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Is Big Poultry fair to farmers? 

Chicken and egg come first.

click to enlarge BRIAN CHILSON
  • Brian Chilson

Since the first hunter-gatherer got tired of hunting and gathering and poked a seed into the ground, risk has been a part of farming. And soon after that first crop pushed its way out of the soil, no doubt, our proto-farmer started trying to figure out how to lay a little of that risk off on someone else, while continuing to reap the maximum reward. Such is human nature. Anybody who tells you we're an altruistic species is lying to you.

One corner of farming that has turned shifting risk to the other guy into a kind of art form is the modern poultry industry. Poultry is, of course, huge business in Arkansas, with chicken houses — carefully controlled tin tunnels, some over 500 feet long, where tens of thousands of chickens live almost their entire lives in dim warmth — scattered all over the state. Arkansas ranks behind only Georgia in the number of broiler hens produced annually. Tyson Foods alone brings over 35 million broilers to market every year, part of the vast supply chain feeding the country's near-bottomless demand for chicken.

What most people who see (and smell) Arkansas's chicken houses from a passing car might not know, however, is that while the houses and the equipment to keep the houses clean and maintained are owned and paid for by the farmers who work there, every chicken inside those houses is the property of a corporate poultry company — an "integrator," in the parlance of the industry. The "integration" part comes in because the company owns not only every chicken on those farms from egg to plate, but also supplies every crumb of grain those chickens will eat in between, moving it in by the trailer-truck load, usually from company-owned feed mills. Once the grown chickens are picked up from the growers, who have watched over them since they were chicks, the birds will be trucked to company-owned processing plants for slaughter and packaging. It's a vertically integrated system that allows poultry companies to control almost every aspect of a chicken's lifespan, with the goal of converting the smallest cash outlay into the largest and most uniform pound of meat in the shortest possible time.

Over the past 100 years, the American poultry industry has become exceedingly good at accomplishing that goal. According to the National Chicken Council, in 1925 it took 4.7 pounds of feed and 112 days to bring a 2.5 pound chicken to market. By 2010, farmers were growing a 5.7 pound hen in just 47 days, utilizing only 1.9 pounds of feed.

There are currently around 25,000 contract chicken growers in the United States, with those growers producing 95 percent of the broilers in the United States. Starting out, a poultry grower must build the chicken houses, often putting up everything they own and going into an enormous amount of debt to do so (modern houses cost around $250,000 each to build, up from around $80,000 20 years ago). Once the houses are constructed, the grower services their debt — hopefully with some left over to live on — by supplying the upkeep and labor on the farm, under contact to a poultry producer.

As is the industry standard, most growers' pay is decided by what is called the tournament system. In that system, a group of growers in a set area compete to see who can turn the smallest amount of feed into one pound of chicken by the time the broilers head to the processing plant. Once the chickens are delivered to the integrator, the growers whose feed-to-weight ratio is at the top of the list for their group are paid more per bird than those at the bottom — sometimes significantly more. Growers we talked to said it can be the difference between making 34 cents per chicken vs. 22 cents. Once you start talking about the hundreds of thousands of chickens on your average modern poultry farm, the numbers — and the losses for those whose flocks weigh in at the bottom of the rankings — add up quickly.

Though supporters of the tournament system say it incentivizes growers to do a good job and perform upkeep and improvements on their houses so they can stay at the top of the rankings, critics of tournament pay say it's a system that links grower pay to issues outside of the farmer's control, such as heat, cold and the quality of the chicks they are delivered. It shifts much of the risk onto the growers, who never know how much or how little they stand to make off a batch of chickens until the birds are delivered. Some of the growers we talked to said that after figuring in expenses and where they land in the rankings, their profit can be less than 5 cents per chicken.

No wonder, then, that most growers seek diversified sources of income to make ends meet. A 2001 study by the U.S. Department of Agriculture and the National Contract Poultry Growers Association found that 71 percent of those who made their living solely from chicken farming lived below the poverty line. A farmer advocacy group this reporter talked to claimed that because poultry companies hold so much sway over growers' lives and livelihoods, a "culture of retaliation" has arisen, with those who speak out against the poultry companies or the tournament system being secretly penalized by being given substandard chicks or feed, or having their contracts canceled. The poultry industry denies these claims. Whatever the case, given that contact growers are a vital link in a chain that supplies an appetite for chicken worth an estimated $90 billion per year, the question of fairness is bound to arise.

