Dramatic shifts in agricultural policies are needed
to rescue the independent farmer
David Morris is vice president of the Institute for Local Self-Reliance, is the author of two books: Be Your Own Power Company and Self-Reliant Cities. (Click on footnote numbers to see footnotes in a separate browser window.)
We make the rules and the rules make us. Family farms are in crisis not because of inevitable market forces, but because of public policies that encourage giant, absentee-owned corporate agricultural producers. The ongoing transformation of the hog sector illustrates the intimate connection between public policy and community life.
In 1950, 60 percent of all grain farmers raised pigs. It was a smart strategy. By converting corn to pork, the farmer could often generate a 25 percent return on investment. No wonder hogs were sometimes referred to as mortgage lifters.
As late as 1980 almost 700,000 farmers still raised hogs: hundreds in each rural county. A typical operation might consist of 10-30 sows, each producing 15-20 pigs a year in two litters. A 100-sow, 2000-hog operation was considered a major enterprise.
The number of hog farmers dwindled in the 1960s as farms grew larger and the demand for pork declined. But then an aggressive The Other White Meat marketing effort by pork producers revived demand, and booming Asian economies began to import significant quantities of pork. Engineers and scientists learned to breed hogs that were more efficient at converting feed into meat, and developed and refined confined feeding and rearing operations, all of which lowered production costs and made possible large birthing (farrowing), weaning and finishing operations.
The profitable hog market began to attract the attention of entrepreneurs driven by a new visiona single farm with thousands, even tens of thousands of sows and hundreds of thousands of hogs in dozens of acres of climate-controlled buildings surrounding giant open-air manure lagoons that would handle as much sewage as that of a large human city.
Family farmers in general, and rural residents in the counties targeted by these entrepreneurs, fought back. Rural communities up and down the Mississippi, in the nations grain-rich heartland of pork, persuaded legislatures to enact rules preventing the entrance or limiting the size and reach of these new entities. In the 1970s and 1980s Minnesota, Missouri, North Dakota, South Dakota, Kansas and other states enacted prohibitions on corporate ownership of livestock.
Because of these states laws, the revolution in hog farming began not in a major hog-raising state, but in a minor oneNorth Carolina. The revolutionary was Wendell Murphy, owner of Murphy Family Farms. During the ten years he served in the General Assembly of North Carolina, Murphy shepherded through a series of remarkably self-serving laws that made industrial hog farms not only possible, but inevitable.
The North Carolina legislature pre-empted community concerns about the environmental and social impacts of large-scale industrial hog farms by denying counties the authority to regulate these facilities. Then it virtually exempted industrial hog farms from any liability for environmental or health damages. Finally, the legislature exempted hog farms from gas, sales and property taxes, a benefit eventually worth millions of dollars a year.
Once the state legislature had changed the rules, a breathtakingly rapid change took place in the economic base of rural North Carolina. From 1989 to 1999, the number of hogs raised in the state expanded by more than 500 percent, to 13 million, while the number of hog farms dropped by 70 percent, to under 7,000.
Emboldened by Murphys example, other entrepreneurs lobbied other state legislatures to enact a similar set of policies. In 1993, in the closing days of the session, the Missouri legislature created an exemption from its 1975 anticorporate farming law and allowed industrial hog farms to locate in several sparsely populated counties. Premium Standard Farms (PSF) immediately established large operations in several northern Missouri counties. When the citizens of Lincoln Township tried to mitigate the odor problems by requiring megafarms to be at least one mile distant from residences, PSF sued and the state supreme court ruled that the town lacked the authority to safeguard the health of its residents. Today PSF raises nearly 2 million hogs in those counties.
In the last decade the structure of hog farming has changed profoundly. The number of hogs in the U.S. increased by a staggering 45 million since 1982, but the number of hog farmers dropped by almost two-thirds. Today only 5 percent of farmers, about 150,000 in all, raise hogs. About 90,000 of those farms raise less than 100 head and together own only 4 percent of the nations herd. On the other end of the scale, 1000 farms raise over 50,000 hogs per year, a size category that did not even exist in 1985. These giants now provide almost 40 percent of all pork production.
The hog industry is now dominated by firms that either didnt exist or were only marginally in the hog business a decade ago. Premium Standard Farms, for example, went from zero hogs to the nations third largest producer in less than five years by spending over $500 million in Missouri and Texas. In 1993, Seaboard Industries raised no pigs and sold no ham. By 1998 it was the nations eighth largest hog producer and expects to double its capacity again.
A single company, Murphy, owns 6 million hogs, more than the entire hog population of Minnesota, Illinois or Indiana, three leading hog-producing states. In August 1999 Murphy, the number one producer, announced its intention to sell to the number two producer, Smithfield. The following month Tysons announced it too would sell its large hog operation to Smithfield.
