a hog, which is half of what farmers received 30 years ago, the department said.

In the cattle industry, the number of farms, ranches and feedlots has dropped to 950,000 from 1.6 million in 1980, according to the department. It said that cattle farmers received 43 percent of the retail value of a steer, compared with 62 percent in 1980.

While the trend toward consolidation was clear, “the difficulty is always to separate what is happening due to efficiency and what is happening due to market power,” according to Richard Sexton, a professor of agricultural economics at the University of California, Davis.

“There’s probably no question that these things that have happened have streamlined the sector, squeezed costs out of it and made it more efficient, but in the process, people get left behind and many of the people getting left behind are the small producers.”