Feeding Time for Boss Hogs
by A.V. KREBS
The Clinton administration, through Vice-President Al Gore, pushing some
more of his "practical idealism" in Iowa, has announced that it
will provide hog farmers with $130 million to compensate for a collapsed
In the meantime, as hog farmers are currently suffering from Depression-era
prices while consumer prices remain virtually unchanged from a year ago,
IBP and Smithfield, the two largest pork processors in corporate agribusiness,
are reporting record profits.
Against the backdrop of hog farmers losing about $2.6 billion in 1998, based
on an average loss of $27 per animal, and a prediction by Ron Plain, a livestock
specialist at the University of Missouri, that those same farmers could
lose $1.5 billion more by midsummer, IBP Inc. has been posting record profits,
up more than 125% in the third quarter of 1998. While its shares jumped
more than 37% in 1998 it also expects fourth quarter earnings to be four
times higher than last year's.
Hormel, the large meat processor based in Austin, Minn., also reported record
profits of nearly $140 million in 1998 and Smithfield Foods Inc. of Smithfield,
Va., the nation's largest producer and marketer of fresh pork and processed
meats, said its net income rose 19%. Yet, over 11% of the nation's hog producers
closed down last year, leaving 138,694 hog farms, many raising under 1,000
head. John Lawrence, a livestock economist at Iowa State University thinks
15% more will go this year..
Chris Hurt, an agricultural economist at Purdue University in West Lafayette,
Ind., calculates meat processors and retailers are reaping roughly $4 billion
more from pork this year than they did in 1997--at the expense of farmers
"It does not make sense that IBP is banking record high profits while
hog producers are being paid Great Depression-era prices. These prices are
driving thousands of producers into bankruptcy," NFU President Leland
Swenson recently declared. "This is clear evidence that something is
Producers are currently receiving about $10 per hundredweight (the market
rose to $27 as of presstime) for hogs, while the average price in 1997 was
$59 per hundredweight. The last time farmers received $10 per hundredweight
was 1941. However, ten-dollar hogs in 1998 are comparable to 50-cent hogs
in 1941 dollars. Most producers consider $40 per hundredweight a break-even
price. Currently, hog farmers are receiving only 12% of the retail food
dollar, compared to 30% a year ago.
"Despite the sharp decline in hog prices over the past year, retail
prices paid for pork have remained constant. That simply does not add up,"
Swenson added."This raises serious questions about profit making at
the expense of producers and consumers."
While the major media has begun to focus on the hog price crisis, talking
about over production and disappointing export sales it has typically ignored
one of major causes of the crisis--industry concentration. Like the cattle
industry, where three firms--IBP, Cargill's Excel and ConAgra--control 81%
of the beef packing industry, six firms--Smithfield, IBP, Swift, Excel,
Farmland Industries and Hormel--control 75% of the pork slaughter.
This lack of competition, Swenson emphasizes, means that producers have
few buyers for their product, hampering their ability to negotiate a fair
price. In addition, packers continue to increase ownership and contract
production of supplies needed for slaughter.
These six corporations along with such relative newcomers as Murphy Farms
and Continental Grain operate factory-style farms where the overhead is
so high they are required to operate at near full capacity to be efficient.
Yet, despite the current oversupply of hogs these corporations are much
slower to cut their herds in response to a glut than are small farmers,
and they have deeper pockets to withstand a downturn. Continental Grain,
one of the nation's biggest closely held companies, owns 51% of Premium
Standard Farms Inc., which has no plans to cut its breeding herd of 130,000
And now "with these down markets, even large producers with economies
of scale are feeling the hurt," Hormel Foods' executive vice president
of operations, Gary Ray told the Wall Street Journal. "The industry
is heavily leveraged."
The situation is so dire, adds Iowa State's Lawrence, that "some companies
are looking for equity infusions now." Who might bite? He says companies
like ADM, which isn't in meats, but is big in grains and owns a 13.3% of
IBP stock, might decide now is the time to step up to the meat counter.
Some industry representatives concede that they overproduced. Investments
in new facilities, temperature-controlled rooms and sophisticated breeding
techniques created a glut in the number of pigs produced and sent to market.
While the number of hog operators has steadily declined to 138,000 today
from three million in the 1950s, the industry will produce a record 19 billions
pounds of pork this year.
Another fact, largely ignored, is that large number of hogs being imported
from Canada and Mexico. As Dan McGuire, a board member of the Nebraska Farmers
Union and American Corn Growers points out:
"U.S. hog imports from Canada in the period from January to September,
1998 totaled 3,109,032 head while total U.S. hog exports to the world only
amounted to 110,264 head. During this period Canada's pork exports to the
U.S. totaled 337.3 million pounds (carcass weight), 3.4 times more than
the 100 million pounds exported to Canada by the U.S. Any U.S. or Canadian
government official that believes these massive imports don't drive down
our livestock prices needs to take a real world (not theoretical) economics
Considering such facts family farm advocates and consumers--particularly
those who enjoy pork chops, an occasional pork roast and the traditional
holiday ham--should become most judicious and extremely discretionary in
any tears that might feel like shedding when they read Wall Street Journal
headlines such as "Hog Market Collapses on Glut Of Animals; Big Blow
Like watching two steam locomotives barreling across the open plains headed
toward each other on the same track this was a train wreck that was both
foreseeable and inevitable.
