UNITED STATES DEPARTMENT OF JUSTICE UNITED STATES DEPARTMENT OF AGRICULTURE PUBLIC WORKSHOPS EXPLORING COMPETITION IN AGRICULTURE Poultry Workshop May 21, 2010 9:12 a.m. Alabama A&M University Knight Reception Center Normal, Alabama 2 1 A P P E A R A N C E S 2 WELCOME/INTRODUCTORY COMMENTS: 3 The Honorable Eric Holder, Attorney General, U. S. Department of Justice. 4 The Honorable Tom Vilsack, Secretary 5 of the Agriculture, U. S. Department of Agriculture. 6 ROUNDTABLE DISCUSSION AND PRESENTATION OF 7 ISSUES: 8 The Honorable Eric Holder, Attorney General, U. S. Department of Justice. 9 The Honorable Tom Vilsack, Secretary 10 of Agriculture, U. S. Department of Agriculture. 11 The Honorable Christine Varney, 12 Assistant Attorney General for Antitrust, U. S. Department of Justice. 13 The Honorable Artur Davis, 14 Congressman, U. S. House of Representatives. 15 The Honorable Ron Sparks, Commissioner 16 of Agriculture, State of Alabama. 17 ROUNDTABLE DISCUSSION ON POULTRY PRODUCER CONCERNS: 18 The Honorable Tom Vilsack, Secretary 19 of Agriculture, U. S. Department of Agriculture. 20 Gary Alexander, Producer, Westminster, 21 South Carolina. 22 Kay Doby, Former Producer, Cameron, North Carolina. 23 3 1 Robert Lumzy, Former Producer, Columbia, Mississippi. 2 Carole Morison, Former Producer, 3 Maryland. 4 Sandra Genell Pridgen, Producer, North Carolina. 5 Garry Staples, Producer, Steele, 6 Alabama. 7 Shane Wooten, Producer, Henagar, Alabama. 8 PUBLIC TESTIMONY. 9 John Ferrell, Deputy Under Secretary 10 for Marketing and Regulatory Programs, U. S. Department of Agriculture. 11 William Stallings, Assistant Section 12 Chief, Transportation, Energy and Agriculture Section, U. S. Department of 13 Justice. 14 ROUNDTABLE DISCUSSION ON TRENDS IN POULTRY PRODUCTION: 15 Norman Familant, Chief Economic 16 Litigation Section, U. S. Department of Justice. 17 Benny Bishop, Peco Foods, Tuscaloosa, 18 Alabama. 19 Max Carnes, Producer, Baldwin, Georgia. 20 Michael R. Dicks, Watkins Chair, 21 International Trade and Development, Oklahoma State University. 22 John Ingrum, Forest, Mississippi. 23 Cindy Johnson, Attorney, Cohutta, 4 1 Georgia. 2 Robert Taylor, Professor, Agricultural Economics and Public Policy, College of 3 Agriculture, Auburn University. 4 Mike Weaver, Producer and President of Contract Poultry Growers Association of the 5 Virginias, Fort Seybert, West, Virginia. 6 ADDITIONAL PUBLIC TESTIMONY. 7 John Ferrell, Deputy Under Secretary for Marketing and Regulatory Programs, 8 U. S. Department of Agriculture. 9 William Stallings, Assistant Section Chief, Transportation, Energy and 10 Agriculture Section, U. S. Department of Justice. 11 DUDLEY BUTLER, U. S. Department of 12 Agriculture. 13 CLOSING REMARKS: 14 John Ferrell, Deputy Under Secretary for Marketing and Regulatory Programs, U. 15 S. Department of Justice. 16 William Stallings, Assistant Section Chief, Transportation, Energy and 17 Agriculture Section, U. S. Department of Justice. 18 DUDLEY BUTLER, U. S. Department of 19 Agriculture. 20 21 22 23 5 1 I N D E X 2 Panel: Page 3 WELCOME/INTRODUCTORY 7 4 COMMENTS 5 ROUNDTABLE DISCUSSION AND 23 6 PRESENTATION OF ISSUES 7 ROUNDTABLE DISCUSSION ON 63 POULTRY PRODUCER CONCERNS 8 PUBLIC TESTIMONY 9 BROTHER DAVID ANDREWS 149 10 TOM GREEN 151 CRAIG WATTS 156 11 WARREN GRANGER 159 MR. RUDY HOWELL 162 12 MR. LAMAR JACKSON 163 MR. MICKEY BLOCKS 167 13 MR. ROBBIE STAULT 167 MR. FRANK MORRISON 169 14 MS. VALERIE ROW 170 MR. WILLIAM CRAMER 172 15 MS. ANGIE TYLER 175 MR. CHRIS SANDERS 184 16 MR. ANDY STONE 179 MR. BRUCE FAULT 184 17 SHEILA 185 MR. JAMES SHACKLEFORD 187 18 MR. TOMMY HINES 190 MR. STEVE ETKA 191 19 MR. B. J. HYDE 194 MR. OMAR HOLCOMB 195 20 MR. TONY GOOLSBY 198 MR. GARY KUSHNER 210 21 MR. DONALD WALKER 213 MS. HILDE STEFFEY 224 22 MR. TERRY TUCKER 217 MR. BRAD CAINEY 220 23 UNIDENTIFIED SPEAKER 232 6 1 ROUND TABLE DISCUSSION ON 226 TRENDS IN POULTRY PRODUCTION 2 ADDITIONAL PUBLIC TESTIMONY 3 MS. LYNN HAYES 331 4 MR. FRED PARRISH 336 MS. PATTY LAVERIA 340 5 UNIDENTIFIED SPEAKER 343 UNIDENTIFIED SPEAKER 347 6 MR. BILL RONICK 350 MR. KIRBY NASERY 355 7 MR. DONALD RAY WILKES 357 MR. ALTON TERRY 358 8 MR. MIKE WEAVER 362 MR. MARK HUDSON 364 9 10 CLOSING REMARKS 384 11 12 13 14 15 16 17 18 19 20 21 22 23 7 1 P R O C E E D I N G S 2 May 21, 2010 9:12 a.m. 3 SECRETARY VILSACK: Well, good 4 morning. I'm Tom Vilsack, Secretary of 5 Agriculture. And I'm certainly pleased to 6 be here at Alabama A&M University and 7 appreciate all of the folks that are here 8 today. 9 I want to welcome everyone to 10 this joint competition workshop between the 11 Department of Agriculture and the 12 Department of Justice. It's an historic 13 opportunity for us to listen and to learn. 14 Congressman, good to see you. 15 I want to thank the folks at 16 Alabama A&M University for allowing us to 17 use this facility and everyone who has 18 provided assistance to us. 19 I also want to recognize several 20 members of the United Food and Commercial 21 Workers, as well as those from the retail, 22 wholesale and department store unions that 23 are joining us today. 8 1 This is, as I said, the second in 2 the series of competition workshops we are 3 holding this year to allow us to better 4 understand the issues of most concern and 5 deserve closer attention and to explore the 6 appropriate role, if any, for antitrust or 7 regulatory enforcement in the agricultural 8 area. 9 In March we held a workshop on 10 general farmer issues in Ankeny, Iowa. 11 Today we're focusing on 12 competition and contracting practices in 13 the broiler industry, as well as the 14 relationship between producers and 15 companies. 16 On June 25th we will hold a 17 workshop on dairy in Madison, Wisconsin. 18 We will evaluate the competition on 19 livestock markets on August 27th in Fort 20 Collins, Colorado. And we'll discuss 21 margins on December 8th in Washington, D.C. 22 President Obama has provided 23 clear direction that his government should 9 1 be open and transparent. And that's what 2 he hope these workshops are designed to do. 3 We seriously want public dialogue on these 4 very complex issues. 5 As I travel as Secretary of 6 Agriculture across the country I hear a 7 very consistent theme: Farmers and 8 ranchers and producers are worried about 9 whether there's a future for themselves and 10 their children in agriculture. And we know 11 having a viable market largely determines 12 if such a future will exist. 13 Farmers have the right to know if 14 their markets are fair, competitive and 15 transparent, especially if they're going to 16 make a significant investment to allow them 17 to get in or to stay in agriculture. 18 At the same time, consumers 19 across the country have the right to know 20 if the food products they're buying are 21 safe and are fairly priced at the grocery 22 store. 23 At the Iowa workshop we discussed 10 1 whether there was enough innovation and 2 competition in the seed industry. We also 3 looked at the spot market in hogs, which 4 has become very thin and volatile and 5 making it more difficult to actively price 6 hogs. 7 Today we evaluate the poultry 8 industry, and, specifically, the broiler 9 portion of the industry. 10 As those in the audience probably 11 well know in the 1950's and '60's the 12 poultry industry underwent one of the 13 largest transformations of any sector in 14 agriculture through consolidation and 15 vertical integration. 16 Poultry production is vertically 17 integrated. The company owns the birds, 18 the feed, medications, veterinary services, 19 whereas the growers take on the capital 20 cost of building the facilities, helping to 21 pay the fuel costs and caring for the birds 22 to market weight. 23 Most production is supplied 11 1 through poultry growing arrangements 2 between the company and growers. In 1963 3 the top four firms controlled 14% of 4 chickens slaughtered. Today it's roughly 5 57%. And now it's not uncommon for a 6 grower to have to do business with only one 7 company in their area. Also been 8 increasing controversies between poultry 9 growers and processors, specifically 10 relating to the length of contracts and 11 contract terms. 12 The concentration numbers fail to 13 answer the basic question, which we want to 14 hear from you today: What is needed to 15 have a viable, fair and competitive 16 marketplace? 17 The issues surrounding the 18 competitiveness in agriculture have been 19 debated for decades. And there's no doubt 20 that they are difficult and complex, which 21 is why this workshop is important and, we 22 believe, long overdue. 23 We continue to seek answers and 12 1 solutions. The Administration is very 2 aware of the concerns that producers have 3 about market concentration. And we've 4 already taken a number of steps. 5 The USDA and the Department of 6 Justice have established the Agricultural 7 Competition Joint Task Force to explore 8 opportunities to harness each other's 9 expertise and will be developing a new 10 memorandum of understanding that will 11 outline our relationship. These workshops 12 will help inform us as we work on this now. 13 The president's budget in the ag 14 area has increased GIPSA's funding level to 15 improve enforcement over unfair and 16 deceptive practices in the marketplace. 17 The Department is using these resources to 18 hire attorneys to handle complex 19 competition investigations as well as other 20 violations. 21 The current budget the President 22 has proposed to Congress for 2011 also 23 requests additional funds to hire legal 13 1 specialists and field investigators to help 2 conduct more than 500 inspections to ensure 3 that the market is fair and above board. 4 We published a final rule in 5 December of 2009 to improve fairness in 6 contracting in the poultry industry. 7 Specifically this final rule ensures that 8 growers are provided a 90-day notice before 9 a company can terminate their contracts. 10 It also ensures that growers who 11 were building new poultry houses get to see 12 a -- a true written contract on the date 13 the poultry company provides the poultry 14 house specifications, not months later, 15 which could put the grower in a 16 take-it-or-leave it situation. 17 The final rule also spells out 18 that the growers have the right to discuss 19 their contracts with their families, their 20 lender, their state or federal agencies, 21 their lawyer or other growers that contract 22 with the same company. 23 We are also in the final 14 1 clearance for a proposed rule which we 2 intend to issue sometime in mid June to 3 carryout the requirements of the 2008 Farm 4 Bill that addresses issues of fairness in 5 contracting in the livestock and the 6 poultry marketplace. 7 Again, I want to thank you-all 8 for attending today. And I want to thank 9 the panelists in advance, before my 10 introductions of them, for their 11 willingness to participate in this 12 workshop. And look forward to hearing what 13 they have to say on this very important 14 issues in agriculture. 15 It's now my distinct pleasure to 16 introduce the Attorney General of the 17 United States, Eric Holder. During his 18 impressive career General Holder has served 19 in the private practice, as a U. S. 20 Attorney for the District of Columbia, as 21 an Associate Judge of the Superior of the 22 District of Columbia and as a Deputy 23 Attorney General. 15 1 He has worked to investigate and 2 prosecute official corruption on the local, 3 state and federal level. And he's fully 4 invested in strong enforcement of our 5 nation's antitrust laws to advance the 6 interest of justice on behalf of the 7 American people. 8 On a personal note, I want to 9 indicate the personal attention the 10 Attorney General has paid to these 11 particular workshops. There are many 12 places that the Attorney General could be 13 today, but he has dedicated himself to 14 coming to these workshops as an indication 15 of his concern and interest. 16 So please welcome -- join me in 17 welcoming Attorney General Holder. 18 ATTORNEY GENERAL HOLDER: Thank 19 you. Well, good morning. 20 Thank you, Secretary Vilsack. 21 It's always good to join with you. And 22 it's good to be here and it's also good to 23 be out of Washington, D. C. 16 1 Seated to my left is the 2 Assistant Attorney General for the 3 Antitrust Division in the United States 4 Department of Justice, a woman who has 5 revitalized the Antitrust Division and who 6 -- from whom you'll be hearing later, 7 Christine Varney. 8 You might hear in me a slight New 9 York accent, but it's always great to be in 10 the beautiful state of Alabama. I consider 11 you all my second home. My wife was born 12 and raised about five hours south of here 13 in Mobile, Alabama, but this is my first 14 visit to -- to Normal. 15 So I want to thank the city and 16 our host, Alabama A&M, for welcoming us 17 today and for hosting what I think is a 18 very important workshop. 19 The discussion that we have 20 gathered to begin reflects, I think, a 21 historic collaboration, as Secretary 22 Vilsack said, between the Departments of 23 Justice and Agriculture and leaders from 17 1 across our nation's agricultural industry. 2 Secretary Vilsack, Assistant 3 Attorney General Varney and I are committed 4 to improving our understanding of how 5 particular agricultural markets function. 6 That is why we are here. And that's why 7 we've decided to hold a series of five 8 workshops across the country to hear from 9 people, to examine the challenges facing 10 America's farmers, growers and producers. 11 Now, two months ago we kicked off 12 this workshop series in Secretary Vilsack's 13 home State of Iowa, I wonder how that 14 happened, where we focused on the seed 15 industry. That meeting, I think, was a 16 great success. 17 We received very valuable 18 feedback from those who attended and from 19 those who provided written comments. 20 Now, I fully expect that this 21 workshop will be just as useful. Not only 22 do we appreciate your input, quite frankly, 23 we need your input, we need to hear from 18 1 you. And today our goal is to develop a -- 2 a clearer picture of what competitive 3 issues participants in the poultry market 4 are facing, but we need your perspective. 5 Your insights can help us fulfill our 6 responsibilities to take appropriate action 7 to enforce the Packers and Stockyard Act. 8 It will also enable us to be more effective 9 advocates for competition, which is 10 Christine's job. 11 Now, as we begin this important 12 conversation it is fitting that we've 13 gathered here at Alabama A&M. This 14 university has a very long and a very 15 distinguished tradition of training 16 agricultural leaders. And today is on the 17 cutting edge of industry and industry 18 advancements. 19 In fact, as we speak, university 20 biotechnologists are making strides in the 21 development of an allergy free peanut. 22 Now, this is something very important to 23 me. I've got two children who are allergic 19 1 to peanuts. And if you can pull this off, 2 I will be able to get peanut butter 3 sandwiches to everybody in my family. 4 But in learning about this, I 5 couldn't help but think about George 6 Washington Carver, who spent his career 7 working on innovations with peanuts at 8 Tuskegee University. Doctor Carver once 9 said, and I quote, "New developments are 10 the products of a creative mind". 11 Well that is certainly true, but 12 I believe that new developments, and more 13 importantly, progress, are also the product 14 of collaboration. 15 Now, in coming together today our 16 hope is that we can move forward in meeting 17 our goals to ensure competition, to ensure 18 opportunity and fairness in our 19 agricultural markets. Secretary Vilsack, 20 Assistant Attorney General Varney and I 21 understand that. 22 As farmers, producers and 23 industry leaders we understand that you 20 1 face a variety of challenges. We know that 2 some of you have concerns about production 3 contracts. Others are worried about 4 consolidation in our poultry markets. 5 Whether you're here to talk about antitrust 6 issues or to raise questions about fair 7 contracting and business practices, we 8 really look forward to hearing from each of 9 you. 10 Now, with your engagement, I 11 believe that we can move closer to 12 answering the question that's at the heart 13 of these workshops. The question of 14 whether competition in today's agricultural 15 industry is as free and is as fair as it 16 should be. 17 And as we work to answer this and 18 understand why a growing number of American 19 producers and farmers find it increasingly 20 difficult to survive by doing what they 21 have been doing for decades, I want to 22 ensure each of you that the Obama 23 Administration is committed to protecting 21 1 competition in a very vigorous manner. 2 This is a top priority for today's 3 Department of Justice. 4 But I recognize that the vigorous 5 enforcement of our antitrust laws, while 6 critical, cannot fully address the concerns 7 of many agricultural industry leaders and 8 stakeholders. That's why we're partnering 9 with the United States Department of 10 Agriculture to benefit from its deep 11 expertise in your industry and, hopefully, 12 to share our expertise on the broader 13 regulatory issues that are potentially at 14 play. And that's why our agencies launched 15 the Agriculture Competition Joint Task 16 Force that Secretary Vilsack mentioned. 17 That's also why we're engaging 18 directly with all of you, to listen, to 19 learn and to determine the best way to 20 ensure fairness and to encourage success. 21 Now, as we evaluate and develop 22 policy we want to hear from you. And I 23 think that's something that all of us would 22 1 really stress, we want to hear from you. 2 In fact, when we announced these workshops 3 last year, we also issued a call for your 4 comments and recommendations. And, so far, 5 the response has really been tremendous. 6 To date we have received over 15,000 7 comments. And I'm grateful that so many of 8 you have contributed to this extraordinary 9 example of government public engagement at 10 its best. 11 Not only must we keep up this 12 work, we have to expand this work. And 13 together, I believe, that we can address 14 these 21st Century challenges that the 15 agricultural industry now faces. Now, I'm 16 certain that we can honor and preserve your 17 industry's essential role in our economy as 18 well as our culture, our livelihood and our 19 global standing. Your participation here 20 gives me great hope about what we can 21 accomplish together in the days and -- and 22 months ahead. Secretary Vilsack and I look 23 forward to hearing from you and to working 23 1 with all of you. 2 So thank you so much for 3 welcoming us here today. And, as I said, 4 we look forward to hearing from all of you. 5 SECRETARY VILSACK: General, 6 thank you very much. 7 Let me explain what we're going 8 to do this morning. We are initially going 9 to have an opportunity to hear from 10 Christine Varney that the Attorney General 11 briefly introduced. 12 Congressman Artur Davis is here 13 with us, as well as Commissioner Sparks. 14 We're going to have an opportunity to ask a 15 few questions of this panel. 16 We will break for a short period 17 of time and reconvene a larger panel of 18 producers and growers and have the same 19 kind of question and answer format in the 20 morning session. 21 Then I think we turn it over to 22 -- to General Varney for the afternoon 23 session, which will give folks additional 24 1 panel discussions and opportunities for Q 2 and A. 3 We do want this to be as 4 interactive as we possibly can have. And 5 we do want to hear from as many people as 6 we can. 7 Let me first and foremost 8 introduce very briefly the three members of 9 the first panel. And then I will turn to 10 the Attorney General with a question and to 11 each of the individual panelists for a 12 question so that they can make a statement 13 in response. 14 As the General indicated, 15 Christine Varney was confirmed as an 16 Assistant Attorney General for the 17 Antitrust Division in April of 2009. 18 She has held leadership positions 19 in both public and private sector. From 20 1998 to 2009 she was a partner in Hogan and 21 Hartson, a very significant and prestigious 22 firm in Washington, D. C., where she served 23 in a dual capacity as a member of the 25 1 firm's antitrust practice group and the 2 head of the Internet practice group. 3 From '94 to '97, 1994 to 1997, 4 she served as a Federal Trade Commissioner 5 at the Federal Trade Commission. She was 6 the leading official on a wide variety of 7 Internet and competition issues. Prior to 8 her service there she served as an 9 Assistant to the President and Secretary to 10 the Cabinet during the Clinton 11 Administration. 12 She is joined by Congressman 13 Artur Davis, no stranger to the folks here. 14 The Congressman was reelected in 2008 to 15 serve his fourth term in the U. S. House of 16 Representatives. And he represents the 17 Seventh Congressional District here in 18 Alabama and serves as a member of the Ways 19 and Means Committee. He is a member of the 20 Congressional Black Caucus and resides in 21 Birmingham, Alabama. 22 He was also appointed to the 23 senior whip team for the Democratic 26 1 Congress of the Hundredth and Ninth 2 Congress. And is the co-chair of the 3 Sentrus House, New Democrat Coalition, as 4 well as the Southern Regional co-chair of 5 the Democratic Congressional Campaign 6 Committee. 7 Congressman Davis and I became 8 first acquainted as a result of 9 relationship on the Democratic Leadership 10 Council. 11 Joining the Congressman is the 12 Honorable Ron Sparks who serves as your 13 Commissioner of Agriculture and Industries. 14 First elected in 2002 easily won reelection 15 to a second term in 2006. 16 In 1999 Commissioner Sparks was 17 appointed Assistant Commissioner of 18 Agricultural and Industry. He has 19 completed terms as President of the 20 Southern Association of State Departments 21 of Agriculture. And most recently served 22 as the President of the National 23 Association of State Departments of 27 1 Agriculture. Commissioner Sparks continues 2 to serve with that commission on the 3 executive committee. And that is an 4 opportunity that we look forward to each 5 month to visit from the USDA with the state 6 ag commissioners and secretaries to make 7 sure that we have a seamless communication 8 system. 9 So these are the three panelists. 