By Leah Douglas, March 15, 2018
Sen. Cory Booker introduced legislation yesterday that would require more transparency and oversight of how poultry loans are allocated by the Small Business Administration. The proposal comes just a week after a report from the Office of the Inspector General (OIG) questioned nearly $2 billion in loans from the SBA to poultry farmers.
“As large agribusinesses are getting bigger and bigger, small farmers are getting squeezed,” Booker told Ag Insider. “The SBA Inspector General’s report earlier this month confirmed what we have recently come to suspect: the SBA is subsidizing loans that perpetuate a predatory relationship between large integrated meat processing companies and small poultry growers. This amendment is an important first step toward bringing dignity and opportunity to small poultry growers across the country.”
Booker’s amendment to the Small Business 7(a) Lending Oversight Reform Act requires that the SBA’s Office of Capital Access include in its report to Congress how it has addressed recommendations from the OIG on poultry lending. The Small Business Committee approved the amendment.
The OIG report, which was released on March 6 and covered by Ag Insider on March 8, found that processors exerted so much power over poultry farmers that the farmers could no longer be reasonably seen as independent small business owners. As a result, the report deemed that $1.8 billion of lending to poultry farmers under the SBA’s flagship 7(a) lending program could be ineligible.
The vast majority of broiler poultry produced in the U.S. is grown by farmers under contract to a processor. Consolidation in the processing sector has led to just four companies controlling well over 60 percent of the business. Those companies are also vertically integrated, meaning they control the chicks, feed, processing, and transport of the poultry.
Booker’s amendment was applauded by groups that have advocated for better transparency and regulation in the poultry sector. The Organization for Competitive Markets, a Nebraska-based policy and advocacy group that researches consolidation in the livestock sector, said in a statement that “it is time to stop forcing U.S. taxpayers to subsidize the business models of multinational corporations.”
The National Sustainable Agriculture Coalition also issued a statement in support of the amendment. “American poultry producers have for some time complained about unfair practices and abusive contracts in their industry, particularly when it comes to dealing with large corporate packers and integrators,” said Paul Wolfe, a senior policy specialist, in the statement. “The OIG report provides these producers with much-deserved and long-overdue validation. We hope that Senator Booker’s amendment is the first of many steps towards SBA cleaning up its act when it comes to farm lending.”
Poultry farmers have long advocated for better oversight and regulation of processors, alleging that their market power has led to wage suppression, regional monopolies, and unstable work conditions for farmers. Farmers made some headway during the Obama administration, when in 2016 the USDA proposed the Farmer Fair Practices Rules. Those rules would have shored up protections for farmers in contracting with processors and strengthened oversight of the sector. But President Trump withdrew the proposed rules in October 2017.
The SBA has expanded its portfolio in poultry lending significantly in the past several years, reaching $534 million in loans in 2016. Poultry loans accounted for 76 percent of the agency’s agricultural lending in 2016, compared to 61 percent in 2012.
The agency has become an appealing option for farmers seeking to expand their poultry operations, given that it has a higher loan cap — $5 million — than the Farm Service Agency, the traditional government agricultural lender. SBA loans are guaranteed by the government up to 85 percent, meaning that if farmers default on their loans, the burden falls on taxpayers.