FORTUNE: The last state standing against corporate farming weighs a change — giant meatpackers to take even more control
March 24, 2015, 7:00 AM EDT
A proposed bill in Nebraska’s state legislature would overturn a ban on the corporate ownership of hogs, allowing giant meatpackers to take even more control of the American meat industry.
When Jim Knopik looks over the fences of his family farm, there isn’t a neighbor for miles. “I’ve been on the same farm since I was a year-and-a-half old,” he muses. “Twenty years ago, there was a farmer or residence on every quarter-section of land. Within two miles of our place, there were 50 families farming.”
Now, he says, “Only one or two are still there.”
Knopik’s story is a familiar one in rural America. As agricultural corporations have grown more powerful over the last generation, millions of family farmers have simply sold out. Those who remain must often work off-farm jobs, grow vast quantities of commodity crops, or go into debt to make ends meet.
Knopik, who is a 65-year-old hog farmer, has fought for decades to protect Nebraska’s family farms. In 1997, he organized protests against a proposed factory farm in his town of Fullerton. Later, when an influx of cheap factory farm meat caused the price of pork to drop precipitously, he established a co-op to maintain a market for his farm and other independent pork producers.
Now, he’s involved in a new fight, one that’s taking place in the Nebraska state legislature. A proposed bill, Legislative Bill 176, would overturn Nebraska’s ban on corporate ownership of hogs. Knopik and others believe the bill could open the door for giant meatpackers like Smithfield to assume even more control over the state’s meat industry.
State Senator Ken Schilz introduced LB 176 in the Nebraska state legislature in January to overturn a 15-year-old law – the Competitive Livestock Markets Act – that bans corporations from owning livestock except in the days immediately before slaughter. Known colloquially as the “packer ban,” the law was intended to force corporations to buy their animals from independent producers, thereby supporting a competitive livestock market.
This isn’t the first time Schilz has attempted to overturn the CLMA. Last year, the senator introduced a bill that would have overturned the packer ban on cattle as well as hogs. That bill died in committee after farmers, ranchers, and advocates testified for over six hours against it.
LB 176 would not lift the prohibition on packers owning hog farms, but it would allow corporations to own hogs and then contract with independent farmers to raise them. Rather than sell those hogs in an open market, the famers would receive a fee for their services. The bill “says packers … can own pigs if there’s a producer that keeps and feeds them,” explains John Crabtree of the Center for Rural Affairs in Lyon, Nebraska. “The problem with that, of course, is that it’s a shell game.”
Crabtree says that this model leaves producers without any bargaining power. Farmers would have to assume “all the risk of having the operation, [borrow] all the money. But the packers would get … most of the profit.” Contractual relationships between farmers and packers have become an everyday reality in the world of industrialized livestock production. Tyson pioneered the contract model with chicken production in the 1950s. Within a few years of its introduction, about 95% of chicken farmers were raising their animals under contract.
Over the past two decades, the number of pigs and cattle raised on contract has grown dramatically. In 1993, 87% of U.S. hogs were sold on the cash market. By 2001, that share had dropped to 17%. The remaining 83% were controlled by meatpackers, either through direct ownership or by contract with farmers.
A few giant meatpackers are responsible for these changes. Just four packers—Smithfield, Tyson, JBS, and Cargill—dominate the U.S. pork industry. Altogether, these companies control 65% of the market. In many parts of the country, there are only one or two packers nearby for farmers to contract with. That translates to fewer business options for farmers. Vern Jantzen, a fourth-generation farmer, has experienced firsthand the effects the consolidated marketplace has had on Nebraska hog producers. “If they say we just don’t need your pigs, where do you go? What do you do?” he asks. “They call the shots.”
Big packers exert outsize influence over the livestock market through “vertical integration,” a scenario in which a company takes control over several links in its supply chain. In the meat industry, packers own the animals that farmers raise, sell farmers the animals’ feed, then process the animals in their own slaughterhouses. “Vertical integration is very anticompetitive behavior,” says Crabtree. “[It] ruins the market for all producers.”
Big packers have already overturned most federal restrictions on vertical integration. Now, they’re targeting state-level restrictions on corporate ownership of livestock.
Nebraska’s law is one of the last remaining packer bans in the country. In states where corporations have pushed for the overturn of packer ban legislation, the results have been dramatic. In Iowa, Smithfield successfully sued to overturn that state’s decades-old provision against corporate farming in 2003. According to USDA data, the number of hogs in factory farms in Iowa increased by 75% between 1997 and 2007. Now, virtually all of the state’s hogs are raised on industrial farms.
Some farmers are especially concerned about the rumored involvement of Chinese-owned Smithfield in lobbying for the passage of LB 176. Shuanghui International acquired Smithfield for over $7 billion in 2013, marking the largest Chinese acquisition of an American company in history. That purchase, along with others by Brazilian meatpackers, has changed the debate surrounding big corporations’ involvement in the food industry. “The question becomes, where do those profits go?” asks Jantzen. “If we spend money on pork products, part of the money is going to go to China. Anytime we get a big operation like this, what does it do to the local community?”
On February 10, LB 176 was brought before the Nebraska State Senate Agriculture Committee. The committee heard testimony from nearly a dozen farmer advocacy groups and several individual farmers. Proponents of the bill, led by the Nebraska Pork Producers Association, argued that giving farmers the ability to contract with packers would yield new economic opportunity in Nebraska. The NPPA did not respond to requests for comment for this story.
Jim Knopik is unconvinced that LB 176 would benefit Nebraska farmers. “Most people don’t realize [the] the effects of this long term,” he says. “This is going to affect my family and my family’s families for a long time.”
Reflecting on the fact that this is the second year in a row Nebraska farmers have had to fight to uphold the packer ban, Crabtree says he wonders how long they will be able to hold out. “Are we just going to have to combat this every single year until people are finally so weary they can’t stand up to it anymore?”
Leah Douglas is a reporter and policy analyst with the Open Markets Program at New America. She covers food and agriculture policy.