BY AMES ALEXANDER, DECEMBER 08, 2022, Charlotte Observer
BIG POULTRY: PART 3 https://www.charlotteobserver.com/news/state/north-carolina/article267894992.html
Many NC poultry farmers get into the business because they are told it is a way to make a steady income with minimal effort. But it doesn’t always work out that way. The system leaves many farmers struggling to make ends meet.
The U.S. Justice Department alleges that leading poultry companies have engaged in “deceptive” and illegal practices in their dealings with the farmers who raise their birds. Advocates say the system allows multi-billion-dollar poultry companies to profit at the expense of farmers and keep them trapped in a cycle of debt.
A rigged game? Poultry farmers complain of big debt, unreliable income
How it works: The risky business of contract poultry farming in North Carolina
Working in fear: After they complained, farmers say poultry companies retaliated
Interactive graphic: at www.charlotteobserver.com/news/state/north-carolina/article267894992.html
See how impacts from NC poultry farms may extend for miles
Paula and Dale Boles wonder how their marriage survived the poultry farming years. In 2002, before they borrowed money to build two chicken barns north of Hickory, Case Farms employees assured them they’d be able raise the birds in their spare time — and that the business would be profitable enough to pay off their loan in 10 years, Dale said. It didn’t work out that way.
The contract work was grueling, sometimes 14 hours a day. But after all the bills were paid, their net income from raising hundreds of thousands of chickens amounted to less than $25,000 a year, not nearly enough to support their family of four.
In 2007, they began raising chickens for Tyson Foods because the company offered what sounded like a better deal. But nearly every year, the Boles said, Tyson required them to pay thousands for equipment upgrades – something they say the company never warned them about before they signed the contract. “At one point, I had to drain my 401K to keep from going bankrupt,” Paula Boles said. Left with big debts and little income, many poultry farmers like the Boles feel they were caught in a game they couldn’t win. After receiving what they say were hollow assurances, they say they signed contracts to raise birds for multi-billion dollar companies, only to learn they had little control over the things they needed to succeed financially.
Paula Boles, left, and her husband Dale stand outside one of their former chicken barns in Caldwell County. “I’ve made mistakes before, but (deciding to become a contract chicken farmer) is the biggest one I’ve ever made,” Dale said.
In a review of court documents and other public records, along with interviews with more than a dozen current and former poultry farmers in North Carolina, the Charlotte Observer found:
▪ Many contract poultry farmers didn’t know what they were getting into. Some, for instance, say they were surprised when poultry companies required them to spend hundreds of thousands for equipment upgrades if they wanted to keep raising chickens.
▪ Most poultry companies compensate farmers based on how efficiently they fatten their chickens, but they give farmers no control over much of what they need to succeed, such as the health of the chicks and the quality of the feed.
▪ When farmers are unhappy with their poultry companies, simply switching to another company is rarely an option. The reason: In many parts of North Carolina, there is only one poultry company that contracts with farmers. This summer, the U.S. Justice Department sued three large poultry companies, alleging, among other things, that the corporations kept key information from chicken farmers and used “deceptive” tactics that resulted in lower pay to them.
And the U.S. Department of Agriculture rolled out proposed rules that would force poultry companies to disclose more information to help farmers make better informed choices about whether to raise chickens. Industry leaders say they see no need for change. The current compensation system has worked well, providing incentives that encourage farmers to raise healthy chickens, they argue. Bob Ford, executive director of the North Carolina Poultry Federation, said he rarely hears complaints from farmers. Most poultry companies have waiting lists of people who want to begin raising chickens or turkeys — or expand their existing poultry farms, he noted.
But Rudy Howell says the proposed federal rules come none too soon. The former Robeson County chicken farmer said raising chickens for Perdue Farms did not turn out the way he was led to believe. “They make it smell like roses,” he said with characteristic country bluntness. “And it’s plain crap.” “I did not realize how rotten the chicken business is.”
Rudy Howell used to raise chickens in Robeson County, but said his income from poultry farming was so low some years that he would have had to file for bankruptcy if he had not been able to rely on his retirement income from DuPont.
