Start with the term "contract farming." Does it suggest a fair relationship between farmers and the companies that buy what they grow? See, already you've been misled. The "contracts" can be totally one-sided, controlled by huge corporations that don't just buy the produce but actually own it from start to finish--and employ farmers as their day laborers, while forcing them to shoulder tremendous financial risks.
Advocacy groups like the Pittsboro-based Rural Advancement Foundation International-USA (RAFI) tell us this. "Unequal and unfair contracts" can make farmers feel like serfs on their own land, RAFI says. Farmers themselves say it. "They have us between a rock and a hard place," a poultry grower says about the corporation he works for. "You know why? Because, nobody can touch 'em."
Here's the choice this farmer faces right now: Either invest another $35,000 in each of the chicken houses he owns, to pay for a new kind of ventilation system that's supposed to cut the cost of raising chickens, or be dropped by the company. (With better ventilation, the chicken houses can be kept darker, so the chickens will move around less--and consume less feed. Cool, huh?) But even if he does invest, he'd have no guarantee whatsoever that they won't drop him anyway--and the reality is, there's "overproduction" in poultry, so where would he go if they did?
But perhaps the best evidence of the problems in contract agriculture is how afraid the farmers are to be quoted by name, lest the corporations retaliate against them by using the terms of their so-called contracts to cut them off.
Afraid? Farmers? Well, the fact is, as I interviewed folks about the prospect of reform legislation in North Carolina--a producer-protection act, or "farmers' bill of rights," as it's known in other states--the three poultry growers I talked with were keen to tell me how their business works, and what's wrong with it, but only on the condition that I not identify them. Their fears were palpable and, it seemed, well-founded. So I won't.
The problem, though, is that unless growers get organized and fight back, they'll just keep losing ground as corporate ownership consolidates and extends its reach across state and national borders. In the hog industry, for example, Virginia-based Smithfield Foods has bought out the biggest North Carolina companies--like Murphy's Farms, formerly the stronghold of powerful state legislator Wendell Murphy--and now controls 70 percent of hog production in the state. Smithfield Foods is the biggest hog company in the country with annual profits of more than $500 million.
Crops like potatoes and wheat, traditionally sold at market, are also going under contract to big agribusinesses and food companies in increasing numbers. According to RAFI, contracts accounted for more than one-third of American agriculture in 1997; the figure is doubtless higher now. Even in tobacco, with its quota system, contract farming is pushing the old auction barns aside: An estimated 40 percent of the state's crop will be sold under contract this year, because Philip Morris wants it that way.
Legislation that would give contract growers some rights and limit corporate abuses was slated to be the topic of a forum this week at the State Fairgrounds in Raleigh, a first step in what promises to be a long, tough battle for its proponents. One big question mark in the days leading up to it was how many growers would show up and--more important--speak up, given that corporate interests were expected to be well-represented there too.
A key sponsor of the forum, along with RAFI, the N.C. Farm Bureau and other groups, was newly-elected state Agriculture Commissioner Meg Scott Phipps. In her campaign, Phipps supported legislation along the lines of the model Producer Protection Act drafted last year by Iowa's Attorney General and endorsed since by the attorneys general in 15 other states. "I'm going to be a leader on contract protection," Phipps says. (Then-N.C. Attorney General Mike Easley, now Gov. Easley, said he supported the model bill in principle, but he did not sign the endorsement letter.)
Phipps hasn't spelled out her own reform plan as yet, nor has any legislator introduced a bill in the General Assembly, so it's not clear how many of the provisions of the model bill will be considered here. In general, the model legislation bans "unfair trade practices" and requires that growers be given accurate information about the risks they're undertaking, along with an "implied promise of good faith" that would strengthen their hand in any legal dispute. It would also prohibit confidentiality agreements that force growers to keep the terms of their contracts secret and discourage them from talking with each other about their problems.