And once again it is the small family farm operators who are being forced
to suffer the economic consequences as big factory-style farms continue
to flourish and a handful of meatpackers and retail outlets report record
Meanwhile, the National Pork Producers Council (NPPC), wails about the possibility
of a "massive restructuring of pork production in the United States."
In a letter to President Clinton NPPC's President Donna Reifschneider, warned
that "if this dangerous situation is not reversed quickly, it will
result in the failure of tens of thousands of pork producers and a massive
restructuring of pork production in the United States.
"We believe the economic crisis facing America's pork producers must
be viewed as a national emergency, warranting immediate intervention by
the U.S. government," she argued in her best "sky is falling"
language sent to the White House.
Grimly cynical, however, probably could best describe the reaction of most
family-farm hog operations to the pleadings of the NPPC. Supported by hog
operators own checkoff dollars, it is the NPPC which has been corporate
agribusiness's primary cheer leader in urging hog farmers to expand their
operations into factory type operations which in fact has already led to
a "massive restructuring of pork production in the U.S." and the
current glut in the hog market.
Currently, a staff member of the Rural Advancement Foundation International
(RAFI), Mary Clouse has done pioneer work over the years in helping to organize
the National Contract Poultry Growers Association (NCPGA). It is that experience
which she recalls in voicing her reaction to the current situation in the
"Everyone saw this one coming. I have lost my patience with the contract
hog farmers. There was plenty of evidence from the contract poultry growers
about the risks involved in contracting, yet they refused to listen. No
sympathy for the bankers either. Let them eat their loans on all of the
new facilities they helped to build in order to grandfather them in when
any newer, tougher environmental rules would have stopped the industry in
"The independent hog farmers did the only thing they could," she
adds, "either get out of the business or get bigger, form marketing
co-ops, etc. Those that got bigger and imitated the corporate hog confinement
producers, threw the curve into the hog market. They refused to go under
quickly enough and the glut on the market continued to build. Now it has
driven prices so low that even the corporate 'deep pockets' are crying for
help. There should be none! Let the `free-enterprise' system work!"
Steve Dalton, a shareholder and coordinator of the Indiana Family Farms
Cooperative, adds "U.S. producers have created a monster. There's a
tremendous amount of wealth being made from pork producers, and we have
allowed this to happen," he said. "We have been too production-oriented.
Why does anyone need 20,000 sows?"
Meanwhile, corporate agribusiness mouthpieces like the American Farm Bureau
Federation are urging greater "partnership" between farmers and
Unlike other commodity growers angry over low prices hog farmers won't be
protesting or picketing, according to Dennis Vercler, an Illinois Farm Bureau
spokesman. The Associated Press reports that Vercler "was careful to
choose his words, saying he does not want to alienate retailers."
"This is not a protest. Farmers and retailers are partners ... It's
not about price-gouging or bashing the middle man," Vercler said. "But
there is a difference of opinion about the proper level of retail pricing."
But as Tom Morgan, of Morgan Consulting Group, Ltd., Paola, Illinois, whose
firm in the past has been critical of the pork industry's legislative and
marketing leadership (like the NPPC), points out the industry views retailers
and purveyors as part of the whole market channel. They don't wish to offend
their partners, Morgan said.
Morgan is adamant that the industry leadership almost two years ago agreed
to expand numbers 25% to drive prices into the teens to capture market share.
"They've pursued a policy of market share without any regards to profitability,"
he adds. "Market share without profitability isn't going to work in
the long run ... What good is a partnership if it only goes one way?"
While the nation's hog market collapses the pork industry, true to its nature
remains at the trough.
A "sweet heart" agreement was recently announced between the National
Pork Producers Council and the Environmental Protection Agency that will
allow hog farmers to voluntarily undergo environmental inspections and avoid
"costly fines" for violations.
Providing pork producers have their farms inspected under the NPPC's EPA-approved
odor and water quality assessment program they will be eligible for reduced
penalties for any Clean Water Act violations discovered and corrected. Previously,
farmers could be fined as much as $27,000 a day for violations. Under the
new system, participating farmers will get a flat fine of no more than $40,000.
The NPPC is paying for the program with the checkoff dollars that it collects
from among the nation's 122,000 hog farmers.
The NPPC has established a team of farm inspectors, also approved by the
EPA, which will include public employees, engineers, university faculty
members and private consultants. The NPPC hopes to see more than 12,000
farms participate in the program over the next three years.
While NPPC President Reifschneider might prefer to call the agreement a
"win-win for the environment and producers" it could prove more
than likely, if history is any indicator, a lose-win for the environment
and corporate hog farms.
Meanwhile, in North Carolina, the nation's second largest pork producing
state behind Iowa, the NPPC is asking that the production/slaughter cap
at the Smithfield Foods facility in Tar Heel be lifted so that more hogs
can be slaughtered in a given day. Recently, Smithfield was denied expansion
permission, and a cap was placed on the facility to hold it at 144,000 head
per week. As part of their letter to President Clinton the NPPC asked for
Smithfield to go from 24,000 per day to 32,000 per day which would result
in a discharge of 4.5 million gallons per day from the present three million
gallons per day into the Cape Fear River.
The call came shortly after North Carolina's governor signed a bill extending
the state moratorium on new and expanded hog facilities from March through
September 1, 1999. Passed by the general assembly after months of debate,
the bill amends the controversial term "innovative" in the description
of waste handling systems exempted from the building ban.
A.V. Krebs is author of The Corporate Reapers: The Book of Agribusiness
(Essential Books: 1992)
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