by Mia DiFelice
In July 2022, the Department of Justice filed a lawsuit and proposed a consent decree against three poultry processors for alleged violations of antitrust laws and illegal labor practices.
Once signed in federal court, the $84.4 million settlement would end a long-running conspiracy between Sanderson Farms, Wayne Farms and Cargill Inc. The three reportedly worked together to cut factory workers’ wages poultry processing.
The regulations would also address corporate abuses against contract poultry farmers. These contract breeders raise and care for the companies’ chickens before they are slaughtered.
As part of the settlement agreement, Sanderson and Wayne agreed to a guaranteed base payment to their producers. The deal also requires them to give producers more information about the risks of contracting with these mega-corporations.
These disclosure requirements reflect a new rule proposed by the USDA in June. The rule would aim to increase transparency of the notoriously unfair “tournament” payment system widely used in the poultry industry.
The new rule is the first in a series of actions planned by the USDA to strengthen protections for farmers and growers. These actions are absolutely necessary. But on its own, this rule of transparency will not be enough to repair our failing system.
How poultry giants pass the costs onto their subcontractors
From egg food to chicken, to the packaging we see in the supermarket, only a few players call the shots. These players are processor giants like Sanderson and Cargill. They are also called integrators because they control almost every link in the supply chain.
Rather than raising chickens and marketing them to consumers, integrators have found it much cheaper to have others do it for them. Even better, they can force producers into huge amounts of debt to build single-use poultry houses designed to the exact specifications of integrators. A typical operation with four barns can cost 1 million dollars to build. This does not include the expensive upgrades that integrators frequently require producers to maintain their contracts.
And even better for the integrators, they place all the risks of impacts on the environment and public health on the producers. They also protect themselves from the pervasive harm caused by the practices they force producers to adopt.
Despite imposing the heaviest costs on themselves, the processing giants maintain tight control over how the chickens are raised. By contractsprocessors provide — and control — chicks, feed and veterinary care.
This system has been hurting poultry farmers for decades. Within it, integrators reap all the benefits while avoiding much of the cost. They force the public to deal with the polluted air and water from industry. Meanwhile, producers’ livelihoods depend on an unpredictable, unfair and abusive payment system.
Come in, tournaments.
In Poultry Tournaments, Processors Don’t Play Fair
Once flocks are ready for slaughter, integrators study the weights of all birds for each breeder in a tournament group. (The integrator decides who belongs to which group.) They take the average, then set the producers’ salary below the average. What they moor, they add to above-average producer payments.
The actual quality of a producer’s work is not what determines his salary. Rather, their salary is strictly a matter of a producer’s position relative to the other members of the tournament group.
For this reason, a producer can almost never estimate his payment at the end of each herd. This is especially true because inputs controlled by the integrator can vary in quality, with significant impacts on herd performance. In other words, integrators transfer all the risk of substandard inputs to producers. Producers then suffer in the tournament due to variables over which they have no control.
In addition, integrators keep producers in the dark about input variability. This allows integrators to retaliate against producers who report the integrator. Growers who do this are notorious for receiving poor quality inputs, which assures them of poor results in the next tournament.
Together, these practices result in extremely volatile revenues for producers. In reality, the income range of American poultry farmers is larger than that of all other agricultural sectors and of American households.
Poultry tournaments are a zero-sum game for breeders, where there are always winners and losers. But like a rigged casino, the integrators always win. Since integrators pass pay from below-average producers to above-average producers, they only pay the average rate per herd. The integrators have largely benefited from the precariousness of their producers.
USDA’s Proposed Changes Do Not Reflect Required Systems Changes
This year, the USDA aims to tackle tournaments by strengthening its rules under the Packers and Stockyards Act (APS). Congress passed this century-old legislation to protect farmers and prevent abusive and monopolistic practices by meat processors.
However, outdated regulations, incorrect interpretations in court and lax enforcement have weakened the LSP. As a result, exploitative practices have persisted throughout the industry, particularly in the poultry sector.
As part of these improvements, the USDA has proposed a new rule designed to encourage greater transparency in poultry contracts and tournaments. If issued, the rule would require integrators to disclose more information at the time of contracting.
This essential information would include realistic ranges of expected income and minimum herd placements. Knowing these factors would help producers better understand what they are getting into. They could better decide whether to enter or stay in this risky and often abusive system.
The rule would also require integrators to provide input variability and quality information. This could help producers determine when inputs are being distributed in an unfair, unjustly discriminatory or unduly preferential manner.
But the proposed rule is not enough. Simply requiring integrators to disclose their control over a producer’s success will not end their grossly abusive contracting practices. The USDA must also follow through on its commitment to prohibit the harmful practices themselves, as the PSA gives them the power to do.
Moreover, processors have been able to abuse producers for so long, largely due to their extreme power in local and regional markets. Until recently, the four biggest poultry giants held 50% of the national market.
In response, the USDA proposed a $200 million loan program to support small processors and increase competition. But $200 million won’t dent the market power held by the country’s poultry giants. Last July, Cargill and Continental Grain (owner of Wayne Farms) announced that they acquired Sanderson for $4.5 billion. Now we can expect the Big Four’s market share to increase to 60%, tightening their grip on producers.
Food & Water Watch fights large poultry
Hyper-concentrated markets, like we have in factory farming, hurt farmers and families. In the meat industry, producer share of profits plummeted as meat and poultry became the biggest contributor to our rising grocery bills. Giants like Cargill and Continental Grain are hoarding more money while squeezing every penny from small producers and families.
While greater transparency in the poultry industry is a welcome first step toward addressing these issues, the USDA can and should do more.
The Department has signaled its intention to issue future rules on the tournament system and on specific practices that violate the PSA. In the months ahead, our attorneys will work to ensure the USDA issues strong rules that actually protect growers. .
Everyone should know: the poultry giant shouldn’t get away with abuse.