Contract Ag
Reform Bulletin #6
July 2002
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Lawsuits Strike
at Heart of Poultry Industry
Silence is not
Golden
Worth Quoting
Resources
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The failure of the Farm Bill
Conference Committee to include a ban on forced arbitration clauses in
livestock and poultry production contracts is not the end of the issue.
Senators Russ Feingold
(D-Wisconsin) and Charles Grassley (R-IA) expect to introduce a bill in the
U.S. Senate soon to require that the use of arbitration to settle disputes must
be voluntarily agreed to by both parties at the time the dispute arises, not
when the contract is signed.
The bill is similar to the
very popular auto dealer arbitration bills (S1140 and H.R. 1296) which ban
forced arbitration clauses in contracts between care dealer franchises and auto
manufacturers and distributors.
These bills have 64 cosponsors in the Senate and 221 in the House.
Once the bill, an amendment
to the Federal Arbitration Act, is introduced, it will be referred to the
Senate Judiciary Committee. Both Senators Feingold and Grassley are members of
that Committee
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ALLEGATIONS
OF FRAUD and MISREPRESENTATION
Recent lawsuits
for contract poultry growers strike at the heart of the farmer/company
relationship. If the growers prevail in any of these
cases, the way the poultry industry operates in this country will be radically
changed.
In all of the
first 3 cases listed below, poultry growers charge their integrator company
with fraud, breach of contract, and misrepresentation of the business. They
claim that companies purposely misled them about the possible income to be made
from their investment as well as the total costs involved including the need to
constantly upgrade their poultry houses and equipment.
Ranking growers
for their pay is described in each case as a deceptive trade practice since
their rank depends on company inputs over which the growers have no control.
Paying growers differently based on the air-conditioning of their poultry
houses rather than on the quality of the birds they raise is listed as a
discriminatory act.
The growers
claim violations of laws such as the federal Packers and Stockyards Act, the
Oklahoma Business Opportunities Sales Act and other state and federal laws.
Case #1, May
31, 2002 : Five Oklahoma poultry
growers vs. O.K. Industries, Inc. of Arkansas
The growers are
the plaintiffs and representatives of the class that could include as many as
400 Oklahoma growers.
Apparently in an attempt to discourage the other growers from signing
on, O.K. Foods Inc. cancelled the flocks for all five of the plaintiffs as soon
as the suit was filed. Their attorneys filed an injunction requiring the
company to keep birds on the grower farms. The judge agreed
and the growers are back in business. The attorneys representing the growers are from the law firm
Crowe and Dunlevy in Oklahoma City, the largest law firm in the state of
Oklahoma.
Case #2, July
2, 2002: Three east Texas poultry
growers vs. Pilgrims Pride Corp.
of Pittsburg, Texas (2nd largest poultry company in the nation)
Three broiler
growers, known as top growers in their area, are plaintiffs and representatives
of the nationwide class of Pilgrims Pride growers who have raised birds within
the last four years. The growers allege violations of the Packers and
Stockyards Act, breach of fiduciary duties and an attempt to force new
contracts (with a mandatory arbitration clause) on them while their present contracts are still valid. When the growers refused to sign the
new contract, Pilgrims Pride took away a raise they had previously given and
forced them to accept long layouts without birds. The day the suit was filed,
the growers' attorneys also filed a motion for Preliminary Injunction to
prevent what happened in Case #1.
The attorneys for the plaintiffs are Kelly Tidwell and Kurt Truelove of
Patton & Tidwell of Texarkana, Texas,
and attorneys from the firm of the Chandler Law Offices in Lufkin,
Texas.
Case #3, July
24, 2002: Turkey growers vs. Cargill Inc.,
Gonzales, Texas
50 Turkey
growers are charging Cargill Inc. and several agri-supply companies and
builders with breach of contract, common law fraud and violations of the 1983
Texas Anti-trust Act. Cargill has
notified the growers that none of their contracts will be renewed; the company
is closing out in that area. David Burrow, a Houston attorney for the
plaintiffs, has been quoted as saying, "My personal feeling is that they
knew they were going to pull out, and they didn't tell them (the growers). In fact, they told them just the
opposite." Growers were
encouraged, even pressed, to upgrade their houses and buy more equipment until
just before the notice of the closing.
[The next two cases are unique in that
they name the banks that carry the grower loans, as well as the poultry
companies, as defendants in each case.]
