As John Smith sits at his kitchen table he attempts to explain the problems that have befallen him as a result of the contract agriculture system. A little nervous about speaking out against the company, John makes sure to state, “I don’t mean to speak badly about Gold Kist.” As he speaks it becomes evident that John, who is careful to assert several times that he “doesn’t have much education” has a clear concept of what is going on between him, the company, and other growers in the area. John’s story is a sad one. It is also a story that is heard over and over again by farmers in the contract agriculture business. At the moment, John is in the process of being “cut-off,” a term the companies use to describe what happens when they stop bringing chicks to the farm. Without chickens John had no money to repay the banks for the money he had to borrow for his chicken houses. John has been cut off because he doesn’t have the money to make expensive new repairs that the company is demanding and the bank won’t lend him the money he needs. John is stuck in a hole of debt with no way out as a result of unfair contract practices.

Contract agriculture started in the late 1950s in the poultry business. Today the poultry industry is almost completely dominated by the contract model. About 95 percent of broilers (farmers who raise chicks to their full size) in the United States are working under contract arrangements. The contract model does not only affect poultry farmers, it is beginning to spread to other areas of agriculture such as tobacco and hog farming. In 1998, the USDA estimated that approximately thirty- five percent of all agriculture production in the United States was under contract. Today that percentage is most likely much higher. Looking at the big picture, contract agriculture is problematic because it causes a move from small family farm agriculture to an industry dominated by big business. Many feel that this is not sustainable agriculture. On a smaller scale, contract agriculture has affected the lives of many good farmers like John, just trying to make a living.

The majority of poultry farmers are broilers like John. Broilers take the day-old chicks the company brings them and raise them to their full weight. Under contract, a company delivers the chicks to the grower who then uses company feed and medicine to raise the chicks. The company retains ownership of the birds and dictates how many birds must be put in each chicken house. When the chicks have matured to their full weight, the company takes them to be processed. The grower is paid for raising the flock. To many farmers, this sounds like the perfect plan. As price volatility increases and the markets for their products decrease, farmers are often forced to sign production contracts that promise to protect them from such risks. However, farmers often realize that the system is not perfect when they are vulnerable to the take-it-or- leave-it terms of their contracts.

John Smith was formally a dairy farmer, but entered the poultry business after a government buyout. Instead of handing over almost fifty-thousand dollars in taxes to the government after the buyout John said to himself, “I’d like to invest that in something” and decided on the chicken business. Always a farm boy, it was only natural for John to want to stay in agriculture. Describing himself he stated, “I’m a farm boy. I’m not very well educated. I was born down in the sticks. I was born on a dairy farm. I didn’t do very well in school. I said well, I’m going to farm.”

A concerned neighbor who had been in the poultry business for forty-years came to talk to John when he heard he was going to get into poultry. He warned John not to get involved, advising him, “Don’t fool with the chicken companies.” He explained that in the beginning John would be the company’s advertisement and would do well as long as they wanted to expand into the area, predicting “You’re going to get your settlement, you’re going to be tickled to death, you’re going to the country store, and you’re going to say ‘Man this is great’!” His neighbor warned that those good days would not last forever when the company decided to expand somewhere else. However, the company’s temptation of a stable future was too much for John to resist, even with a warning from a trusted friend. He invested in the poultry business. With such a promising outlook who can blame him?

John’s financial problems started the day he decided to invest in poultry. A combination of pure bad luck and unfair contract practices has John now “stuck between a rock and a hard place.” He’s careful to assert that he “don’t want to put all the blame on the chicken companies” admitting that he “made some bad decisions” himself, but after listening to his story, it is clear that the chicken companies are at least somewhat at fault in. John began with Piedmont poultry. He bought a farm with two houses where he renovated the existing houses and added two more. He also leased property with five houses from a friend who wanted to retire. His bad luck started when he got a call from the bank telling him that the tax laws had changed and he was going to have to pay the government the almost $50,000 in taxes he thought he had saved by investing in poultry. With one of the new houses already built, it was too late for John to turn back. He had to go to the bank and borrow the money to pay his taxes. This began his debt to the bank that would increase in the following years. [Hear John Speak]

The setback seemed minor at first, while the chicken business was being very good to John. When he first started, John was doing great, in fact he “couldn’t believe how good [he] was doing.” John remembers the situation, “At that time I was one of the newer facilities. I was finishing number one grower. I just didn’t know that I should have been trying to pay my debt down instead of doing other things like this,” as he motions to the house his family currently lives in. John was doing so well in the chicken business, he decided to build the house his wife had always wanted because “Everything was going good, nothing was said about updating or anything like that.” At that time, they were living in a mobile home and his wife wanted a house so John “kind of went out on a limb and built the house she wanted.” Little did he know that bad luck and unfair contract practices were going to bring him bad fortune later.