10 And I think, General, if I could 11 start with you and -- and give you a chance 12 to sort of expand a little bit more. I 13 clearly want to thank you for attending 14 this workshop and certainly appreciate the 15 collaboration your Department is providing 16 with our Department, it's truly historic. 17 As you know, and as the folks in 18 this room probably know, poultry 19 enforcement under the Packers and 20 Stockyards Act is divided between our two 21 agencies. This makes, I think, 22 communication and coordination very 23 critical. 28 1 In years past growers have been 2 frustrated with what they feel is a lack of 3 coordination and a sense that no one will 4 help them. 5 Do you have a sense about what we 6 can do to improve the communication and 7 coordination with respect to this important 8 issue? 9 ATTORNEY GENERAL HOLDER: Well, I 10 certainly -- one thing -- one of the things 11 we have to do is exactly what we are doing 12 now, which is to give people an opportunity 13 to interact with those people like 14 ourselves who have the responsibility for 15 running the departments that are -- have, 16 as their responsibility, enforcement of -- 17 of that act. 18 I think we also have to come up 19 with ways in which we interact with each 20 other in ways, frankly, better than we have 21 in the past. I don't think the Department 22 of Justice, again, quite frankly, has been 23 nearly as active as it needed to be. 29 1 We have tried to reach out to our 2 counterparts at the Department of 3 Agriculture and to establish what, I think, 4 is in some ways a historic relationship 5 with an understanding of the expertise that 6 we can bring to these questions and with a 7 respect for the deep expertise and 8 experiences the Department of Agriculture 9 has in this regard. 10 It seems to me that without all 11 of the relevant agencies of the executive 12 branch actually functioning, working -- 13 working together, speaking with one 14 another, we're not going to be in a 15 position to give you all the kind of 16 service, frankly, the kind of government 17 that you deserve, the kind of effective 18 action that I think this government is 19 capable of providing. 20 And, so, that is why we are here, 21 but it is also why when we leave and when 22 we are back in Washington the communication 23 between our departments will -- will 30 1 continue. 2 SECRETARY VILSACK: General, 3 thanks very much. 4 And for the purposes of the group 5 here today, I want to make one introduction 6 of a USDA official, primarily because if 7 there are difficult questions relating to 8 the Packers and Stockyards Act. 9 I want Dudley Butler -- Dudley, 10 do you want to stand up, who is in charge 11 of that area to be able to answer them. So 12 that's the man you want to go to. 13 MR. BUTLER: Thank you. 14 SECRETARY VILSACK: I don't think 15 I just did you a favor, Dudley. 16 I want to now turn to Congressman 17 Davis. 18 Congressman, just from your vast 19 awareness and knowledge as you travel 20 around in your congressional district in 21 the state, your thoughts about competition 22 in the poultry industry and what, perhaps, 23 needs to happen in order to make sure that 31 1 everyone is being treated fairly. 2 CONGRESSMAN DAVIS: Thank you, 3 Mr. Secretary. 4 And let me begin by just greeting 5 you and the Attorney General. Mr. 6 Secretary, you may recall several years ago 7 after our DLC partnership you came to the 8 state of Alabama and you had a chance to 9 talk to some Democrats in Jefferson County. 10 And it was good to see you then. 11 And, Mr. Attorney General, it's 12 always good welcome you come back to your 13 kind of, sort of adopted state. 14 Some of you may remember the 15 Attorney General honored the State of 16 Alabama in 2009, only few weeks after his 17 being sworn in as the first 18 African-American Attorney General of the 19 United States he came to Selma, Alabama. 20 And he honored history and he honored the 21 whole state by standing in the pulpit of 22 Brown's Chapel on Jubilee Sunday. 23 And, Mr. Attorney General, 32 1 people continue to remember that visit, not 2 quite as much as they remember Barack Obama 3 coming, but you're a close second. And it 4 meant a lot that you came that day and I 5 thank you for that again. 6 Let me -- before I answer your 7 question, I want to pay tribute to both of 8 these individuals who are seated to my 9 immediate left because of something the 10 U. S. Congress is about to do, but it would 11 not have happened without the leadership of 12 Secretary Vilsack and Attorney General 13 Holder. 14 Some of you in this room have a 15 vital interest in a fair and just 16 resolution of the Pigford Case that has 17 consumed some many people and so many 18 families for close to 20 years now. 19 Several years ago working with 20 Democrats and Republicans in Congress we 21 managed to reopen the Pigford litigation 22 and we included those provisions in the 23 bipartisan 2008 Farm Bill. 33 1 Well, earlier this year Secretary 2 Vilsack and Attorney General Holder made an 3 announcement that this long running, long 4 festering stain of the agriculture system 5 of the United States was ready to be 6 settled. 7 And I'm happy to sit here and 8 report to you that in Congress' final days 9 before the Memorial Day recess the House of 10 Representatives is poised to pass 11 legislation that will include a 1.4 billion 12 dollar settlement for Pigford litigants 13 that would not have happened without the 14 vision of this Attorney General, this 15 Agriculture Secretary and this President. 16 So please give them a hand for that 17 accomplishment. 18 Let me go to directly to the 19 Secretary's question. 20 Mr. Secretary, the best way I can 21 answer that question is to share with you a 22 brief anecdote that I recall from my 23 travels around this state several years 34 1 ago. 2 I was attending a farmer's 3 conference. And, candidly I did not 4 profess myself to be an expert on poultry 5 farming, I was there to learn and to 6 listen. I said my piece. And then at the 7 end I -- I took questions, did more 8 listening than talking. 9 As I was about to leave, and I 10 did what we politicians are always 11 reluctant to do and says, is there any one 12 person who hasn't had a chance to speak who 13 wants to get in? 14 There's a gentleman from North 15 Alabama who made his way to the microphone. 16 He said, Mr. Davis, I'm a poultry farmer. 17 Been a poultry farmer for 33 years. 18 My son is 22. He is graduating 19 Auburn University. A very fine school in 20 East Alabama, Mr. Secretary. And he said 21 my son came to me a few weeks ago and said, 22 "You know, dad, you've been a poultry for 23 32 years. I have decided that I want to 35 1 follow in your footsteps and I want to be a 2 poultry farmer". 3 The gentleman looked out at the 4 audience and said, Mr. Davis, the first 5 thing I did was I said to my son, "Well, 6 I'm going to put together a list of 7 contacts that you may want to talk to", you 8 know, as dads and sons kind of always work 9 together. So I'll put together a list of 10 contacts I want you to talk to. 11 And then he said something that 12 stunned everybody in the room, he said, "I 13 had no intention of calling a single one of 14 those contacts on behalf of my son". 15 Everyone got quiet. And he said 16 I waited, I let several weeks go by and my 17 son came back and said, "Dad, have you 18 heard from any of those guys, you know, 19 that you said I needed to talk to about 20 getting into the poultry business"? 21 And this gentleman said to us 22 that day that he kept giving his son the 23 runaround. 36 1 And everyone is sitting there 2 wondering why would a father give his son 3 the runaround when his son was trying to go 4 into the family business. 5 The gentleman looked out at all 6 of us that day, about a hundred and fifty 7 people and said, "Mr. Davis, I have done 8 this for 32 years. I do not have the 9 confidence that my son can make it in the 10 poultry business. I know he's smart. I 11 know he has everything he needs in terms of 12 work ethic. I know he has the character, 13 my wife and I taught him that, but I do not 14 have confidence he can make it in the 15 family business". 16 And I remember everyone in that 17 room was sitting there wondering have we 18 gotten to a state in farming and 19 agriculture in the state of Alabama where 20 when a son wants to walk in his father's 21 footsteps the son doesn't feel empowered to 22 take his son along that path. 23 We have a lot of poultry farmers 37 1 who are here today. I suspect, General 2 Holder, Secretary Vilsack if we had a 3 chance to inventory some of them -- I don't 4 know if that gentleman is here, he may not 5 be, but I suspect there are stories like 6 his in this room. 7 And I didn't have a chance to 8 quiz him or to cross examine him about why 9 he didn't have confidence that his son 10 could make it. Maybe it's high energy 11 costs. Maybe it's the difficulty of 12 sustaining a small business because running 13 a farm is running a small business as all 14 of you appreciate. Maybe it's the lack of 15 competition. Maybe it's predatory pricing. 16 Maybe it's predatory relationships between 17 producers and management. 18 I didn't cross examine him on 19 those things that day, but that man in that 20 room communicated a pain in his voice. 21 And all of us who care about the 22 future of this state and the future of this 23 region have to understand that we cannot 38 1 walk away from our farms. The reality is 2 that in this state farms have lost 76% of 3 their value over the last decade. That 4 means Alabama is hurting because we're not 5 fully maximizing what our farms can do. 6 So I'm glad to see the Attorney 7 General and the Secretary of Agriculture 8 fully engaged in this very unique 9 partnership because I want men like the 10 individual who stood up at that meeting to 11 be able to say, I welcome my son into the 12 poultry profession. I welcome my son into 13 the family business. I'm confident he can 14 make it. I'm confident he can thrive. 15 There's something fundamentally 16 wrong when a father has to say to a son, do 17 not walk the path that I walked. 18 The final comments I'll make, Mr. 19 Secretary. We have the outstanding new 20 president of this school, Doctor Hugine, 21 who is here today, who's seated on the 22 first row. We have a pretty good crowd of 23 folk. 39 1 Everyone in this room ought to 2 appreciate, it is not an accident or 3 coincidence that we're at Alabama A&M. As 4 Jay-Z likes to say they could be in 5 anyplace in the world right now. Some of 6 y'all got that. 7 They could be in a number of 8 places in Alabama. They could be at 9 Auburn. They could be at AUM. They could 10 have gone to Selma. They could have found 11 an excuse to do this in Birmingham because 12 the flights get into Birmingham more easily 13 sometimes. 14 But they're here, Doctor Hugine, 15 at this school, which has meant so much to 16 Northeast Alabama. For anyone who doubts 17 that Alabama A&M is 100% on its way, that 18 Alabama A&M is one of the proudest 19 institutes in this region, turn around and 20 look behind you and see what Alabama A&M 21 can do. Doctor Hugine, it's a tribute to 22 your leadership that we're today. 23 Thank you so much, ladies and 40 1 gentlemen. 2 SECRETARY VILSACK: And, 3 actually, Congressman, we were planning a 4 competition hearing on football at one of 5 those other universities, for the rest of 6 the country that will come later. 7 Commissioner, I want to turn to 8 you. You obviously have your ear to the 9 ground with Alabama agriculture and 10 agriculture generally. 11 And I'm just curious, and I think 12 the General is curious, in knowing your 13 thoughts about what we can to do to make 14 sure that this playing field is level for 15 the growers and producers and how can we 16 potentially strengthen their position so 17 that this playing field is as level as it 18 can be so that a father has a chance to say 19 to his son you can participate in this 20 business. 21 COMMISSIONER SPARKS: Absolutely. 22 And, Mr. Secretary, you're on 23 your own when you start mentioning football 41 1 in Alabama, okay. 2 The first thing I want to do is 3 certainly thank Alabama A&M. It is great 4 to be back in North Alabama. 5 Mr. Secretary, I'm one of the 6 fortunate commissioners in this country 7 where I have three land grant universities 8 with Alabama A&M, Tuskegee and Auburn. And 9 I am very proud of all three of them. And 10 they do yeoman's work for agriculture in 11 this state. And I just want to -- I'm very 12 proud of them and I appreciate them. 13 And I want to thank you 14 personally for taking your time to come to 15 Alabama, along with General Holder. This 16 means a lot to -- to us in Alabama. And 17 thank you Assistant Secretary Varney -- 18 General. This means so much for you come 19 to Alabama and talk in my opinion, to some 20 of the best farmers you'll ever meet. 21 I've had the privilege of working 22 with industry and agriculture in this state 23 now for 11 years. And I can tell you it 42 1 has been a great ride to be able to work 2 with these gentleman. 3 But, you know, there's a key word 4 when we start talking about contracts, we 5 start talking about farmers, we start 6 talking about agriculture, and that key 7 word is profitability. Profitability -- 8 it's hard to keep anybody in business if 9 they don't see a way to make a living. And 10 that's the struggle that farmers have today 11 is to try to figure out how they're going 12 to make a living and how they're going to 13 make ends meet. 14 And General Holder when you 15 started quoting Doctor George Washington 16 Carver it makes me feel good because in 17 many of these individuals that's ever heard 18 me speak I talk about Doctor George 19 Washington Carver also. And Doctor George 20 Washington Carver once said a man with no 21 vision is a man with no hope. 22 And that's why all of these 23 people are here today because they do have 43 1 vision and do they have hope and they want 2 to support their families and they want to 3 support agriculture. 4 The poultry industry is extremely 5 important to Alabama. It's over a two 6 billion dollar industry. The way I view 7 the poultry industry, is a partnership. It 8 is a partnership of farmers, a partnership 9 of companies. 10 And what I have learned as 11 Commissioner of Agriculture for the past 12 seven years is that sometimes in a lot of 13 partnerships communication breaks down. 14 And when communication breaks down that's 15 where the hardship and the difficulties 16 come because many of these farmers that 17 invest in the poultry industry invest their 18 lives, they invest their home, they invest 19 their land, they invest their future, they 20 invest their kids' future, they invest 21 there kids' eduction. 22 And when there's a lack of 23 communication of not understanding each 44 1 other, and the troubles that they're going 2 through, then it creates adversity. 3 And that's what I would hope that 4 we can get out of this meeting today, is 5 that farmers understand companies and 6 companies understand farmers and we find a 7 way to move this industry forward in a very 8 positive way because the poultry industry 9 is a great industry, but they are going 10 through some very difficult times when it 11 comes to the investment of their home, the 12 price that builds, utility costs, labor 13 costs, but, on the other hand, companies 14 are going through those similar issues. 15 So I would hope that through all 16 -- all of this today that we find some 17 common ground. That companies communicate 18 better with our farmers and that farmers 19 communicate better with our companies and 20 that we find a way to move this business 21 forward because without each other there is 22 no poultry industry. 23 We've got to have each other to 45 1 make this industry work. And we've got to 2 understand what each other are going 3 through. The technology. And I think we 4 need to find a way to reward good farmers 5 that use the technology that these great 6 land grant universities afford them. So 7 that's -- that's where I would hope. 8 There is a great risk for farmers 9 and there's a great risk for companies. 10 And we've just got to find a common ground 11 and the communication that allows us to 12 move on. 13 SECRETARY VILSACK: Commissioner, 14 thank you very much. 15 I think it's important for us to 16 reflect, not just on the industry's 17 significance to farmers, but also on the 18 industry's significance to consumers. Very 19 few people in America appreciate what 20 American agriculture and the food industry 21 provides to them. 22 Every single one of us has 23 probably 10 to 15% more disposal income in 46 1 our pockets from our hard earned paychecks 2 by virtue of the fact that we have the 3 least expensive food as a percentage of 4 income of any developed nation in the 5 world. 6 So Americans have this 7 extraordinary opportunity to maybe buy a 8 nicer house or a car or go on a vacation in 9 large part because those food dollars are 10 stretched so far in this country. And, so, 11 it is important for us to continue to 12 support farmers. 13 And, General, and -- and 14 Assistant Attorney General Varney you might 15 find it interesting to know that -- that 16 these farmers out here, if you took a look 17 at their total farm income, family farm 18 income across the country, only 9% of it 19 last year came from farming operations, 20 which means that 91% had to come from some 21 other place, which means that these people, 22 in many cases, are working more than the 23 farming job they have, they're working off 47 1 the farm or their spouse is working off the 2 farm or they're both working off the farm. 3 So, Commissioner, your comments 4 are -- are certainly important. And you 5 brought up the issue of communication. And 6 I think, as the General indicated, that the 7 departments have to do a better job of 8 communicating. And, certainly, the USDA 9 has the responsibility to -- to -- to be a 10 better communicator, both with farmers, as 11 well as the Department of Justice. 12 And I'd like to ask the Assistant 13 Attorney General who is really spearheading 14 this effort. Maybe you could -- maybe you 15 can tell us a little bit more about the 16 enforcement matters the Antitrust Division 17 handles and -- and how poultry enforcement 18 is actually handled in the department in 19 the sense of your role in all of this. 20 ASSISTANT ATTORNEY GENERAL 21 VARNEY: Thank you, Secretary. And thank 22 you President for having us here at this 23 wonderful university. It's delightful to 48 1 be here. 2 Let me start by saying that when 3 we raised the idea of doing these hearings 4 to better understand what the issues were, 5 and the intersection between agriculture 6 and USDA policy and the Department of 7 Justice policy, both Secretary Vilsack and 8 General Holder immediately said, yes, when 9 are they, we're going. 10 So from the highest level of the 11 Obama Administration this has been 12 something that we care deeply about. 13 And you might recall at our last 14 hearing in Iowa, which was the one where we 15 kicked this off, it was at a table just 16 like this where we were hearing in the seed 17 and grain industry that the different 18 avenues that the USDA and the Department of 19 Justice were pursuing. And at the table we 20 said, "Well, why don't we create a joint 21 task force". That's where this task force 22 that you've been hearing about today came 23 from was the meeting in Iowa. 49 1 And I expect today, by listening 2 to you, we'll come up with some additional 3 activities that we need to be doing that 4 could address some of the problems that -- 5 that you're experiencing. 6 Let me just give you a brief 7 overview. At the Department of Justice, in 8 the Antitrust Division, we essentially have 9 three broad areas of law enforcement that 10 we undertake. 11 In the Sherman Act enforcement, 12 the Section 1, we generally prosecute 13 criminal cartels, price fixing among 14 companies. 15 If any of you saw the movie, The 16 Informant, that was an Antitrust Division 17 criminal prosecution. 18 Under Section 2 of the Sherman 19 Act we prosecute large companies that have 20 a market share in any particular industry 21 and are abusing that market share in any 22 way that's predatory or exclusionary. 23 And then under Section 7 of the 50 1 Clayton Act we examine mergers. And any 2 merger that may lead to a substantial 3 lessening of competition we are required to 4 block. 5 At the Department of Agriculture 6 they administer, as the Secretary 7 introduced, the Packers and Stockyard Act. 8 And the intersection between a 9 regulated an industry such as poultry under 10 that act, and the enforcement of the 11 competition laws under the Antitrust 12 Division is very complex, exceedingly 13 difficult. 14 And what we have found, at least 15 in the time that we've been here, is that 16 the more we work together the more we 17 understand the industry in its totality. 18 As you've heard from both the 19 Secretary and the General we understand the 20 poultry industry is very, very vertically 21 integrated. That presents a unique set of 22 challenges when we're looking at 23 competition. 51 1 At the same time, the retail side 2 of the industry has become very, vertically 3 integrated, or very consolidated. 4 In 1992, for example, the top 5 four supermarkets had 17% of grocery sales. 6 Today the top four stores have over 40% of 7 all sales. 8 So you've got consolidation on 9 the retail side and you've got vertical 10 integration on the production side. And 11 than can lead to a lot of imbalances in the 12 system. 13 In a regulated industry where you 14 look to correct those imbalances is a 15 combination of using the tools that 16 antitrust division has in concert with the 17 tools that the USDA has through enforcement 18 of the Packers and Stockyard Act. 19 So, Secretary, what we're doing 20 is working very closely with your staff to 21 help us -- them educate us on where they 22 need the antitrust enforcement. 23 We talked about the rule that 52 1 you've been working on. We've been giving 2 you, at the staff level, a lot input into 3 that rule to ensure that when it likely 4 undergoes any judicial review, when it 5 becomes final, it's sustainable from our 6 perspective. 