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CAMERON, Texas, Barry Shlachter, Star-Telegram via Crop-Choice.com,
posted March 6, 2005: In 1999, a former high
school physics teacher named Susan Martin became one
of the country's 30,000 contract growers responsible
for the vast majority of the chicken we eat.
She dreamed of succeeding in agribusiness, working
with Sanderson Farms, a large Mississippi poultry processor
with more than $1 billion in annual sales.
But two years later, Martin was losing money and carrying
$460,000 in farm debt. Worse, Martin discovered that
under the terms of her contract, she couldn't sue Sanderson,
which she accused of misleading her. Nor could she afford
the $23,000 cost of binding arbitration as required
by the contract to resolve disputes. The American Arbitration
Association's Dallas office rejected Martin's request
to have the fees waived.
"It was hell," said Martin, 52, whose husband
is a manager in an office furniture factory. She lost
her farm near Cameron, south of Temple, and about $100,000
in equity. "The worst thing was being treated like
a dog."
Mike Cockrell, Sanderson's chief financial officer,
denied that the company has misled its 150 contract
growers in Texas to whom, he said, it offers some of
the most progressive contracts in the industry.
But poultry companies like Sanderson, Tyson and Pilgrim's
Pride have increasingly come under criticism for their
half-century-old system of contract growing, through
which about 90 percent of U.S. chickens are now produced.
Under contract growing, which has helped keep the supermarket
price of chicken low, the poultry companies own the
flocks and supply the feed. Growers, who get a guaranteed
price per pound, provide the labor, chicken houses,
water, electricity and gas.
But many small farmers, who commonly borrow $700,000
or more to build chicken houses and subsequently must
invest more to keep up with new technology and competing
growers, find themselves deep in hock and unable to
make a profit.
Critics like Wes Sims, president of the Waco-based
Texas Farmers Union, say that predictions of growers'
earnings are overstated, that they risk being cut off
from fresh flocks for refusing costly upgrades demanded
by companies, and that their heavy farm debt ensures
that they renew unfair contracts, creating a system
akin to modern-day serfdom.
Poultry companies counter by saying contracts are a
boon to farmers, who are insulated from fluctuating
market conditions by a set price, a guarantee that is
also used in some hog production. And if the system
is so flawed, they ask, why are there waiting lists
of prospective growers eager to sign contracts?
"The best proof that the contract-growing system
works is that people get in it, stay in many years and
even apply to the company to build another chicken house,"
says Dick Lobb, spokesman for the National Chicken Council,
an industry group in Washington.
One East Texas grower, who describes himself as "pro-Pilgrim's
Pride," said reinvestment is a given in almost
any business, including poultry.
"It's like factory equipment or a car," said
the farmer, who asked not to be identified and would
be interviewed only in his pickup driven out of sight
from a public road for fear of retaliation. "After
so many years, you need to replace it. Things change.
You have to go with the flow."
Revolution
Beginning in the 1950s, contract growing revolutionized
the way chickens are raised and sold throughout the
United States. No longer do growers buy and raise chicks,
then sell mature broilers to one of several competing
processors with a handshake.
Under the current system, "integrator" companies
such as Sanderson, Tyson and Pilgrim's Pride outsource
the rearing of poultry to family farmers who are told
how the poultry should be raised every step of the way.
Some poultry producers offer one- or three-year contracts;
others can be from batch to batch, the industry standard
up until the late 1990s. Sanderson has had a unique
15-year term since 1997.
Contracts deliver clear benefits to the family farmer,
says Ray Atkinson, a Pilgrim's Pride spokesman.
No longer do they assume market risk and have to locate
a buyer when their flocks are ready for sale. This allows
them to earn a steady income on relatively little acreage,
he said.
Easy trouble
But many growers get into trouble quickly, even though
they're protected against falling prices.
Aside from wanting to retain family land, many farmers
sign poultry contracts because they are confident of
being above-average growers and therefore earning more,
said Robert Taylor, an Auburn University agricultural
economist.
But as other farmers upgrade with better technology
or build more efficient chicken houses, those with older
facilities will usually fall below average, he said.
All poultry companies pay farmers a price per pound,
which is raised or lowered by how the grower ranks among
others on the basis of feed converted to weight gain.
A half-cent per pound can make the difference between
profit and loss.
Called the ranking, or tournament system, farmers found
on the bottom rung during three or more flock growing
periods may be pressured to improve productivity by
upgrading facilities, or poultry companies can drop
them.
