Vertical integration in hog markets is harming small producers, and could get worse, family-farming advocates say.

Friday, April 06, 2001

Vertical integration in hog markets is harming small producers, and could get worse, family-farming advocates say.

Production and marketing contracts offer packers too much control over markets, just like an old-time company store, said Paul Sobocinski, organizer with the Land Stewardship Project.

Other industries that have gone vertical, like poultry, have squeezed producers and profits despite packers’ promises of increased revenue, he said.

Marketing agreements drive the bidding price down for all hogs, said Lynn Hayes, attorney for the Farmers Legal Action Group.

When most hogs are contracted, packers cap the supply, and don’t have to bid for many hogs, and non-contracted farmers suffer, she said.

&uot;That leaves the independent producers out there trying to tap 25 percent of the packing capacity instead of 90 percent,&uot; she said.

In the last five years, the market has gone from 70 percent cash market hogs to less than 30 percent, she said.

Even though cash market hogs tend to be of lesser quality than contract hogs, the contract price is set on cash market values, Hayes said. That has a negative effect on all prices, hog producers agreed.

&uot;You’re getting the average of the lower selling hogs, is what you’re getting,&uot; said Jim Joens, a hog producer from Wilmont, near Worthington.

Farmers who have ledger accounts, guaranteeing a certain price and taking the difference out of payments when market values rise, have been hurt by steadily declining market prices, Hayes said.

&uot;They thought they had an income security in those ledger contracts, when in fact they now owe the packers large amounts of money,&uot; she said.

Production contracts, where the company owns the animals and the farmer contracts to produce them, often offer packers even more control over farmers, Hayes said. Farmers who build new buildings or buy new equipment to gain a contract have little say in the price they get for their product, she said.

&uot;People are too afraid,&uot; she said. &uot;Once they’re in there, they have that huge capital investment in their farm buildings, they’ve mortgaged their homes, their farms.&uot;

The poultry industry went vertical some time ago, and the market has gotten so tight producers have no other companies to turn to if they are dropped by a packer, Hayes said.

A survey of broiler growers revealed that most are making less than they expected under their contract, but have no control over feed efficiency and growth, because feed and vets are provided by companies.

Production contracts tend to let companies mandate updated equipment or barns, Hayes said. Those improvements can cost farmers thousands of dollars, for no guaranteed return.

Farmers should try to maintain their independence any way they can, said Sobocinski

&uot;We think that’s important to holding this industry, and not losing control of it like the poultry industry,&uot; Sobocinski said.

The Land Stewardship Project is a grassroots sustainable agriculture group composed of family farmers. More information about the group can be found on their Web site at: www.landstewardshipproject.org.