Poultry Growers Vent Frustrations
Farmers Question Fairness of Contracts, Vertical Integrators

Chris Clayton DTN Ag Policy Editor
Fri May 21, 2010 03:29 PM CDT

NORMAL, Ala. (DTN) -- Frustrated contract poultry growers on Friday laid out a long list of what they see as systemic problems with poultry vertical integrators to Obama administration officials as USDA and the Department of Justice continue examining competition challenges and fairness in agriculture.

Attorney General Eric Holder and Agriculture Secretary Tom Vilsack jointly kicked off an all-day series of panels at Alabama A&M University examining the state of the poultry industry.

Holder told the crowd of about 400 people that he wants to hear the stories of farmers and issues about business practices. He noted that the department has received more than 15,000 comments from farmers about competition practices in different industries.

"As we work to answer this, and to understand why a growing number of American producers and farmers find it increasingly difficult to survive by doing what they have done for decades, I want to assure each of you that the Obama administration is committed to protecting competition vigorously," Holder told the crowd. "This is a top priority for today's Department of Justice."

Christine Varney, assistant attorney general in charge of the Department of Justice Antitrust Division, acknowledged she doesn't know much about the poultry industry, but she said the point of such meetings is to understand the history and how the market has evolved.

"We're really here today to learn and to listen and to understand," Varney said.

USDA is in the final stages of rolling out new rules from the 2008 farm bill that should help poultry growers deal with issues such as companies giving some growers undue preferences over others.

"Clearly, Congress expressed some degree of concern about this by asking USDA to focus on better defining what unfair practices are, what undue preferences are, and that's what we're in the process of doing with our regulations," Vilsack said. "This is an opportunity for us to make sure that we're headed in the right direction, that we're consistent with what's going on on the ground."

Officials acknowledged that new rules are needed partly because the courts have been reluctant to rule for producers who may have been treated unfairly by companies. The Packers and Stockyards Act has a clause stating producers must show "injury to competition." That has made P&S Act cases hard to bring.

"I think that's precisely what we're trying to look at in terms of the final rules we're focused on and will be submitting in the latter part of June, which is how specific and how much damage you have to show and what do you have to show to the entire industry, or do you just have to show it to your individual operations," Vilsack said. "I'm interested in hearing from folks today on anything that would bear on that issue. I think one way to solve this is by a more clear, precise set of definitions coming out of USDA."

Kay Doby, a former producer from Cameron, N.C., was one of several producers to argue that there is an unwritten rule that if a farmer grows for one company, the farmer cannot switch contracts to grow for another major integrator. The companies won't let people cross lines. Doby's voice trembled as she talked about a North Carolina farmer who had lost his contract and was going to lose his farm who took his own life with a gun earlier this week.

"That's what we're talking about today," Doby said. "It's personal. It hits real poultry growers."

Producers testified that companies demand mandatory upgrades of facilities, which often saddle farmers with more debt, making them even more fearful of having their contracts terminated. Upgrades and new facilities often come with the carrot of higher pay, but "that extra will never cash flow to pay for that expense, and that is where the grower gets into debt problems," Doby said.

Carole Morrison, a former grower from Maryland, testified she was often threatened with contract termination, including when she and her husband decided they wanted to put a weigh scale on their farm to ensure they were getting paid fairly.

"Why would a company have a problem with a grower putting scales on the farm?" Morrison asked. "Personally, I can't count the many times I heard in one way, shape or form that 'your contract is going to be terminated if you do this.' That's no way to communicate with someone you have a business relationship with."

Garry Staples, vice president of the Alabama Contract Poultry Growers Association, said he was worried that growers who testified could face retaliation from their integrator. To quash such thoughts, Varney publicly handed Staples her phone number in front of the audience.

"I fully expect you won't receive any retaliation for testifying here today, but if you do, you call me at this number," Varney said.

Not everyone had tales of woe. Gary Alexander, a producer from Westminster, S.C., testified that a group of well-managed poultry barns could be a "cash cow for 20 years," as well as provide tax breaks through depreciation. Alexander said poultry growers need to upgrade and treat their houses like small manufacturing facilities. Further, the competitive contract formula rewards efficiency. Risk equals reward, he said.

"Sometimes in our area, the terminated grower refuses to see he needs to be more efficient," Alexander said, causing a volume of grumbles and shouts of "B.S." from the audience. "There is no need for more government intervention in the integrated poultry industry."

Dick Lobb of the National Chicken Council disputed the slant of the grower panel. He said there are roughly 30,000 poultry growers across the country. Based on a 2001 survey of those growers, about 75 percent were satisfied with their business relationships with packers at that time. So, overall, he said many of the complaints raised at the hearing may only reflect the feelings of 25 percent of the growers.

"I think it was kind of unbalanced," Lobb said. "The concerns that were raised have been mentioned before."

Lobb disagrees with the "flock-to-flock" contract argument, saying that, in some cases, growers are signing up to 15-year contracts with companies. Further, he said companies need to ensure a consistent, steady supply of chickens to keep their processing facilities running. "They know they are going to continue to get birds," Lobb said. "The company is going to continue to deliver birds. It gives the farmer a lot of influence too because the company has to have birds."

Chris Clayton can be reached at chris.clayton@telventdtn.com