"Some call it the gladiator system, because you
are trying to kill your competitor, your own neighbor,"
said Laura Klauke of the Rural Advancement Foundation
International-USA, a North Carolina-based advocacy group
working for passage of legislation to improve contracts.
Individual growers can end up being "serfs with
a mortgage," Auburn's Taylor said.
"By the time they get the $700,000 loan for chicken
houses paid off, the companies ask them to make expensive
upgrades," he said. "They get caught up in
a debt trap. The grower has to take whatever he is offered,
especially after he's been 'captured' -- deeply indebted."
And over the past half-century, the poultry industry
has become highly consolidated, meaning that few growers
have an alternative should there be a falling out with
their processor.
This leads to many farmers feeling trapped, said Ann
Stanaland, who grew chickens with her husband near Nacogdoches.
Even if they opt to sell, none can recoup their investment
if there's no current contract to go with the farm.
Without a contract, the value of the property often
collapses.
Even if multiple poultry companies already operate
in the same area, there's little incentive to pick up
a rival's farmer.
"Why sign a farmer with 5-year-old houses when
there's a waiting list of people willing to build brand
new ones?" said a former Pilgrim's Pride field
representative who declined to be named because of fear
of retaliation against relatives who are growers.
Of 14 farmers interviewed for this article, only two
current growers agreed to be identified by name.
Royce Johnson of Center has raised chickens since before
contract growing was introduced more than four decades
ago and has watched the system evolve.
"They call us 'contract growers,' " Johnson
said. "But they tell us everything we do. If there's
just a personality conflict with your company service
tech, you can lose your contract over that. You can
talk to another company, but Tyson wouldn't sign another
farmer that Pilgrim's cut off."
Taylor, the Auburn economist, questions some of the
criticism of the big companies.
"I doubt that their motivation is to keep the
growers in bondage," Taylor said. "If new
technology comes along that's better for them, they
get the grower to adopt it even though it may not be
better for the grower's bottom line."
The company-grower relationship, Taylor said, "is
very one-sided. For a market to work, you need a balance
of power."
Stanaland said Pilgrim's Pride "put a gun to our
heads," forcing them to accept a new contract by
refusing to deliver chicks. Without a new batch, it
would be impossible to repay the farm loan.
Pilgrim's Atkinson, however, said the company has signed
statements by Texas growers who acknowledge that it
does not retaliate against disgruntled farmers.
Leaps of faith
To be sure, many of the stories following chicken growers'
paths into the industry reflect leaps of faith.
A.T. Terry, a Texas-born broiler grower in Lynchburg,
Tenn., who studied agricultural economics at Texas A&M
University, said he borrowed $384,000 to buy five chicken
houses three years ago so his family could experience
a rural lifestyle.
But Terry said he was cut off by Tyson last month after
demanding to watch his birds being weighed at a company
facility. The investment is now worthless without a
contract, he said.
Tyson, asked for comment, did not refer to Terry's
case specifically but said all its growers are allowed
to watch the weighing under federal law.
And Chris Burger was a Florida state trooper who raised
chickens as a sideline, as many contract growers do.
After years of good relations with a large poultry
company, Cagle's Inc. of Atlanta, troubles began when
Burger joined a growers' association to better present
common grievances.
Burger is one of very few to overcome a binding arbitration
clause and prevail in court in what is considered a
landmark case.
But he says his $700,000 award in 2001 went to cover
farm debts. He says the five-year court battle cost
him his marriage, his home and two farms. At one point,
he was reduced to sleeping in his car and showering
at the state police barracks.
Contract disputes
Some growers complain that the poultry companies mislead
the growers from the start.
Houston lawyer Mel Smith said Susan Martin, the Cameron
farmer, and other family farmers he tried to represent
were shown a Sanderson contract before borrowing money
to build chicken houses.
But on the eve of the first flock's delivery, a lengthier
contract was presented to the now-heavily indebted farmers,
who had little choice but to sign, Smith said.
Cockrell said the breeder contracts in Texas were changed
only to "correspond to growers' concerns."
Moreover, they were sent to farmers several weeks in
advance for review by growers and their attorneys, he
added.
Martin said she never received such a preview contract.
Another former grower, Roy White of Sharp, said he,
too, hadn't seen the final contract until shortly before
a flock was to be delivered.
