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Pigging Out.

Huge pork producers devour small farmers

Linus Solberg's hogs are giving birth again this spring. Purebred hogs have been the mainstay of his farm near Cylinder, Iowa, every year since 1958. "I really like hogs," says Solberg. "Hogs were one of the reasons I decided to get into farming." This may be his last springtime farrowing, though. Solberg and thousands of other family farmers are beset by the lowest pork prices in history. "This is devastating," he says. "Everybody is getting out of the hog business."

That's true of Arnold and Marlene Schroder from Palmyra, Nebraska. Arnold, now sixty, has raised hogs for a living since he was fourteen, when his father died and left the family farm to him. The Schroders expanded their operation in the mid-1980s. Now they wish they hadn't. "We made it through the farm crisis of the 1980s," says Marlene, "but we won't make it through the 1990s." They'll be selling their hogs and some farmland this year, hoping at least to keep the home where the Schroder family has lived for 100 years.

Traditionally considered the "mortgage burner" of agriculture, raising hogs once provided young people an inexpensive way to start farming, and family farmers used pork production to diversify income, add value to crops, and fertilize fields. In the 1950s, nearly 60 percent of farmers kept hogs. Today, though, pork production is more likely to lead to bankruptcy, and only 5 percent of the nation's farmers still raise hogs. The industry is dominated by a few huge companies, which have so driven down the market price for pork that small hog farming is almost impossible.

More hogs were produced in 1998 than in any other year in history, creating an oversupply that even growing demand couldn't offset. In December, some producers received just seven cents per pound--meaning they got about $18 for a hog that cost about $100 to raise.

Many family farmers gave hogs away to friends or charity rather than pay for more feed or transportation to a meatpacker. By April, prices had increased to around 25 cents per pound, but most producers were still losing $40 on every hog sold.

The small farmers may be leaving in droves, but not everyone in the pork industry is experiencing financial trouble. Megaproducers keep expanding and pushing prices downward. Their assembly line technology produces hogs like widgets. The primary goal of these megaproducers is to make money, and they're not ashamed to admit it. "America is made out of hustlers," Brian Mogensen, the head of Premium Farms, a multimillion-dollar, multimillion-hog, multithousand-acre operation in Nebraska, told the Omaha World-Herald last year. "A lot of people condemn me because I'm ambitious. I think `ambition' and `hustler' are good words."

Even though economists predict prices will remain low through the end of 1999, the megaproducers are busy building massive facilities filled with millions of hogs. Only fifty companies now raise most of the nation's pork. And the top three, Smithfield Foods, Murphy Family Farms, and Continental Grain Company, account for between 15 and 20 percent of all hogs produced in the country.

Why aren't low prices hurting the megaproducers? Because most of them aren't paid what smaller farmers get for their hogs. They have special arrangements with meatpackers and receive higher prices for large-quantity shipments.

According to a University of Missouri survey, more than two-thirds of the hogs sold in January were traded under a prearranged marketing agreement with a processor that paid higher than market prices. Only the remaining third (those owned primarily by smaller, family farmers) were sold at market value.

That some producers get more money for their pork is no secret in the industry. When Hormel Foods announced record earnings for 1998, the company said its income would have been even greater had it not been for contracts that pay some producers higher prices. Investigations by the U.S. Department of Agriculture also show that prices paid on the open market are less than those paid to producers with a contract. What isn't publicly known is how much more money the megaproducers get for their hogs. Under current law, meatpackers have to reveal only the prices they pay on the open market, not the prices they pay in contracts. What larger producers receive is anyone's guess.

Meanwhile, meatpackers are having a banner year. In February, Smithfield Foods, the world's largest pork processor, announced record earnings and a net income of $55 million, the company's most profitable quarter ever. IBP (formerly Iowa Beef Processors), the second largest pork processor, announced in February that the company had record net earnings, $92 million, for the last quarter of 1998. And Hormel Foods, the sixth largest pork processor, reported that the 1998 fiscal year was the most profitable in the company's 107-year history.

IBP said its profits would likely remain high as long as the large supply of hogs persists. Gary Mickelson, a spokesman for IBP, says, "It should be no surprise that packers are making money when you have large supplies of hogs and packers are able to run their plants more efficiently."

The large hog factories are teaming up with packers to eliminate competition, says Cy Pinkelman, a farmer from Hartington, Nebraska. "You can't tell me nine-cent hogs is spurring all this construction of new facilities." Pinkelman says the big companies are locking in better-than-market prices. "It's just plain packer greed."