The two key provisions--and the most controversial ones--go further. One would require that corporations share their growers' capital-investment risk. The second would prohibit so-called "tournament competitions" to determine growers' pay.
The poultry industry, which has the longest history with contract growing and is dominated by it today, illustrates the importance of the two provisions.
As the growers I spoke with explained it, a handful of big corporations control production--among them familiar names like Tyson and Perdue along with less familiar ones like Townsend and Mt. Aire. When a grower contracts with one of them, the company supplies him with flocks of chicks, feed, vitamins and most everything else he'll need to grow plump chickens--except the chicken houses. If you want to grow chickens, the chicken houses are on you.
A standard chicken house is a building 500 feet long (one-and-a-half football fields) and 40 feet wide, equipped with huge heating and ventilation systems and a backup generator to run them should power go out. A new chicken house costs about $150,000. In it, you can grow a flock of 25,000 tiny chicks to market weight in six to nine weeks.
How often are the flocks delivered? That's up to the company. Usually, you get five or six flocks a year. But you might get less. Why? Well, you come to suspect it's because they don't like you--maybe you're dragging your feet on that new ventilation system they want you to put in for another $35,000, or maybe it's because you spoke up in favor of reform legislation in public. Anyway, they're not required to tell you why.
You get paid based on the weight of your chickens when the corporation picks them up, with bonuses if you rank in the top half of their "tournament" against other growers. In theory, tournament bonuses are an incentive for you to do a good job. In practice, your efforts may not matter as much as whether they gave you chicks from older hens or younger ones (the older ones have bigger chicks). Or, they may depend on your willingness to reach into your pocket for more feed, more vitamins or more heat when the weather is cold. In the summer, you're supposed to keep the temperature down, meaning more electricity.
RAFI did a study and determined that the average chicken house produces a net profit of $5,000 a year--about what you'd get if you put your $150,000 in a savings account at the bank, except of course that the chicken houses are a lot of work. And if, for some reason, you should be away when the power goes out and your generator fails to kick in, you will have 25,000 dead chicks on your hands when you return. In the summer, they can die in as little as five minutes without ventilation. No, you didn't own the chicks when they were alive. But you own them now.
Chances are, that would be your last flock, and maybe with good reason. But the corporation can decide not to supply you with new flocks--or give you fewer of them--essentially at will. That's where the capital-risk provision comes in. Under the model bill, unless the corporation can show that a grower breached his contract, it would be required to compensate him for his unused chicken houses if it cut him off.
The contract system is also under fire from environmentalists in Raleigh who charge that the hog industry uses it to shield corporate owners from liability for the environmental damage they cause. Companies like Smithfield Foods own both hogs and hog-processing plants, as Jane Preyer, director of N.C. Environmental Defense (NCED), pointed out at a conference recently hosted by the group Save Our State. These "integrators," as she called them, own some hog farms as well, but most of their hogs are grown under contract by farmers who are, in effect, their employees. Smithfield owns 270 farms, but contracts with some 600 others, for instance. And under the contracts, the growers bear sole responsibility for what happens to their hog wastes.
Preyer called on the General Assembly to enact legislation making it clear that the hog owners, as well as the growers, are responsible for the wastes, and responsible for finding safer methods of disposal than the above-ground cesspools ("lagoons") they use now. "Major integrators who have profited most under the current system should ultimately be held responsible for paying the costs of new waste management technologies," Preyer's group said in a report called "Dollars and Sense."
What's more, the corporations can afford it. Because of the way they've arranged hog production in North Carolina, NCED says, Smithfield Foods and other big integrators (Premium Standard Farms, Prestage Farms, Goldsboro Milling) have enjoyed growing profits even as pork prices have dropped precipitously in the past two years and contract growers have lost money. Because they own the processing plants, the integrators earn 10 times what growers do--and they earn at twice the rate in this state as in the rest of the country. How? By dodging environmental costs and, so far, making the public pick them up instead.