Fowl Play
As the poultry industry expands in South Carolina, farmers are finding the deck stacked against them.
BY ALEX TODOROVIC
When George Faust turned
50 he decided he was through working for
everybody else. Last January, he made a phone call from his home in
Chester County to Circle S Ranch in Monroe, N.C. Two months later, he was
approved for a $300 thousand loan to build turkey houses.
His young turkeys, or poults, are two weeks old, and Faust is excited
about the $20 thousand he expects to make annually raising turkeys.
"Turkeys in this area seem to be what's going on," he said. "It's a
way for a man to make a living."
Like many newcomers to the business in South Carolina, Faust has no
experience with turkeys. Today's corporate farming techniques have made
experience obsolete.
Circle S Ranch is what is known as a vertical integrator, a company
that has control over virtually every aspect of production. The company
specifies exactly how the brooding and range houses are to be built,
provides poults, feed and medicine.
A Circle S service man frequently drops by to check on the birds and
gives Faust advice. After 18 weeks, Circle S sends a truck to take the
birds to slaughter. All Faust has to do is follow directions and rake in
the money. After 10 years, his $300 thousand loan will be paid off.
So say the integrators.
Faust is one of a growing number of Chester county residents who is
throwing his fortunes in with turkeys. In the last year, DHEC has taken at
least 10 applications for turkey farms in Chester County.
Circle S, like other poultry integrators, requires an enormous capital
investment, usually obtained through a farm credit bank. The farmer is
only able to secure the loan because he has a contract with an integrator.
Jeffrey Bruce Collins, for instance, obtained a $287,700 loan by
mortgaging 66 acres, valued at substantially less than the loan. Collins
actually never sees the check, and the money is kept in a special account.
The new Circle S grower also receives a bonus amount of $15 thousand "to
help get started."
After falling hundreds of thousands of dollars into debt, the only
guarantee a new grower has is that Circle S will buy one flock of birds,
the equivalent of a four-month contract. A grower typically averages
three-and-a-half flocks each year.
According to Mitchell Deese, a Circle S representative, "The contract
is renewed based on the performance expectation of the contract. If the
contract is fulfilled with acceptable compliance, we are not in the habit
of cutting people off. It is an ongoing contract, a long-term agreement."
If the integrator does pull out, the grower is left with a debt that
could cost him his farm. Faust and Collins raised these concerns with
Deese before signing on the dotted line. They were assured, "Circle S has
never pulled out on a grower."
Clinton Phillips, of Marshville, N.C., began growing for Circle S in
1988. "In 1991, they terminated my contract," he said. Phillips had 10
years of turkey growing experience when he started with Circle S. "We
worked harder for this company and made less than with any other company.
I cannot say anything good about them."
Phillips declared bankruptcy and refinanced $85,000 in outstanding
debt. Phillips says he did everything by the book, but had a cholera
problem on his farm after he started growing for Circle S.
"They introduced the virus on my farm," he said. "They mess up your
farm and then walk away. They blame the grower for everything." He
explained that all growers experience diseased farms if they are in the
business for a few years.
Deese acknowledged that disease is one of the industry's greatest
problems, but regarding the Phillips matter said, "I refuse to answer any
questions on specific cases. I will say that the Phillips arrangement was
temporary."
When told of the new Circle S growers in South Carolina, Phillips
said, "Anybody who can figure two and two and would still invest a quarter
of a million dollars for a one-year contract is a poor business man. It is
foolish. When the supply gets a little higher and prices drop, that will
be it."
According to many growers and Deese, Circle S is the industry
standard. The reasons for a grower being dropped are myriad and whimsical.
Poor performance is the most common reason given for termination, but as
one longtime grower said, "You can do everything well and still lose your
rear end."
The most unpredictable variable is the quality of the poults,
according to growers. The industry is growing so rapidly that poor-quality
poults are no longer weeded out as they once were. That means a higher
mortality rate and more disease, which forces growers to spend more on
medication.
Although relatively few poultry growers lose their farms, a common
scenario is for growers to be endlessly trapped in debt. Critics charge
that integrators misrepresent the industry by luring growers with the
promise of steady income and a 10-year amortization on their debt. They
don't talk about the constant upgrades in equipment that will require more
loans, resulting in an endless cycle of debt.
Thomas Marsh, a former grower familiar with Circle S, said the
upgrades integrators demand are often unnecessary and are intentionally
designed to make growers indentured servants. As one grower put it, "As
long as we have large debts, we have to do what they tell us."
The newly constructed Circle S turkey houses in Chester County, for
example, are already behind industry trends. Deese acknowledged that the
trend is toward "single-aged" turkey facilities, meaning that each farm
has either brooding houses or range houses, but not both. "This is to
reduce the significance of disease factors because there is no cross
traffic between different aged turkeys." Deese said.
The newly constructed turkey facilities in Chester County, however,
include one brooding house and two range houses on each farm. When asked
if that means Chester County turkey growers will eventually have to
convert to the new system
at a cost of
about $100 thousand for each farm
Deese said,
"Improvement means change. If there are scientifically proven ways to
improve, then the company will adapt those methods."