Just as they started building their home, bad luck hit John once again, the biggest house on the farm he was leasing burned, which depleated his cash flow. To make some extra money, John began cleaning out chicken houses for other people. As he began to clean more he spent less and less time with his chickens and his cost began to increase. One day, Piedmont came to talk to him about the increase in his cost. He explained to the company, “I know why my cost is getting high. It’s that I’m spending too much time away from the farm cleaning out chicken houses.” The company had just sent him a letter asking him if he wanted to expand his operation because “they had this expansion plan, they wanted to get bigger.” John explained to them he wanted to expand his operation so he could quit cleaning out houses on the side and devote all of his time to his chickens, “And they said this is fantastic, you know there’s a problem, you understand what the problem is, and you understand how to fix the problem. Fantastic! We want you to build these houses.” So John did.

A few weeks later, just after he had signed the note for $350,000 to buy the land and build the new chicken houses, John received a little card in the mail notifying him that he had a certified letter at the post office he had to go and sign for. John was devastated when he read the letter. Gold Kist had dropped his contract because of his cost, “they didn’t even have the guts to come tell me,” John remembers.[Hear John Speak] John tried to talk to the company about the situation. They had already discussed his high cost and had determined that expanding his operation was the way to solve it. No one had told John he was in danger of loosing his contract. Instead, they had encouraged him to expand. However the response from everyone he talked to at the company was, “I don’t care.”

Believe it or not being “cut off” is not an uncommon practice in contract agriculture. Companies often present producers with contracts for only one flock of birds instead of a more long-term commitment. Gold Kist’s contract for 2000 reads that, “Gold Kist shall not be obligated to deliver any certain number of flocks to Producer or deliver flocks to Producer at any certain time.” Clauses such as this give the companies unfair bargaining power in negotiations because farmers are often deeply in debt as a result of the investment required to build poultry houses. Many companies will not present a grower with a contract until after their houses have been built. At this time, many farmers are hundreds of thousands of dollars in debt. Often farmers are presented a contract without any ability to negotiate. If they choose not to sign, they can be cut off. Without birds, a farmer is without income and unable to pay his debts. Farmers must invest heavily in the operation without any promise of income from it in the future. Gold Kist protects itself by closing it’s 2000 contract with, “This agreement has application solely to the Flocks and rights and obligations related thereto as herein described, and neither the execution nor the performance of this agreement, nor the furnishing of the premises or equipment to perform hereunder are made by any party in reliance upon any undertaking, express or implied, that the parties will enter into further agreements or other transactions with one another.” In layman’s terms, although the farmer has invested heavily in the operation with the intention that the company will continue to give them birds, the company is under no obligation to do so.

John later discovered why he had been cut off. Piedmont, who originally had wanted to expand, had decided to sell the company. In the contract model, companies often use a tournament system to rank growers. They calculate factors, such as the amount of feed and medicine that a grower uses to raise a flock of chicks, to generate their average cost. They then rank the growers in the area based on their cost. The grower’s pay is adjusted to reflect their ranking. While it seems that this system might be a fair way to reward growers that are doing well, it has problems associated with it. Some flocks of chicks are better than others. According to John, “It don’t take long. When that’s what you do everyday you walk in and say ‘Eww.. these chickens don’t look worth crap or these chickens look good.’” John believes that the company chooses where they want to bring good chicks pointing out, “when they wanted me happy and advertising for them what did they bring me, the good stuff,” however when they didn’t need him anymore they brought him “whatever was out there.” In a study assessing the impact of integrator practices on contract poultry growers seventy-eight percent of growers agreed that their pay depends more on the quality of chicks and feed supplied to them than on their own work. Many growers saw chick quality as a problem. Only forty-four percent of growers felt that good quality chicks are always or usually delivered to the farm. The ranking system gives the company unfair control over growers because they can determine the quality of chicks and feed that they deliver to a grower. In John’s situation, his cost had gotten high, but he had talked to the company who assured him it was alright, even encouraged him to expand. However, that all changed when they decided to sell. By cutting off the bottom twenty-five or thirty percent of growers, they would lower their costs and look good to a prospective buyer. It didn’t matter that John had invested to build more houses so he could work harder for the company. What mattered was making the company look good on paper. A friend of John’s who worked for the company regretfully told him, “You just got caught in a number’s crunch.”

