September 10, 2002 OCA comment: Where DOES your meat come from? The meat-packing industry is even more monopolized than the gasoline industry. The italicized sections tell the whole story. Tyson Foods Decision Could Decimate Arkansas Hog-Farm Industry SPRINGDALE, Ark., Sep 8, 2002 (Arkansas Democrat-Gazette) -- Nobody needs to tell the men on James Colston's crew that corporations have taken control of the hog industry. On a hot day in late August, Colston's team of nearly a dozen men went about their work on a hog farm east of Springdale. Using electric prods, they corralled hogs bound for slaughter into tractor trailers. It's hard, dirty work. Covered in sweat, reeking of manure, the men labored knowing that in a few months, their jobs may be gone. More than half the hog farms in Arkansas may be forced out of business because of a decision made in the offices of one company: Springdale-based Tyson Foods Inc. Tyson said in July that its pork division showed an $8 million operating loss in the third quarter because of lower hog prices. In August the company said it would eliminate most of its hog-raising operations because of the high cost of shipping feed to the Arkansas farms and of transporting adult hogs to Midwest processing facilities. Tyson's decision could shut down 132 farms in eastern Oklahoma and across Arkansas that had contracts with the company, unless the farmers find alternative markets for their hogs or other ways to use their land to make money. Another 27 hog farms that are owned or leased by Tyson will close. About 200 Tyson employees involved in hog operations will lose their jobs. Terminating the contracts, some immediately and the rest by March, also likely spells an end to the hog-wrangling jobs of men like Jim Dersam, a 30-year-old from Prairie Grove who works for Colston. "I don't really know for sure what I'm going to do," Dersam said. "I'll probably find another job." Hog farming has been around for centuries in America, but in recent decades it has been reborn. But the independent hog farmer -- who might raise 100 pigs to sell on the open market -- is becoming a relic of the past. Of the 380 hog farm permits issued in Arkansas, fewer than 20 are held by farmers who run independent operations, according to the Arkansas Pork Producers Association. Hogs have been raised in Arkansas as long as settlers have lived here, said historian Brooks Blevins, who recently released a book about the Arkansas Ozarks called Hill Folks. Then, as now, much of the hog industry was concentrated in Northwest Arkansas. Cotton and grain farms couldn't prosper in the hills, Blevins said, but the Ozarks were ripe for foraging hogs. The industry flourished through the turn of the century, with herds of swine being driven to Little Rock or Kansas City for sale. "You don't see many movies with hog drives and hog boys. It doesn't have the same romantic appeal as cowboys, I guess," Blevins said. "But the hog industry at one time was very significant." Eventually, hogs gave way to orchards in Northwest Arkansas, Blevins said. Chicken farming started to become popular early in the 20th century, expanding until the state became the nation's No. 2 chicken producer, behind North Carolina. The hog industry gradually made a comeback as the 20th century progressed. In 1950, there were fewer than 200,000 hogs slaughtered in Arkansas, according to the U.S. Department of Agriculture. By 1975, the number of hogs stood at roughly 300,000 and they sold for an average of 50 cents a pound. In 1977, Tyson Foods got into the hog business and was shipping 7,500 hogs a week by the end of 1979, becoming the nation's largest hog producer. The number of hogs slaughtered in Arkansas spiked after Tyson's entry, reaching 2.3 million in 1980, according to the Department of Agriculture. Eventually, Tyson lost its top spot in hog production to Smithfield Foods Inc. of Smithfield, Va., with Seaboard Farms and Cargill also being major players. Charles Lee, a hog farmer in southwest Arkansas, near De Queen, is losing a Tyson contract to produce 5,700 hogs every 20 weeks. With no more hogs, his hog waste lagoons will have to be cleaned out at his expense. "My ponds are 9.7 million gallons. It costs a penny a gallon to pump the pond out. That's $100,000 right there," he said. His problem is typical among those losing contracts. But Tyson could pay a price, as well. Don Guess, president of farm finance for First State Bank in Russellville, said Tyson's decision could make lenders second-guess financing contract farmers -- and not just hog farmers. A bank loans out hundreds of thousands of dollars to farmers to build chicken or hog houses. And there's nothing to say chicken farmers who have contracts with a meat company won't find themselves at the mercy of the markets just as the hogs farmers are. "Tyson needs to expect that it will be far harder for their growers to be financed in the future if the severance agreements offered to pork producers leave growers with debts they can't pay and banks in the state with losses on loans to Tyson growers," Guess said in a statement. "Our bank alone provides 25 times more financing to Tyson poultry growers than to Tyson pork producers. I think that if Tyson doesn't provide an adequate severance benefit, they will be shocked at the adverse effect it will have on the poultry side of their business." Tyson has offered some growers a buyout of their contracts if they will forgo any claims against the company, but it's not enough, according to farmers. The company has come back with a second offer. "It includes significant additional monetary incentives, some of which are directed to