7 As a matter of fact, when the 8 USDA rules are challenged, it is actually 9 the Department of Justice that represents 10 the USDA. 11 So I think over the years there's 12 been varying degrees of collaboration 13 between the two agencies. I think all of 14 our staff have informed me that there has 15 never been the degree the collaboration 16 that there has -- that there is now. 17 So from the highest levels all 18 the way through the staff on the ground, 19 the staff here on the ground, you can be 20 sure that whatever is happening at USDA 21 they're involving us. Whatever we're 22 hearing about, they're the experts, we're 23 going back to them. 53 1 Our mission with the USDA is to 2 protect the consumer welfare of the 3 citizens of the United States, whether they 4 be producers or whether they be growers to 5 ensure -- through ensuring that our markets 6 are open and fair and competitive. And 7 that's what we're doing. 8 SECRETARY VILSACK: Thank you. 9 We've got a few minutes left. 10 And what I'd like to do is to give the 11 Commissioner and the Congressman an 12 additional question. 13 And then give the General any 14 closing comments for this particular 15 section they'd like to share. 16 Commissioner, let me go back to 17 you and simply ask you this question: If 18 we reconvened, say in ten years from now, 19 what would you hope we would be able to say 20 about the poultry industry that would be a 21 little bit different than it is today or 22 how you would see it different? 23 COMMISSIONER SPARKS: Well, that 54 1 we keep -- what I would hope is that we 2 keep our markets open. 3 That we compete in a global 4 world. 5 That we -- that the integrators 6 and the farmers have a better line of 7 communication of understanding each other's 8 responsibilities and investments. 9 And I would hope that ten years 10 from now, rather than it being a two 11 billion dollar industry in Alabama, it's a 12 ten billion dollar industry, but I just 13 think there's a lot of opportunities here. 14 Working with our universities. 15 Using the technology that's available to 16 allow these -- and reward those 17 technologies and allow these growers to 18 compete in the marketplace under -- under 19 the restraints that they -- that they have 20 to live under. 21 So I would hope that, and I 22 believe this, is that if we -- if we have 23 that line of communication and break down 55 1 those barriers that growers understand the 2 companies and companies understand the 3 growers, and that we have that line of 4 communication. 5 I think that's where the 6 disconnect is, Mr. Secretary, is that 7 sometimes, even -- even though we're 8 partner shipping, they don't understand 9 each other's responsibilities. 10 And I think the more we 11 understand that; then the -- then the 12 poultry industry moves forward and we all 13 benefit from it. 14 SECRETARY VILSACK: Congressman, 15 your thoughts. 16 CONGRESSMAN DAVIS: One important 17 thing, Mr. Secretary, that I think that you 18 and this Justice Department recognize is an 19 anti-competitive environment is an 20 inefficient environment. And that's worth 21 spending a few seconds asserting to a group 22 folks who don't think about these issues 23 every day. 56 1 Sometimes there's a mindset -- 2 thunder -- sometimes there's a mindset of 3 the American economy that if we just get 4 out of the way, if government is 5 laissez-faire, if the Justice Department 6 sits on the sidelines that things will 7 naturally happen. 8 And we are comfortable in that 9 belief, many of us, because we like our 10 free market system, we like our capitalist 11 system and we venerate that as both a value 12 and an economic model. 13 But the reality, as Presidents 14 from Teddy Roosevelt to Barack Obama have 15 understood, sometimes we've got to be 16 watchful, sometimes we have to be vigilant. 17 Sometimes we have to make sure that in the 18 name of an open market we don't crowd out 19 competition. And in the name of efficiency 20 we don't do something that's enormously 21 inefficient. 22 And, Mr. Secretary, you put your 23 finger on it earlier, the American consumer 57 1 is a very privileged person. The American 2 consumer lives in one of the few highly 3 vibrant societies in the world where most 4 of us have routine access to most consumer 5 items. And most of us have a reasonable 6 opportunity to climb to the next economic 7 lever, even in the midst from the aftermath 8 of the incredibly deep recession we've had, 9 that's one of the geniuses of the American 10 economy. 11 If we get this mix the 12 Commissioner talks about right in the next 13 ten years, if we get it right in the next 14 two decades, we'll preserve the consumer's 15 capacity to have access to the market. We 16 will preserve the industry's capacity to be 17 productive and efficient in the right kind 18 of way. And, finally, we will preserve the 19 men and women who are laboring on farms day 20 in and day out, we will preserve your 21 capacity to keep doing what you do because 22 that's what I want to end with. 23 The number of men and women in 58 1 this state and this region who had walked 2 away from farming in the last 40 years is 3 aching. So many people who grew up on 4 farming are walking away from it and it's 5 draining vitality from whole parts of this 6 state. 7 We've got to connect those 8 individuals. We've got to give them the 9 promise that they deserve. And if we do 10 it, it won't simply be good for farmers and 11 agri-business, it will help lift up the 12 economy of the entire state and the entire 13 region. 14 SECRETARY VILSACK: Thank you 15 very much. 16 You know to the Congressman's 17 point, we've lost over a million farmers in 18 that 40-year period around the country. 19 And not only have we lost farmers, but 20 we've lost a lot of population in our rural 21 communities. 22 And, General, you might be 23 interested to know that one-sixth of 59 1 America's population, about 16, 17% of 2 Americans live in rural America, but 45% of 3 those who serve us in uniform come from 4 those small towns and from rural America. 5 And as we see a squeeze on the 6 folks in rural America and the economy that 7 suffers in rural America, and there are 8 fewer and fewer young people being able to 9 stay in rural America, you have to begin to 10 wonder are they're going to be enough folks 11 to care of all of our military needs and 12 our law enforcement needs, where are these 13 folks -- where are these folks going to 14 come from? 15 So, Congressman, you're -- you've 16 got a good point there. 17 General, your closing comments 18 before we close this first session. 19 ATTORNEY GENERAL HOLDER: Yeah. 20 I mean, think that, you know, although we 21 are focusing on agriculture generally, the 22 poultry industry specifically here today, 23 we're really talking about something that I 60 1 think in a lot of ways is more basic than 2 that. And it -- I think that goes to the 3 last two sets of comments we've heard. 4 The American culture, who we are 5 as Americans, is really -- you know, if you 6 look historically is really based on our 7 agricultural industry, the agricultural 8 component of what America is about. 9 The values that we hold as 10 Americans, I think, were developed on 11 farms. I'm a city guy. I'm proud to be -- 12 I'm proud to be from New York, don't hold 13 that against me. But I'm also a person who 14 knows a little about the history of -- of 15 this nation. 16 And I think it's important for us 17 to make sure that we hold on to the values 18 that were developed in our rural areas that 19 continue to sustain this nation and 20 differentiate this nation from, you know, 21 many other nations around the world. It's 22 what makes, you know, this nation great. 23 What we want to do is come up 61 1 with a way in which we, in government, can 2 help to make sure that there are 3 efficiencies, that there is fairness there. 4 And that our economic -- economic system 5 that we have is consistent with the values 6 that we always espouse. 7 We're not looking for government 8 to direct things, but government can play a 9 role as a referee at times. 10 The Obama Administration is not 11 looking, one way or the other way, as much 12 as just to try to make sure that fairness 13 is the thing that permeates the 14 agricultural sector. 15 And in doing so, I think we will 16 do the greatest service, which is to 17 perhaps reverse the trends that we have 18 heard about people leaving farms, people 19 not being able to pass on to their sons and 20 daughters the ability to do the great 21 things that they have done and the things 22 that have shaped this country, the things 23 that have made this nation great. 62 1 Our economy and our well-being is 2 at stake, which is somewhat, I think, you 3 know, the sole of this nation is also 4 something that we are fighting to preserve. 5 And that's something that you-all, I think, 6 are key parts of. 7 And, so, what we want to do, as I 8 said at the beginning, is really to listen 9 to you, to figure out ways in which we can 10 be of service to you. 11 And in doing so make sure that we 12 preserve the great nation that we've always 13 had and that we want to continue to have. 14 SECRETARY VILSACK: General, 15 thank you. 16 We are going to a break for -- 17 for about 15, 20 minutes or so and try to 18 reconvene here for the next roundtable, 19 which will be the poultry growers. We'll 20 talk to growers and former producers about 21 their expectations. 22 That will then be followed by a 23 lunch break. And then we will reconvene 63 1 after lunch for an opportunity for the 2 public generally to provide testimony. 3 That will be followed by another 4 roundtable discussion of individuals, both 5 in terms of the government, as well as 6 academic and -- and the producer and 7 industry viewpoint. 8 And then additional opportunities 9 for public testimony and closing remarks. 10 So we will break for about 15 or 11 20 minutes. 12 (Whereupon, the taking of the 13 proceedings were recessed from 14 approximately 10:03 a.m. to 15 approximately 10:41 a.m., after 16 which the following proceedings 17 were had and done:) 18 SECRETARY VILSACK: If I can call 19 everyone's attention to the -- to the next 20 panel. 21 Let me, first of all, introduce 22 the panel. And I can't see the name 23 plates. So I'm not sure -- alright. 64 1 Garry, I'm going to start with 2 you. I'm just going to go right down the 3 line introducing folks. And then we'll get 4 -- get to some questions and answers. 5 These introductions will be 6 short. And if I mispronounce the name, I 7 sincerely apologize. 8 Garry Staples is the president, 9 owner and manager of the White Acres Farm, 10 an eight-house poultry operation along with 11 60 head of registered cattle. 12 He's served as a board member of 13 the National Poultry Growers Association as 14 well as vice president of the Alabama 15 Contract Poultry Growers Association. He's 16 on the Board of Directors of the St. Clair 17 County Soil and Water Conversation. He's 18 served as an officer of the St. Cloud -- 19 St. Clair County Cattlemen's Association 20 and the Alabama Cattlemen's Association. 21 He's presently a Major in the 22 Army Reserves. And we thank you for your 23 service. He's served as the past company 65 1 commander of the Signal Company, 20th 2 Special Forces. He was a team leader of 3 the Operational Detachment 821 1st 4 Battalion, 20th Century -- 20th Special 5 Forces. 6 Carole Morison is next. And she 7 is a farmer from Maryland. She and her 8 family raised chickens under contract for 9 23 years on their family farm. She helped 10 organize the Delmarva Poultry Justice 11 Alliance and served as Executive Director 12 for eight years. Currently she's a private 13 agricultural consultant specializing in 14 local food systems. 15 Gary Alexander is owner and 16 operator of Alexander Farms, Inc., a 17 poultry production and property development 18 business in Westminster, South Carolina. 19 He markets 3.2 million broilers a year 20 through his 18 broiler house farm and 21 develops residential properties as well. 22 He serves on the Board of 23 Directors of Agsouth Farm Credit, ACA and 66 1 AgFirst Farm Credit Bank, which he serves 2 on the audit committee. Additionally, he 3 serves on the Board of Directors of the CS 4 Poultry Federation and the Outdoor Dream 5 Foundation, an organization providing 6 outdoor adventures for children with 7 life-threatening illnesses. 8 Kay Doby, who is to my immediate 9 left, has made Cameron, North Carolina here 10 home for -- I won't say how many years. 11 MS. DOBY: 55. 12 SECRETARY VILSACK: Okay. 55 13 years. Just was trying to be a gentleman 14 here. 15 She lives on a 3rd generation 16 farm and continues raise meat, goats and a 17 small flock of chickens. She's taught 18 kindergarten for 15 years. She and her 19 husband built two broiler houses and raised 20 poultry until October of 2008 when their 21 contract was terminated. 22 Robert Lumzy, did I say that 23 right, sir? 67 1 MR. LUMZY: Yes. 2 SECRETARY VILSACK: Mr. Lumzy is 3 currently a heavy equipment operator. In 4 April of 1999 he purchased Lumzy Poultry 5 Farms where he raised chickens for a living 6 and provided jobs for those in the 7 community who were unemployed. 8 In 2006 Robert lost his contract 9 and it's his desire to regain his contract 10 and once again become a business owner. 11 Sandra Pridgen is a seventh 12 generation family farmer from Snow Hill, 13 North Carolina. She transitioned the farm 14 from tobacco and contract poultry 15 production to a sustainable grass-based fed 16 marketing meats directly to consumers 17 through farmer's markets, fine clubs and 18 restaurants. 19 Rainbow Meadow Farms currently 20 markets, poultry, eggs, beef, pork, lamb 21 and rabbit locally in North Carolina. 22 And she spent five years -- the 23 last five years conducting on farm research 68 1 for pasture based livestock systems and 2 poultry genetics appropriate for those 3 systems. 4 And our last panelist on the end 5 is Shane Wooten. 6 Did I pronounce that right? 7 MR. WOOTEN: Yes. 8 SECRETARY VILSACK: Shane was 9 raised on a poultry and cattle farm in 10 De Kalb County, Alabama. 11 In 1997 he purchased a farm next 12 to his father's farm and began constructing 13 12 broiler houses where he continues to 14 raise poultry. In 2006 he also become an 15 insurance agent for the A-L-F-A Insurance, 16 specializing in poultry farm insurance. 17 Assistant Attorney General Varney 18 and I thank all members of the panel for 19 their participation. 20 And what I'd like to do is start 21 off with a question that we'll direct to 22 all of the panel is here today and ask you 23 to comment on it. And, just, we'll start 69 1 there with you and just kind of work right 2 down the line. 3 And, basically, the question is 4 this: The poultry industry over the last 5 40 years has become consolidated and -- and 6 to a certain extent vertically integrated. 7 And the number of countries -- companies 8 for growers to do business varies from each 9 region of the country. 10 In your experience, how does that 11 impact and affect the fairness of 12 contracts? And what options should we 13 consider in taking a look at those 14 circumstances where there may be only one 15 or two companies able to do business? What 16 needs to be done to make sure that farmers 17 and growers get a fair shake? 18 MR. STAPLES: Mr. Secretary, I 19 appreciate y'all coming today. 20 But talking about the integrators 21 being in one area. In my county alone, 22 we've got two, but they're up -- they do 23 not cross lines at this time anyway. 70 1 I wish I had an answer for you to 2 tell you how to fix that problem, but if we 3 could just get fair and -- and competitive 4 markets with these people, to where we 5 could, as a grower, be able to go to 6 another integrator and say, look, I -- I 7 can do this for you and get them to help us 8 with that situation. 9 As it stands right now with the 10 contracts that we're offered now it's 11 either a take it or leave it situation. So 12 it really puts us in a bind as growers. 13 MS. MORISON: I'd like to thank 14 you for being here today as well and for 15 giving us this opportunity. 16 As far as the consolidation of 17 the -- of the industry there used to be 18 seven poultry companies where I'm from. 19 We're down to four now. Two are very small 20 poultry companies, two are major poultry 21 companies. And every year we see things 22 downsizing more and more where, you know, 23 smaller ones are -- are bought up. 71 1 I don't see much difference in 2 contracts between companies. It might be a 3 few different words that are used, but 4 basically they're the same. So, you know, 5 the contracts aren't really affected by 6 that as to whether you're big or small. 7 Contracts are basically the same. 8 SECRETARY VILSACK: Gary, your 9 thoughts. 10 MR. ALEXANDER: Thank you for the 11 opportunity to be here. 12 In our particular area we are 13 afforded three integrators. And when you 14 look at those contracts each one of them 15 are just minor sentences apart of each 16 other, they're very equal. 17 And in research and preparation 18 for this meeting I looked into an area of 19 14 states served by the AgFirst Farm Credit 20 Bank. And those contracts throughout that 21 14 states are with -- again, within pennies 22 of each other. 23 In two or three cases we saw 72 1 contracts where the grower only had a 2 choice of one integrator were in, some 3 cases, better than the ones where you have 4 multiple choices. So the contract portion 5 of this business is just like any market 6 driven decision. It's based upon 7 competition and availability of services. 8 MS. DOBY: In our area we have 9 more than one company, but it seems to be a 10 written rule that if you go grow for one 11 company, you really don't have the 12 opportunity to even cross those lines to go 13 to another company. And with -- like what 14 they're saying, the contracts are pretty 15 much the same, but it's -- it's not a 16 common practice. If you start with one 17 company, you -- you usually stay with them. 18 SECRETARY VILSACK: Robert. 19 MR. LUMZY: Thank you for 20 allowing me this opportunity. But as 21 everyone else has said, in our community 22 there are several companies, but once you 23 start with one, that's the only one that 73 1 will allow you a contract. They won't 2 cross the lines to come to your farm. 3 MS. PRIDGEN: I -- I would say 4 that I basically agree with Kay of what she 5 said. What -- what we've found is that the 6 companies, there's is a slight variation in 7 maybe the type of heating system that they 8 have, that company there uses for their 9 heater or their feed line system. 10 And, so, if you end up trying to 11 go to another integrator; then that 12 integrator is going to say, Well, you know, 13 you're going to have to make all these 14 changes to the specific, you know, 15 Cumberland Heating System or a particular, 16 you know, feed system that we use. So they 17 use that as an excuse not to take you on. 18 And, also, the other thing is if 19 they do end up taking you on, their 20 preference is always for getting -- if 21 they're in expansion mode, their preference 22 is always for getting new houses. 23 And as soon as -- what we've 74 1 found in our experiences, as soon as they 2 can get new houses, they're going to dump 3 those people that -- that -- that they have 4 brought on from another company. 5 MR. WOOTEN: Thank you, Mr. 6 Secretary. 7 In my area we've been very 8 fortunate. At one time we actually had 9 five integrators that served the area where 10 I lived. It's kind of a sweet spot there. 11 So competition has been pretty good in that 12 area. 13 You mentioned vertical 14 integration. And our aspects and thoughts 15 that on. Vertical integration, I think, 16 has been key to the poultry industry for 17 the last 40 years and has provided a stable 18 income for the poultry farmer in a stable 19 market. But as far as competition, I think 20 we have a pretty good competition in our 21 area compared to some others. 22 SECRETARY VILSACK: During the 23 course of our first panel Commissioner 75 1 Staples mentioned concerns that he had 2 about -- about a lack of communication or 3 miscommunication or an inability to 4 communicate between companies and 5 producers. 6 I'd be curious to know from your 7 own personal experience or from experiences 8 of people that you know and trust, do you 9 share the Commissioner's concerns? And if 10 so, what suggestions would you make for us 11 as to how we might be able to help improve 12 communication? 13 And I'm just going to start this 14 way and come down the other way. 15 MR. WOOTEN: Well, communication 16 is -- between the grower and -- and 17 integrator is -- is one thing that I've 18 prepared a statement on. And if you don't 19 mind, I'll go ahead and start with that. 20 SECRETARY VILSACK: Sure. Feel 21 free. 22 MR. WOOTEN: A couple of the 23 issues that is facing the contract growers 76 1 that I would like to discuss is, number 2 one, rapid rise in expenses over the past 3 few years. And, number two, the breakdown 4 in communication between contract growers 5 and integrators. 6 Just a quick example of expense 7 increase. When my brother and I completed 8 our construction of our houses in 1999 9 expenses have dramatically increased, but 10 although there are many different input 11 expenses that go into a poultry farm, 12 propane cost is -- is one of the largest. 13 In 1999 our propane cost was about 14 approximately $42,000 a year. In 2009 that 15 propane -- that same propane cost had 16 increased to approximately $92,000 a year. 17 That was a hundred and twenty percent 18 increase. So that was a bottom line cut 19 off of our profitability. Those increases 20 have dramatically affected profitability 21 for the contract grower. 22 And, in fact, the integrated 23 system that has provided such a good, 77 1 stable income for so long, we actually lost 2 money in 2008 on our farm for the first 3 time. 4 This discrepancy between income 5 and increased expenses is -- including 6 myself and a lot of the other growers as 7 you had mentioned in the earlier panel, we 8 have had to go outside the farm to provide 9 for our families. 10 I think in the same time frame 11 comparison, I think the contract pay -- for 12 me, contract pay has increased 13 approximately 17% from 4.7 cents a pound to 14 5.5 cents per pound, which is nowhere close 15 to offset the rising costs. 