When David Lutz first began talking with Case Farms about raising birds on his family farmland in Lincoln County, the company’s financial projections looked promising, he said. He remembers company representatives telling him that raising their chickens would provide guaranteed income and require very little work. But he soon discovered how little control he had over the things he needed to prosper. In 2013, he signed his first contract. Case Farms reps told growers they could not negotiate terms of their contracts, and that they must “sign them there on the spot, without consulting legal counsel,” Lutz alleged in a subsequent federal lawsuit.
Lutz ultimately borrowed about $1.5 million to build six chicken barns to Case Farms’ specifications. He soon felt trapped. “Empty chicken houses didn’t pay the bank, so you had to do what (the company) asked you to do,” he told The Observer. In the early years, he netted about $40,000 a year from his chicken farm. Later, however, the company began bringing him fewer chickens and his farm started losing money. He depended on the corn, wheat and soybeans he was growing elsewhere on his 125 acres to cover the losses. Case Farms sometimes brought him moldy feed and “piles of dead chickens,” his lawsuit alleged. But after he complained, company officials retaliated against him and, in 2020, canceled his contract, he alleged in his lawsuit. Case Farms contended that Lutz had failed to notify a company official about a high mortality rate among his chickens. Lutz said he tried to notify a Case Farms service technician to report the deaths, but could not reach him. Canceling the contract left Lutz with no way to pay the mortgage on his chicken houses. Worse, he stood to lose his farm, in his family since 1957, as well as the homes where he, his children and grandchildren lived. So Lutz sued.
Case Farms declined to comment on Lutz’s allegations. But in court filings the company denied that it supplied substandard feed and chickens. And it contended that Lutz continually neglected the birds in his care. Lutz disputed that allegation. U.S. District Judge Kenneth Bell ruled in Lutz’s favor, issuing an injunction that barred the company from canceling his contract. In his ruling, Bell said he found the decision to be in the public interest “to protect farmers like Lutz from abusive practices by poultry dealers, who have far more leverage and economic power.” Case Farms subsequently agreed to pay Lutz an undisclosed sum as part of a confidential settlement.
Lutz is by no means the only poultry farmer who says he has suffered retaliation by poultry companies. In extending the deadline for comments on the proposed transparency rules, USDA Secretary Tom Vilsack in August noted “there is fear throughout the meat and poultry industry as we saw earlier this year at two separate Congressional hearings where witnesses did not testify due to concerns of retaliation.” Farmers who want to comment on the proposed rules, Vilsack stressed, will be able to do so anonymously. Now 70, Lutz sold his chicken farm earlier this year. “The best thing I could do was sell it to stop the bleeding,” he said.
A CYCLE OF DEBT
Industry leaders contend the large majority of poultry farmers are satisfied with their contract relationships. In a recent survey released by the National Chicken Council, top chicken companies said that more than half of their farmers had been with their company for 10 years or more — and that just 6% of farmers left their company in 2021. Some aspects of contract poultry farming are attractive to rural landowners. Unlike crop farming, raising chickens and turkeys doesn’t require a lot of land. Contract farmers are insulated from certain risks, such as unexpected fluctuations in feed and market prices. And they don’t have to acquire their own chicks, buy their own feed or find buyers for fully grown birds. Companies take care of that. “On the other hand, you only have one buyer,” said Aaron Johnson, program manager for the Rural Advancement Foundation International-USA (RAFI-USA), a North Carolina-based nonprofit that advocates for farmers. “And you’re very beholden to that buyer.”
Disillusioned farmers share a common refrain, Johnson said.“They were told they were getting into a different deal than they ultimately got,” he said. In interviews with more than a dozen current and former poultry farmers, The Charlotte Observer also heard that complaint. Before Craig Watts began raising chickens for Perdue Farms in Robeson County in 1992, he remembers a company representative telling him his newly built poultry houses were “ahead of their time” and would need no equipment upgrades. Twelve years later, he said, he was told he’d have to invest $100,000 more for upgraded equipment or he would get no more birds. Craig Watts, a former Robeson County chicken farmer, says he went deep into debt to build poultry barns and raise chickens for Perdue. “If I had known then what I know now, I never would have gotten into it,” he said.