Marsh has seen the same scenario played out time and again with
integrators. "An integrator forces growers to take on more debt by saying,
If you don't make these new fans or new heaters, you won't get any more
turkeys," he said. "Then, when they are in debt, they can be intimidated.
They sustain higher profits through one-sided contracts. The grower can't
object. They control the growing operations, but the farmer and his family
have placed their farm and home at total risk."
One grower said, "Typically, the poultry grower does well for the
first few years, but once his depreciation tax write-off ends in five
years, and the integrator begins making demands for new equipment, they
realize the trap they've fallen into. I've been in this business for 15
years and still owe $125 thousand. If you get into it, you're into it for
life."
The formula by which a grower's profit is calculated is complex; most
growers readily admit they can't figure it out. The amount of medicine and
feed used to raise a flock is plugged into a formula, as is the poult
mortality rate. Those growers who had to use more medicine because they
had poor-quality poults make substantially less money. After the figures
are computed, the growers are then ranked against each other and paid
accordingly. Farms with a high mortality rate are not included in the
ranking.
Many growers dislike the ranking system because it makes them
distrustful of one another. A Saluda grower said, "No matter how well
everyone does, there is always going to be a bottom 30 percent that gets
paid a lot less. You're competing against each other rather than trying to
make good turkeys. It keeps farmers separated."
Another variable is widespread disease, a phenomenon known as "spiking
mortality" that can wipe out an entire flock. One grower said, "A few
years ago, I lost $50 thousand because of spiking mortality."
Many growers say that it was possible to do well 20 years ago, but now
the market is tighter and the contracts are structured differently. In the
late 1980s, Marsh noticed the contracts getting worse every year. Echoing
the sentiments of many growers, Marsh said, "I felt like my farm had
become an experimental facility for new medicine and different feed. If
they didn't work, I was the loser."
Marsh and Phillips can talk to the press without fear of reprisal
because they are no longer in the turkey business. Other growers agreed to
be interviewed only if granted anonymity. They all fear retaliation from
integrators.
John Morrison, director of the National Contract Poultry Growers
Association, a group started in 1991 to address industry abuses, said
retaliation is common against growers who start conferring with one
another or who talk too much. The NCPGA newsletter is full of anonymous
letters complaining about abuses. He said the lopsided relationship
between the integrator and grower enables integrators to have complete
control over the terms of the contract and results in unfair treatment and
pay. "The risk/reward relationship is not properly reflected in the
income," he said.
Numerous allegations of unfair practices prompted Secretary of
Agriculture Don Glickman to appoint an advisory committee last February to
study the impact of integration in the hog, lamb and poultry industries.
Growers say that unfair tactics include "blacklisting" growers who
open their mouths, thereby preventing them from contracting with any
integrators. Marsh says that all it takes to put you out of work is for an
integrator to label you "a diseased farm," and all farms have disease at
one point or another. Phillips also said that nobody would take him on
after he was dropped by Circle S.
According to a description by the Rural Advancement Foundation
International (RAFI), Chester and Lancaster counties fit the perfect
profile for a poultry integrator. "They tend to move the industry into
areas of high unemployment or poverty, lax environmental laws, and family
farmers who own land which can be mortgaged to provide capital for new
poultry houses."
Marsh said, "They use your land as collateral for their operation
which enables them to expand faster."
Not all poultry growers are unhappy. The University of Louisiana
recently conducted a growers' survey and found that half of all growers
said they were satisfied with their integrator. Growers who do well have
a diversified farm and can make use of the tremendous amount of waste
generated from a poultry operation. They are then less susceptible to the
ebbs of the business.
The poultry industry's record is well known among farmers in states
like Arkansas and North Carolina, but South Carolina has only recently
entered the list of top-10 turkey producing states, and farmers have
comparably little experience with integrators.
Other states with large poultry industries have growers' associations.
Deese said, "Growers are welcome to participate in an established
organization like the Poultry Federation."
But Batesburg grower Sylvester Hall said, "Growers feel that the
Poultry Federation is more of an integrator's organization."
Another grower noted, "Up until a few years ago, there didn't even
used to be a grower on the poultry board. It is not a grower
organization." The Poultry Federation has four growers on its 16-member
board.
Aside from some South Carolina growers who have joined the North
Carolina growers association, this state has no organization that
addresses growers' problems or which provides information about industry
abuses. The state Department of Agriculture provides no information about
contract growing.
South Carolina growers tried to start a growers' organization in 1991.
Sylvester Hall helped found the South Carolina chapter of NCPGA, but
explained, "The growers were scared of the integrators. They were afraid
that the integrators were going to cut them off.
"We were just trying to have an organization, to share information
about how to grow a better chicken, but the integrators were afraid we
would strike. For a guy who has a $300 thousand mortgage on his land,
striking is the furthest thing from his mind."
The group held a few meetings, the largest of which drew 200 growers.
Hall had to distance himself from the group when he noticed a sharp
decline at his poultry supply company. He, like everyone else, depends on
the integrators for his livelihood.
"You can do everything well and still lose your rear end."
longtime grower for Circle S