***

When it comes to the risks modern contract growers are asked to shoulder, it's hard to think of a more catastrophic example than the sudden announcement that the Pilgrim's Pride chicken processing plant in El Dorado would close on Feb. 27, 2009. It was a blow that has rippled through the local economy since that day, destroying lives and farms. The facility was one of three processing plants the Texas-based poultry giant shuttered in the wake of its December 2008 bankruptcy filing, the others in Douglas, Ga., and Farmerville, La.

Overnight, dozens of chicken growers in South Arkansas, a lot of them still deep in debt on their chicken houses and most with everything they owned in hock to the bank as collateral on those loans, were told by Pilgrim's that they'd received their last batch of chicks. In the wake of the closure, many farm families in South Arkansas lost everything they had. Those growers who were able to hold on until other integrators returned to the area in the last year — OK Foods and Foster Farms at this writing — had empty chicken houses generating no income for five years or more, even as the notes on those houses rolled on and on.

To add insult to injury, in October 2011, a U.S. magistrate — citing an internal Pilgrim's email in which the company's chief restructuring officer wrote of the need "to restrict the chicken in the area and allow prices to rise" — ruled that Pilgrim's had closed the El Dorado plant as part of a plan to raise the price of chicken by limiting the national supply. A $26 million award to growers in the area was later reversed by a three-judge panel on appeal.

Arkansas Times spoke with several contract chicken growers who were caught up in the aftermath of the sudden closure of the Pilgrim's Pride plant. Back to growing chickens for a different poultry company for the first time since 2009, those we spoke to all requested anonymity, saying they worried that talking to a reporter about their operations might jeopardize their current contracts and their livelihoods. Over the past month, the Times attempted to contact a half-dozen growers across the state through intermediaries. Citing the same concerns over their contracts, the others we contacted refused to talk on the record, even anonymously.

Henry (not his real name) has been a contract chicken grower since the early 1990s. He said he got into it to make a living and work his own hours, which, he said with a laugh, turned out to be 24 hours a day. Recently, he got the first new batch of chickens in his houses in over five years, having hung on through the drought, unlike many local growers. "I've told people a lot," he said, "on Feb. 26, [2009] these houses of mine were worth a half million dollars, no problem. Two days later, they were worth nothing. Zero. You couldn't give them away."

He said that right up until the processing plant in El Dorado was shuttered, the company was encouraging growers to go into debt to make costly upgrades to their houses. One young grower he knew had gone into over $1 million in debt to build four houses a year and a half before the closure of the plant, putting up a farm that had been in his family for three generations as collateral on a loan that required payments of over $7,000 a month. After Pilgrim's closed the plant and the chickens stopped coming, the bank eventually foreclosed on the farm. The young man has since found work out of state. "When you're talking about $15,000 every two months," Henry said, "you can't work for nobody else for a job and pay that kind of note, unless you've got a law degree or something."

Asked about the tournament pay system, Henry says poultry companies often sell prospective growers on the idea that they'll always receive "top pay" — what they'll make if they're at the top of the tournament every batch. He hasn't been disappointed in the living he's made as a chicken grower, he said, because he figured on making average pay from the start.

"Sometimes you're going to be on the bottom," he said. "I don't care how hard you try or what kind of birds you get. And a lot depends on the kind of birds you get. Chicken companies don't like to hear that, but that's facts."

click to enlarge BRIAN CHILSON
  • Brian Chilson

Asked how much he is able to profit from a single batch of chickens, Henry said there are a lot of factors that come into play when it comes to answering that question. To prove his point, he held up a 10-inch tractor fuel line he'd picked up that morning from the parts store; just shy of $75, he said, but vital to keeping the farm going. For want of a nail, and all that.

"One of the things that people don't really understand [about chicken growing] is how much it costs and how much you've got to spend," he said. "Keeping up tractors, keeping up generators, keeping up all the equipment." In order to clean out the chicken houses after each batch requires a $30,000 machine and a $50,000 tractor to pull it, he said, plus chains, tractor draw bars, tires, diesel fuel, oil, filters and everything else. In the summertime, keeping the houses cool requires a series of "cool cells" — foot-wide cardboard honeycombs kept constantly moist, which cool the air entering the houses by as much as 20 degrees. Each cool cell lasts for two to three years and costs $20. Each house requires 120 of them. Have an extended cold snap in the winter, Henry said, and he might wind up burning twice as much propane growing one batch of birds as he might another. Lightning strikes. Disease. A bad batch of chicks from the get-go. All just one of the hundreds of ways Mother Nature can tap dance on his bottom line. "I have paid $1,000 a batch for [heating] fuel," he said, "and I have paid $6,000 a batch for fuel, depending on how cold it is when you get those birds."