Feeling he had no choice, he borrowed more money. All told, he said, the company required him to spend at least $200,000 on upgrades. The loans that he was told would be satisfied in 10 years were finally repaid in full this month — 30 years after he took out his first loan. Perdue didn’t respond to questions about the complaints from Watts and Howell. But in an emailed statement, the company said: “As an imperative lifeblood of our business, we value the excellent relationships built on trust we have with our farmers, and remain committed to providing them fair, competitive contracts that benefit them and, therefore, our animals, customers, consumers, and company. We incentivize our farmers to raise our animals with the utmost care and dedication, and pay them competitively based on performance.”
But some poultry farmers say their relationships with integrators trapped them in a cycle of debt. In a federal class action lawsuit filed against five of the nation’s largest poultry companies — Tyson Foods, Perdue Farms, Pilgrim’s Pride, Koch Foods and Sanderson Farms — a group of farmers has alleged that poultry corporations often require growers to undertake unnecessary and expensive upgrades “with the intent of keeping Growers debt-laden.” The only way most farmers can service that debt, the complaint notes, is to keep raising chickens. The complaint also contends these companies — often called integrators because they control most aspects of poultry production — conspired to suppress wages by agreeing not to recruit farmers from other companies. Tyson and Perdue agreed earlier this year to pay a total of $35.75 million to chicken farmers to settle the suit. Perdue said in an emailed statement that it opted to settle the suit because it felt that was “in the best interest of our company and our network of dedicated farmers.”
Tyson — like many of the other leading companies that contract with farmers to raise chickens and turkeys in North Carolina — didn’t respond to questions about their relationships with farmers. But Perdue and House of Raeford officials say their companies strive to treat farmers fairly. “We’re listening to the farmers,” said Mike Levengood, farmer relationship advocate and chief animal care officer for Perdue Farms. “…We’ve got to keep farmers whole. They’ve got to cash flow it or we’re not going to get new ones long term.”
Daniel Phillips and his father-in-law built six poultry houses near Robersonville, NC in 2018. They also grow tobacco, wheat and beans on the 1,000 acres they tend. He says when his crops had a poor year, raising chickens kept his farm profitable.
SATISFIED OR FRUSTRATED?
Among all U.S. farmers, poultry and hog farmers are the most likely to suffer “extreme financial stress,” meaning they lack sufficient income to make current loan payments, according to USDA research.
Debt loads for NC poultry farmers soared
The average amount of federally guaranteed loans to NC poultry farmers has roughly doubled over five years, jumping to more than $1 million in 2021.
Since 2016, the average loan amount has increased 73%, adjusted for inflation for 2021. Source: USDA Farm Service Agency data
North Carolina’s poultry farmers appear to be shouldering far more debt than they used to, interviews and data suggest. The average federally guaranteed loan to poultry farmers nearly doubled over the past five years, jumping to more than $1 million in 2021, an Observer analysis of USDA data shows. The poultry industry, however, points to numbers suggesting that their growers make better incomes than most other types of farmers. Average net farm income for poultry farmers was $59,183 in 2020, compared to $42,035 for all farms, according to USDA data.
