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US chicken producers applaud sunset of ethanol subsidy, but wary of final GIPSA

The sunset of the Volumetric Ethanol Excise Tax Credit and import tariff and the publishing of USDA’s long awaited Grain Inspection Packers and Stockyards Administration final livestock marketing rule are significant developments that will have major impacts on the U.S. broiler industry.

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The sunset of the Volumetric Ethanol Excise Tax Credit and import tariff, and the publishing of USDA’s long awaited Grain Inspection Packers and Stockyards Administration final livestock marketing rule are significant developments that will have major impacts on the U.S. broiler industry.

VEETC and import tariff expire  

The 112th Congress adjourned in late December 2011 without renewing the $0.45 VEETC tax credit for blenders of corn ethanol and the $0.54 per gallon tariff on imported ethanol. This marked an important first step toward a more rational federal fuels policy.

The mature corn-based ethanol industry is now two steps closer to operating on a level playing field with other agriculture commodities whose largest input cost is corn. These developments mark significant progress in our fight against unnecessary federal support of corn-based ethanol policies that have artificially increased the cost of corn and have tremendously harmed the broiler industry.

The National Chicken Council in 2012 will continue to work with Congress and the administration to seek real reform to the Renewable Fuels Standard, the third leg of government support, which requires a significant increase in biofuel consumption by 2022. NCC will continue to push for passage of the Renewable Fuel Standard Flexibility Act in the House of Representatives, and we will work to get companion legislation introduced, considered and passed in the Senate. This bill would tie the amount of ethanol required by the mandate to the amount of corn available.

GIPSA publishes final rule  

GIPSA issued on December 7, 2011, four final regulations implementing portions of the 2008 Farm Bill. Although the new rules impose some limitations on how poultry dealers contract with growers, many of the more controversial aspects of the agency’s June 2010 proposed rule were not finalized. In brief, the GIPSA rules affect suspension of delivery of birds, criteria for additional capital investments and the period of time permitted for a grower to remedy a breach of contract and arbitration.

Congress in November 2011 passed an appropriations bill forbidding GIPSA from pursuing the more burdensome regulations, including limiting producers’ use of performance-based or “tournament” systems for growers, onerous provisions involving undue preferences and unfair practices and the agency’s attempt to overturn well-established judicial precedent.

These particular provisions proved quite controversial, and NCC worked aggressively to oppose them and to make most of the final regulations consistent with the Farm Bill more reasonable and less onerous. Although producers will have to adjust, the rules mark a significant departure from the initial proposal’s more troubling regulations.

GIPSA concerns still exist

That being said, we are disappointed that the final rule still includes provisions estimated to cost the poultry industry as much as $55.5 million annually, in the form of legal costs, industry adjustment costs and administrative costs. This is especially burdensome on an industry that has struggled financially in the face of last year’s difficult economic climate and record-high costs of production.

One of our biggest concerns is that the final rules merely list the criteria the Secretary of Agriculture and GIPSA Administrator may consider in deciding whether a practice is a violation of the Packers and Stockyards Act. One of the most troublesome aspects is that most of the rules do not actually state what a company can and cannot do, so there is a lot of uncertainty around a company’s legal obligations, a lack of adequate notice to companies and a lot of opportunity for selective enforcement of these regulations.

It is also concerning that breeder and pullet farms are now subject to regulation under GIPSA, by virtue of the expansion to include pullets and hatchery supply flocks. The Packers and Stockyards Act does not include this. Indeed, this expansion of agency authority was specifically rejected by Congress and was not included as part of the 2008 Farm Bill mandate. This will no doubt add an additional regulatory burden on our industry coming off of one of the worst, if not the worst, financial years in history.

Reasonable notice of suspension  

Finally, under the rule, GIPSA establishes specific criteria to consider when assessing whether reasonable notice has been provided for suspension of delivery of birds. Although the 2008 Farm Bill authorized GIPSA to take action in this area, the rule is unnecessarily restrictive on broiler companies’ abilities to suspend delivery to growers. The proposal would require that notice of such intent be provided to growers at least 90 days prior to the date of suspension of delivery. Because it takes approximately two months to grow out a flock of broiler chickens, the proposal essentially would require that notice be given two flocks in advance of suspension of delivery for broilers. This is essentially adding three months for broiler companies to respond to demand in the market.

Our team will continue to review the final rule and its implications and raise concerns with the administration and Congress if necessary about any troubling provisions, especially prior to implementation on February 7. How GIPSA actually implements the final rule’s provisions will determine if subsequent action is required.

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