16 But integrators also have not 17 been immune to these rapid rises in cost 18 and input expenses, but, unlike the 19 contract grower, the integrators do have 20 the ability to reduce production and drive 21 the chicken prices up which helps their 22 profitability. The contractor does not 23 have that opportunity. 78 1 In fact, I read in the Poultry 2 Times magazine this week that integrators 3 are actually in the -- are poised to 4 increase production because of some of the 5 contracts or some of the production 6 cutbacks that they have made, the article 7 stated that poultry prices were at a level 8 to where good profits could be made. 9 Unfortunately, integrators do not 10 the realize that the need that continues to 11 -- continues to drive those prices up in 12 order to be able to increase contract pay. 13 I think it's the inability of the 14 integrators to understand the financial 15 strain that is placed on contract growers 16 at this time. 17 I believe that is key. The key 18 reason for that is a communication 19 breakdown inside the companies and also 20 from grower to integrator. That 21 communication breakdown -- as we all know 22 communication is very important in every 23 business. 79 1 I was raised on a poultry farm. 2 And one of the biggest changes that has 3 occurred, that -- that I feel has affected 4 communication over the last 20 years is 5 that 20 years ago almost every employee in 6 our area, almost every employee of the 7 integrator in the grow out side from the 8 service technician all the way up to 9 complex manager were actually contract 10 growers themselves. 11 So that close relationship 12 between the company and the contract 13 growers was -- gave a better representation 14 of the contract growers in any company 15 decisions that were made. 16 In comparison, over the last few 17 years, a number -- that number has steadily 18 declined. And some integrators have 19 actually banned their employees from having 20 -- from being contract growers. In effect 21 that -- in effect the contract grower has 22 lost their representation inside the 23 companies or inside the integrators. That 80 1 has, in turn, led -- led to uninformed 2 decisions by the companies themselves that 3 has affected the contract grower adversely. 4 This communications breakdown 5 inside of these companies themselves has 6 become more evident in the past few years 7 as profit margins for the companies have 8 tightened and they've also tightened for 9 the growers. 10 So the constant pressure that 11 these tightening of margins has placed on 12 employees to keep cost at a minimum has 13 caused some employees to be reluctant to 14 bring up issues that may have concerned the 15 contract grower because it would be an 16 extra, additional cost to that company. 17 So I do not believe that is a 18 result of the company's employees' 19 negligence, I just simply believe that this 20 is just a result of the high input expenses 21 and the low profit margins over the last 22 few years and just the general corporate 23 structure and how communications travels up 81 1 the structure. 2 SECRETARY VILSACK: Thank you. 3 Sandra -- and feel free -- I know 4 that folks have prepared, in some cases, 5 written statements. If you'd like to read 6 them, that's fine, or summarize them, 7 that's fine, in response to this particular 8 question or if you just simply want to 9 furnish them. We are making a record, a 10 transcript of this, and it will be 11 incorporated into the record. 12 Question about communication and 13 your views on this. 14 MS. PRIDGEN: As you know, we are 15 independent poultry producers now. But 16 what I'd like to say is that when we were 17 contract producers some of the things that 18 we noticed as a lack of communication was 19 what they term as new grower's contract. 20 Where you initially start out with an 21 initial contract. And then in a few years 22 they bring in a new grower's contract and 23 you have to sign it before you can receive 82 1 your next flock. And there's been no 2 negotiation and no communication between 3 the grower or a group growers for that 4 company and negotiation of that contract 5 with the integrator. So you either sign it 6 or you don't receive your next flock. 7 And when you have that kind of 8 debt load over you, of course you're going 9 to choose to sign the contract. You feel 10 that there's no other option when you owe, 11 you know, a half a million dollars or a 12 million dollars. 13 Also, there's -- there's a lack 14 of communication in that what is said in 15 the contract and what is verbally 16 communicated or verbally implied is 17 oftentimes two different things, you know. 18 My dad was -- after -- after the 19 first company shut down our complex, my dad 20 was taken on by another company called Case 21 Farms. And with that -- in order to be 22 taken on he took on a $80,000 debt to make 23 equipment renovations on -- on 16-year-old 83 1 poultry houses so that he could grow for 2 that company. 3 And the company, as soon as they 4 could get brand new houses built with 5 tobacco allotment, buyout money that 6 farmers were getting, they dropped those 7 former Perdue farmers and were -- and they 8 were left debt. 9 My dad, was one of them, was left 10 with, you know, an $80,000 debt. He grew 11 12 flock for them and they dumped him. 12 MR. LUMZY: Thank you, sir. 13 I'm sitting here listening to no 14 communication. Our problem is that when we 15 have a problem with the company you have a 16 service person comes out and they tell you 17 what the company says. They tell you, with 18 me now back in -- when I lost my farm. 19 They came out and we worked 20 together and got my farm straight. And I 21 asked a question, I said, "Will it cause me 22 to lose my contract"? And they said -- 23 when I -- with the deficiency that I had 84 1 would not cause me to terminate my contract 2 that afternoon. At six o'clock -- at 6:00 3 p.m. I got a phone call from Sanderson 4 Farms saying my contract was terminated. 5 And I'm going -- I didn't get a chance to 6 talk to them. I didn't get a chance to 7 tell them what happened. So I probably 8 knew, not the right amount of 9 communication. 10 MS. DOBY: Well, this is kind of 11 in response to Robert said. That's one of 12 the ugly realities of the growers talking 13 about communication. 14 Communication. Growers that are 15 here today are in jeopardy because of 16 intimidation by company personnel. And 17 they're taking a big risk. Everybody -- 18 every grower here is taking a big risk. 19 And -- and if you ask them, they'll tell 20 you. 21 Communication. I had a grower 22 tell me two weeks ago he was talking to the 23 service person that -- and he was 85 1 questioning involved the chicks that that 2 he had just got. And the service person, 3 the answer he got was, "You know, you 4 should just be glad you've got a job". 5 Well, the grower got the message 6 real quick because in North Carolina, right 7 there in his neighborhood, there are a 8 hundred and sixty poultry houses sitting 9 empty and growers have no way to pay those 10 payments. 11 MR. ALEXANDER: I've got some 12 prepared comments, but I think you can -- 13 SECRETARY VILSACK: We can't hear 14 you. Do you want to speak into the 15 microphone. 16 MR. ALEXANDER: I've got a 17 prepared comment. But I think you can 18 reflect upon the communication, as the 19 earlier gentleman stated, that this is a 20 partnership. And it's a partnership 21 between, oftentimes an individual and a 22 corporation, but the thing that drives it 23 is the communication. 86 1 And from my prepared comments I 2 think it will address my feelings. 3 Integrators provided a minimum 4 risk and total market dynamic protection 5 for many individuals engaging in poultry 6 production. 7 Nowhere can anyone go into 8 business totally insulated from market risk 9 and consumer preference changes. Without 10 integrators growers could -- could not 11 afford to be in the chicken business 12 because of the cash flow demands and market 13 swings at there on farm level. 14 Growers realize that the 15 integrators have a lot of risk, capital, 16 fixed assets, operational cash and et 17 cetera, but the real success of an 18 integrator depends upon their ability to 19 get growers to participate with them to 20 achieve a common goal. 21 In most cases a vertically 22 integrated operation has total assets at 23 risk, much less than the collective dollars 87 1 at risk by all growers as a single group. 2 Poultry grow-out is a great 3 opportunity for young and beginning farmers 4 through USDA with several levels of 5 guarantees, low equity levels, integrator 6 assisted cash flow, opportunities that 7 normal businesses do not have access to. 8 The young farmer with access to 9 land can complete a poultry house, and be 10 in a positive cash flow position in as 11 little as 16 weeks. 12 A poultry house well maintained 13 has a life of over 30 years. Most 14 contracts will pay the grower for his time, 15 provide manure sales, pay off debt in a 12 16 to 15 years. If a grower has all farm 17 income, there's great tax benefits 18 available during this amortization period. 19 A well-managed poultry operation can be a 20 cash cow for 20 years. 21 Oftentimes upgrades are 22 necessary. This allows the grower to make 23 a minimum, additional investment, again, to 88 1 enjoy a favorable tax benefit, the tax 2 consideration and complete utilization of 3 depreciation. Current grow out contracts 4 in our area with the integrators who serve 5 us provide about a 20% return on 6 investment. 7 Historically, prior to the latest 8 economic challenge in poultry production, 9 as a percentage of assets held by a bank, 10 only 2% of the poultry loans have wound up 11 in non-accrual. 12 Chicken houses come with a lot of 13 USDA assistance. You hear a lot about row 14 crop disaster, but we have disaster 15 programs in chicken houses. We have energy 16 upgrade grants. We have grants for manure 17 holding facilities and dead bird 18 composters. Poultry growers make a 19 commitment to treat the chicken house like 20 a small manufacturing facility are 21 successful, not like something that can be 22 done at the end of the day. 23 The grower must understand the 89 1 grow out rules, lighting programs, feed 2 schedules are a result of large volumes of 3 data being analyzed to best fit the grow 4 out cycle. Each grower is to provide daily 5 the very best grow out conditions for a 6 particular breed to perform. 7 The quality of a grower, in most 8 cases, is reflected by his performance, but 9 every grower is subject to get weak birds 10 or just a bad performance over a given 11 period of time. 12 The competitive contract formula 13 is the hard -- is the best way to reward 14 the hardest workers with the greatest 15 amount of return. These contracts selling 16 like birds, with like diets, with like 17 weather conditions for a fixed period are 18 very equitable. 19 Fixed contracts with an off farm 20 owner would not be healthy, nor contribute 21 to the ultimate product competitiveness in 22 the marketplace. Growers must be held 23 accountable for performance through 90 1 competition. 2 Integrator requirements for 3 upgrades of current housing standards is 4 sometimes, not always has to be. A house 5 built in a current cycle has a state of art 6 equipment and facilities. These new 7 facilities will out perform the technology 8 and equipment of aging facilities. 9 In our area growers are often 10 allowed to upgrade to stay at the current 11 pay level or they're offered a contract at 12 a lesser level continuing to do business as 13 usual. Again, another example of risk 14 equals rewards. 15 Historically the -- sometimes 16 what we see in our areas is that the 17 terminated growers refuses to see that he 18 needs to be more efficient. And that 19 reflects in the communication we were 20 talking about. Reward is a function of 21 risk and effort. 22 When you look at a big picture 23 the grower starts out with the few less 91 1 birds or extended out times is a small 2 price to pay for the total success of the 3 long-term operation. 4 I appreciate the fact that I've 5 never had to write a check to make an 6 integrator whole base upon market 7 conditions. The current oversight provided 8 by GIPSA serves the industry well. There's 9 no need for more government intervention in 10 the poultry industry. A brief look at the 11 packers and stockers complaints show a 12 minimum amount of intervention necessary to 13 maintain fair and equitable standards. 14 If you look at GIPSA's website -- 15 SECRETARY VILSACK: Folks, let's 16 -- let's -- let's make sure that everyone 17 gets a chance to have their say in a 18 respectful way. So, continue. 19 MR. ALEXANDER: The limited 20 antitrust immunity provided by 21 Capper-Volstead and other favorable 22 statutes enable growers and integrators to 23 join together collectively in the process 92 1 to market their products because the buyer 2 power in the agricultural marketplace is 3 strong -- or stronger than it was in 1922 4 when Capper Volsted was enacted. The Act's 5 protection continues to be critically 6 important to today's environment. 7 I strongly believe any action to 8 eliminate or dilute the Capper-Volsted or 9 similar federal statutes would harm the 10 success and efficiencies of our rural 11 communities. 12 MS. MORISON: Would you like for 13 me just to answer your question or -- 14 SECRETARY VILSACK: Yes. 15 MS. MORISON: Can you repeat the 16 question? 17 SECRETARY VILSACK: Sure. It has 18 to do with communication and whether or not 19 -- the Commissioner suggested that there -- 20 there was a need for better communication. 21 And if you want to incorporate 22 whatever statement you'd like, feel free to 23 do that. I'm going to give you an 93 1 opportunity to have that. 2 MS. MORISON: I think that -- I 3 think first off the communication idea, 4 there probably is a great lack of 5 communication. I'd say it's a one-sided 6 communication. The grower listens and the 7 company tells you what to do. That's been 8 my experience. 9 And, you know, it's -- for -- for 10 instance, you know, we've had mention of 11 demanded upgrades to poultry houses, you 12 know. The company will come out say, "You 13 have to do this, this and this or you get 14 no more chickens in whatever contract 15 you're in". That's no way to communicate 16 with anybody, number one. It's going to 17 make the person mad. 18 Secondly, specifically, after 23 19 years of raising chickens, our contract was 20 terminated because we refused to do 21 demanded upgrades. 22 And, you know, a few weeks before 23 -- prior to receiving the termination 94 1 letter for our contract, we were given an 2 outstanding producer award by the very 3 company that was terminating our contract. 4 So I don't think that communication works. 5 I mean, there was no communication there. 6 We were putting out a good product. It was 7 just said, "You do it or get no chickens". 8 I -- I really think 9 communications have been tried and have 10 failed. I've been at this for a while. 11 I've seen a lot of efforts to make 12 communications work. And I can honestly 13 say I have not seen anything change since 14 the earlier 1990 within the industry trying 15 to use communications between growers and 16 poultry companies. 17 Secondly, I'd -- I'd -- I'd like 18 to add in, you know, the ranking system, 19 which should be maybe a form of 20 communication, but, you know, the ranking 21 system is -- is how growers are paid. 22 And the inputs to the farm versus 23 the output of pounds of meat moved off the 95 1 farm kind of sums up really easily to 2 explain how this ranking system works; 3 however, all of the inputs are direct 4 poultry company product that are placed on 5 the grower's farm on a good faith basis. 6 The grower must trust a company 7 to deliver them quality inputs for their 8 farm to be competitive, to raise a 9 marketable product, and for them to have 10 the best potential of farm income. 11 The ranking system in no way 12 reflects a grower's performance. It's a 13 reflection of the quality of company inputs 14 in producing the output of pounds of meat. 15 Company control over the inputs besides 16 flock performance and farm income. This 17 control can lead to hampering or enhancing 18 the farm's access to fair and free trade. 19 Someone earlier, you know, 20 mentioned about company employees having 21 poultry farms, you know. 22 It's been said many, many times 23 by growers that, you know, the company 96 1 employees who are running poultry farms get 2 the best inputs put on their farm. Since 3 they're the ones that are influencing and 4 controlling where these inputs go, they 5 decide who gets what. 6 So, you know, some companies have 7 banned employees from having contracts on 8 their farms. Other companies have it. 9 Obviously, if some companies have banned 10 this practice, then there must be some good 11 reason for it. 12 I think the bottom line is that, 13 you know, unless every farm placed in a 14 week's ranking receives the exact same and 15 identical inputs, the ranking system is 16 unfair. We can go all the way back to 17 chick quality that's delivered to farms, 18 breeds that perform differently. 19 Growers aren't consulted on, you 20 know, the breeds or genetics or, you know, 21 which one performs better. And, well, now, 22 I don't want them, I'd rather have this 23 batch over here, we have to take what the 97 1 company brings us. And then we're suppose 2 to, you know, perform our contractual duty 3 of raising the best flock possible. 4 There's a lot of deciding factors 5 before the chicks are ever delivered to the 6 farm, you know, the genetics, the health, 7 the age and care of the breeder flock. 8 That decides how well the chicks perform. 9 It has nothing do with the grower, it's a 10 company input. They're the ones that 11 control this. 12 Transportation of eggs, you know, 13 from breeder farms to company hatcheries 14 varies, as well as the operations at the 15 company owned hatcheries before they're -- 16 you know, the chicks are hatched out to 17 come to the farm. 18 Feed is another issue. It's the 19 most costly input for raising a flock of 20 chickens. And is the foremost influence on 21 a grower's ranking. 22 Feed is formulated, mixed, loaded 23 and weighed by the company and then 98 1 delivered to the farm. Feed must be 2 accepted by the grower on the company's say 3 so. And there's no guarantee that the feed 4 is of the highest quality or quantity. 5 Personally, you know, we've had several 6 issues of -- of feed quality and quantity 7 coming to the farm. 8 Number one, feed quality, I mean 9 we've had feed so bad delivered to the farm 10 that it actually froze in the feed bin. We 11 had to have someone come in and take the 12 feed bin apart, chop the frozen feed out, 13 repair the equipment, put new feed back in. 14 And that had nothing to do with our -- our 15 performance, that was determined by the 16 company. So, again, there was no 17 communication there. "Well, you know, what 18 we really delivered you some really bad 19 feed. So let's see if we can't fix this 20 and work it out". And, you know, really, 21 you shouldn't be penalized for something 22 that was our mistake. Instead the 23 communication that comes across is, "We 99 1 didn't do anything wrong, it's on you, and 2 that's the way it goes". 3 You know, quantities of feed 4 being delivered to the farm. There's no 5 way to verify how much feed actually comes. 6 It's -- again, as I said, weighed on 7 company scales. We get a -- a weight 8 ticket and we have to accept it because the 9 company says so. Personally, we were going 10 to put scales on our farm to verify weights 11 of feed that were being delivered by the 12 company. 13 First we were informed by the 14 company that if we were to put scales on 15 the farm that there was no law that said 16 they had to go across their scales because 17 they owned the check-ins. Then we were 18 told point blank, "Well, if you do it we're 19 going to terminate your contract". 20 Now, I see nothing wrong with a 21 grower wanting to put a set of scales on 22 their farm. It helps them be a better 23 manager to control what is coming on to the 100 1 farm and what is going off of the farm, you 2 know. Why would a company have a problem 3 with you putting scales on the farm. 4 Again, this was -- you know, 5 there was no communication about this, 6 there was no discussion. "It's if you do, 7 your contract is terminated". 8 Personally, I -- I can't count 9 the many, many times that I have heard in 10 one shape or form of another that our 11 contract was going to be terminated if we 12 did such and such. That's no way to 13 communicate with people who are your 14 business partner. 15 And I think probably the last, 16 you know, thing that -- that I'd like to 17 address here is -- is the confusions and 18 the frustrations, you know, of how a grower 19 can find help under the Packers and 20 Stockyards Act; and I know it doesn't -- 21 maybe it does have to do with 22 communication, but just in a different form 23 between growers and government agencies. 101 1 And, you know, it's -- it's 2 common knowledge that, you know, GIPSA only 3 has certain authorities. They can only 4 investigate complaints. If there's any 5 violations found, you know, it has to be 6 referred to the Department of Justice. 7 And, you know, it's 8 understandable to me, although frustrating, 9 that the Department of Justice has, you 10 know, a lot more important issues to 11 address than the issues of one contract 12 poultry farmer. I mean, you know, we do 13 have bad guys out there in the country and 14 around the world. 15 So, you know, that right there 16 that is understood, but then it needs to be 17 understood, too, that once a grower does 18 file a complaint with GIPSA, they're left 19 wide open for retaliation by the company 20 they contract with. And it's the single 21 most important fact that keeps growers from 22 filing complaints. 23 Companies are also aware of the 102 1 inability of enforcement of the Act. And 2 GIPSA investigations, I mean, I've -- I've 3 heard comments from company personnel that 4 it's nothing more than a hassle in their 5 daily operations because they know that 6 there will be no enforcement of the Act 7 because GIPSA does not have that authority. 