Farmers’ groups say proceed with caution on poultry contracts
COLUMBUS — With planning underway for a Costco-owned poultry processing plant outside Fremont, area farmers may be considering going into chicken production.
But a coalition of farmers’ organizations is holding meetings across eastern Nebraska, warning producers to proceed with caution and read the fine print.
Nebraska Farmers Union President John Hansen opened the informational meeting Tuesday in Columbus, saying Lincoln Premium Poultry — the name the business will be operated under — has an opportunity to change an industry that, especially in the southern and southeastern parts of the U.S., has a reputation for mistreating farmers. Hansen met with Lincoln Premium Poultry CEO Walt Shafer on Monday morning.
“They’re saying all the right things. They’re saying publicly, ‘We’re going to do things better. We’re going to do things different,’" said Hansen.
But Hansen stressed that farmers need to carefully read and consult with experts before entering a contract with a chicken processing company.
In most poultry arrangements, farmers go into a direct contract with a company where they have to build facilities to specifications and the company provides birds, feed and medication. The exact terms of how much a farmer puts at risk and how much they’re guaranteed by the company can be the difference between a barn full of healthy chickens and an entire farm being foreclosed on by a lender.
Lynn Hayes, senior attorney and program director of the Farmers Legal Action Group Inc., presented a series of questions to ask before signing a poultry contract based on problems they’ve seen with the typical boilerplate agreement.
Hayes pointed out that chicken barns are single-use and if a producer’s arrangement with Lincoln Premium Poultry doesn’t pan out, there isn’t another company in the area for them to turn to. So growers need to know they’ll be able to pay off the cost of their chicken houses.
“You need to be assured when you’re putting up $1.5 million that you’re going to keep birds in those barns,” said Hayes. “The other thing to be really careful about is, what are you putting up for collateral to build those barns, to secure those loans? Because most of the time they’re required to put up not just the 20 acres the barns are on, but your entire farm and your home if you’re living on that farm. That is the traditional model.”
Since farmers would be entering the project from the front end, they may have greater bargaining power, especially if done collectively.
But, Hayes added, the farmers could work together as a group to renegotiate a contract if the terms aren’t appealing.
Most poultry contracts are take-it-or-leave-it and once a farmer’s in, their debt load from building chicken houses makes it extremely difficult financially to get out.
Mike Weaver, a poultry and cattle producer in West Virginia and president of the Poultry Growers Association of the Virginias, is very vocal about how some companies treat their growers. Weaver said he put all the money he made on chickens back into that side of his operation and it still took him 15 years to pay down the loan he took out for his facilities.
“These big corporations don’t benefit the farmers. Last year, Pilgrim’s paid out a $1.5 billion dividend to their stockholders and it’s been almost 20 years since they’ve given their growers an increase in base pay,” said Weaver. “This year they’ve already paid out a $700 million dividend to their stockholders, still no increase in base pay to their growers.”
Near the end of the event, an audience member asked Weaver if he would enter into his poultry agreement knowing what he knows now.
“No,” Weaver responded. “The reason being, they don’t treat us fairly.”
Hansen said representatives of Costco and Lincoln Premium Poultry have publicly stated they’ll do business differently and more fairly with their growers than other poultry companies. But it’s impossible to know if that’s true until farmers, lawyers and other organizations have a chance to read the actual contracts.
“You’re saying a lot of the right things, that things are going to be different, that things are going to be better,” Hansen said. “But the devil’s in the details and we need to know what those details are.”