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U.S. farmers battle food companies over contracting

(Friday, Oct. 3, 2003 -- CropChoice news) -- Carey Gillam, Reuters, 09/29/03: KANSAS CITY - Raising chickens on a small patch of Arkansas farmland was supposed to provide a bright future for Dennis Ritchie and provide his family with the rural lifestyle they love.

After signing up as a contract producer for Tyson Foods Inc. 10 years ago, Ritchie borrowed enough money to build three barns to Tyson specifications and started following the company's directions for fattening its chickens, which Tyson delivers to Ritchie as day-old chicks. Ritchie gets paid by the pound when Tyson collects its birds for slaughter.

But the deal is turning sour for Ritchie, who said Tyson has altered the terms of the arrangement by asking him to spend money modifying his barns in ways that Ritchie says might increase Tyson's profits but would cut his own margin.

If he does not comply, Tyson can take its birds and its business and walk away, leaving him empty-handed, Ritchie said.

Tyson, the largest U.S. meat processor, did not return calls seeking comment.

"I got in it of my own free will. But they're shifting a lot of costs that they used to bear down to us," said Ritchie. "If we don't like it, it's just tough luck."

The dealings have not only embittered Ritchie but also aligned him with a burgeoning backlash against contract agriculture. Farmers say they are being squeezed into working as low-paid hired hands for corporate food giants who control the market by both owning the animals and setting the prices paid for them.

With more than one-third of U.S. commodities and livestock now produced under contract, farmer groups say the practice offers some benefits. For the short term, at least, contracts offer them revenue stability and provide the security bankers want when extending credit.

But they see long-term risks in opting out of the open market as consolidation increases the control over the food supply held by companies such as Tyson, Smithfield Foods Inc. and Cargill Inc., the nation's largest privately owned company.

"There is this growing concern nationally about contract agriculture," said National Farmers Union chief lobbyist Tom Buis. "You have a system where the profitability and independence of agriculture is sucked out by the corporations. It puts the whole rural infrastructure at risk."


Contract farming is nothing new for U.S. farmers. Contracted poultry production has been in place for over 50 years in the United States, and nearly 90 percent of the nation's poultry is now contracted.

But contracting has extended its reach into other commodities in recent years, fueled by corporate efforts to keep costs down and standardize products to consumer preferences.

About 60 percent of hogs are now produced under contract, as are 53 percent of dairy products, 21 percent of cattle, and 59 percent of fruits. In all, 36 percent of U.S. crops and livestock are produced under contract, according to the USDA.

Food companies say the contractual relationships are win-win situations for both sides, and that contracts enhance profits for the corporations because the company avoids costs such as building and operating barns and managing manure.

The arrangements benefit farmers, they say, by giving growers the ability to pursue a rural lifestyle that they otherwise might have to give up.

"To be honest, that farmer in rural America is willing to accept a lower return on their capital than a company would be," said Hugh Dorminy, a pork division vice president for Cargill Inc.'s Excel meat unit, at a conference on contract agriculture held earlier this month in Kansas City.

But complaints from farmers of unfair treatment and market manipulation by the food giants are becoming so numerous that many states and federal lawmakers have been trying to pass reform measures to give farmers more power in contracting.

They are also pushing for a ban on large corporate ownership of livestock to ensure that producers who don't work under contract can sell their animals into a competitive market.

Last week, Iowa Republican and Senate Finance Committee Chairman Charles Grassley introduced a bill along those lines that would limit the number of packer-owned hogs corporate food companies could slaughter.

Farmers are also taking their complaints to the courts.

Hog farmers from Arkansas and Oklahoma have sued Tyson for unexpectedly canceling contracts after barns were built and farmers had incurred debts. The former IBP Inc., a subsidiary of Tyson, is facing a January trial on allegations by thousands of cattlemen that it unfairly manipulates the market, and similar accusations have been made against the beef unit at Cargill.

In a case that observers say could have sweeping ramifications, Oklahoma poultry farmers are suing Arkansas-based O.K. Industries, alleging they are actually working as employees and are due a range of pay and benefits.

The Oklahoma attorney general has agreed, saying the company control over them is extensive.

"The playing field needs to be balanced to ensure that competitive markets are maintained," said agricultural law specialist and Kansas State University professor Roger McEowen. "If that is not done... farmers will end up as serfs on their own property."