8 So, I think, probably, what needs 9 to be done there, either USDA needs to have 10 the same authority and powers over poultry 11 as they do over other livestock, or a clear 12 and concise method needs to be developed in 13 which communications are opened and which 14 easily flow between USDA, GIPSA and the 15 Department of Justice in order that growers 16 do have an open avenue for making 17 complaints. And, you know, for knowing 18 that this information went to all the 19 proper places it should have gone and help 20 can be given. Thank you. 21 SECRETARY VILSACK: Garry. 22 MR. STAPLES: Secretary Vilsack, 23 I'd like to comment on the communication 103 1 thing, first, and then read a statement -- 2 regardless of what some of the press 3 releases say was prepared by me and not by 4 somebody else. It may not be as good as it 5 could have been by somebody else. 6 But as far as the 7 communication-wise, when I first started we 8 had a yearly meeting with my integrator. 9 Went on for about two years. But since 10 that time I've -- even with that integrator 11 and a new one, the only communication I 12 have is with my service tech, unless I ask 13 to speak to someone. And if I get the 14 opportunity to do that, it's one-on-one, me 15 and whoever I ask and my service tech. So 16 the communication problem is a problem, I 17 really feel it is. 18 What y'all can do for us, I don't 19 really -- I don't really know, but it is a 20 problem. 21 And if you don't mind, I'll -- 22 I'll read my statement. 23 I'm here today to speak to you 104 1 about my experiences as a poultry grower as 2 well as those of other poultry growers. 3 I'm not here just for myself. 4 I've been in the business for 5 nine years. At that time I had a 7-year 6 contract. Four years ago I changed 7 integrators and I was given a 3-year 8 contract. Last year I signed a new 9 contract, flock-to-flock. What that means 10 is every 60 days that's the only time I'm 11 actually under contract to grow chickens. 12 At the end of that 60 days, I can be 13 terminated. 14 I've personally borrowed a 15 million and a half dollars. And everything 16 I've got is mortgaged so I can be a poultry 17 grower. I've got eight poultry houses, two 18 dwelling houses, a hundred and eighty acres 19 of land and all the life insurance policies 20 I've got. 21 As a poultry grower with 22 everything I've been mortgaged, I had no 23 choice but to sign that flock-to-flock 105 1 contract. Like many of them of said, 2 either I sign it or I ain't got no 3 chickens. 4 Without any chickens, I can't pay 5 any bills. I can't pay my mortgage because 6 chicken houses are designed for one thing, 7 grow chickens. 8 I personally feel like I have a 9 good relationship with my integrator. I 10 work for hard them to raise a good, quality 11 chicken, but I wonder how I can feel really 12 secure knowing that every eight to nine 13 weeks I may not have a relationship at all 14 with them. 15 Poultry -- poultry's been has 16 grown under the contracts for over 50 17 years. The company owns the chickens. 18 They control the quality of the chickens. 19 They control the feed and they control the 20 feed weighing system. They control the pay 21 system. And they -- and they can cancel my 22 contract at any time. 23 They also can require expensive 106 1 upgrades. These upgrades usually cost a 2 substantial amount of money, which means 3 I've got to take out another loan. And 4 when I do that I'm not necessarily 5 reimbursed for it by the company in any 6 way. 7 There's three growers in my 8 county that were given a letter -- a letter 9 on a Thursday that told them they had to 10 make upgrades. The following Monday they 11 got another letter. It said, "You're no 12 longer an employee", or "you're no longer a 13 grower with this company". 14 When this could not be done, the 15 company terminated contracts. And since 16 there's not another company in our area at 17 that time, they were left without chickens 18 and a mortgage that they could not pay. 19 New houses built in our area of 20 Alabama are given -- at this time some of 21 the areas given near 10-year contracts with 22 a pay system that, according to the 23 contract, will not let make less than zero 107 1 six point zero six cents per pound 2 regardless of their performance. 3 My newest two houses are two year 4 old and equipped the same as these new 5 houses. My contract is flock-to-flock, not 6 ten years. My bottom pay is point zero 7 four three oh. I've also known growers in 8 our county that their bottom pay is a point 9 zero three two five. 10 With a flock -- flock-to-flock 11 contract the contract can be changed at any 12 time. With the cost of power, water and 13 gas going higher every year you would think 14 the company would help compensate for more 15 energy costs. My gas alone has gone from 16 70 cents to a dollar and twenty-eight in 17 the past six years, just the gas. Last 18 year I signed a new contract. And instead 19 of helping with my energy allowance, they 20 took away point zero zero three oh cents 21 per pound over a year's grow out. On my 22 farm alone, just my farm, that's a $4500 23 savings to the company and a loss to my 108 1 farm. 2 And although I came here on my 3 own today, it's not without a lot of worry 4 when I leave that I'll have some 5 retaliation. I spent 20 years in the 6 military. And I feel strong about the 7 United States that we should be able to. I 8 appreciate y'all -- y'all for coming and I 9 hope y'all will help us. 10 Thank you. 11 SECRETARY VILSACK: I'm curious 12 to -- to talk to several of you in terms of 13 your experience with the ranking system, 14 which Carole mentioned. 15 And let me start with you, Gary 16 Alexander. Are you operating under the 17 same system and -- 18 MR. ALEXANDER: We operate under 19 the same system. We're fortunate enough 20 our integrator separates and breeds of 21 birds, and separates the time of grow out. 22 And these breed of birds comes with a 23 different diet and we settle like kind to 109 1 like kind each week. 2 SECRETARY VILSACK: So you're not 3 experiencing what Sandra was talking about? 4 MR. ALEXANDER: It results in a 5 ranking system, but that ranking is based 6 upon your performance with a given set of 7 conditions. And everybody you're ranked 8 with has equal conditions. 9 SECRETARY VILSACK: Is that the 10 experience that -- 11 UNIDENTIFIED SPEAKER: Who do you 12 grow for? 13 MR. ALEXANDER: I -- I grow 14 Fieldale Farms. It's a small family 15 operation in Northeast Georgia. 16 UNIDENTIFIED SPEAKER: There's 17 the difference, there's the difference. 18 SECRETARY VILSACK: Garry. 19 MR. STAPLES: In my instance, I 20 grow what we call or what the industry 21 calls a big bird. And I may be a little 22 bit different from some of the other 23 growers up here. I know they -- most of 110 1 them in my county grow for another company 2 and they settle with 15 to 20 to sometimes 3 30 growers. 4 In my instance, I settle with -- 5 I think the most I've ever settled with is 6 five. So this ranking system doesn't hurt 7 me as bad. And there, again, I'm here to 8 work for all growers, not just myself. 9 I still stand to lose money under 10 the ranking system. The ranking system has 11 good points, but it has a lot more bad 12 points than it does good points. 13 SECRETARY VILSACK: The folks on 14 this side. Experience with the ranking 15 system? 16 MR. WOOTEN: I think the -- my 17 experience with the ranking system has not 18 been as nearly as good as some of them and 19 not nearly as bad as others I think. 20 The ranking is -- I think was put 21 into place to push performance. And if you 22 -- the way it was designed, if you were -- 23 if you'd done a good job; then you would 111 1 get rewarded. If you'd done a better job, 2 if you put more effort into your grow out; 3 then you would get rewarded for that. Of 4 course it's got it's good and bad aspects. 5 But, overall, I really don't know how the 6 proper way to fix that would be besides 7 maybe making sure all of the playing field 8 is level like the -- Garry, I believe it 9 was, mentioned. 10 MS. PRIDGEN: I don't have a 11 comment. 12 MS. DOBY: Well, one thing about 13 the ranking system, there's no transparency 14 with a checks and balances to prevent this 15 ranking system from being used to target or 16 to retaliate against the growers. 17 And one of the things about this 18 ranking system that when it comes into -- 19 one of the things that come into play is 20 the company says that some of the growers, 21 when they're cut off, they're bad growers. 22 Well, this ranking system, you're not 23 started out equal. And the system is 112 1 controlled by the company. 2 I think it's unfair because of 3 the lack of transparency gives the company 4 the ability to terminate or penalize 5 growers based on false claims of poor 6 performance that, in fact, is out of the 7 grower's control. 8 I understand why the company 9 finds this system attractive, but there's 10 one thing that I don't understand is why 11 our federal government allows this to 12 continue. And I really believe that it's 13 an unfair system. 14 SECRETARY VILSACK: Another 15 comment that's been in a couple of 16 presentations has to do with the issue of 17 debt and the leverage that debt either does 18 or doesn't provide in a relationship. 19 And I'd be curious to -- to have 20 the panel's views on whether or not the 21 issue of debt creates an impetus to -- to 22 accept things that you would otherwise not 23 be willing to accept but for the fact that 113 1 you're concerned about having continued 2 business and a debt and the ability to 3 repay the debt. 4 Is that a serious issue for 5 growers? 6 MR. WOOTEN: I think definitely 7 -- definitely that is an issue because of 8 the extreme debt load -- you know, any -- 9 anybody under that kind of a debt and 10 realizing that there's no other way besides 11 poultry -- being in the poultry industry 12 that you could actually pay off that debt. 13 It does definitely put a strain on -- on 14 any -- to accept conditions given by 15 integrators. 16 I've been very fortunate that my 17 integrator in our area and all the 18 employees in our complex -- I grow for 19 Tyson Foods out -- out of the Snead area. 20 And all the employees have been very easy 21 to work with, but -- and done a good job. 22 But they do not understand the pressures 23 put on us as a lot of them do not 114 1 understand the pressures put on us. 2 MS. PRIDGEN: I would have to say 3 that it puts you in a position to where you 4 don't see another way out of it. I mean, 5 in our case the farm has been in our 6 family, you know, for over 250 years and 7 what are you going to do, you're going to 8 -- you're going to do what they tell you to 9 do because you can't afford -- you've got 10 the farm put up, you've got the 11 grandparents home place, everything put up, 12 you can't afford to risk all of that. 13 MR. LUMZY: I agree 100% with 14 what was just said. In fact, when I 15 received my contract, in order for me to 16 receive my first birds, I had to first 17 invest over $10,000 in upgrades before they 18 would even bring me chickens. 19 MS. DOBY: Yes. I'd like to read 20 and comment about something that I already 21 had in my statement. 22 When I retired from teaching in 23 1993 was considering building two 500 foot 115 1 chicken houses. I was promised this 2 long-term relationship as long as I raised 3 a good bird, followed the company's 4 instructions. 5 And, initially, I was provided 6 with a contract for that 10-year length of 7 the loan; however, a few years later the 8 company brought out another version of this 9 contract. Said I needed to sign it to 10 continue to get chickens. 11 Before the end of the initial 12 10-year term the company again changed that 13 contract to a 1-year term. I realized that 14 the company could change contracts easily 15 by threatening to stop placing birds if I 16 refused to sign. 17 Well, it's typical for growers to 18 be asked to do expensive upgrades on their 19 poultry houses before this first loan and 20 the building has been paid off. I know 21 because I was one of those growers. 22 The threats put before you, the 23 communication, the threat is put before 116 1 you, if you do not do this, they're not 2 going to bring you any more chickens to 3 grow out. This is extortion, plain and 4 simple. 5 So the growers grow out -- go out 6 to their lenders and they tell them, "Okay, 7 the company wants me to put in new 8 equipment". The lender says, "Sure. How 9 much you need, we'll fix you right up". 10 The grower is now in deeper debt and has to 11 put up more collateral, most of the time 12 his own personal home. 13 The company tells the grower if 14 they make these upgrades that they're -- 15 they're going to get paid more under this 16 ranking system. 17 I asked the company managers, I 18 went to them, I said, "You want me to do 19 this. Show me on paper where I'm going to 20 make this money back to justify borrowing 21 more money when I still owe money on these 22 houses"? 23 They couldn't do it. 117 1 Growers that have made these 2 mandatory upgrades are now finding 3 themselves in financial trouble. Some of 4 them have gotten off farms jobs. Some are 5 refinancing these loans in order to make 6 the payments. 10, 15-year poultry loans 7 are turning into 30-year loans with no more 8 than a flock-to-flock guarantee. 9 When companies get into trouble 10 financially they need to cut production and 11 the growers suffer. In North Carolina 12 there are growers that have borrowed a lot 13 of money to make upgrades demanded by the 14 company. And then the company, because of 15 bad financial decisions, terminated their 16 contract. Depending on how many houses the 17 grower had the debt can be thousands or 18 even millions of dollars. 19 Precious farm land and homes were 20 put up to do what the company demanded. 21 This is where this unfair ranking system 22 comes into play again. The company said 23 that these -- some of these growers were 118 1 cut off because they were bad growers. How 2 did they get labeled a bad grower? They 3 got labeled a bad grower by the ranking 4 system. They had no control over the 5 inputs, but then they were labeled by this. 6 This past Monday morning in North 7 Carolina, one of these bad growers went 8 out, drove down a country road. He was 9 terminated from his contract, about to lose 10 his home. Took a gun and ended his life. 11 That's what we're talking about 12 here today. This is personal. It gets 13 real poultry growers. 14 And what we're asking today is 15 the USDA and the Department of Justice to 16 help these contract poultry growers. 17 SECRETARY VILSACK: Carole, what 18 about debt and the leverage that it covers? 19 MR. ALEXANDER: In my -- 20 SECRETARY VILSACK: No -- 21 MR. ALEXANDER: -- in our 22 particular area we're very fortunate 23 because of the relationship between USDA 119 1 and the banks. 80% of the loans in -- in 2 the counties that I'm in and the counties 3 that surround me are guaranteed by USDA 4 funds. 5 Throughout that guarantee process 6 USDA has reviewed that poultry contract and 7 has reviewed the terms of the of the loan 8 and said, "Yes, these two are equal. 9 There's enough cash low to make the 10 payment". 11 You know, I don't know that much 12 about the USDA rules, but it looks like 13 what would be in one place for one state 14 would be for all. 15 But the USDA looks over these 16 contracts and helps balance the grower's 17 cash flow or has impact upon the grower's 18 cash flow from the very beginning that 19 makes the amortization of these loans fit 20 the terms of the contract. 21 SECRETARY VILSACK: So in your 22 area it's reliance on the guarantees that 23 the USDA provides? 120 1 MR. ALEXANDER: It is. And it's 2 faith that you can put in the fact that 3 obviously USDA knows more about it than you 4 do. So you have a feeling going forward 5 that it will work. 6 SECRETARY VILSACK: So if 7 understand your comment correctly, you're 8 suggesting that there's not as much 9 leverage as some of these other folks have 10 experienced because of that? 11 MR. ALEXANDER: That's exactly 12 right. 13 SECRETARY VILSACK: Carole, how 14 about your experience? 15 MS. MORISON: I -- I think that 16 debt has a major influence over what a 17 grower does, what a grower doesn't do, what 18 they say, what they don't say, what's 19 popular and what's not popular. 20 I don't know about the USDA 21 loans. I don't know. I'm just wondering 22 if we all should be after you-all for 23 giving us bad advice. 121 1 MR. STAPLES: Along those same 2 lines. If it's such a good contract, why 3 does it have to be guaranteed? 4 If -- you know, I -- I got my 5 mine and it's not guaranteed, and I put 6 some money in it. But my bank done mine 7 because of my personal wealth or my equity 8 that I'm putting in there. So what I'm 9 saying is, if these contracts are as good 10 as these people say they are, why do they 11 have to be guaranteed? 12 SECRETARY VILSACK: Since we're 13 kind of piling on USDA here -- 14 ASSISTANT ATTORNEY GENERAL 15 VARNEY: Want to turn to DOJ for a minute? 16 SECRETARY VILSACK: Well, let me 17 just ask this one question and then I will 18 turn to you. Christine, I'm sorry, I'm 19 probably monopolizing this. 20 But I am obviously interested in 21 the -- in the discussion that was started 22 between GIPSA and DOJ when -- when there 23 are problems and folks feel the necessity 122 1 of going to the next step of filing a 2 complaint. 3 And I'm interested in -- in the 4 reaction of everyone -- and, Carole, you 5 brought this up, and everyone else's 6 reaction about, what would be -- how do you 7 solve that problem? Do you perceive it as 8 a problem? And if so, how do you solve it? 9 Do you give -- would you be interested in 10 GIPSA having more enforcement authority as 11 -- as was possibly suggested, or do you 12 think that there is a process of improving 13 the current system so it works better? 14 Garry? 15 MR. STAPLES: I personally -- I 16 personally think that GIPSA needs a little 17 more authority. I don't want to take 18 anything away from DOJ because I'm pretty 19 sure they've got their plate pretty full. 20 As I understand it right now, or 21 the people I know in GIPSA, especially the 22 one you introduced and put him on the spot, 23 he's a pretty a good man, I think, Mr. 123 1 Butler. I think there's been a tremendous 2 turnaround since he's been there as far as 3 somebody wanting to help us in the poultry 4 industry. 5 In past from, what I knew of 6 GIPSA, poultry was about as low down on the 7 list as you could get. 8 I think you're going in the right 9 direction with having full enforcement from 10 GIPSA for poultry, beef, you know, the 11 whole -- the whole meat industry. 12 SECRETARY VILSACK: Gary, your 13 thoughts on that. 14 Do you have anything? 15 MR. ALEXANDER: I'm not very 16 familiar with the enforcement authority of 17 GIPSA. But I had always -- always looked 18 at GIPSA as being, for a lack of better 19 terms, the DOT of the poultry industry. 20 I felt like the integrators had a 21 tremendous amount of respect for when -- 22 when GIPSA was brought up. And -- and how 23 it functions today, and the fact that we've 124 1 got more credible people in GIPSA looking 2 at the rules, I think it's a positive 3 thing, but I'm not familiar with the 4 enforcement branch. 5 SECRETARY VILSACK: Thoughts on 6 this subject on this side. Kay. I'm 7 sorry. 8 MS. DOBY: When I was thinking 9 about this I had came up with three 10 suggestions. 11 And, one, would be to prohibit 12 that use of that unfair ranking system. 13 There are other ways that companies could 14 pay growers that create incentives for 15 growers to do a good job without unfairness 16 of that ranking system. 17 Another one would be make it 18 unlawful for companies to force these 19 growers these expensive upgrades in their 20 poultry houses at their own expenses. 21 Upkeep is one thing, but if the 22 companies are convinced that these 23 expensive upgrades will improve their 125 1 bottom line, then maybe that's something 2 they should be paying for. They might be a 3 little bit more cautious about what they 4 are requiring. 5 And then the third thing was to 6 work together to enforce the Packers and 7 Stockyards Act. And to investigate why the 8 poultry market is so broken that growers 9 pay -- like Shane said, had -- you know, he 10 lost money last year, but it's been 11 basically flat for the past 15 years. 12 SECRETARY VILSACK: So do you 13 thing that -- that GIPSA should have more 14 enforcement authority, or do you think 15 there should be some kind of improvement to 16 the current system so the Department of 17 Justice could act? 18 MS. DOBY: Well, I think there's 19 some rules there that have not, you know, 20 been enforced. But, yeah, I think GISPA 21 needs more enforcement authority. 22 MS. PRIDGEN: I think they need 23 more authority. My biggest concern is that 126 1 there's really no open market for poultry 2 except in my situation, which I'd like to 3 read my prepared statement in a few minutes 4 about, you know, what we're doing and where 5 we're direct marketing. 6 But, you know, you can still go 7 to the stockyards and you can still sell 8 cattle and you can still sell -- you know, 9 it might not be much of a market, but you 10 can sell a little bit of pigs, but there's 11 no -- there's no open market at all for 12 poultry. 13 There's no options for those 14 growers who have those houses who choose to 15 go grow out from under contract except to 16 grown on -- on a -- on a small scale and 17 start working, building their own 18 entrepreneurial business and doing direct 19 marketing. 20 And then you get hit with, what 21 I'd like to talk about, which is the lack 22 of opportunities as far as slaughtering. 23 SECRETARY VILSACK: Well, why 127 1 don't you just briefly touch on that. 2 MS. PRIDGEN: As you-all know we 3 had 16 years that we raised under contract, 4 my family did. And at the end of that time 5 my dad was left with $80,000 debt that had 6 to be paid off. So there we were with the 7 farm. Well, we didn't want to lose farm. 8 So we had to start treading water. 9 Well, I -- we were raising lamb. 10 And I had been selling the meat at the 11 local farmer's market and I had developed a 12 core group of customers. I encouraged dad 13 to start chicken and sell them at the 14 farmer's market. This couldn't pay off the 15 huge debt that he had incurred, but it was 16 better than nothing. 