CAMERON, Texas, Barry
Shlachter, Star-Telegram via Crop-Choice.com: 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
"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
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
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,
"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."
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.
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
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
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
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.
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
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
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
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."
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
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."