The North Carolina figures ranged from an average of $55,953 in 2017 to $84,746 in 2020. The chicken council touts a recent study finding that 60% percent of poultry farmers earned household incomes that exceeded the U.S. median. To be sure, some chicken farmers with large operations say they’re doing well. Ashley Oxendine, who began his poultry career cleaning out chicken houses, now owns 20 of his own in western Robeson County, southeast of Laurinburg. Raising birds for Mountaire has not made him rich, he says, but he considers his 600-foot-long chicken barns “the best investment I ever made.” Mountaire chicken farmer Ashley Oxendine holds his two children. Some of his chicken barns are in the background. Ames Alexander email@example.com Daniel Phillips said he, too, has been happy with his decision to begin raising chickens. Now 46, he used to work as a supervisor at Perdue’s Lewiston processing plant. But in 2018, he and his father-in-law borrowed about $1.8 million to build six poultry houses near Robersonville, about 90 miles east of Raleigh. The business has been profitable enough that he hopes to build two more barns before long. He and his father-in-law also grow tobacco, wheat and beans on the 1,000 acres they tend, and the money they receive for raising chickens for Perdue has helped them keep their farm profitable in tough years, he said. That was true two years ago, when wet weather conditions and low commodity prices made their crop farming a financial challenge. “It would have been a very rough year if not for the poultry houses,” Phillips said. Farmer Daniel Phillips checks on his chickens at his farm near Robersonville. He said his poultry operation has been profitable enough to keep his farm solvent in years when crop farming was tough. Robert Willett firstname.lastname@example.org But many with smaller poultry farms have struggled. More than 20 percent of the smallest poultry farms — those with one or two houses — failed to cover cash expenses in 2011, according to one USDA report. Howell, the former Robeson County poultry farmer, said his income was so slim some years that he would have been forced to file for bankruptcy if he had not been able to rely on his retirement income from his career working at DuPont. In recent comments written in response to the USDA’s proposed rules, Howell, 73, voiced his frustrations with the system. “The integrator has all the control and the grower has all the debt and I pray that you can come up with a better business model for the future poultry farmers of America,” he wrote. IS THE TOURNAMENT UNFAIR? Making matters worse, many farmers say, are the “tournament systems” — the poultry companies’ performance-based payment policies that compensate growers based on how efficiently they fatten their chickens. Many farmers say those payment systems punish them for things they can’t control, such as the health of the chicks and quality of the feed that integrators deliver. In a 17-state survey of poultry farmers, conducted by RAFI-USA earlier this year, three quarters of the 105 farmers who responded said they found the tournament system unfair. “The tournament system functions as a way for poultry companies to transfer the risk and cost of any problems with the chicks, feed, or medicine they provide onto the growers with whom they contract,” RAFI wrote in its comments on the recent USDA proposal to increase transparency in contracts. Industry leaders defend the tournament system, saying it’s designed to reward top-performing farmers, improve efficiency and help companies keep chicken prices low. “There are people who love competition,” said Levengood, the Perdue official. “There are people who want to put the time in and understand the chickens. Guess what? They get paid more.” Mike Levengood, Chief Animal Care Officer and Farmer Relationship Advocate for Perdue, visits B&P Poultry on Tuesday, October 18, 2022 near Robersonville, N.C. Robert Willett email@example.com But farmers say the system can lead to wild swings in their incomes from flock to flock and year to year. In his best year as a poultry farmer, Watts said he netted $60,000. In his worst, he collected just $3,000. He remembers the anxiety he used to feel before opening the envelopes that contained his settlement statements. “It was like taking a test and having an uneasy feeling until the grade was revealed,” he said. In its recent lawsuit, the U.S. Justice Department alleged, among other things, that two large poultry companies active in North Carolina – Sanderson Farms Inc. and Wayne Farms – have engaged in deceptive practices related to the tournament system. Because companies don’t disclose risks inherent in their tournament systems, “growers cannot reasonably evaluate the range of potential financial outcomes,” the lawsuit alleged. On top of that, the suit said, the contracts don’t spell out basic information, such as the number and size of flocks farmers will receive. Sanderson Farms and Wayne Farms, which merged earlier this year, signed a consent decree that would essentially end their tournament systems. While the companies can continue to offer incentive bonuses for quality work, they will need to guarantee