Lincoln Journal Star: Farmers divided on bill to let packers own pigs

Lincoln Journal Star

January 31, 2016

Farmers divided on bill to let packers own pigs

BY NICHOLAS BERGIN | LINCOLN JOURNAL STAR

A legislative bill with the potential to trigger a seismic shift in the state’s hog industry has divided pig farmers in Nebraska, the last state clinging to a ban on meatpackers owning swine or cattle until just before slaughter.

Meat processing companies like Tyson Foods and Chinese-owned Smithfield Foods figured out years ago they could better control product consistency, minimize costs and squeeze out more profit by owning animals from birth to slaughter. The practice is called contract farming, and companies contract with farmers to raise pigs in large concentrated operations for economies of scale.

In 1999, Nebraska adopted the Competitive Livestock Markets Act in an effort to protect farmers at a time when livestock prices had collapsed. Lawmakers feared concentration in the industry and vertical integration — meat packers owning livestock from birth to slaughter — were undermining prices.

The statute makes it illegal for packers to own swine or cattle in Nebraska for more than five days before slaughter. Other Midwestern states had adopted similar measures.

The number of Nebraska farmers had dwindled from 6,312 in 1997 to 3,594 in 2002.

But the law didn’t stop the exodus. The number of pig farms in Nebraska had plummeted to 1,552 by 2012, according to the U.S. Department of Agriculture’s most recent Census of Agriculture.

While the number of farmers decreased, the number of hogs in Nebraska was about 3.4 percent higher in December 2012 than in 2003, although the state saw an 11.8 percent decline from 2008 to 2012.

In that same 2003 to 2012 time frame, Iowa’s hog numbers exploded by 31.8 percent.

Iowa, the nation’s leading pork-producing state, had 20.8 million pigs in December, while Nebraska had 3.3 million, according to the USDA’s National Agricultural Statistics Service.

The Iowa Pork Producers Association estimates the pork industry adds $7.5 billion to its state’s economy each year.

But the industry has plenty of critics. Disputes have arisen over the location of pig farms and over concerns about water pollution from waste, which is commonly used as fertilizer.

In Nebraska this is the third time Sen. Ken Schilz of Ogallala has tried to do away with the state’s ban but the first time the measure has made it to a final vote in the Legislature.

Supporters overcame a filibuster of the bill (LB176), and statehouse staff expect it to be voted on one last time within the next week or two. If it passes, it goes on to Gov. Pete Ricketts’ desk to be signed.

Conflicting views

Benjamin Gotschall and his wife, Tammy Austin, raise a small number of pigs — about a dozen sows — on their Raymond-area farm. They birth the piglets, raise them and market them directly to consumers and restaurants.

Gotschall, 35, says contract farming is the wrong direction for the pork industry. Winning contracts means giving away control of how the animal is raised.

Gotschall fears that doing away with the ban will turn farmers into little more than indentured servants deeply in debt and locked into contracts signed so they can get bankers to loan them money to build confinement barns and buy equipment.

“I’ve seen what it does to friends in the chicken industry, and it’s something we don’t want to see happen to pork or the beef industry in the future,” he said.

Consolidation has reshaped the chicken industry nationwide, with 90 percent of birds now owned by processors.

On the other side of the argument, farmers like 49-year-old Mark McHargue say doing away with the ban would make his operation more competitive. He keeps about 750 breeding sows that produce about 18,000 head annually on his farm near Central City.

“It just gives us one more option that currently we don’t have but every other state around us has,” McHargue said. “Being independent carries high risk.”

Contract farming would take some of the liability out of the business. Farmers still own the facility and do the same work. They just don’t have to worry about market prices. They raise the pigs and get a check.

It also makes it easier for young people to get into the business because having a contract makes getting loans easier.

No one would force farmers to sign contracts, McHargue said. If they don’t like the terms, they don’t have to sign.

No hogwash

One thing both sides agree on is this: The issue is about far more than hogs.

For those who want to keep the ban, it’s about quality of life, supporting independent farmers and avoiding the environmental ills that come with large factory farms.

For those who want to do away with the ban, it’s about economic development and competitive advantage. More pork means more need for feed, such as corn and soybeans.

With the ban in place, a quirk of state and federal law would allow meatpackers with facilities outside of Nebraska to own animals in the state. Only companies with processing plants in Nebraska can be regulated, according to an opinion issued by Nebraska Attorney General Doug Peterson’s office in October.

Nebraska’s three major meatpacking companies — Tyson, Smithfield and Hormel Foods — could take advantage of that by closing their plants here and moving production to neighboring states. Or when it comes time to upgrade facilities, the companies might choose to spend their money in states where they can produce pork cheaper, Sen. Curt Friesen of Henderson said in a recent column to constituents.

“As someone who was raised on a farm where we milked cows, raised hogs and chickens and grew corn, I can’t say that I especially like this bill,” he said. “But we had seen declining pork production in this state long before this bill was introduced and we will continue to lose producers in the future if we do nothing.”

University of Nebraska-Lincoln agricultural law specialist J. David Aiken said rural Nebraska has been dying a death by 1,000 cuts. Doing away with the meatpacker ban wouldn’t be an instant cure, he said, but it might bandage a few of the cuts.

“Trying to set ourselves up as a state so we’re at least competitive with Iowa is important. And LB176 would do that,” Aiken said.

In past years, he criticized portions of bills that sought to do away with the ban for not offering producers enough protection.

The latest incarnation of the bill has addressed all of his concerns, he said, and he fully supports it.

Aiken also said recent court rulings in this state and other states have made it clear the ban on packer ownership likely would not survive a court challenge.

Recent amendments ensure producers’ rights to conceal a contract and bans confidentiality clauses, allowing farmers to compare details. Aiken believes those changes could have contributed to the bill moving forward this year.