FOR IMMEDIATE RELEASE
An opinion editorial by Keith Mudd, Monroe City, Mo. farmer MONROE CITY (March 7, 2006) – Current proposals to expand contract hog operations near Mark Twain Lake seems to have captured the interest of several Northeast Missouri communities. Cargill, one of the largest privately-held corporations in the world, claims to be offering an opportunity for a partnership that benefits rural areas by offering these contracts to area pork producers. There is another side to the contract issue, though, that should be brought up in the debate. Agriculture is in the process of changing. Entrepreneurship and independence were once the hallmark of a farmer. Today’s farmer is likely to be aligned or integrated with others through contracts, often those farther up the vertical supply chain. In many occasions, these contracts seem beneficial to those who want to start a new enterprise or expand so that another family member can join the operation. In order to sell this contract structure to farmers, contractors such as Cargill seldom mention anything negative about the contract while providing testimonials from other growers who claim to be very satisfied with their contract. While I do believe that contracts can provide some positive benefits for farmers, there are also some negative outcomes that receive much less attention in agricultural circles. Some of these negative experiences with contract agriculture should be weighed as producers consider signing contracts with integrated multinational corporations. First, there is a long history of corporate agribusiness canceling contracts with producers before producers can repay their loans for facilities and operations: • In a recent example, Cargill decided not to renew contracts for 44 turkey producer in Gonzales County, Texas. A lawsuit filed by the turkey farmers claims Cargill encouraged the farmers to expand their production. On the strength of that promise many did just that. Then Cargill notified the growers that none of their contracts would be renewed. • In a similar case from 2002, Tyson Foods decided to cancel the contracts of 132 hog farmers in Arkansas and Oklahoma. • Campbell Soup Company contracted with several growers raise chickens for them in Minnesota a few years ago. Before the contracts had expired Campbell terminated the growers. In the above cases, the contract operators were able to sue and receive a small amount of damages through the court system, but the lawsuits were settled for far fewer amounts than the corporations had promised through the fulfillment of contracts. Second, many contracts contain mandatory arbitration clauses. This means any dispute between the contracting parties has to go to arbitration, without the benefit of a jury or mediation. Third, many contracts have confidentiality clauses that preclude the contractor from discussing the terms and conditions of the contract with anyone. I have several Cargill contracts that they have used in the past. It is ironic that Cargill reserves the right to seek injunctive relief and collect damages if you breach the confidentiality clause, yet producers must go through the costly exercise of arbitration if they have a dispute. Fourth, agribusiness often structures contracts to pay lower prices than the original agreed-upon price. In the poultry industry, growers compete against other growers in a 20-30 grower pool to determine their compensation. Dubbed the tournament system, growers are ranked by some measure of efficiency and pay is adjusted accordingly. Poultry growers claim that those ranked near the top do very well while those in the middle make very little money. Those ranked near the bottom lose money. What makes this inherently unfair is that too many things are beyond the control of the contract grower. Each group of birds is not of the same quality and feed can vary enough to affect rate of growth and eventually the grower’s profitability. In theory all growers in a group could exceed industry standards for efficiency resulting in increased profitability to the contracting company yet some growers would still be penalized for their individualized standing within the tournament. Fifth, some production contracts contain language requiring producers to upgrade equipment or facilities at the behest of the contractor. These upgrades can run from several thousand dollars to tens of thousands of dollars without any additional compensation from the contractor. Poultry contractors have had contracts cancelled because they refused to comply with upgrade demands. Sixth, some contracts contain a lien waiver. This waiver prohibits the grower from filing a lien against the hogs housed in his building. In the event of a bankruptcy the farmer who isn’t paid for finishing a group of hogs becomes an unsecured creditor. Farmland Industries, the now bankrupt farm cooperative, had lien waivers in some of their production contracts. I suspect hundreds of farmers were not paid for their last group of Farmland hogs raised. There have been proposals at the state level and in Washington, DC, to provide legal protections for contract producers that address the above issues. Known as the Producer Protection Act (PPA), this legislation would level the legal playing field between growers and agribusiness corporation that are offering contracts. Specifically, the PPA would: • Require
a 3 day period of review during which a grower could change his
mind. To date, Iowa has passed most of these as single stand alone bills. Illinois passed several components of this as a package. Minnesota has state statue that reimburses for capital expenditures if a contract is canceled without cause. In all other states the large contracting companies such as Tyson and Cargill have been successful in defeating any attempts to secure these safeguards for producers. It is interesting that in January of this year Cargill and the state of Iowa entered into a Consent Decree which grants contract producers in Iowa the following rights: no forced upgrades without additional compensation, producers have the right to enforce a lien, they have the right to disclose terms of a contract, and no binding arbitration as the only dispute resolution. Cargill specifically granted these rights to farmers in Iowa at the same time farmers elsewhere were denied the same benefits. Nothing in any of these protections for growers eclipses the company’s right to terminate a contract if a set of conditions have been met. If a just “cause” exists they are well within their rights to terminate. Lastly, the Cargill representative in Northeast Missouri claims that feed can’t be obtained locally. He professed that Cargill attempts to purchase locally when possible. His contention is that milling capacity isn’t sufficient in the local area. What he doesn’t tell the reader is that Cargill talked with the Farmers Elevator and Exchange in Monroe City about providing feed for sites already constructed in the area. Cargill did not follow up with the Farmers Elevator & Exchange and apparently assumed the capacity issue even though the Elevator could expand their operation if it would be a profitable opportunity. There is the problem. Cargill is determined to procure feed as cheaply as possible without any concern for the local economy. That tells me what kind of rural partnership Cargill is really after. # # #
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