farmers a base rate of pay, regardless of their relative performance. “This is a warning shot across the bow of the entire industry,” said Peter Carstensen, a professor of law emeritus at the University of Wisconsin and an expert in antitrust issues in agriculture. “It seems to me likely we will see a series of lawsuits naming more poultry companies for their conduct.” FARMERS HAVE FEW OPTIONS Half of chicken farmers in the United States work in regions that are dominated by one or two chicken processors, the attorneys general of nine states, including Josh Stein of North Carolina, noted in a recent letter to the USDA . In North Carolina, there appears to be even less competition. Twelve North Carolina counties have large, corporate-owned chicken slaughter plants. But just three of those counties have multiple slaughter plants, The Observer found. “Most of the farmers I talk to in North Carolina say, ‘I only have one option,’ ” said Johnson, the program manager for RAFI, “Your price is based on what the integrator is willing to offer you — take it or leave it.” It’s a problem farmers have complained about for years. In a 2009 letter to the US Attorney General and Agriculture Secretary, more than two dozen farmers advocacy organizations succinctly described the farmers’ dilemma: “Once the initial investment is made the growers must sign any new contract that is presented, even if the terms of the contract are unfavorable, or risk termination, bankruptcy, and the loss of their farm.” Responding to such complaints, the federal government has begun to put poultry companies under new scrutiny. Earlier this year, the USDA released proposed rules that would require poultry companies to disclose more information to farmers before they sign contracts, including the number of flocks they’ll guarantee annually and the estimated income range for farmers in their region. The National Chicken Council, an industry group, has opposed the proposed rules, saying the current system has worked well and that it appropriately rewards high-performing farmers. The plan would impose “needless costs … at a time when inflation and access to affordable food are key concerns to the American public,” the council wrote in an August letter to the USDA. NEW LIFE FOR OLD BARNS Dale and Paula Boles shake their heads when recounting the many things the poultry companies didn’t tell them: The costly equipment upgrades. The thousands they’d pay each month to heat and cool the barns. The many mornings they’d have to wake up at 2 a.m. to repair malfunctioning equipment. “It’s kind of like a used car salesman,” Dale Boles said. “They tell you the good things. But they don’t tell you the rest of it.” “I could have made more money at Walmart if you count all the hours I worked,” he said. Fed up, the couple quit poultry farming in 2015. Earlier this year, two decades after they raised their first chickens, they finally paid off their loans. Now they are putting their 500-foot-long poultry barns back to use. But there will be no chickens in them this time. They’ve converted them to greenhouses to grow organic vegetables. Charlotte Observer data reporter Gavin Off contributed to this story. Read more at: https://www.charlotteobserver.com/news/state/north-carolina/article267887592.html#storylink=cpy ACKNOWLEDGMENTS Big Poultry was reported and written by Charlotte Observer investigative reporters Gavin Off and Ames Alexander and News & Observer environmental reporter Adam Wagner, with data analysis support from News & Observer investigative reporters David Raynor and Tyler Dukes. | McClatchy data visualization and development by Susan Merriam | Illustrations and animations by Rachel Handley | Illustrations by Jack Ohman | Logo design by Gabby McCall | Design and development by David Newcomb | Art direction and animation by Sohail Al-Jamea | Photos, drone footage and videos by News & Observer and Charlotte Observer visual journalists Robert Willett, Alex Slitz, Travis Long, Khadejeh Nikouyeh, Melissa Melvin-Rodriguez, Kevin Keister, The’ Pham and Scott Sharpe | Print design by Mike Homan | Audience outreach and engagement by Paola Pérez, Laura Brache and Drew Hill at The News & Observer and by Drew Nantais and Tamia Boyd at The Charlotte Observer | Edited by Cathy Clabby, McClatchy Southeast investigations editor. A special thanks to The Data-Driven Reporting Project (Google & Northwestern University), which supported this project with a grant. And to One Earth Fund and Journalism Funding Partners, which support Adam Wagner’s reporting on climate change and the environment. MAPPING BIG POULTRY Data journalist Gavin Off started with two farm databases, one from nonprofit Environmental Working Group, the leading authority on North Carolina poultry locations, and one from researchers at Stanford University. Off linked those maps to a dataset of every parcel in the state, eliminating locations not owned by or zoned for farms. He then viewed satellite images of some 5,000 locations to verify which were poultry farms. This story was originally published December 7, 2022
Read more at: https://www.charlotteobserver.com/news/state/north-carolina/article267894992.html#storylink=cpy