The disputes between growers (of cattle, hogs and poultry), the small number of purchasers (packers) and the USDA dwarfs the Shirley Sherrod affair in economic importance, especially in the Ozarks.
While the character assassination and redemption of Shirley Sherrod was essentially contrived by and blown up by the media, the real economic tensions between those who raise animals and those who buy them and convert the meat into consumer products has reached a point at which Congress in the 2008 Farm Bill asked the USDA to propose regulations to address several problems.
The problems arise out of the unequal power of the growers and the packers. The growers must obtain land and borrow heavily to invest in facilities, equipment, livestock and feed and supplements. Many of the packers have become vertically integrated giants, such as Tyson Foods, Cargill, and ConAgra. A report from the General Accounting Office indicated in 2009 that four firms purchase for slaughter 79% of the nation’s cattle, 63% of the swine and 57% of the poultry. While 2% of all farms account for 50% of the revenue from production of livestock, the other 98% of farms are receiving a sharply decreasing share of each dollar spent for food.
The USDA and the Justice Department began a series of public hearings last year to gather information to use in the preparation of proposed regulations. The Justice Department’s involvement arises from the antitrust provisions of the Packers and Stockyards Act of 1921, which prohibits unfair, unjust and deceptive practices. Proposed regulations were issued in June 2010, which generated enormous negative reactions on the part of–you guessed it–the trade organizations that represent the packers.
In the Ozarks, as elsewhere, poultry growers sign multi-year contracts with companies who purchase their birds. The growers take the contracts to lenders who provide loans for the construction of the poultry houses and the purchase of equipment for feeding and handling the birds, chicks, feed and supplements. The contract terms are not very negotiable, and the growers (often young married couples) are deeply in debt, obligated to work long hours without vacations, and responsible for complying with environmental regulations for the disposal of manure and dead birds.
The proposed regulations address some of the growers’ complaints about the one-sided contracts, which often obligate the growers to incur debt that cannot be repaid within 10 or 15 years, while many of the packer’s obligations may be terminated before the grower’s investment is recovered. Or, like Pilgrim’s Pride, the nation’s second largest poultry processor, the packer may seek a reorganization in bankruptcy and terminate its obligations to its contract growers, many of whom took on hundreds of thousands of dollars in debt to provide birds to Pilgrim’s Pride.
While the return on investment may work out on paper, as shown in this study, the growers are literally betting the farm (which includes their homes) that they will be able to perform physically demanding labor for a decade or more and that the packer will continue to buy their birds.
An analysis of the contract provisions required by the proposed regulations is found here.
For more on the proposed regulations and the cattle business, see this article from CattleNetwork.com, which characterizes the conflict as a “civil war.”
Farmers and ranchers are among the most loyal Republican voters. The Obama Administration has reached out to them with these proposed regulations, which are authorized (arguably) by statutes passed by Congress in an era when politically active farmers were populists.
In the upcoming election season, the agriculture lobbies will support the Congressional candidates who will vow to fight these proposed regulations in the name of supporting American agriculture and free enterprise.
Ozarks Law & Economy 