The concentration of ownership in hogs has been mirrored by a concentration of ownership in packing and processing plants. Four packing companies control more than 60 percent of the nations hog market. In 1995, 11 processing plants with over 3 million head of annual capacity processed about 45 percent of all hogs. The largest 33 plants, with 1 million head of capacity or more, processed over 87 percent of the hogs. Gary Benjamin, vice president of the Federal Reserve Bank of Chicago, offers a glimpse of a possible future, some 50 producers could account for all the hogs needed in the United States . . . fewer than 12 plants could process all of the countrys hogs.
Most analysts agree that the structure of the U.S. pork industry will soon resemble that of the U.S. poultry industry . . . writes Mark Drabenstott, economist at the Federal Reserve Bank of Kansas City. The new masters of the hog industry raise some of their own livestock but, like their counterparts in poultry, theyve realized that its more profitable and less risky to own farmers rather than own hogs. Today more and more pigs are raised on contract with Seaboard, Smithfield or Murphy. The share of hogs under contract rose from 2 percent in 1980 to 10 percent in 1990 to over 60 percent today. In North Carolina contracts account for over 80 percent of all hogs raised.
A contract producer, in essence, accepts all of the risk in return for a guaranteed price. The producer borrows from $200,000 to $1 million to construct buildings and acquire equipment. The producer provides the pigs and the feed. It is a one-sided relationship. The producer, for example, bears all the environmental liability. Seaboards contract declares, ownership of all waste of swine shall be vested in Producer. Despite the long term nature of the producer's investments, the hog company can terminate the contract with only 30 days notice.
As contracts gain a larger share of the market, prices for independent producers decline. A University of Nebraska study concluded that if 10 percent of the nations pork production capacity is owned or controlled under contract to pork packers, independent producers will receive 6 percent less per hundredweight (one hundred pounds). If packers control 50 percent of production, they will pay 26 percent less for hogs purchased from independent producers. But increasingly, independent producers cannot find a market for their hogs at any price.
For now, contract hog growers are receiving a good price for their pigs. But that was also true for contract poultry growers when that industry began to consolidate. Now, as documented in a 1999 series of troubling articles in the Baltimore Sun, the poultry industry has taken on a feudal structure. (1) Growers have few rights, no power and little recourse against arbitrary actions. Growers have begun to organize and speak out, but face reprisals when they do so.
Conventional wisdom holds that industrial hog farms are an inexorable and welcome development. Most agricultural policymakers and economists believe that bigger produces a better, more uniform product at a lower cost and that the restructuring of the hog market benefits consumers and rural areas alike.
But does it? Even using the narrowest definition of efficiencycost per poundthe proposition seems, at best, exaggerated. A Purdue University study that compared big and small operations concluded, Size by itself contributed only about $1.50 to $2.00 per hundredweight to lower costs... (2)
Some studies indicate that even very small producers can achieve low costs. A Kansas State University study concluded that the lowest production costs occurred with 75 sows. (3) Some believe that a key to low-cost small operations is the development of intensively managed systems that rely on low-cost shelters for the sows and pigs. (4) As Mark Honeyman, animal science professor at Iowa State University and one of this schools leading advocates, describes the approach, Our road is a little slower, a little more scenic, a little dustier, a little safer. It is the road consciously chosen for its long term attributes.
Some studies estimate that large hog farms may reduce production costs by $4-$8 per hundredweight. This means that an agricultural enterprise 1000 times the size of an average hog farm might reduce production costs by 10-20 percent, or 8 cents a pound. If this price difference were passed on to the consumer, it would lower the price of pork by 4-8 cents a pound. Yet consumers actually see very little of this savings. When prices paid to farmers plunged in late 1998 to unprecedented lows, the retail price of pork did not budge. Instead Smithfield, IBP and Hormel announced record earnings. The packers share of the pork dollar rose from 16 to 22 cents, and the retailers share rose from 47 to 60 cents.
Even if megahog farms were putting slightly cheaper bacon on the consumers breakfast table, a focus solely on the comparative costs of production is far too narrow a perspective to use when designing public policy. A wider lens would examine the economic impact of megahog farms on rural communities. Here the evidence strongly favors smaller production units, which create more jobs and generate more local spending.