Tensions between poultry producers and growers were
spotlighted four years ago when one disgruntled East
Texas farmer took matters into his own hands.
On Jan. 8, 2001, Barry Townsend broke into Sanderson's
Bryan plant, fatally shot a company official, wounded
another and then took his own life.
Townsend's troubles started before the incident.
He was on probation for assaulting a stepdaughter and
had been questioned by police after a woman -- a possible
acquaintance -- was run over and killed in a parking
lot a week earlier.
Townsend's widow told police that the couple were earning
half the money they expected from Sanderson and that
flock deliveries were erratic.
Before firing the first shots, Townsend ordered his
two victims to call his wife and apologize.
In an interview with police, Lucinda Townsend explained
her husband's demand by saying, "I feel like we're
being lied to all the time" by Sanderson Farms.
But Barney Allen, one of 150 Sanderson contract growers
in Texas, blames the Townsends' problems on their inability
to run a business.
"Some people get in over their head," said
Allen, 70, who has been a farmer and rancher for more
than four decades, including eight years as a Sanderson
contract producer.
"There are people who work for Sanderson I don't
like," he said. "But overall, the company
is the best thing that ever happened to our county."
Allen, who lives in Robertson County in East Texas,
says that his four pullet houses earn him "a little
less than $10,000 a month" and that he saves thousands
more by substituting chicken litter for manufactured
fertilizer for his cattle pastures.
Looking to the law
Texas, unlike Iowa, Kansas, Illinois and Georgia, has
no specific law protecting contract farmers from unfair
practices by poultry integrators. And farmers like Martin
who have tried to organize growers' associations in
Texas say company pressure brought such efforts to an
end after one or two meetings.
"The [poultry companies] pretty much control you,
and if you complain, they can cut you off," said
Larry Owens, an Agriculture Department official who
sees both good and bad in contract growing.
Cost and contractual obstacles have served to curb
legal remedies. But three East Texas farmers are suing
Pilgrim's Pride in a Texarkana federal court, alleging
they were unfairly pressured to accept what they considered
unfavorable new contracts before their old ones expired.
Two ended up signing because they needed new flocks
to cover large loan payments on their chicken houses.
The third, Don Davis, was able to refuse because his
debt was smaller, but he said a promised flock was not
delivered by Pilgrim's. A trial date is expected to
be announced April 4.
Pilgrim's Pride has denied any wrongdoing and noted
that the plaintiffs are just three of the 2,000 Pilgrim's
Pride growers in Texas. "Relations are generally
strong," the company said.
Even in states such as Alabama and North Carolina,
where growers' associations have been formed, growers
lack the clout to pass legislation, said Taylor, the
Auburn economist.
But last year Georgia and Illinois followed Kansas
in passing legislation that gave growers the right to
have their contracts reviewed by their own attorneys
and see statistical data used to determine compensation.
After failing the first time around in Tyson's backyard,
a similar growers' rights bill was passed by the Arkansas
Legislature and now awaits the governor's signature.
Aside from making arbitration voluntary, it says farmers
cannot be prohibited from comparing contract terms or
discussing common problems.
Still, competition among growers has hindered alliances.
"It's made us independent, so we can't get together,"
said Johnson, the East Texas farmer. "If only half
of the growers would get together, we'd solve this problem
easily."
Bottom line
Perhaps one surprise is that relatively few growers
default.
Taking the bankruptcy route is not an option among
small-town farmers in East Texas "if you want to
maintain your pride and good family name," says
Stanaland, the former Nacogdoches grower.
But the bottom-line figures are worrisome, economists
say.
A 2003 analysis by Dan Cunningham -- a University of
Georgia agricultural economist -- estimated that cash
flow, adjusted for inflation, for an average broiler
grower dropped to $5,965 in 2003 from $12,065 in 1993.
Taylor, the Auburn economist, says a poultry company
can earn a 15 percent to 30 percent return on its investment,
while a contract grower would be better off taking a
$6.50-an-hour job and putting the amount of his down
payment in a low-interest-paying CD.
Lobb, the National Chicken Council spokesman, questioned
that, noting that Taylor factored in a labor cost for
the owner-farmer and family members, even when no money
changed hands.
But at least one company, Sanderson Farms, cites an
annual $5,000 labor cost in recruitment material for
family farmers.
"While it may not be the most lucrative form of
agricultural production, it is among the steadiest,"
Lobb said. "Both sides need the contract system." |
