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Published: May 2008

Farmers given choice on arbitration in Farm Bill

The Rural Advancement Foundation International - USA (RAFI-USA) won an important victory in the battle against binding mandatory arbitration. In the Senate version of the Farm Bill, the voluntary arbitration provision, Section 10203(b) which gives farmers a choice to arbitrate or not, was passed.

The legislation states that if a farmer currently has a contract with an arbitration clause, they will be given the choice to use arbitration or not.  This choice will be also presented to the grower when they sign a new contract. 

Below is a fact sheet distributed by RAFI-USA on this issue:

Many farmers and growers are forced to sign binding, mandatory arbitration clauses, as part of a take-it-or-leave-it, non-negotiable contract with a large, vertically integrated processing firm.   In doing so, farmers are forced to give up their basic constitutional right to a jury trial, and instead must accept an alternative dispute resolution forum that limits their rights and is often prohibitively expensive.  These clauses are signed before any dispute arises, thus paving the way for integrators to employ business practices that are fraudulent and abusive, without fear of legal reprisal from the farmer, or public record of the actions.  

Arbitration can be a valid and effective method of dispute resolution when agreed to voluntarily through negotiation by two parties of similar power, but when used by a dominant party to limit the legal recourse of a weaker party in a non-negotiable contract, it becomes an abusive weapon.    

The voluntary arbitration provision in the Senate version of the Farm Bill [Section 10203(b)] simply requires that arbitration be used to settle the controversy rising from a livestock or poultry contract only if, after the controversy arises, both parties consent in writing to go through arbitration.   

Congress has taken this approach in the past.   In 2002, Congress passed a very similar provision to provide the same protections for car dealers in their contracts with car manufacturers and distributors.  In fact, the car dealer arbitration legislation was cosponsored by 66 Senators and 234 House Members. 
America's farmers should be given the same protections.     

Farmers are concerned about binding, mandatory arbitration clauses because:

Arbitration Costs are High
In effect, arbitration is a private judicial system where all of the costs are borne by the parties in the dispute.  Not only do the parties to the dispute need to pay their own attorneys, but they must also pay the lawyers (arbitrators) who act as the judges on the case.  As a result, the costs of arbitration are very high.   Farmers are charged large, up-front fees just to start the process.  These costs can be so high that most farmers are not able to get to square one in having their grievances heard.   In most livestock and poultry contracts that include arbitration clauses, the terms dictate a 3-arbitrator panel.   Arbitrators charge hourly fees ranging from $100 to $800 per hour, with average fees being in the $250-$450 per hour range.  One Texas poultry grower, who had made a large investment in poultry barns on her farm for purposes of a poultry contract, attempted to use arbitration to settle a wrongful termination dispute with her poultry integrator in 2002/2003.  She received a bill for $24,750 that was required to be paid prior to the beginning of the arbitration process.  The poultry company received a similar up-front bill.   Because the grower could not afford these fees, she had no choice but to terminate the arbitration
process.   She lost her farm.     

A Mississippi poultry grower was forced to use arbitration to settle a dispute with her poultry company.  In her case, the American Arbitration Association (AAA) estimated that the deposit required would be $55,000 to $58,000, to be shared evenly between the grower and the company, with possible additional travel fees for the arbitrators.   Arbitrator fees cannot be waived, reduced or deferred under AAA rules.  

In contrast, up-front filing fees for disputes heard in public courts range from $150 to $200, with attorney fees often paid on contingency.  Because the court system is public, judges are not paid by the parties.    

Basic Legal Rights Are Waived in Arbitration, to the Detriment of Farmers
Even for those few farmers who are able to pay these large up-front fees, the legal rights in the arbitration process are greatly curtailed.  Since the normal process of discovery is very limited in arbitration, farmers are not able to get access to the data and evidence they need to prove their case.  Abusive practices that are far too common in the livestock and poultry sector include contract termination without cause, economic loss due to placement of sick animals, bad feed, and retaliation for forming producer associations to bargain for better contract terms. While farmers have prevailed in such cases when presented in public courts, the limited rules of evidence make these cases difficult to prove in an arbitration proceeding.   All the evidence is controlled and shielded by the company.   

Outcome of Arbitration is Private
There is no public record of the outcome and facts of an arbitration proceeding, because it is an entirely private system.  As livestock and poultry integrators started to insert arbitration clauses into grower contracts in the 1990s, the abundant case law record demonstrating abusive business practices experienced by livestock and poultry growers has diminished as the details of the new cases are sheltered outside of public view.  

House Arbitration Provision Is Sham Reform
During the House Agriculture Committee’s farm bill consideration, the Chairman’s Mark included the same voluntary arbitration provisions as has been included in the Senate Chairman’s Mark.  However, during mark up, a poultry industry-drafted substitute amendment was offered and prevailed.  During the House debate, proponents of the industry amendment argued falsely that it was a “compromise” amendment, even though it had never been discussed or vetted with farmer groups.   The resulting House provision on arbitration is sham reform, because it still allows livestock and poultry companies to force growers to sign binding, mandatory arbitration agreements, thereby giving away their right to defend themselves against future contract abuses.  

Instead, the House provision calls on USDA’s Grain Inspection, Packers and Stockyards Agency (GIPSA) to write regulations to govern arbitration, and gives farmers the right to have their grievances heard in small claims court.  GIPSA is the same agency that has been criticized by Congress, GAO and by USDA's own Inspector General for being ineffective in undertaking its duties to protect livestock and poultry farmers.  While the agency is attempting to make changes to be more responsive and effective, GIPSA does not currently have the expertise necessary for this task and the rulemaking process could be very lengthy.  In addition, small claim courts have limits in the range of $3,000 to $4,000, and are therefore nowhere near sufficient to address the magnitude of disputes that often include retaliation and termination by the company.   Contract farmers go into debt for $500,000 to over a $1,000,000 to build sole-use facilities on their farm.  Farmers' should be afforded all legal remedies and procedures under federal law to protect themselves.

For More Information

Rural Advancement Foundation International - USA

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