Case #4, May 28, 2002 : Kathleen and Richard Varner Jr. vs. Peterson Farms and Decatur State Bank
The Varners are
poultry growers and representatives of a class of Peterson growers in western
Arkansas and eastern Oklahoma alleging conspiracy to defraud and racketeering
by the company. They claim that
they were enticed to take out loans to build poultry houses based on an annual
income of $27,594.18. The growers
say that they never made enough money to make the loan payments much less make
their expected income. The Varners
eventually were forced to file bankruptcy. The owners of Peterson Farms are major stockholders of the
bank. Attorney Robert Hart from Tulsa, Oklahoma is representing the plaintiffs.
Case #5, July
24, 2002: Susan and Stephen
Martin vs. Sanderson Farms, Inc. and Farmers State
Bank, N.A.
The Martins are
breeder hen growers living near Cameron, Texas. They have filed their suit in
the District Court of Milam County, Texas. The Martins claim violations of the Texas Deceptive Trade
Practices - Consumer Protection Act, common law fraud, misrepresentation, real
estate fraud, breach of contract, and conspiracy between the company and the
bank to do all of the above. Martins' attorneys, Mel Smith of the Houston firm
Dominique & Smith and Rick Oldenettel of Oldenettel and Associates also
filed a request for a temporary restraining order, a preliminary and a
permanent injunction against Sanderson Farms in order to prevent the company
from harming the growers or their contract business while pursuing the lawsuit.
Unlike the
broiler growers, the breeder hen growers gather fertile eggs to send to the
company hatchery and are paid by the dozen eggs. The Martins claim that Sanderson Farms "failed to
disclose the methods they use to control the flock output of eggs, profits, and
results by controlling the feeding, flock selection, and pricing."
In Virginia, the number of
newly infected poultry flocks with the low pathogenic strain of Avian Influenza
(AI) is finally slowing. The
disease, which was first diagnosed in March, has affected 197 farms in the
Shenandoah Valley and in Greene County across the Blue Ridge Mountains.
Unlike the Minnesota plan
where birds infected with the milder strain of AI are allowed to live and
recover from the disease, Virginia has either gassed or suffocated 4.7 million
birds to keep the disease from spreading.
The cost to the Virginia farmers, taxpayers, and poultry companies is
now estimated at over $100 million.
Secretary of Agriculture Ann
Veneman has asked for $69.2 million in federal funds to help the farmers and
the companies impacted by the disease. The poultry companies have agreed to
share any indemnity funds they receive with their growers.
Some farmers stand to lose
everything and will go out of business. Many farmers have questioned the
company and government response to the situation and accuse the state of being
unprepared for the epidemic even though Virginia has experienced similar
outbreaks before. The farmers balked at the confusing process.
1. They refused to bury the carcasses on their own
farms. They recalled that in past
epidemics, the rotting carcasses buried on their farms contaminated their wells
and those of their neighbors.
2. They had blood tests taken on their flocks and sent
to qualified labs in other states.
Some of these tests came back negative for AI, but their flocks were
destroyed anyway.
3. A few refused to wear the protective garb and change
clothes when crossing the barrier around their poultry houses saying that they
knew their birds were not sick.
4. A few
were actually traumatized by the slaughter. They had to help with the killing of their flocks by herding
the birds into a pen or corner of the barn, throwing a tarp over them and
standing on the edges of the cover while gas was piped underneath. Then they helped load the carcasses
onto trucks to be hauled off to landfills as far as 200 miles from the farms.
5. Some growers were so distraught that they called in
PETA (People for the Ethical Treatment of Animals). The organization was able to have a judge order the
companies to put up a screen around the area and to use heavy black plastic so
the farmers wouldn’t see the birds struggling for air.
6. Many farmers think that the real reason for the
slaughter of so many birds has more to do with the glut of poultry products on
hand due to the Russian ban on our exports than on AI.
A sign posted on one of the
egg-laying farms read, “All my pretty ones? Did you say all?
O hell-kite! All? What! All my pretty chickens and their
dam at one fell swoop?”… (Shakespeare) Harrisonburg, VA,
“Daily News-Record, May 24,2002.
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GROWER
SILENCE IS DEAFENING!
by Steve Etka, Co-ordinator of the Campaign for Contract Ag
Reform
[Excerpt from Silence is
not Golden: The Grower-Integrator Relationship in the Poultry Sector; Etka’s speech given at Yale
University Conference on Chicken, May 2002]
In Washington, farmers are
not known for their silence or their acquiescence. If fact, the opposite is often true. Congress just completed work on a $190
billion farm bill, with significant increases in subsidies for farmers of all
types. These farmers were
vocal, and they were heard.