Grocery store pork costs have not dropped as much as you would expect, given the drastic drop in the price of a live hog. Consumers are still paying almost the same price they were prior to the drop in hog prices, as the meatpackers and retailers are pocketing most of the difference. In 1998, pork producers received eighteen cents of every dollar spent on pork (down from thirty-seven cents for each of the previous ten years), while the packers' share increased from sixteen cents to twenty-two cents. The retailers' share increased from forty-seven cents to sixty cents. This spread between retail and hog prices is at an all-time high.

Purebred hog breeders have been hit especially hard. With the current drop in prices, these farmers suffer in two ways: Their meat doesn't bring a good price, and they lose a great deal of money when other small producers, who buy their breeding stock, leave the business.

"My boar sales are down to 150 per year, compared to the 1970s when I sold 400 each year," Solberg says. "I haven't sold any gilts [young female pigs] for breeding for three months," Solberg says.

Solberg is one of only 2,500 purebred breeders left in the industry. Most megaproducers use "synthetic" or "composite" breeding stock developed from the purebred genes by corporations like Pig Improvement Company (PIC), DeKalb Swine Genetics, and Newsham Hybrids. Solberg believes the large genetics companies have introduced genes harmful to pork quality, like the "stress gene" that results in ultra-lean, watery pork.

"I can't see patronizing someone like PIC genetics," says Cy Pinkelman. But he may soon have no choice. PIC, the world's largest breeding-stock supplier to producers like Smithfield Foods, controls an estimated 40 to 50 percent of the swine genetics market. By contrast, in 1998, small purebred breeders produced fewer than I percent of new pigs. Solberg says he is going to start raising a broader variety of stock to try to reach more customers, but he thinks it will take more than that to save the purebred breeders.

To help smaller pork producers, the Clinton Administration has implemented a handful of modest financial aid programs, consisting of $50 million paid to producers who sold fewer than 1,000 hogs in a six-month period, with no producer receiving more than $2,500. Congress is considering mandatory price reporting legislation, though similar legislation was defeated in 1998 after intense lobbying by meatpackers. This year, the likelihood the bill will pass is "very high," says an aide to Senator Tom Daschle, Democrat of South Dakota, who is Senate Minority Leader and the lead sponsor of the legislation.

The bill would create a three-year pilot program to require meatpackers to report the prices they pay for livestock, including whether they pay more for larger numbers of hogs.

But the problems of small hog farmers are so severe neither the financial aid nor price reporting is likely to stem the loss of family farms. Many producers instead want stronger controls placed on the meatpackers and megaproducers that now control the industry.

Family farm pork producers who want tougher action have found an ally in Senator Paul Wellstone, Democrat of Minnesota. Wellstone has been a featured speaker at Midwestern farm rallies this spring where thousands have shown up to voice their frustration with the growing consolidation of pork production. "We have a situation where a few big conglomerates have muscled their way to the dinner table and can control prices," says Wellstone.

Wellstone, Daschle, and other Democrats have also asked officials of the Department of Justice Antitrust Division to tell small producers what the federal government is doing about the pork industry's oligopoly. "We need some good old-fashioned trust-busting, and we're not getting it," says Wellstone.

Legislatures in Iowa, Minnesota, Nebraska, and South Dakota are also considering reforms that would require mandatory price reporting by meatpackers, place restrictions on paying different prices to different producers, and prohibit meatpackers from raising their own livestock--a practice that helps large companies to corner the industry.

But even if any of these market reforms are adopted this year, they may not come soon enough for many family farm pork producers.

Linus Solberg says he is thinking of getting out of pork production. "The fun has gone out of it. There's no reason to work sixty to seventy hours each week just to break even."

Like Solberg, Cy Pinkelman is reevaluating his future. "I know I can produce a better quality hog than the corporate producers," he says. "The question is whether I can survive long enough for consumers to be convinced not to buy pork from anyone but family farmers like me."

The reforms are already too late for the Schroders. "We just can't seem to get ahead anymore," says Marlene. "And we're too old and too tired to try any longer."

Nancy Thompson, from Sioux City, Iowa, is a private attorney and consultant to nonprofit organizations working on agricultural and environmental policy.
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Title Annotation:pork farmers
Publication:The Progressive
Date:Jun 1, 1999
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