FAIR TRADE PRACTICES Opinions Differ On New Rules

NORTHWEST ARKANSAS — Proposed government regulations defining fair trade practices are splitting the local poultry industry into opposite camps.

The Grain Inspection, Packers and Stockyards Administration proposed the rules in June, which launched a groundswell of public opinion from chicken growers and the companies they represent.

Elizabeth Brumley, lawyer with the National Agriculture Law Center at the University of Arkansas, said local interest is growing on both sides of the issue.

The U.S. Department of Agriculture had accepted more than 11,800 comments favoring the rule changes and 145 comments against, according to the department’s website Friday. The public comment period is open until Nov. 22. After that, the agency will analyze the feedback and issue thefinal rules sometime next year, according to the USDA.

Congress passed Section 11006 of the 2008 Farm Bill requiring the agriculture department to write regulations defining guidelines for what constitutes unfair and deceptive trade practices under the Packers and Stockyards Act. These rules fall under GIPSA jurisdiction, the agency that oversees the marketing of livestock, poultry, meat, cereals, oilseeds and related agricultural products as well as promoting fair and competitive trading practices.

Taking Sides

Poultry processors Tyson, Simmons, Pilgrim’s and George’s, their trade organizations, unions and some growers stand together in one corner opposing the government intrusion.

This group supports the National Chicken Council’s position that GIPSA is responding tothe complaints of a small number of disgruntled growers and is adopting rules that threaten a system that works for the benefi t of most growers, companies and consumers.

Tyson Foods and other processors believe the expanded regulations go too far and will add costs that ultimately hurt the U.S. meat and poultry industries’ ability to compete in the world marketplace.

In the opposite corner stands a large number of growers, breeders, family farm advocates, consumer groups and the Arkansas Farm Bureau who support the rule changes.

Proponents say the changes will ensure more transparency with grower pay and contract terms, while outlawing retaliation against growers who speak out or refuse expensive equipment upgrades mandated by a poultry company.

The 2008 Farm Bill directed the USDA to address unfair tradepractices and provide poultry growers with key protections to mitigate biased contract provisions that can favor corporations, said Becky Ceartas, spokeswomen with Rural Advancement Foundation International.

She has met with growers around the country during the past four months to discuss the proposed rules and potential impact on family farms.

Frankie Duckett, a poultry breeder in south Arkansas, welcomes the rule changes in hopes that growers and breeders will have a better line of communication with their sponsoring companies.

“Farm income has dropped more than 30 percent in the past few years because the pay has not kept up with grower expenses,” Duckett said. “When we try to talk with our company and explain our situation, it falls on deaf ears.”

The new rules also provide breeder farmers like Duckett withthe same protection and oversight as broiler farms.

Ceartas said breeder farmers were erroneously omitted from the original regulations, but the proposed changes clarify the rules to include both breeder and pullet farms.

Casey Wilson grew up raising chickens in northern Madison County and has invested $900,000 into seven houses in the past decade. He said the business is returning about 5.5 percent annually in terms of income for a job that never ends.

“I love this job, in part because it affords me the opportunity to be near my family and my children,” Wilson said. “But I think the GIPSA rules are needed to give growers a united voice in a system that has been dominated by a one-way channel of communication for far too long.”

Dwain Asbill, a grower nearSpringdale, worries the new rules will jeopardize a higher rate of pay for topranking farms in order to pay lower performing farms more.

“I don’t have any real complaints with the present system,” Asbill said.

Connie Yell, a broiler grower in Lincoln, said she responded against the GIPSA rules because in her 13 years of raising chickens she has consistently ranked as a top farm for two dift erent companies, which provides premium pay.

Grower Pay

Tyson Foods has significant concerns about the GIPSA rules and its impact on the industry.

“We believe the government is trying to make changes that will take money out of the pockets of progressive growers and redistribute it to the less competitive, less efficient growers,” Tyson spokesman Gary Mickelson noted in an e-mail.

The industry has long used a “tournament system” of pay that ranks farms on overall efficiencies such as ideal bird weight, feed conversion ratios and mortality rates.

The National Chicken Council said contracts already include a minimum rate of compensation, known as disaster pay, for each flock. If GIPSA allows companies to guarantee a higher base it would transfer income from the aboveaverage performers to the below-average performers, according to Richard Lobb, spokesman for the trade group.

Ceartas said poultry companies are forgetting that they largely control which growers are at the top, which creates an unfair trade practice or advantage as prohibited by GIPSA.

“Companies control feed quality, chick genetics and the number of days a fl ock stays on a farm, all of which are important in measuring a farm’s eff ciency and a basis for bonus pay,” Ceartas said.

She said growers want some guaranteed base rate of compensation, with the ability to earn premium pay, especially since they don’t have full control over their rankings.

Yell said her gross pay per flock can range from $9,000 to $35,000, which is a wide spread for farms to cover when there is a mortgage to pay.

“I can see where a higherbase pay would help lots of growers, but right now the tournament system works for me most of the time,” Yell said.

Wilson said he favors modification to the tournament system because he’s seen first hand how little control he has over his rankings.

“I have two farms, one has $150,000 in house upgrades and the other has standard houses more than 15 years old,” Wilson said. “The chicks delivered to my new houses are weak, they’re dying left and right, while the flock delivered to my old houses are one of the best I have seen in some time. I am methodical and run both operations exactly the same way and yet I will get completely different outcomes with these fl ocks.”

Aside from chick quality, Wilson said growers have no control over how long they have each fl ock.

In his last settlement statement, Wilson said the top farm in the group had its birds picked up after 60 days while the average days on the farm in the group was 63 days.

“Three days can make a big difterence in bird performance and farm profi tability,” Wilson said. “Those farms that had birds 66 days were at the biggest disadvantage because of all the feed they have in the bird, not to mention the 20 to 30 dead birds they have to haul out of the house each day.”

Grower Relations

Frank Jones, consultant with Poultry Perspective in Springdale, said the present economic climate is ripe for grower discontent.

When growers see sponsoring companies turning big profits and yet they are struggling to pay routine bills, grower tensions are to be expected.

“We depend on thousandsof contract poultry producers to operate our business and our relationship with them is already extensively regulated. We want and need growers to succeed so they can continue to supply our processing plants,” Mickelson said.

Todd Simmons, chief operating officer of Simmons Foods, said the company values its growers and works to keep those relationships strong through ongoing communication.

Wilson said on Monday he was notified by Tyson Foods that he would be getting a raise equal to about $1,500 a fl ock, based on the company’s improved balance sheet.

He said the raise comes at a good time with rising health care costs and farm expenses.

Mickelson said Tyson continually evaluates grower pay and makes adjustments when warranted.

The last time local Tyson growers received a raise was July 2007. The company had modest profits of $86 million in 2008 and a $455 million net loss in 2009, according to company earnings reports.

Jones said sometimes growers forget that sponsoring companies shield them from heavy losses in years like 2009, when production is cut.

Through nine months of 2010 Tyson reported net income of $557 million.

Wilson agreed that production days are up this year, which provides more opportunities for earning than when houses sit empty.

“Nobody wants to work for a bankrupt company, but growers have taken on huge amounts of debt and have little or no say in their contracts, much like an indentured servant,” Wilson said. “We need the GIPSA rules to even the playing field.”