Asked about some growers' reports — as seen in the documentary short "The Sharecroppers," which formed the core of a segment on contact chicken farming last year on HBO's "Last Week Tonight With John Oliver" — that those growers who spoke out against poultry companies were retaliated against by being purposely given bad chicks, Henry said that there is a large percentage of growers who genuinely hate the chicken business and love to gripe about it. He said that while getting a batch of bad chicks is a reality of life as a grower, he doesn't believe it's possible for a company to purposely select a batch of substandard chicks to send to a "problem" grower.

"I basically don't see how they could do it," he said. "It would be extremely hard for them to pick out bad chicks and send them to me. ... I don't think they could do it. It would be more trouble than it would be worth for them."

James (not his real name) is another contract chicken grower from South Arkansas. Unlike Henry, whose houses were paid off by the time the processing plant closed, James still owed several years on his note when Pilgrim's shut down. He'd never been behind on a bill in his life, he said, but when a bill that big comes in the mail and you have no way to pay it, there's not much you can do.

"I restructured," James said. "Made [the payment period] longer. I didn't lack but about five years, but I turned it into about 25 years so I could pay it out. When you finance one of these things, they want everything put up against it. So everything I had, a lot of it paid for; if I didn't pay for these houses, they got everything I had." His wife got an office job in El Dorado, and he found work in the oil fields. They kept paying for their empty chicken houses, hung on and hoped for something better. When a truck full of new chicks rolled through the gates earlier this year for the first time since the closure of the Pilgrim's Pride plant, James said, it felt like Christmas.

James said that the tournament pay system, even though it allows top growers to make more than those at the bottom, effectively allows the chicken company's labor costs to be fixed. "They know exactly how much their costs are going to be," he said. "Whereas in the wintertime, if I get a cold snap and it stays cold for three or four weeks, and we have to burn extra gas like we have this time, we just have to budget that in. Their costs are fixed to a certain extent. Corn fluctuates, diesel and things like that. But they know what they're going to pay us for a bird."

Like Henry, James questioned whether the chicken companies could or would actually retaliate against a grower. "Whatever chicken company it is, they're not going to try to put out bad birds," he said. "They're going to try to put out the best bird they can, because they're in this deal to make money. And they can't make money if all the growers ain't doing the best that they can."

While James said he knows there's the possibility that the rug could be pulled out from under them again — he's particularly scared, he said, of avian influenza, which can result in the USDA quarantining a farm for up to eight months — he doesn't regret going into the chicken business, and said he would do it again, even if he knew there would be a five-year drought. "I'd do it again," he said. "No question. If you told me I had five years — you wouldn't tell nobody that — but I'd go right back and do the same thing. Even with the five years. It made me a lot stronger person than I was before. I can make it through just about anything now. I guarantee you."

Ted (not his real name) was another who stuck with it, refinancing his debt to a much longer term and getting a job elsewhere in order to keep his houses and the possibility of getting back into chicken growing. In the intervening years, he said, he lay awake many nights and tried to think of anything he could do with a chicken house besides grow chickens in it, including raising goats, tilapia or mushrooms. He soon came to realize what a lot of growers did. Without chicks to put in it, a chicken house is only good for keeping a farmer out of the rain.

"It was a roller coaster ride," he said. "We'd get a little bit of hope, just reaching out for anything. Just when you'd think you were gonna get back in, there it would go, and you'd have no hope. ... You don't want to throw in the towel. But it's up and down, up and down."

Even so, Ted said he's not the one to talk to if you want to hear negativity about chicken growing. There's freedom to work his own hours, he said, and that's what he likes. Still, the possibility that he might be without chickens in his houses again is always on his mind.

"It ain't like I'm 18 years old and I can move back in with mom and dad," he said. "You've got your bills established, and one day you're working and the next day you're not."

***

Sally Lee is the program director for contract agriculture reform with RAFI, the Rural Advancement Foundation International, a North Carolina-based nonprofit that works with and advocates for small farmers. Lee, who often works with contract chicken farmers, said she has heard from those who said they've been retaliated against by poultry companies for speaking out against their contracts or tournament pay.