17 Soon we were getting requests 18 from restaurants, fine clubs and several 19 small co-op grocery stores. Demand was 20 growing, but the new problem was the lack 21 of slaughter infrastructure. The nearest 22 independent slaughter house was a hundred 23 and thirty-five miles away. We would have 128 1 to drive 270 -- 270 miles round trip twice 2 a week to process and pick up our birds. 3 And then the owner decided to sell his 4 property to a developer. 5 So now we would have to take our 6 birds to either Kings, South Carolina, we 7 -- I live in North Carolina. So we'd 8 either have to take them to either Kings, 9 South Carolina or Manita, Virginia, an 10 average of 426 miles round trip twice a 11 week to be processed. 12 It is worthwhile to note that all 13 the while there were three chicken 14 slaughter plants and two turkey slaughter 15 plants within one hour of my farm all owned 16 by poultry corporations. 17 With diesel fuel at over $4 a 18 gallon we were losing money and couldn't 19 continue to drive that distance. 20 Processing birds on farm under 21 USDA exemption was not a viable option as 22 USDA has a 20,000 bird exemption under 23 PO90-492, but the North Carolina Department 129 1 of Agriculture only allows a thousand birds 2 -- chickens to be slaughtered out from 3 under inspection. 4 It was apparent that we were 5 going to have to stop raising chickens even 6 though there was a growing weekly demand. 7 By then we were marketing about a thousand 8 birds per week. 9 In late 2007 Chaudhry Halal Meats 10 in Siler City, North Carolina opened a 11 poultry processing plant. Even though this 12 plant is a hundred and fifty miles from our 13 farms, it afforded us the opportunity to 14 continue raising chickens and meet the 15 growing demand. 16 The biggest issue for independent 17 poultry producers is the lack of local 18 slaughter infrastructure. Vertical 19 integration in the poultry industry over 20 the last 50 to 60 years has decimated the 21 processing infrastructure. 22 North Carolina is seeing 23 phenomenal growth in the local food 130 1 movement. Consumers are taking the USDA's 2 Know Your Farmer, Know Your Food Campaign 3 to heart, but a lack of local of slaughter 4 infrastructure and thus lack of ability -- 5 availability of product will hamper the 6 access of that and the success of that 7 program. 8 This intense vertical integration 9 has made it very difficult for any 10 independent farmer or cooperative group to 11 compete financially. Because of processor 12 ownership throughout the entire chain of 13 production these companies can sell poultry 14 products for a lot less than I can. One 15 chick will cost them about 15 cents to 16 produce. I will have to pay a dollar for 17 that chick. Feed costs will be two to 18 three times theirs and processing five 19 times their cost. 20 The increasing cost of production 21 means that I cannot be competitive in price 22 with these large companies and, thus, I 23 must depend on the purchases of customers 131 1 with more disposal income. 2 I recognize that this is part -- 3 that part of this is an issue of less 4 volume, but demand for what we are 5 producing is growing, however, a lack of 6 local slaughter infrastructure is the 7 greatest barrier that we face and one that 8 will severely inhibit opportunities for 9 small and midsize poultry producers in the 10 future. 11 And I do have some 12 recommendations if that would be okay. 13 SECRETARY VILSACK: If you could 14 just summarize them just because we're 15 running out of time. I need to give 16 Christine five or ten minutes. 17 MS. PRIDGEN: I think that USDA 18 needs to finalize some mobile meat 19 processing unit regulations so that we can 20 get back up and going to help get local 21 poultry slaughter infrastructure within 22 communities to help rebuild this local food 23 system. 132 1 And what's desperately needed is 2 we need a requirement to allow states to -- 3 to allow all states to allow 20,000 bird 4 slaughter out from under USDA -- under this 5 USDA exemption until this poultry -- the 6 USDA poultry slaughter infrastructure is 7 rebuilt. So we need that as an interim 8 situation. 9 USDA grants and loans need to be 10 clearly targeted to facilities for small 11 and midsized independent producers or 12 either producers form in cooperatives. 13 The other things we really need 14 for USDA to -- to -- USDA's Rural 15 Development funding for business and 16 industry loans in order to guarantee these 17 loans for the bricks and mortar 18 construction on small and mid scale 19 slaughter facilities. 20 I would like to ask for more 21 coordination across the Rural Development 22 Programs. For example, the USDA value 23 added grant provides for feasibility 133 1 studies. This funding would -- could be 2 used by a group of poultry farmers to work 3 with economic development entities to see 4 how many chickens would need to be grown in 5 order to build a processing facility. 6 Also, I'd like to see USDA FSIS 7 to work with owners of small, independent 8 red meat slaughter houses to add a poultry 9 slaughter line and to help them with 10 facility design so that they could meet the 11 regulations. 12 The last thing I would like to 13 say is I would like for you to consider how 14 best to implement these recommendations. 15 And what I want you to think 16 about is if the next generation finds that 17 the only pathway into poultry farming is to 18 incur huge amounts of debt with no 19 assurance of being able to pay it back, 20 they may wisely decide not to farm. 21 SECRETARY VILSACK: We just had 22 an interesting briefing yesterday with the 23 national press and some of the press in 134 1 Washington, D. C. about Know Your Farmer 2 Know Your Food. 3 We just completed an inventory, a 4 mapping inventory of all the processing 5 facilities in the country both in terms of 6 cows, in terms of pork and in terms of 7 poultry, and also the rendering facilities. 8 And tried to match it up with where the 9 smaller producers are so that we could 10 determine where the gaps are. 11 Our Rural Development folks were 12 in the room, they are a part of Know Your 13 Food, and they are interested in using the 14 BI program -- this industry loan program to 15 try to make loans available to those who 16 want to get into that business. And, as 17 you know and as you noted, we were are 18 working on regulations relative to these 19 small mobile units. And we have already 20 begun to fund a number of them and we will 21 continue to do that. 22 So there is a process underway 23 now in the last year in the Obama 135 1 Administration to try to create some energy 2 for that type of activity. 3 Shane, let me give you an 4 opportunity to comment briefly on the 5 GIPSA, DOJ issue and then I'd like to turn 6 it over to Christine for any questions or 7 comments she has. 8 MR. WOOTEN: I've never had -- 9 I've been fortunate, I haven't had some of 10 the situations that some of these other 11 growers have and concerns and things that 12 have happened to them. So, personally, I 13 would -- I don't know much about the GIPSA 14 regulations and stuff. But the only thing 15 I would say about it is maybe make it more 16 public of how to start that process 17 because, you know, I've never needed to, 18 but if I did, I wouldn't know where -- 19 where to start. 20 SECRETARY VILSACK: Well, mention 21 was made of Dudley Butler. And I just -- 22 you know, just so you know, this guy is 23 here today doing his job. His farmstead 136 1 was recently, for all intense and purposes, 2 totally destroyed, with the exception of 3 his home, as result of recent -- recent 4 tornado. So, Dudley, we appreciate you 5 being here notwithstanding your own 6 personal circumstances. 7 MR. BUTLER: Thank you. 8 MS. VARNEY: Well, Secretary, I 9 have to say the panel has been eye-opening 10 for me and I have lots of follow-up 11 questions that I don't think I'll be able 12 to get to today. So you can expect to hear 13 from me. 14 But, Mr. Staples, let me say I 15 fully expect you will not experience 16 retaliation by virtue of your presence 17 today, but if you do, you call me at this 18 number because I want to know about it. 19 What I really want to follow-up 20 on, Secretary, is this competitiveness on 21 the contracting side. And I have a couple 22 of questions that I'd like to get the 23 panelists to think about if we don't have 137 1 time talk about now, so certainly during 2 the break and afterwards. 3 I'm very interested in your 4 experience after 23 years when you were 5 terminated. Were you able to switch 6 integrators? Were you able to go somewhere 7 else? 8 MS. MORISON: No, we weren't able 9 to switch integrators. Again, even though 10 there's four companies in the area, what 11 one wants, they all want. 12 ASSISTANT ATTORNEY GENERAL 13 VARNEY: How does that -- how does that 14 actually work? I would think that a grower 15 with your -- with your reputation should in 16 a -- in a competitive market be fairly -- 17 it should be fairly easy to switch? 18 MS. MORISON: It -- it really -- 19 I don't think it really matters as far as 20 reputation goes, it's just a matter of they 21 won't put chickens on the farm and they 22 won't give you a contract, you know. The 23 upgrades that were demanded of us, had we 138 1 gone to another company, they would have 2 said the same thing. 3 And even though, you know, we had 4 a good growing history, we wouldn't have 5 had one with another company, we would have 6 been starting out at the very beginning 7 with a record with a new company. 8 ASSISTANT ATTORNEY GENERAL 9 VARNEY: So, then, it's a reduction in 10 capacity if they're not replacing it or are 11 they expanding somebody else's capacity? 12 What happens when -- 13 MS. MORISON: All the -- 14 ASSISTANT ATTORNEY GENERAL 15 VARNEY: -- you're taken -- when your 16 contracts are terminated, is capacity just 17 reduced in your area or do they -- 18 MS. MORISON: No. They -- they 19 get other people to build houses or, you 20 know, they phase in more birds in other 21 places. 22 No, they -- every year in our 23 area they are increasing production. More 139 1 -- more birds are being produced every 2 year. 3 ASSISTANT ATTORNEY GENERAL 4 VARNEY: And I'm very interested in the 5 upgrades that you all have talked about. 6 Can you tell me a little bit, because I'm 7 here to learn, I don't know that much about 8 your industry. 9 What, in your view, are the kinds 10 of upgrades that are reasonable and 11 appropriate and right for the integrators 12 to be -- wanting from their growers? And 13 what are the kinds of baskets of upgrades 14 that are, in your view, are used basically 15 to -- to take you out of business, which is 16 what I'm hearing you say today. 17 MS. DOBY: Well, sometimes the 18 upgrades can be -- it depends on what 19 they're asking. Now -- and another thing, 20 it might be the company -- okay. You 21 started out building houses by the 22 company's specs, okay. And then the 23 company, they decide, well, you know, we're 140 1 -- we're not going to grow this six pound 2 bird anymore, we're going to grow a nine 3 pound bird. 4 So that means although you just 5 built these houses four years ago, you're 6 going to have to go back in debt $80,000 7 because we want these big fans put in 8 there. We want more, a cooling system put 9 in there because we're going to this bigger 10 bird and it's got to be cooled more. So 11 the grower foots that expense for the 12 company to grow the birds that's going to 13 make them more money. 14 And the thing about it is when 15 you put those upgrades in sometimes like 16 the companies will say, "Okay, we're going 17 to give you -- you do this and we will give 18 you a little bit extra". 19 But that extra will never cash 20 flow to the pay for that expense. And 21 that's where the grower gets into the debt 22 problem. 23 MS. PRIDGEN: What I would like 141 1 to see is from our family's experience and 2 the community's experiencing in North 3 Carolina, these companies are always 4 looking -- when they're looking at 5 expansion, they're looking for new houses, 6 I mean, the newest houses that they can 7 get. 8 And what I had talked about 9 earlier that happened is when the tobacco 10 allotment buyout was going on, there were 11 farmers who had houses that had been taken 12 on by this company that were former Perdue 13 Growers and they were taken on by Case 14 Farms. 15 And in that situation they built 16 two new houses to Case's specifications for 17 Case. But what Case did was went out and 18 talked to some farmers who didn't have -- 19 didn't grow poultry, into building brand 20 new houses for them. And, so, when they 21 got those brand new houses, those new 22 farmers to start growing, they went back 23 and dropped those houses that they had 142 1 initially taken on as the former Perdue 2 Growers. 3 So, now, this farmer may have 4 four houses or six houses on his property 5 and maybe only two of them have chickens in 6 them and the other four, even though they 7 have the same equipment in them, you know, 8 don't -- don't have that. 9 ASSISTANT ATTORNEY GENERAL 10 VARNEY: And then one other question that I 11 have that I think I will probably have to 12 follow-up with more off line, but if anyone 13 of you could tell me, are you in co-ops? 14 Are there co-ops for growers? 15 Does Cooper-Volstead work for 16 you? 17 MS. DOBY: There was one a co-op 18 and it was closed. And that was the last 19 one. 20 ASSISTANT ATTORNEY GENERAL 21 VARNEY: And why don't co-ops work? You're 22 all shaking your head no. Tell me why. 23 MR. STAPLES: They probably 143 1 would. It's just -- I guess you need to 2 know some poultry growers. It's just hard 3 -- it's hard to get a lot of poultry 4 growers to say yes to anything together. 5 But that's probably one of the biggest 6 problems. 7 ASSISTANT ATTORNEY GENERAL 8 VARNEY: Any other thoughts on that? 9 MR. WOOTEN: Also we have several 10 grower based companies -- programs and -- 11 and organizations. 12 I think the -- we had mentioned 13 earlier about the debt and the -- 14 ASSISTANT ATTORNEY GENERAL 15 VARNEY: Right. 16 MR. WOOTEN: -- and -- and I 17 think a lot of growers are afraid to get 18 too involved with anything that would go 19 against the status quo because of their 20 debt. 21 ASSISTANT ATTORNEY GENERAL 22 VARNEY: Well, Secretary, I have a lot of 23 work to do from this. And I want to really 144 1 understand our role in the GIPSA process on 2 the complaint side. 3 I'm wondering why complaints 4 aren't treated confidentially until a 5 certain point in time. I think there's 6 probably more streamlining we could do. 7 Whether or not GIPSA has the authority, we 8 can certainly provide troops and help and 9 do what we can do. 10 I want to understand more about 11 the contracting practices and see what we 12 can do to help make sure that that's a 13 competitive marketplace. 14 And I want to thank all of you. 15 I know you take time out of your -- out of 16 your livelihood to come here and talk to us 17 and on my part to educate me. 18 Thanks. 19 SECRETARY VILSACK: I want to 20 join with the Assistant Attorney General's 21 remarks -- to the panel. I want to thank 22 you for taking the time and being able to 23 share, not only your personal stories, but, 145 1 in some cases, some painful stories of 2 friends and neighbors who have been 3 impacted by this industry. 4 My commitment to the folks who 5 are here today and to poultry growers 6 across the country is to continue to work 7 hard with Dudley and those in the GIPSA 8 area to make sure that our regulatory 9 system is as good as it needs to be to make 10 sure that growers and producers have a fair 11 shake. I mean, at the end of the day 12 that's ultimately what it's about. 13 I, too, have learned a good deal 14 here. And I'm sure, Dudley, it's 15 strengthened his resolve as well to do a 16 good job. 17 This is obviously an issue that 18 -- that will require a very close analysis. 19 The Congress has directed us to do that in 20 the 2008 Farm Bill. We began that process 21 with the rules we published last year in an 22 effort to try to make greater equity in the 23 relationship and to make sure that folks 146 1 had notice that contracts were going to be 2 terminated, that they weren't left without 3 any opportunity to try to seek alternative 4 contracts and alternate opportunities. But 5 this is obviously a difficult issue, a set 6 of difficult issues. 7 And I might say that it is 8 reflective of a deep concern that I share 9 with you today, and that is, about the 10 future of our rural communities generally. 11 I think it is very important for the rest 12 of the country to know what you know about 13 the challenges and struggles of producers 14 in this country. I think the rest of us 15 take what you-all do for us for granted, 16 whether it's the producers, or whether it's 17 the folks who process and slaughter the 18 livestock or the folks who -- who pick our 19 fruits and vegetables along the entire 20 stream here, we, as a country, do not 21 appreciate and do reflect our appreciation 22 for those who give us a safe, abundant, 23 affordable supply of food, which is really 147 1 puts us in a much more competitive 2 circumstance economically. 3 So we owe you a fair shake. And 4 I'm committed to doing that as long as I'm 5 the Secretary of Agriculture. 6 With that, let me ask you to show 7 your appreciation for the panel and we will 8 reconvene shortly after lunch. 9 (Whereupon, the taking of the 10 proceedings were recessed from 11 approximately 12:00 p.m. to 12 approximately 1:00 p.m., after 13 which the following proceedings 14 were had and done:) 15 MR. FERRELL: I think we'll get 16 started. 17 In the front, and the people in 18 the middle, if you want to provide comments 19 -- if you want to provide a comment, you 20 should have picked up a ticket at the -- at 21 the front of -- as you came in the 22 building. 23 And what I'm going to ask is, I'm 148 1 going to ask -- there's going to be a 2 couple of options here. 3 We have two microphones up front 4 here. And if about, you know, five to ten, 5 twelve people can get in a -- in a row on 6 each side in front of the microphone. 7 And you're going to have two 8 minutes to provide some comments. 9 Our goal is to get as many folks 10 who would like to provide a comment the 11 ability to do so. 12 So as you come up to the 13 microphone, we'll have someone that's going 14 to take your ticket from you. So that way 15 we know that everyone who wanted to provide 16 a comment has -- has be given the 17 opportunity to do so. And then we'll pick 18 this up again later on this afternoon. 19 For -- for growers who do not 20 want to speak at the microphone, we have 21 other -- some other options as well. 22 Straight out these double doors, 23 down the hallway, we have a conference room 149 1 off to the left. And we have some GIPSA 2 employees that will take your comments 3 directly that way as well. 4 So if you -- it's up to you where 5 you would like to provide your comments. 6 So why don't we go ahead and get 7 started and we'll start on this side. 8 BROTHER DAVID ANDREWS: Thank 9 you. My name is Brother David Andrews. I 10 am hear reading the statement of a grower 11 who not only couldn't -- was afraid to come 12 as well as afraid to speak. So I'm 13 speaking on behalf of someone else. 14 First of all, let me give a word 15 of gratitude for all the time that you have 16 dedicated to this process. You and your 17 time is greatly appreciated. 18 From a grower's perspective I 19 want to assert that the system is broken. 20 The current system is one that favors the 21 integrators and allows for the manipulation 22 of outcomes to growers primarily through 23 the tournament system. 150 1 While the lack of competition 2 creates one set of problems, the tournament 3 system creates another set. It takes money 4 from the growers and gives it to another 5 group. The grower has no control over the 6 quality of the feed that gets delivered, 7 nor how much of each type is delivered. 8 Another compound -- component to 9 the cost equation is the chick cost. The 10 integrator has complete control over the 11 quality of the chicks delivered to the 12 farm. 13 Another form of manipulation is 14 to exclude the best growers and worse 15 growers in the average cost calculation. 16 Another aspect of the tournament 17 system is related to time between flocks. 18 The tournament system benefits the 19 integrators when farms similar in 20 performance sell in the same week. This is 21 easily achieved by manipulating out times 22 and grouping similarly performing farms. 23 The tournament system that is 151 1 common in the poultry industry is the only 2 example that I know of that has the 3 employees-growers subsidizing the success 4 of the employers. 5 Thank you. 6 MR. FERRELL: Okay. We'll start 7 over here. And if can you introduce -- if 8 you can mention what your name is, too, 9 that's helpful. Thank you. 10 TOM GREEN: Mr. Butler, poultry 11 growers and other interested parties. My 12 name is Tom Green and I'm a former Coffee 13 County, Alabama poultry grower. Before 14 that I -- I had a dual military career. I 15 was an infantryman. And I served in the 16 aviation branch as a pilot. I flew combat 17 missions in Vietnam and also served as a 18 public affairs officer at the Army Aviation 19 Center. 20 My wife and I went into the 21 poultry growing business in 1990. 22 I was 52 years old at the time. 23 We were both excited about going into the 152 1 new business, totally different from 2 anything in our past. Poultry fit our 3 plans that would take us into our golden 4 years. 5 We invested a little more than 6 $500,000 to build four 500 foot poultry 7 houses on our 90 acres of land just south 8 of Enterprise. And we depended entirely on 9 company advice and the SBA and our bankers. 10 The SBA financed -- they didn't finance, 11 but they guaranteed our loan. 12 As frequent problems arose 13 repetitively we -- we sought advice from 14 other growers. And over time formed a 15 cooperative that gave us better prices on 16 supplies and equipment, and all growers 17 needs that we could fill outside of the 18 company influence so that we could bring 19 our prices down. 20 It also served as a forum in 21 which growers could come together, discuss 22 issues and express solutions. We 23 communicated with the USDA packers and 153 1 stockers to initiate investigations of 2 irregular suspected and greater activities. 