Should the USDA establish a livestock dealer statutory trust?
Public comment is open until June 24, 2019 regarding whether the USDA should establish a livestock dealer statutory trust.
June 4, 2019 - Author: Jeannine Schweihofer, Melissa G.S. McKendree, Michigan State University Extension
The 2018 Farm Bill requires the U.S. Department of Agriculture (USDA) to complete a feasibility study on creating a livestock dealer statutory trust. The trust would be designed to provide financial protection to farmers and ranchers who sell livestock, including cattle, hogs, poultry, and small ruminants. According to the House of Representatives Conference Report, the need for this feasibility study arose due to “burdens felt by unpaid sellers of livestock affected by livestock dealer default” (p. 764).
Currently there is limited protection to livestock sellers as part of the Packers and Stockyards Act as dealers are only required to have a bond, typically based on the volume of business conducted in two business days. The proposed dealer trust would potentially require dealers to also have a statutory trust similar to what is required for packers. According to the USDA under the Packers and Stockyards Act, packers are required to maintain a statutory trust which grants producers and any other unpaid livestock sellers 1) the rights to the packer’s affected assets until the packer fully pays them for their livestock or it fully distributes the proceeds from those assets along claimants with valid trust claims and 2) superior legal claim to the packer’s affected assets than the packer’s secured creditors have over those same assets. Protection against default payments and unfair or fraudulent practices is critical to protecting those who raise and sell livestock.
The feasibility study will investigate multiple financial aspects of the potential trust. The study will look at how a livestock dealer statutory trust would assist seller recovery if a dealer defaults on payment. Additionally impacts on credit availability and changes that might occur in lending as a result of the trust will be investigated. Furthermore, industry-wide use of electronic funds transfer or methods of quick payment transfer, which protect sellers from default payments, do not exist. Therefore, the study will look at the feasibility of the industry adopting faster ways to transfer money. The study will also explore how a trust would impact the treatment of livestock sellers related to payments made in the 90-day period prior to a dealer bankruptcy.
Parts of the study will evaluate the impact of such a trust on buyer and seller behavior in livestock markets. Livestock dealers often operate in a unique way. Therefore, the study will gauge how unique circumstances could impact the function of such a trust. Other existing statutory trusts in agriculture will also be evaluated for their effectiveness in protecting sellers to understand if similar effects could be experienced in this program. Finally, the study will also look at the impact of exemptions for dealers operating under a minimum threshold.
Michigan State University Extension encourages those with input to submit comments. According to the April 25, 2019 Federal Register, “Interested persons are invited to submit written comments via the internet at http://www.regulations.gov or to S. Brett Offutt, Chief Legal Officer/Policy Advisor, Packers and Stockyards Division, Fair Trade Practices Program, Agricultural Marketing Service, U.S. Department of Agriculture, 1400 Independence Avenue SW, Room 2507, STOP 3601, Washington, DC 20250.” Additionally, comments should reference the docket number AMS-FTPP-19-0037, the date of submission, and pages 17374-17375 of the Federal Register issue.