"We hear about it from farmers here and there as they come to us, but some have also taken their cases to court," she said. "For a farmer to take their case to court, they have to have the money to retain a lawyer or they have to have a pro-bono lawyer. Then they're going up against a massive institution with five-star lawyers, and it doesn't usually end well. I can say that."

A lot of chicken growers, Lee said, have told RAFI personnel that for the first four or five years growing chickens, things go fine. "But then those points of risk that aren't illuminated at the moment of signing and the contract starts to come into play, like the fact that you have to make very expensive upgrades to your houses in order to keep your contract, or the fact that the company can change suddenly the size of the bird or the number of birds they provide to you. If they get a bad deal with a feed provider, that's actually coming out of your pay in the end, because that has an impact on your feed/cost ratio. These things start to happen after a few years, then the American Dream scenario that the farmers bought into doesn't actually pan out."

Of tournament pay, Lee said that while it's often spoken of as an incentive system, "there have been some interesting studies that have definitely shown that this is a cost-controlling mechanism [for] the companies. They're essentially using the same-sized pie each time for the farmers to compete within. ... It displaces the variability in the cost of labor onto the farmers. The company knows exactly how much they're going to pay out each flock." While the costs for the poultry companies are fixed, Lee said, the costs for the chicken growers are often so fluid that it makes it almost impossible for them to determine how much they'll make batch to batch. The cost of heating fuel like propane, she said, is a prime example.

"It used to be that most poultry companies would include a fuel subsidy or a per-pound or per-month increase in pay for fuel," she said. "Now we're increasingly seeing the contracts drop that completely, or go to something that's specifically [a fuel subsidy] per pound, which ties them to where they come out in the tournament, which is essentially not fair. That is, again, displacing the risk of fluctuating fuel prices onto the farmer, and thus increasing the controlled cost mechanism through tournament."

Part of what has worked against efforts to reform contract agriculture, Lee said, is the millions of dollars poured into lobbying for chicken producers, and a climate of fear, with chicken growers afraid to come forward and talk about their experiences. "There has been a culture created in the industry which is very destructive, a culture of retaliation. ... Currently we don't have legislation that says it's illegal for a company to retaliate against a farmer. It's incredibly difficult for a farmer to prove [retaliation] or to even take the company to court. So we have this culture of retaliation that farmers are reporting to us, and that makes it very difficult to bring the farmers together to help them help themselves in improving their situations."

Marvin Childers is the president and chief lobbyist for the Poultry Federation, an organization that promotes the poultry industry in Arkansas, Oklahoma and Missouri. Childers said that poultry companies will often step in to help growers if they run into an unforeseen expense. For example, he said, companies make a supplemental payment to growers for fuel when there's a cost spike or an extended cold period.

"When [the price of] propane spiked a couple years ago, that was a significant expense to the growers," he said. "So when propane spiked, every company that I know of that operates in Arkansas, Oklahoma or Missouri, picked up a portion of that spike."

While Childers said the shutdown of the Pilgrim's Pride plant was "a disaster," the situation was unique. Poultry companies, he said, have no reason to "set a grower up to fail." He said he doesn't believe that a poultry integrator would retaliate against a grower, including for speaking to the press or criticizing the company.

"If a grower is not producing the best quality bird, then who stands to lose the most is the integrator," he said. "Take, for example, any customer of a poultry company. ... Whether it's fast food or fine dining, the requirements to the company are specs. That meat has to meet those specs. So for a company to retaliate or to provide — and I'm not even sure how you'd determine how they were quote 'bad chicks' — they're the one who is going to lose the most if the poultry company can't meet the specs when those birds come to the poultry plant. They've got nothing to sell to their customer. It just defies logic to me."

Speaking of the tournament pay, Childers said that though the system has been around for years, over the last few years some poultry integrators have experimented with alternative pay methods with fixed prices and no competition with other growers. "Ninety percent of the growers who tried the new system, in less than a year, went back to the tournament system," he said.

Meanwhile, in South Arkansas, Ted is back growing chickens, but still worries about maybes. The youngest of the growers we spoke to, he said he learned quite a bit in the lean years, including the need for a backup plan. Just how to get far enough ahead to pay for that backup plan, however, is proving elusive.

"It's always in the back of your mind, that that can happen," he said. "You look at things a lot different. But yeah, I'd be lying to you if I didn't say I never thought about it. ... You know you can get everything ripped out from under you. I don't have a college degree. And it ain't the easiest thing in the world to go out and get a job that makes decent money, especially when you got a family."

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