John tells another story of how the company tried to benefit itself at the cost of the growers. That winter the company had a meeting and announced that they were getting a raise. The excitement didn’t long John says, “About three weeks after giving us this new raise they brought a new contract around. They said we’re changing this contract. In addition to giving you the raise we’re not going to furnish the gas anymore, you’re going to buy the gas.” John ended up loosing a lot of money that year, “They gave me a three-thousand dollar raise, but I had to spend $21,000 in gas that I normally didn’t have to spend. So my three-thousand dollar raise turned into an $18,000 loss.” This was yet another tactic that the company used to make themselves look good on paper, “to make them look good to a perspective buyer at the cost of the growers.”

When John was cut off by Piedmont, a friend at Gold Kist offered to take him on because he knew John had been treated badly. At first everything seemed to be going well for him, “everything looked fine for about a year. I got my five flocks and then the retrofit thing started.” Another problem poultry farmers are facing today is constant demands by the companies to make expensive renovations on their houses. There is often no provision in their contract that demands they update whenever new technology surfaces. However, the ability of the companies to cut them off whenever they choose gives them the power to require such demands. Often these renovations aren’t even necessary. Only fifty-one percent of growers surveyed for the study assessing the impact of integrator practice on contract growers felt that improvements to their houses suggested by the company had made them better off. Half of these growers felt that their contract would have been canceled if they hadn’t made the improvements. The company benefits from these renovations because they own the companies that make the equipment. John explains, “They make you buy equipment from one of their companies and this new equipment, new technology grows them a cheaper bird so they’re getting a better feed conversion. They’re making it on both ends. Who’s paying for it? The grower.” John was doing well with his five flocks a year until the company cut him down to four and then dropped six of his houses. They told him if he wanted to keep growing in the other four, he would have to spend a hundred-thousand dollars on improvements. He went to the bank to ask for a loan, but the banks response was not positive, “They said wait a minute. They dropped six houses so your income has been cut just about in half so you’re not going to be able to make your payments now with what you owe and you want to borrow another hundred-thousand dollars. That’s not good business.” John is stuck. He wants to retrofit because if he doesn’t, the company won’t give him the flocks he needs to make the payments on the money he already owes, “The writing’s on the wall. They said fix your houses or you’re out.” John also knows that if he retrofits this time it will not be the last, “it runs in about five to six year cycles.” The next time they come out with something new they’ll ask him to retrofit again, and he’ll fall even deeper into debt. Currently, the company is still holding him out. They haven’t delivered flocks to him since their threat to cut him off. John is planning on selling some of his land to get the money because he says, “If at any point in time I say I’m not going to retrofit that will be my last flock of chickens.”

John is not alone in his problems with the chicken companies. Of the farmers surveyed for the assessment of the impact of integrator practices on contract poultry growers, only thirty-five percent said that they would recommend the chicken business to others. One may ask why some farmers are happy and others aren’t. John has an explanation for this. He tells the story of a friend who went into the chicken business with a wife that was working, a herd of cows, and a house that was built and paid for. The difference is that John has to live off of the chickens to survive. His friend’s situation was different, “He goes into the chicken business, his house is paid for, his wife is making enough money, and he puts the chicken house money back into the operation and it pays off. I go into the chicken business, my wife’s not working, we’re living in a mobile home, an I don’t have a herd of cows to fall back on. I’m trying to live, support my family, and build a house on chickens.” When John first entered the business, it was presented as something that he could make a living off of. And “believe it or not, the chicken business is good if you get your five flocks a year,” but when the companies keep farmers without chickens for long periods of time, they hurt the grower’s ability to make a living. Growers with other sources of income have something to fall back on if they hit problems, but for John, “the chickens have got to pay everything.”

Many wonder why more stories like John’s aren’t being heard if there are so many unhappy farmers. One problem is that many are afraid to speak up. When the company has the ability to cancel contracts abruptly most growers don’t want to anger them, no matter how bad their situation is. Many growers who have had to borrow money for their chicken houses have their own homes at stake. If speaking up causes the company to cancel their contract,they risk loosing their home. Another problem is the confidentiality clauses many companies include in their contracts. In many situations growers are legally prohibited from speaking out against the company.