3 We appealed to DOJ's Antitrust Division on 4 issues. I had one substantive complaint 5 forwarded to the DOJ from packers. And the 6 action -- for an action review. It was 7 returned to me 14 months later without 8 action. 9 As a cooperative we participated 10 in workshops to explore ways to improve our 11 company-grower relations. Contract equity 12 was our primary goal. 13 Our contracts continued to be 14 written on a flock-to-flock basis and could 15 be terminated by either party with a 10-day 16 notice for any reason or no reason at all. 17 These contracts were written at 18 the grower's expense for equipment, trial 19 and error housing upgrades and no regard 20 for compensation to offset expenses. 21 In October 1995 Hurricane Opal -- 22 Opal blasted through Alabama and took out a 23 large number of poultry farms. Many of the 154 1 more vulnerable, older farms were totaled. 2 This gave the integrators an opportunity to 3 bring new projects on, which they 4 vigorously pursued. 5 Along with the expansion of new 6 farms, the integrators demanded upgrades 7 for tone ventilation and new equipment for 8 the older farms, for the ventilators on 9 those farms, which, at that time, would 10 have been a one hundred thousand upgrade to 11 our debt load. 12 Our new -- our new contracts 13 contained upgrade requirements. Also 14 contained a demand for growers to sign 15 mandatory arbitration in order to settle 16 any disputes that may come up. 17 Any -- any grower not signing the 18 arbitration clause by January 15, 1996, 19 will be terminated and would not receive 20 chickens. This was also brought to the 21 attention of the packers and stockers, and 22 they sent somebody down to investigate and 23 it resulted in nothing. 155 1 MR. FERRELL: Sir, if we can make 2 -- we're going to try to make sure we get 3 everyone as possible. 4 MR. GREEN: Okay. I've got one 5 paragraph left. 6 MR. FERRELL: But in our next 7 round of comments, we're going to try to 8 get as many people so you might be able 9 take another crack at it. 10 We just want to make sure that 11 everyone who's come here, at least, one 12 chance. 13 MR. GREEN: Okay. This was the 14 straw that broke the camel's back -- broke 15 this camel's back. And my -- Ruth and I 16 talked about it at length about the 17 principles, about what happening to us. 18 We talked to lawyers, packers, 19 Birmingham SBA, everybody. Nobody could 20 help. We were not allowed to sell our 21 houses and we were not allowed to go with 22 any other of the other companies of the 23 three that were working in our area. 156 1 Ruth and I chose to stand our 2 principles. We did not give up a 3 fundamental right to access the public 4 court of law and guaranteed -- which is 5 guaranteed by our Constitution, regardless 6 of price. 7 I had flown too many combat 8 missions defending that Constitution to 9 forfeit it. 10 It was truly ironic that 11 protecting one right, we lost another. We 12 lost the right to property. We lost 77 13 acres, four outstanding poultry facilities 14 and five years of hard work. It was sold 15 for a hundred and seventy-seven thousand 16 dollars salvage. 17 We were denied our right to 18 property by the company acting 19 unconscionably and in my military mind, 20 they were criminally acting. 21 Thank you. 22 CRAIG WATTS: My name is Craig 23 Watts. I've been a contract a poultry 157 1 producer since 1992. I'm careful not to 2 use the term independent because I do not 3 feel today that we're independent, I feel 4 like we're more of a captive supplier. 5 The competition on the production 6 end of -- as it relates to us, the growers, 7 it does not exist, it does not exist. We 8 have no voice in an industry that we're so 9 heavily invested in. Growers mortgage 10 farms and homes based on an assumption that 11 the relationship with the poultry company 12 will be long term and mutually beneficial, 13 but what we get is a growing agreement with 14 no security at all. 15 Contracts can be terminated at 16 any time for any reason and as growers we 17 have no recourse. Contracts can be changed 18 at any time for any reason. And we're, you 19 know, forced to sign a contract whether we 20 like it or not on a take it leave it basis 21 because, you know, we can either sign it or 22 face bankruptcy. It's almost like asking a 23 question, would you rather drown or burn? 158 1 Either way, it's not a good way to go. 2 Another major issue is a method 3 of compensation, which this has been beat 4 to death, but it's called the ranking 5 system or the tournament system. I've 6 heard it called a reward system, when it's 7 actually the grandest Ponzi scheme that's 8 ever been invented. 9 Timing is everything. What you 10 get, who you get, when you get it has more 11 to do than any managerial decision that 12 I'll ever make. And -- and also influences 13 my compensation, you know. 14 The ranking system serves as a 15 cost control method for the companies. 16 That's what it boils down to. It's no 17 reward system for a grower, you know. They 18 say, "Well, it's the bad growers come out 19 here and do the complaining". 20 I've got proof different. For 21 what it's worth, I'm a very above average 22 grower, but I see the faults in it. For me 23 to make it up here, somebody is getting rid 159 1 of down here. That's the way I see it. 2 Anybody in this room knows that 3 there is no such thing as a level playing 4 field, the inputs. There's just too many 5 variables. Quality of chicks. Quality of 6 feed. The feed deliveries. And the beat 7 just goes on, you know. The stuff that's 8 outside of our control is almost endless. 9 That is irrefutable. 10 But when they want to compensate 11 us, they pretend we've got a level playing 12 field. 13 All I ask you to do, as Congress, 14 is prohibit poultry companies from being 15 able to cancel our contracts just 16 arbitrarily. Ask the USDA and the 17 Department of Justice to declare the 18 ranking system unfair and deceptive. 19 Thank you. 20 WARREN GRANGER: Good afternoon. 21 I'm Warren Granger from Alva, Oklahoma. 22 I'm a former poultry farmer of 22 years. I 23 grew chickens for a large Arkansas 160 1 multinational company. 2 This hearing is a monumental 3 event for growers in America. As a poultry 4 grower I spoke out about the unfairness of 5 the contracting system through state and 6 national poultry organizations and any 7 media that would listen. 8 Several pieces of state and 9 national legislation were introduced over 10 the last three decades, only to be stifled 11 by lobbyists of big chicken. Numerous 12 complaints were filed by me and many others 13 to the Packers and Stockyards 14 Administration, but to no avail. Growers 15 were told that the PS&A has no teeth to 16 enforce legitimate claims of the many 17 injustices inflicted on growers as is David 18 against Goliath. 19 15 years ago I secretly recorded 20 the broiler plate pay clerk telling me how 21 I and members of the Oklahoma Contract 22 Poultry Growers Association were targeted 23 and how my grower pay was manipulated for 161 1 trying to bring about change to an unfair 2 contracting system. 3 This sound recording was turned 4 over to the PS&A at that time. We were 5 told that the DOJ, Department of Justice, 6 was understaffed and only went after the 7 big stuff. 8 Recently 50 poultry growers in 9 Southeast Oklahoma filed a lawsuit against 10 a giant poultry company from Arkansas for 11 fraud, negligence and violation of the 12 Oklahoma Consumer Protection Act. 13 Groups of seven growers at a time 14 are scheduled for separate trials over the 15 course of the next several months. The 16 first trial ended in April with the first 17 group being awarded 8.3 million. Punitive 18 damages were rewarded against the company. 19 And by the way, my secret recording of 20 15 years earlier was used as evidence in 21 this trial. 22 Question, why are some of our 23 land grant universities advocating for the 162 1 large poultry farmer? Right here today we 2 have a PhD that will be on this panel after 3 while that testified for the giant Arkansas 4 corporation in the Oklahoma trial from 5 Oklahoma State University. I thought 6 land-grant universities were suppose to 7 research and teach prospective ag producers 8 viable methods to produce food and fiber as 9 to receive a fair and equitable return on 10 investment. Why are PhD's testifying for 11 big corporations against the growers? 12 The poultry farming business is 13 misaligned. We need your help to level the 14 playing field. 15 I would like to say thank you to 16 the Secretary of Agriculture and the U. S. 17 Attorney General and all these other 18 officials for hearing the concerns of 19 farmers across America. 20 Thank you. 21 MR. RUDY HOWELL: My name is Rudy 22 Howell and I'm thankful y'all are listening 23 to us. 163 1 I have grown birds 15 years and I 2 am very concerned about the payment system 3 that being based on true competition. 4 Grower pay can be easily manipulated by the 5 company. For instance, incorrect feed 6 deliveries, incorrect feed weights, 7 inaccurate bird count and easily changing 8 documentation, all of which affect grower's 9 ranking and pay. 10 I feel like the USDA and the 11 Department of Justice should take 12 aggressive action to enforce the law 13 against unfair and deceptive trade 14 practices and acknowledge the current pay 15 system as unfair and deceptive. 16 Thank you. 17 MR. LAMAR JACKSON: My name is 18 Lamar Jackson. I've been growing poultry 19 for 30 years. And I would like to thank 20 you people for coming here today, 21 distinguished guests. I could spend all my 22 time thanking you for just being here. 23 It's a great pleasure to have somebody to 164 1 listen to us. 2 We, as growers, appreciate your 3 concerns for our well-being in becoming 4 successful growers in these United States. 5 Integrators, in general, want everything 6 left alone. They want no new laws to 7 interfere with their business as usual 8 policy as they have it now. The system is 9 definitely a broken one in extreme need of 10 repair. 11 This administration has an 12 opportunity to help individual growers who 13 supply our nation, as well other nations 14 with a healthy food product, poultry. 15 We need the USDA packers and 16 stockers to mandate policies that enable 17 our already existing enforcers, along with 18 the Department of Justice, to be able to 19 rigidly enforce and prohibit mandatory 20 upgrades on housing and equipment that are 21 totally unnecessary to the cost effective 22 production of poultry in this country. 23 These upgrades require countless 165 1 more hours of kilowatt energy to produce 2 these birds to market. Keeping the grower 3 in constant debt gives the integrators 4 assurance that these growers will have to 5 continue to grow poultry for them. This 6 eliminates competition and thus makes their 7 stronghold on growers evident. 8 Let me say that numerous growers 9 are not attending these workshops because 10 of being afraid of retaliation on them by 11 their integrator. A grower this morning 12 has already been threatened by his service 13 person if he attends and speaks at this 14 forum. 15 All the integrator has to do is 16 make sure that particular grower receives 17 inferior chicks to start a grow out with 18 and maybe short his feed delivery, which 19 can lead to a higher feed conversion rate. 20 This happens, really it does. This is the 21 type of undue fair practices that need to 22 be addressed now. Our payment ranking 23 schedule is also totally unfair. On a farm 166 1 the size of mine, which is a hundred and 2 eight thousand broilers, my paycheck, in a 3 five-week grow out period, can vary as much 4 from $22,000 gross down to $11,000 for the 5 same amount of chickens. This makes it 6 impossible to meet financial obligations 7 and be able to plan any future endeavors. 8 Please enforce the laws already 9 in place by giving the USDA and packers and 10 stockers real authority to do their jobs in 11 order to help us and this industry. 12 Thank you very much for your 13 time. 14 MR. BUTLER: Hold on, hold on 15 just a minute. This is Alan Christian, my 16 deputy. I want you to tell him about who 17 got threatened, not -- not right here, just 18 go back and tell him who -- what the name. 19 MR. JACKSON: I sure will. 20 And I did say this, one more 21 time. I've been doing this for 30 years. 22 It might be just 31 because I'm gone, too, 23 but that's okay. 167 1 MR. MICKEY BLOCKS: I'm Mickey 2 Blocks. 3 The lack of competition in a 4 given geographic region has led to 5 integrators with all of the power, this 6 leaves the grower with little or no choice. 7 The grower is given a contract, it's one 8 sided, it's a take it or leave it 9 situation. Companies should not have that 10 much control in a region. 11 DOJ and USDA need to do 12 everything possible to limit this type of 13 power because this power is unfair and 14 deceptive practices have developed. For 15 example, the ranking system, forced 16 upgrades, contracts that can be changed or 17 cancelled at any time. Compensation, as I 18 have not kept up with increases in energy 19 and material costs. These are all signs of 20 a broken system that needs to be corrected 21 as soon as possible. 22 Thank you. 23 MR. ROBBIE STAULTS: I am Robbie 168 1 Staults from the Shenandoah Valley of 2 Virginia. And I want to thank you for 3 taking time to listen to my comments. 4 I'm here to share my experience 5 with contract poultry production. In 1979 6 I bought a two house poultry farm 7 contracting with a major chicken company. 8 The income from the farm was enough to 9 allow me to pay labor and my bank note. 10 Things were going so well that in 11 1992 I decided to build two additional 12 houses. After five years, I was required 13 to perform company upgrades to all four 14 houses. During this time operating 15 expenses were on the rise, but pay from the 16 chicken company was not being increased. 17 Now, I have an increased bank 18 note along with increasing expenses, but my 19 income, it remains static. 20 My plans for early retirement 21 began to evaporate. After a couple of 22 years operating in this manner, I came to 23 the realization that I was never going to 169 1 pay for these new houses. This is a common 2 cycle that chicken farmers are trapped in. 3 Does that matter, does it matter 4 what state or region you're in? No. 5 That's why today is so important. 6 We need USDA and the Department of Justice 7 to stop requiring growers to install 8 expensive upgrades in their poultry houses 9 at their own expense. 10 And Congress should stop poultry 11 companies from cancelling grower contracts 12 without adequate faults, unless they 13 reimburse growers for the investment they 14 made to service the contract. 15 Thank you for your time. 16 MR. FRANK MORRISON: My name is 17 Frank Morrison. I am an ex-contract 18 poultry grower from Maryland. Our contract 19 was terminated two years ago due to not 20 upgrading to the company standards. 21 One of the major challenges 22 facing contract growers is the ranking 23 system. I have an example, which happened 170 1 to us. I could purchase propane for 30% 2 cheaper than what the poultry company was 3 charging us. When I informed the company I 4 was going to purchase and supply my own 5 propane as any independent business person 6 would, I was told if I did not -- if I did, 7 my contract would be terminated. Even if 8 we wanted to be competitive, the company 9 will not let us. This contract system has 10 taken away the entrepreneurial spirit of 11 the farmer who has for decades found ways 12 to reduce costs on their farms to stay in 13 business. 14 The USDA and DOJ need to take 15 aggressive action and enforce the law 16 against unfair and deceptive trade practice 17 by the poultry companies. 18 Thank you. 19 MS. VALERIE ROWE: Good 20 afternoon. My name is Valerie Rowe. I'd 21 like to thank you for this opportunity to 22 speak with you today regarding the current 23 situation as a poultry grower. 171 1 I became a poultry grower four 2 years ago. I did this in an attempt to 3 save a family farm that was in the process 4 of foreclosure due to an unfair contract. 5 That resulted in my elderly inlaw's birds 6 being cut off, without notice, on the day 7 of delivery, because they refused to make 8 expensive and unnecessary upgrades. 9 The problem has turned out to be 10 an industry wide issue regardless of who 11 you grow for or what type of bird you 12 raise. I have learned that a contract is a 13 contract in name only. Mine was suppose to 14 be a 5-year contract. It has changed four 15 times in as many years. Integrators 16 routinely rewrite these so-called contracts 17 to their benefit whenever they see fit. 18 And depend on the fact that the grower is 19 deep in debt and will sign them out of fear 20 in order to continue getting checks. 21 I thank God my husband and I have 22 nonfarm jobs. Without them, we could not 23 afford paying out of our pocket to raise 172 1 chickens. We will not be able to continue 2 this much longer. 3 The solution to this systemic 4 problem: The USDA, along with the 5 Department of Justice, must exercise their 6 power and stop these unfair contracts now. 7 Thank you. 8 MR. WILLIAM CRAMER: Thank you. 9 My name is William Cramer and I work for 10 the Interface Center on Corporate 11 Responsibility. We are a faith based 12 membership organization who investors 13 members own a hundred and ten million -- 14 billion dollars in shares in companies like 15 Tyson, Smithfield and Hormel. Our members 16 come from a variety of faiths, Methodists, 17 Baptists, Episcopalians, Catholics and many 18 others. In addition to owning shares in 19 major meat companies, restaurants and food 20 distributors, our members also manage large 21 health care systems that buy a lot of food. 22 Our members are increasingly 23 concerned about the conditions under which 173 1 their food is produced. They're especially 2 concerned about fair treatment of poultry 3 growers and chicken processing workers. 4 We believe strongly that contract 5 poultry growers are the backbone of the 6 rural economy in the South. When they are 7 paid low prices, they make poverty wages 8 and that hurts rural communities. 9 We also feel that the industry, 10 as currently structured, is unfair to 11 workers. The lack of competition and 12 poultry processing means companies can 13 violate workers' basic rights and disregard 14 health and safety. As a result, worker 15 turnover at poultry averages about a 16 hundred percent a year. We need good jobs 17 in rural areas of the South and this 18 industry isn't providing them. 19 There's enough money in the 20 supply chain for everyone to get a fair 21 share, but we need to enforce regulations 22 that promote fair competition so mega 23 corporations like Walmart and Tyson don't 174 1 take more than their fair share. 2 The poultry processing -- the 3 United of States of America was founded on 4 principles of freedom and free enterprise. 5 Without fair competition, we do not have 6 true freedom or free enterprise. The 7 poultry processing industry in America is 8 increasingly monopolized and that is 9 un-American. 10 Our organization and people of 11 faith around the country are watching these 12 hearings and other efforts to restore 13 competition and fairness in food and 14 agriculture in America. We hope to see 15 better enforcement of our existing laws and 16 more effective regulations coming out of 17 these hearings. 18 For people of faith gathered here 19 today I ask you to consider the following 20 questions: If Jesus were here today what 21 would he say about grower fairness and 22 worker justice? Who would he support? 23 Thank you. 175 1 MS. ANGIE TYLER: Thank you for 2 hearing our concerns and I hope you're 3 compassionate. 4 My name is Angie Tyler. And I'm 5 the only grower here from Louisiana. So I 6 proudly represent every one of them. It's 7 been a tough year for us. 8 My husband and I have been 9 raising broilers for 20 years now. And, as 10 I said, I'm the only one here from our 11 state. 12 There's a lot of things that need 13 to be addressed. And this is not one 14 producer, this is not one integrator, this 15 is nationwide. 16 And the decisions that y'all make 17 here today and in the weeks to come, months 18 to come, even years to come, can be 19 remembered by the whole agricultural 20 community historically. This has never 21 been done before. 22 And what we feel is that the USDA 23 must take action immediately on any unfair 176 1 practices. The poultry farmers in our 2 country are on the brink of collapse. The 3 ranking system of payment is obsolete, it's 4 broken, and it needs to be changed. 5 There's too much room there for 6 manipulation. And there's no checks and 7 balances whatsoever. 8 And because costs have far 9 exceeded the pay raises, producers cannot 10 pay their bills, they can't pay the 11 production costs. Energy has increased so 12 many times more than the pay has increased. 13 And many times the pay has gone down. The 14 USDA needs to enforce laws already in place 15 and investigate these unfair practices. 16 Poultry remains the most 17 economical and healthy source of protein in 18 our country. As the demand in domestic and 19 foreign markets increase, along with the 20 population, our poultry production has to 21 increase also. The farmers are absolutely 22 mandatory for this. And we must ensure, 23 not only survival, but the potential for 177 1 success and progress as our future. And 2 we're relying on you for that help to make 3 sure that we can stay in business and do 4 our jobs and do it right. And we want to 5 do that job in a marketplace that is fair. 6 It's our future. 7 Thank you. 8 MR. CHRIS SANDERS: Good 9 afternoon. My name is Chris Sanders. I'm 10 with United Food and Commercial Workers. 11 On behalf of my president and the 12 thousands of members and my local union in 13 Kentucky and Southern Indiana, and dozen of 14 people wearing gold shirts in this room, my 15 brothers and sisters, and literally 250,000 16 poultry workers across America, we want you 17 -- to ask you to pay special attention to 18 the needs of folks who kill, cut and 19 process chickens. 20 We're here about competition in 21 issues in agriculture, but agriculture is 22 nothing without consumers and, of course, 23 retailers. 