Before I get to this week’s topic, I must take a moment to congratulate National Hog Farmer and Weekly Preview Editor Dale Miller for his receiving the Pork Checkoff’s 2010 Distinguished Service Award. The award is given annually to recognize the lifelong contribution of an outstanding leader to the pork industry. The ceremony and presentation Saturday night at the National Pork Forum in Kansas City highlighted Dale’s many contributions that include playing a vital role in technology dissemination and adoption.

But the real focal point of Saturday’s ceremony was the value that Dale puts on people and I can vouch for that. I’ve known Dale since the early 1980s, when we were both much younger men chasing purebred Chester Whites around show rings in various parts of the country. I could see that this guy looked at the pig business in a much broader context than did I and I’ve since learned a lot from him through both personal contact and his prolific writing.

Congratulations, Dale! We appreciate what you have done and what you are still going to do and I am personally very proud to work with you and to call you a friend.

Contract Provisions Not Optional
If you are a hog contractor – that is, a person or company that owns pigs that are raised on contract by a grower – you need to make sure that any contract arrangements you have entered into or altered since last June 2008, contain specific information required by the 2008 Farm Bill.

While we are normally accorded “rules” by USDA or some other agency that tell us just how we are to meet the requirements of a given law, USDA’s Grain Inspection Packers and Stockyards Administration (GIPSA) has begun fining producers for violating these provisions even though rules have not been published. Hardly seems fair, but that is what they are doing!

First, contracts completed before June 18, 2008 (note that is not last year, but the year before) are apparently being grand-fathered in. The new requirements apply to contracts completed or altered since that date.

The three requirements are:

1. Grower’s right to cancel. The contract must contain a provision that serves as sort of a “lemon law” or “buyer’s remorse” clause in that it allows the grower to cancel a production contract by mailing a cancellation notice to the contractor no later than three business days after the contract was executed or any cancellation date stated in the contract, whichever is later. The contract must disclose this right, how the grower can cancel, and the deadline for doing so. Des Moines attorney Eldon McAfee says the three days apparently begins when the grower signs. McAfee also recommends that the contract specify that certified mail be used to send the contract cancellation.

2. Grower’s right to “opt out” of mandatory arbitration.
This provision only applies to a contract that requires arbitration to settle disputes. If a contract has such a requirement, the contract must clearly disclose that the producer may opt out of this feature. Arbitration may still be used if a dispute arises, but it will not be mandatory if the producer has opted out. This law clearly states that this requirement only applies to contracts entered into, amended, altered, modified, renewed, or extended after June 18, 2008. So, it does not just apply to “new” contracts!

3. Potential for requiring additional capital investments.
This provision also applies to contracts entered into, amended, altered, modified, renewed, or extended after June 18, 2008, and it simply says that the contract must disclose on the first page that additional large capital investments may be required of the grower. It must use the heading: “Additional Capital Investments Disclosure Statement.” This does not put any limits on these investments, but GIPSA is writing rules that will define when an additional capital investment requirement constitutes a violation of the Packers and Stockyards Act. So there is more to come on this topic. If you have entered into, amended, altered, modified, renewed, or extended a production contract since June 18, 2008, you need to review those contracts and make sure they meet these specifications. By all means, work with your attorney. My economists’ union card certainly doesn’t qualify me to give legal advice!

If pork producers are wondering what happened to engender these requirements, they need only look to the broiler industry. Virtually all of the legislative and regulatory moves are due to past disputes over broiler contracts and some very clear abuses on the part of chicken-producing companies. And, the pork industry isn’t completely fault-free either. It’s a bummer, but when you involve a few thousand people, there are bound to be a few scoundrels among them. But this industry has done a pretty good job of managing these relationships for everyone’s long-term mutual gain. We are simply collateral damage.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com