In contrast, the silence
from contract poultry growers is deafening. Certainly, there are a brave handful (a growing
handful) of growers who are so fed up that they are willing to speak out about
the abuses that they and their fellow growers face. But the same companies that they fear have a strangle
hold on the political powers that be in those states, and in the Congressional
delegations from those states.
It is the rare politician from the South that can stand up for poultry
farmers, against the power of the poultry companies.
So while the Senate version
of the farm bill included some meaningful provisions to address some of the
abuses in production contracts, such as a ban on pre-dispute mandatory
arbitration clauses, most of those provisions were dropped in Conference, in
large part because the Southern Members of Congress on the Committee were
afraid to stand up for the poultry farmers that they represent, and were more
comfortable answering to the companies who control,… who have such a
strangle-hold on the political fortunes of the South.
Legislative remedies? In broad brush, you can either change
the relative power structure of the grower-integrator relationship, so that
growers actually have some role in negotiating the terms of their contracts,
thereby letting free market principle and competition take care of the rest. Or you can expect that the market
is hopelessly anti-competitive, and choose to go in and establish basic
standards of conduct in contracts, which is to say fairness through regulation.
In many ways, we have chosen to pursue a bit of both approaches.
…So
the challenge that I have is to convince Congress that silence is not a license
to ignore the problem. In fact it is a sign of the problem. Further, that the
miracle of efficiency and cheap food epitomized by industrialized chicken comes
at great cost to farmers and their communities.
Just Say,
“No.”
“Now we are seeing
risk-sharing contracts which shift the risk against the farmers’ side of
the equation. Many of these
contracts are written so that farmers have to take them or leave them. Farmers should just say
‘No’ to these contracts, in general, until they have the power to
negotiate better agreements.”
John Welty, Executive Vice President for the California Tomato
Growers Association, at the USDA Outlook Forum, May 2002
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Putting
Lipstick on a pig!
On a CCAR conference call recently, it was noted that some
farm organizations find attempts to reform contract production agriculture
similar to “putting lipstick on a pig”. Contract growers, however, feel that it is step #1 in
revitalizing agriculture in this country.
Make the large processing corporations pay their full share of the costs
of vertical integration and the alternatives will look prettier everyday. That ‘s one tactic. Read the lawsuits section above for
another.
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What would you call it?
“It makes
me sick to look out my window at all the barns and equipment I paid for over so
many years of hard work and now I can’t get to use them or sell
them. I had a new feed system in
one barn that I only got to use once.” ….. from a poultry grower in North Carolina
who has raised chickens for more than 30 years and is known to be an excellent
grower. She thinks she has had her
contract terminated because she couldn’t afford to make the latest
required upgrades to her sturdy chicken houses, although the company
hasn’t really told her that she is terminated. She just hasn’t been given any chickens to raise for
the past year and a half!
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Sec. Of State Colin Powell
The on again, off again ban on Russian imports of U.S.
poultry products has become a diplomatic nightmare and worrisome to U.S.
poultry growers who raise chicken for the export markets. Charles Wolfson, State Dept. reporter
at CBS noted that during a NATO meeting in Iceland in May, Secretary of State
Colin Powell told reporters "right now we are in a poultry dispute with
Russia. So I am more worried about
chickens going back and forth than missiles going back and forth. This is good."
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Tulsa Blues
"A discourse about 'the price of progress' utilized by
poultry corporations and their champions in government breaks down when it
becomes clear that neither citizens nor the family farm naturally prosper
through a partnership with industrial agribusiness." Heather Williams, Tulsa Blues: Phosphorus,
Fish Kills, and Foul Drinking Water
RESOURCES:
The Fatal Harvest
Reader, edited by Andrew
Kimbrell; Ó2002. This 320-page paperback is a collection
of more than 30 essays by today’s leading ecological and agrarian
thinkers. The essays depict the
current industrial agricultural system and its devastating impacts on the
environment, human health and farm communities. Available at www.amazon.com for $16.00.
The Cost of
Arbitration: In May 2002, Public
Citizen released a study de-bunking the myth that arbitration is cheaper than
litigation. For a summary of that study, contact Steve Etka (Sdetka@aol.com) or
contact Public Citizen for the complete study. www.citizen.org
Tulsa Blues:
Phosphorus, Fish Kills, and Foul Drinking Water, by Heather Williams, Department of Politics, Pomona
College, Calif. (hwilliams@pomona.edu)
The study includes information from on-the-ground interviews with poultry
growers and citizens of the Tulsa watershed.