assist with farm closure issues," Tyson said in a statement Wednesday. "Our revised closure proposal demonstrates Tyson's willingness to listen to and respond to affected producers in this transition." Barry Burns, senior vice president of regional credit in Northwest Arkansas at Farm Credit Services of Western Arkansas, said the agency is looking at options for farmers with hog loans. Losing the farm "could be a possibility, but we would first try to work with the farmer to avoid that," he said. "We're certainly not in the business to own real estate." The Arkansas Pork Producers Association in Russellville also is searching for state and federal assistance for the farmers. "It's our goal to try to keep these folks on their farms," said Jerry Masters, executive vice president. "Ultimately, we would like to rebuild the industry if we could attract new companies to come into the state." In the last 20 years, the number of hog farms in the United States has plunged from 500,000 to 85,000, according to the Center for the Study of Rural America at the Federal Reserve Bank in Kansas City, Mo. In 1980, less than 10 percent of hogs were grown under contract with a meat company. By 2000, that number jumped to nearly 80 percent, according to the center. After Tyson acquired beef and pork packer IBP Inc. in September 2001, it instantly became the nation's top beef and chicken company and second in pork production. The company processes about 336,000 hogs a week, most obtained from outside sources, a spokesman said. Cargill Inc. is the only other company that contracts for adult hogs in Arkansas. Cargill says it's not interested in increasing operations. A Tyson spokesman said the number of hogs the company raises annually will fall nearly 85 percent to 150,000 from 1 million. Tyson will keep some hog-breeding farms in Oklahoma and a few adult hog operations that are close to the Midwest meat processors. The decision to terminate the other contracts sparked an investigation by the U.S. Department of Agriculture to determine if Tyson violated the Packers and Stockyards Act of 1921. The act prohibits unfair, deceptive and fraudulent practices by hog production contractors, packers, stockyards and others. Violations can result in civil penalties. The department sent investigators to the company's Springdale headquarters to review contracts and talk with farmers. The investigation is expected to continue for a few weeks. At least two dozen farmers are considering litigation against Tyson to recoup expected losses, said Clay Fulcher, an attorney in Rogers. The growers say "they were promised a long-term relationship," he said. "Now Tyson has all of a sudden decided to pull out, so they're stuck with large debt payments and facilities that aren't suitable for anything except for hog production." (emphasis added) Staying in business became extremely difficult for hog producers in 1998. Prices dropped to levels not seen for decades, with hogs selling for as little as 7 cents a pound. A year later, Tyson Foods attempted to sell its pork division to Smithfield Foods, but the deal fell through. The low prices resulted from a collision between a big supply of hogs and a low meat-packing capability, said Scott Brown, program director for livestock and dairy at the Food and Agricultural Policy Research Institute. "We ran into a situation in the hog industry where we literally ran out of shackle space to hang [hog carcasses]," Brown said. Since 1980, the number of slaughterhouses for hogs has fallen from 500 to 180 nationally, according to the Center For the Study of Rural America. While the number of slaughterhouses fell, the supply of hogs grew. Before the slump, producers were getting up to 54 cents a pound, which prodded them to bring more hogs to market, Brown said. Prices rose a little after 1998, in part because many producers went out of business and the supply of hogs dwindled. But lately prices have slumped again. Hogs traded at about 40 cents per pound late in the third quarter of Tyson's fiscal year 2002, compared with 50 cents a year ago. Prices now have fallen to about 30 cents a pound. Depsite the high supply of hogs high, demand for pork has been stagnant, according to the Center for the Study of Rural America. In spite of the national marketing campaign that has dubbed it "the other white meat," pork consumption has been outstripped by growing demand for chicken. A drop in beef exports to Japan and poultry exports to Russia, combined with increased beef and pork production in the United States added to a meat glut in American supermarkets. With low prices forecast and Tyson cutting back in Arkansas, the future of the hog industry looks bleak, said Johnny Gunsaulis, extension agent with the Washington County Cooperative Extension Service in Fayetteville. He was on hand at the Washington County Fair last month when local hogs were put on parade, graded for their pedigree and appearance. "You'll probably see more hogs gathered up here at the fair than you'll find in the whole of Washington County now," he said, adding that the youngsters tending the hogs have little reason to raise them for a living. "It's just not a market you're going to depend on for a livelihood." Stephen Johnson raised 4,800 hogs this year at his Spring Valley farm, about 14 miles east of Springdale. He doesn't know what he will do now that Tyson is ending his contract. "I've been racking my brain," Johnson said. He and his wife sold their dream house for the $500,000 farm two years ago. Without a contract, his 12 hog houses are worthless. "We had another couple of years to go before our heads were above water," he said.