Dear Senator Grassley:
I am writing on behalf of the Center for Rural Affairs to express our strong support for the Fair Contracts for Growers Act, and to thank you for your leadership in introducing this legislation.
The Fair Contracts for Growers Act is very timely. With the rapid rise of vertically integrated methods of agricultural production, farmers are increasingly producing agricultural products under contract with large processors.
Under these contracts, it is common for farmers and growers to be forced to sign 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, the farmer is forced to give up their basic constitutional right to a jury trial, and instead must accept an alternative dispute resolution forum that severely limits their rights and is often prohibitively expensive. These clauses are signed before any dispute arises, leaving farmers little if any ability to seek justice if they become the victim of fraudulent or abusive trade practices.
Because basic legal processes such as discovery are waived in arbitration, it becomes very difficult for a farmer or grower to prove their case. In these cases, the company has control of the information needed for a grower to argue their case. In a civil court case, this evidence would be available to a growers' attorney through discovery. In an arbitration proceeding, the company is not required to provide access to this information, thus placing the farmer/grower at an extreme disadvantage. Other standard legal rights that are waived through arbitration are access to mediation and appeal, as well as the right to an explanation of the decision.
In addition, it is often assumed that arbitration is a less costly way of resolving dispute than going to court. Yet for the farmer, the opposite is usually true. The high cost of arbitration is often a significant barrier to most farmers. The up-front filing fees and arbitrator fees can exceed the magnitude of the dispute itself, with farmers being required to pay fees in the thousands of dollars just to start the arbitration process.
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 Center for Rural Affairs believes this is important because of the number of small and mid-size farms that enter into contract livestock production. Small and mid-size farms that don’t have the capital to invest in starting their own livestock operations often look to contract production as mechanism for diversifying their farming operations as well as their cash flow. However, when these farmers and ranchers are not allowed equal legal protection, their entire farming operations lay at risk.
Moreover, farmers who enter into contracts with meatpackers and large, corporate livestock producers will never have the power or negotiating position that those companies will enjoy in virtually every contract dispute. Producers often lack the financial and legal resources to challenge vertical integrators when their rights are violated. A legal agreement between smaller farm operations and integrators should, therefore, provide at least as much legal protection for producers as it does for the integrator.
Although the impetus behind this legislation emanates from the poultry industry, the rights of farmers who raise hogs and other livestock under contract are also threatened. And the increased use of production contracts in these sectors has made this issue that much more important to farmers in the Midwest and Great Plains as well.
Thank you for your leadership in recognizing these concerns, and your willingness to introduce commonsense legislation to stop the abuse of arbitration clauses in the livestock and poultry contracts.
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Center for Rural Affairs
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