One Missouri study found that a $5 million investment in a large-scale hog farm would generate 40-50 new jobs but would displace about three times that number of independent hog farmers. (5)
A 1993 study in Minnesota found that small livestock farmers (those with annual gross sales of less than $400,000) spent about 79 percent of their purchases within 20 miles of the farm. Large livestock farmers spent only 47.5 percent. (6) A study by Virginia Tech compared the benefits that accrue to a community when 5,000 hogs are produced by family farms to those gained when a 5,000-hog vertically integrated corporation sets up shop. It found that independent farmers produced 10 percent more permanent jobs and generated 20 percent more local retail spending and 37 percent higher local per capita income. (7) The Center for Rural Affairs found that in the two North Carolina counties with almost 50 percent of the states hogs, the number of farm jobs fell by over a third, population stagnated and sales and property taxes fell behind the states own growth rates. (8)
Yet for purposes of public policy, an even wider lens is needed: one that takes into account the intimate connection between the structure of the agricultural economy and the structure and quality of community life. Walter Goldschmidt did pioneering work in this area 50 years ago as a researcher for the U.S. Department of Agriculture, when he examined two farm communities in Californias San Joaquin Valley. (9) The communities were chosen for their remarkable similarity: each had the same volume of crop production, comparable soil quality and similar climate. Both communities were equidistant from major urban areas and were similarly served by highways and rail lines. They differed in only one major respect: the Dinuba economy was based on many small family farms. The town of Arvin depended on a few large-scale agribusiness farming operations.
Goldschmidt discovered that Dinubas family farm economy provided its residents with a substantially higher median income and standard of living. Moreover, the citizens of Dinuba, to a far greater extent than their counterparts in Arvin, were involved in building a strong community.
For example, the quality and quantity of projects that benefited the entire community, like paved streets and sidewalks and garbage and sewage disposal, were far superior in Dinuba. Arvin had no high school and only one elementary school; Dinuba provided its citizens with four elementary schools and a high school. Dinuba had three public parks; the agribusiness town had a single playground, lent by a corporation.
Along with expanding their communitys physical infrastructure, Dinubas residents built up its civic infrastructure. Dinuba had more than twice the number of civic associations as Arvin. In Dinuba, various governmental bodies existed that enabled residents to make decisions about the public welfare through direct popular vote. No such bodies existed in Arvin.
Goldschmidts findings have been supported by more recent studies. Sociologist Linda Lobao summed up their findings, an agricultural structure that was increasingly corporate and non family owned tended to lead to population decline, lower incomes, fewer community services, less participation in democratic processes, less retail trade environmental pollution, more unemployment and an emerging rigid class structure. (10)
University of Missouri agricultural economist John Ikerd summarizes the empirical findings regarding hog farms, There is clear evidence that independently-owned, modest-sized, family-operated hog farms can be commercially competitive with current contract production units. There is also clear evidence that successful, modest sized family operated hog farms contribute more to the economic and social well-being of rural communities than do their corporate counterparts. (11)
Giant hog farms and equally giant open-air manure lagoons have generated widespread popular discontent and rebellion. Grassroots alliances of environmentalists and farmers have sprung up in many states: the Land Stewardship Alliance in Minnesota; Stewards of the Land in Kansas; the Missouri Rural Crisis Center; the Illinois Stewardship Alliance.
They have had some success. In 1997 coalitions in North Carolina convinced the legislature to impose a two-year moratorium on further industrial hog farms. In 1998 Oklahoma enacted legislation that severely inhibited the growth of large hog operations. In 1998 the Iowa Supreme Court struck down 7-0 a state law that had shielded hog confinement units from lawsuits. In November 1998, a constitutional amendment that prohibits corporations from breeding, farrowing or fattening swine was approved 59-41 percent by the citizens of South Dakota.
Yet for all the public anger and legislative obstacles, the hog barons refuse to slow down. A suit has been filed to overturn the South Dakota referendum. Seaboard wants to triple hog production in Oklahoma and recently went to court to secure a water permit, denied by the Oklahoma Water Resources Board, for a 25,000-sow operation. In the days before the North Carolina moratorium was to go into effect, state agencies approved permits for an additional 500,000 hogs, in some cases turning around permit applications in 48 hours.
The federal government largely has been missing in action. The Secretary of Agriculture claims he has no authority to regulate livestock contracts under the 1921 Packers and Stockyards Act. Yet even where the U.S. Department of Agriculture has authority, it has been reluctant to exercise it. The USDAs Grain Inspection, Packers and Stockyards Administration, according to the Baltimore Sun, has proven to be a less than combative foe . . . The agency has fielded more than a thousand complaints from poultry growers around the country but has gone to court on their behalf only twice, resulting in a single penalty in 1996 of $477 in court costs against a small poultry firm in South Carolina. (12)
The struggle over the future of the hog industry is part of a much broader struggle over the future of American agriculture and rural America. If we were designing agricultural policies as if community mattered, what might they be?
The explosive growth of industrial hog farms could not have happened had state legislatures and the federal government not changed the rules to encourage bigness, concentration and absentee ownership. Yet the demise of the family hog farmer is not a done deal. Theres still time to design rules that protect the environment, nurture higher productivity and safeguard rural communities.
Published in In Motion Magazine - April 22, 2000
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