178 1 So pressure on growers and 2 vendors, producers and us all across the 3 industry come from the margins that are 4 dictated by retailers. I don't mind naming 5 names, I'm talking about Walmart. Until we 6 get some grip on the control that major 7 retailers like Walmart have in this 8 industry, we won't get anywhere. Walmart, 9 of course, is not the only grocer in this 10 industry, but all grocers are taking their 11 cues from the -- from America's largest 12 grocer, Walmart. 13 In competition we all know the 14 word monopoly, the control of whenever one 15 supplier has a grip on the industry. But I 16 want us to learn a new word today. It's 17 monopsony. Monopsony is the tyranny of the 18 retailer when all roads and all product 19 goes to one place. And that's Walmart. 20 We have to do something about 21 this because until we do something about 22 Walmart its pressures on agriculture 23 margins, we really won't get anywhere at 179 1 all. For our people, for my members and my 2 industry, we can't make a living wage until 3 Walmart is able to pay the companies more. 4 It's just a fact, it's reality. There's so 5 much pressure on margins that everybody is 6 getting -- is getting squeezed. And for 7 our folks, Black, White, Hispanic, just 8 doing their best to make a living wage, 9 that will never get any better until we get 10 some improvements in the way that Walmart 11 has a grip on the industry. 12 So I'm here today on behalf of 13 200,000 poultry workers or more. Please do 14 something to put real competition in retail 15 so we can all survive and thrive. 16 Thank you. 17 MR. ANDY STONE: Hello. My name 18 is Andy Stone, I'm from Mississippi. I've 19 got a couple of comments to make on some 20 stuff I heard here today before I get 21 started reading my statement. 22 One of the things that was 23 mentioned here today was communication was 180 1 a problem in the industry. I can assure 2 you not. I've had a lot of communication 3 with my integrator, sometimes at arms 4 length, sometimes nose length, nothing 5 changed when I left. 6 And y'all's challenge here today 7 is listen to us communicate to y'all, but 8 if y'all do like the integrator, when I 9 leave, if y'all don't anything, we're not 10 any better today than we were yesterday. 11 When I started growing chickens 12 in 1995 I bought land and moved 60 miles 13 from where I grew up. I moved to the 14 broiler capitol of my state. 15 I did this thinking that I had a 16 -- that I had a reason -- that if I had a 17 reason to switch from one integrator to 18 another I could. After a few months into 19 the business I realized that the 20 integrators have an unwritten pact with 21 their sister integrators, "You don't take 22 our growers and we won't take yours". 23 I built three modern houses, 181 1 equipped it with all the bells and whistles 2 available and approved by the integrator. 3 I had a 15-year note and a $300,000 loan, 4 but my contract was good for one year. 5 I remember expressing my concern 6 to a company representative and being told, 7 "Don't worry about that, we will always 8 need chickens, that's just how things are 9 done". Six months into my first year my 10 representative came out and said that the 11 company was offering a raise. I said, 12 "Wow, that's good. Six months into the 13 business and already going to give me a 14 raise". 15 However, there was a small 16 stipulation attached to this raise. To get 17 the raise, I had -- I had to add equipment 18 to my houses. 19 I told the representative, "I 20 don't want to add equipment to my houses, 21 they're new". He said, "Fine. If you 22 don't add the equipment, you won't qualify 23 for the raise". So I added the equipment. 182 1 My problem is that there is no 2 guarantee that my integrator will continue 3 to contract with me. As a result, raising 4 chickens involves a tremendous -- 5 tremendous sense of insecurity. 6 This past February I received a 7 letter from my integrator stating, and I 8 quote, "If you fail to provide the proper 9 environment, we may not be in a position to 10 place birds in your care in the future". 11 I received this letter because my 12 service representatives noticed several 13 blind birds on my farm. At the time of the 14 letter my overall ranking was in the top 15 14%. 16 Since that time, overall ranking 17 has climbed and put me in the top 10% of 18 the company, yet I have to wonder from one 19 flock to the next if my company will be in 20 a position to put birds in my care. 21 This insecurity hangs over my 22 head each day that grow chickens. You can 23 argue this and say no one's job is secure 183 1 in today's economy, but the situation is 2 not the same. Your job is a job. My job 3 is a job with a huge debt attached to it. 4 With my debt load, coupled with my standing 5 in the company, I should not have to worry 6 about the company being in a position to 7 place birds in my care. 8 The situation in contract poultry 9 growing is out of control. The companies 10 have so much power the growers always end 11 up at a disadvantage. It's time for the 12 government to step up and rein in these 13 companies so that growers are treated more 14 fairly. That's why the hearing today is so 15 important, but a hearing isn't enough. We 16 need the USDA and the Department of Justice 17 to stop poultry companies from requiring 18 growers to install expensive upgrades in 19 the poultry houses at their own expense. 20 And Congress should stop poultry 21 companies from cancelling growers contracts 22 without adequate cause unless they 23 reimburse the growers for the investments 184 1 they've made to service the contract. 2 Thank y'all. 3 MR. BRUCE FAULT: My name is 4 Bruce Fault. I'm from Fairmont, North 5 Carolina. And thank you for this 6 opportunity to speak with you. 7 In an effort to remain within the 8 time allotted me, I would like to address 9 the quality of birds that are supplied to 10 me by my integrator. 11 In my experience of 16 years, if 12 I am supplied with a good quality input I 13 am able to grow a good quality chicken. If 14 the quality of the chicks is poor, we are 15 unable to produce enough weight to pay the 16 bills. We work harder with a poor flock 17 than we do with a good flock. 18 Under the current ranking system 19 this can significantly -- significantly 20 impact our overall income. The ranking 21 system is just unfair and needs to be 22 corrected immediately. I would like to see 23 the USDA, along with the DOJ, use the tools 185 1 already available to them to stop this 2 unfair pay system immediately. 3 Thank you. 4 SHEILA: My name is Sheila. I 5 would like to say that we really enjoy the 6 chicken business and the company we work 7 for, but we would like to see a few changes 8 to be made. We would like the ranking 9 system to be different because of the 10 unfairness of it. Your ranking depends on 11 the quality of chicks, age of your houses, 12 houses being premium or not. We cannot 13 control the quality of chicks we get 14 because of such things as diseases, the 15 handling of the eggs and the delivery of 16 the chicks. Things can go wrong not being 17 there on the spot, but at the end of batch 18 we are asked what went wrong, why does 19 certain things happen such as the chicks 20 did not grow, they did not put on weight or 21 they lost their life. 22 And then it starts, you need to 23 upgrade to premium so you can do better. 186 1 We tried to explain upgrades cost money, 2 which we do not have. And their solution 3 to the upgrade is that you will get the 4 incentive pay, which is a half cent more 5 per pound, which will not pay the loan 6 back, for the upgrades, in a reasonable 7 amount of time. 8 And with chicks being the 9 company's, we would like to see the company 10 contribute more than just two incentive 11 checks per year for the propane, which is 12 greatly appreciated, if fall in the right 13 time frame. 14 The farmer has to take care of 15 the litter. And we have to do the PLT, the 16 PWT, the sawdust and light bulbs except for 17 two loads per house per year. The 18 utilities, such as gas, propane, diesel, 19 electricity, water, supplies and 20 maintenance. It would be nice if the 21 company would help more and give a cost of 22 living raise since we have not had a raise 23 in about three years or more, but that does 187 1 not stop the rising prices of the gas and 2 the diesel, propane, the electricity and 3 supplies. 4 My husband and I have had to go 5 to our banker several times to try to get a 6 solution to keep paying our loan and our 7 bills from batch to batch. And the banker 8 has said to us he does not know how we have 9 survived and how we are making it. Now we 10 are trying to reduce our loan just to make 11 it. And we are trying to -- just trying to 12 pay our bills and the credit cards off from 13 the propane. 14 Again, I would like to stress as 15 to how you much we enjoy the chicken 16 business and we would like to see the USDA 17 and the Department of Justice declare the 18 ranking system as an unfair system and to 19 stop poultry companies from requiring 20 growers to install expensive upgrades in 21 their poultry houses at their own -- at our 22 expense. 23 MR. JAMES SHACKLEFORD: Yes. My 188 1 name is James Shackleford and I'm here 2 representing RWDSU Workers of America. And 3 it's an honor to be here today before you. 4 You know, after working 18 years 5 in a poultry facility, poultry plant, 6 chicken plant, you know, and the things 7 that you see go on and people talking about 8 it's not enough, you're not making this, 9 you're not making this. It's just a 10 blessing for me to be here to see both 11 sides of it because I never knew, you know, 12 this side of it. 13 I was granted to be a 14 representative -- a union representative 15 three years ago and now I see the other 16 side. And that's why I'm here today. 17 And it's not about I, I, I, it's 18 we, it's a team thing. It's no I in team 19 because you have the growers, you have the 20 producers, you have the packers, you have 21 the laborers. And the laborers, you know, 22 I come to stand and look out for the 23 laborers today because without the laborers 189 1 you have -- you have no -- no product. I 2 mean, you know, the worker they -- they put 3 it on the market. 4 Also consumers, all of us are. 5 I just left a restaurant just a 6 minute ago and they couldn't keep enough 7 off it on the bar, you know. So it's not 8 shortage of it, we've just got to figure 9 out and get an understanding of where -- 10 where the monies -- the monies -- you know, 11 to fairly distribute the monies, you know. 12 I'm here today to stand and look 13 out for -- for my workers because without 14 it, you know, you're not going to have -- I 15 heard a guy say today about vision for your 16 child, you know, the grower, I understand 17 that. But also the worker have a vision 18 also. And their vision is to want their 19 kids to work in a poultry plant and make a 20 decent living. And, you know, after 21 working 30 years in a poultry plant, leave 22 with a decent pension where you can enjoy a 23 decent life, but not to automatically write 190 1 the worker off because the worker do play 2 an important part also. 3 So I just -- I pray that God 4 bless the producer and God bless the packer 5 because when you guys get together and you 6 can come together in -- in peace, it makes 7 it great for the worker. 8 Thank you. 9 MR. TOMMY HINES: My name is 10 Tommy Hines. I'd like to comment on the 11 systemic problem that the poultry industry 12 has within intimidation to the growers. 13 I've spoken to numerous growers 14 about attending this meeting, but most of 15 them were afraid to come for fear of 16 retribution from their poultry company. 17 As growers we have invested 18 everything we own in this business. The 19 industry does not treat the grower as a 20 contractual partner with the company, we 21 are merely someone hired to take care of 22 the birds for them. You have to do as you 23 are told or you could be refused placement 191 1 of birds or could face a drop in the number 2 of birds places or worse. 3 We need there to be more 4 oversight from the USDA, Department of 5 Justice or help from Congress and more 6 enforcement of the Packers and Stockyard 7 Act. There is a lack of competition from 8 the companies for the growers in business 9 now and, therefore, no incentive to change 10 the behavior towards the grower. There 11 should be mutual give and take and mutual 12 respect as business partners. 13 I'd like to say thanks to the 14 growers here today for taking this 15 opportunity to show support for this 16 workshop and a chance to be counted and our 17 hope to change this industry. 18 Thank you. 19 MR. STEVE ETKA: I'm Steve Etka. 20 I'm Legislative Coordinator for the 21 Campaign for Contract Agriculture Reform. 22 Poultry is arguably the most 23 broken of agricultural markets where the 192 1 processor sector has such total domination 2 that producers are coerced, not only to 3 sign one-sided take or leave it contracts, 4 but also to borrow as much as a million 5 dollars to build facilities on their own 6 farms for the right to grow the company's 7 chickens with merely a one flock, 8 seven-week guarantee of payment. 9 And the payment, itself, often 10 represents a negative return on investment. 11 To anyone hearing this it would 12 sound like one of the worse investments 13 possible and anyone would be foolish to 14 fall into such deal, but the growers that 15 get sucked into the systems are not stupid, 16 far from it. 17 For a poultry grower the cycle 18 begins with deception about the income 19 stream a grower will enjoy if they build 20 the expensive chicken houses and signed the 21 contract. But the rosy plans of income are 22 never put into writing, so there's no way 23 to enforce the promise -- the promises. 193 1 The contracts themselves are quite another 2 story, but once the grower bites the hook 3 and goes deep into debt they start a cycle 4 of debt burden from which it is very 5 difficult to escape. 6 The attention of USDA and DOJ 7 that you all are giving to this issue today 8 is quite historic. And I applaud both 9 agencies for hosting this discussion and 10 for asking the right questions. But this 11 process will be meaningless unless it 12 ushers in an era of aggressive enforcement. 13 Both the Packers and Stockyards Act, as 14 well as the DOJ Antitrust authorities, to 15 restore competition and fairness to the 16 poultry sector. Though not perfect, these 17 statutes are very strong and the failure to 18 enforcement by your predecessors has been 19 nothing short of shameless. 20 In closing, it's important to 21 mention that the growers who are speaking 22 here today do so at their own risk. And 23 you've heard a lot about that. The threat 194 1 of retaliation for a grower speaking out 2 publicly is well documented. And even in 3 the last 48 hours we've had growers who 4 have been threatened not to attend this 5 meeting and not to speak out. So for every 6 grower here today, there are many others 7 who have stayed home for fear of 8 retaliation. And that is more than just a 9 communication problem. 10 So I strongly urge both agencies 11 to do everything in your power to protect 12 those growers here today from retaliation 13 and to take it the aggressive enforcement 14 action to bring some balance of market 15 power to the poultry sector. 16 Thanks. 17 MR. B. J. HYDE: Hi, I'm B. J. 18 Hyde. I just wanted to touch on how we get 19 paid. We get paid by a feed conversion, 20 the amount of feed it takes to get the 21 birds to a certain weight. The problem 22 with that is the feed gets manipulated a 23 lot. For example, during the wintertime, a 195 1 lot of times they'll put this corn mash in 2 it, instead of feed grain that they get out 3 whiskey bales instead of corn, you know, 4 should be in it. And we have no control 5 over that whatsoever. It's -- it's just 6 absolutely -- the feed conversion is where 7 they want it. I mean, it's -- we have 8 nothing to say about it. 9 I also want to touch on some of 10 these upgrades that they make you do. They 11 also want you to use certain vendors and 12 such as that, they won't accept anybody 13 else. So they kind of manipulate us that 14 way, too. 15 That's all I've got to say. 16 Thank you. 17 MR. OMAR HOLCOMB: Hi, my name is 18 Omar Holcomb. I live in South Marshall 19 County. And I want -- two things I want to 20 talk to you about. One is the political 21 ramifications that are used in chickens. 22 And the other is a little anecdote that 23 happened to me recently. 196 1 Since I've been doing this for 17 2 years chickens has been used as -- has been 3 a -- been used in politics. The first time 4 was in the '90's when the steel imports for 5 Russia were -- were -- protections, trades, 6 were put on there. And -- and several ship 7 loads of chickens had to turn around and 8 come home from Russia. 9 And because somebody is 10 protecting one industry, the farming 11 industry takes it. And recently the -- 12 there was protection put on tires from 13 China. And China put -- turned around on 14 chickens and stopped it. So our industry 15 is being used as a, if you want, a 16 political football. And it's a two billion 17 industry in Alabama. And I doubt if the 18 tire industry in Alabama is a two billion, 19 but it's being used that way. 20 The second is a little anecdote 21 that happened to me two weeks ago 22 yesterday. As I had my chickens -- these 23 growers will relate to this. I had my feed 197 1 up, chickens all ready, the time came, the 2 catchers all showed up and there we sat 3 because there was a bomb threat at both 4 processing plants. So we sit there for 5 about six hours. And I'm talking to field 6 rep, who's really been good to me. 7 She said, "Okay, they'll just 8 give you an hour each hour you wait, plus 9 20%".I said, "Okay, what's our options"? 10 "Well, you can wait another six 11 or seven hours, they'll come back at one 12 o'clock in the morning. 13 By then my birds will have been 14 off feed 18 to 20 hours before they pick 15 them up. That means another six hours 16 before they process them, or, said, "We can 17 go in there and lower all the equipment, 18 see if we can get some feed out here", and 19 -- because I was totally out of feed, "And 20 then we can raise -- and then we can raise 21 it all up and then process them". 22 Okay. We'll just catch them at 23 one o'clock in the morning. That's what we 198 1 both decided. 2 Well, I called them a few days 3 later. "Well, what did they decide to do"? 4 "You competed with everybody else", just 5 like that. They lied to me just straight 6 to my face. I had to compete with them. 7 And that wasn't quite fair, 8 nobody on Monday, Tuesday or Wednesday or 9 Friday had to wait for bomb threats to 10 clear out. Now, I can live with that, but 11 I don't like to be lied to. 12 So thank you very much. 13 MR. TONY GOOLSBY: Thank you. I 14 appreciate this opportunity to get to 15 address this -- this forum. I thank God 16 for America and I thank God for being born 17 an American. And I just praise God that 18 I'll die as an American. 19 I was born in a little house on a 20 farm in 1950, delivered by a midwife. I 21 don't know how old I was before I ever seen 22 my first doctor. I've lived on a farm all 23 my life. All my ancestors were farmers. 199 1 And we go back before the Civil War. Some 2 of my ancestors was here before the White 3 man got here. 4 In 1997 there was a farm came up 5 for sale, a hundred and five acre farm 6 close my mother and daddy's homestead 7 there. I wanted that hundred and five 8 acres so bad, but I couldn't figure out a 9 way to buy it. 10 I had a pretty nice little home 11 and 20 acres down at Rainesville, Alabama. 12 And this company named Cook Poultry moved 13 into the area and announced they were 14 building a new poultry breeder, hatchery 15 and all that kind of stuff. And they were 16 wanting people to -- growers -- wanting new 17 growers, sign contracts and build houses. 18 I talked to my banker and I 19 talked to my wife. And my banker said, 20 "Yeah, we can go with you on it if that's 21 what you want to do". So in 1998 we 22 started the loan process. She and I sold 23 everything we had. Took our savings. We 200 1 invested probably a hundred and fifty to a 2 hundred and seventy-five thousand of our 3 money. We borrowed $600,000 from the bank 4 that was guaranteed by the USDA. And that 5 guarantee was -- had an insurance premium 6 on it that I paid thousands of dollars for 7 -- for that guarantee. 8 Okay. In a few years into my 9 contract with Cook Poultry they delivered a 10 new set of hens to my farm. Later on that 11 week they came in with a new contract. And 12 they said, "Mr. Goolsby, we want you to 13 sign this new contract". 14 And I said, "Well, I -- we've got 15 a contract". 16 "No, we need you to sign this new 17 one". 18 This is in 2002. And I had a 19 contract that was still in effect. Had a 20 brand new set of hens in these houses that 21 was the top of the line, the best set of 22 hen houses in the area. And I said, "Well, 23 I don't -- I don't understand. I don't see 201 1 why that you want me to sign a new contract 2 when -- when we're under contract with you 3 now". 4 "Well, that's just the way it is. 5 We want you to sign this new contract". 6 I said, "Well, I just -- I think 7 I'll just go with the one I've got". And 8 like Mr. Wooten earlier in the day had said 9 -- I'm from the same county he's from. 10 There's five different integrators in that 11 area up there, you'd think there would be a 12 lot of competition. I had the best set of 13 houses in the country. I told them, "I'll 14 just go with this set of hens and I'll -- 15 and I'll see if I can find me a contract 16 with another integrator". 17 They said, "No, you can't do 18 that. You either sign this contract or 19 we're going to come pick these hens up". 20 Now, these hens is already on the 21 farm, done been there a week or two. 22 And I said, "Well, you can't do 23 that, we've got a contract, you signed it 202 1 and I signed it and it's a legal binding 2 contract, you can't do that". 3 "If you don't sign this new 4 contract, we're going to pick them hens up. 5 We'll be here tomorrow morning at six 6 o'clock to pick them up". 7 The next morning at six o'clock, 8 that was on a Wednesday, I was sitting in 9 the driveway when they pulled in and I 10 said, "You need to turn around and go back 11 because you're not getting these hens. 12 I've got a contract with you. And it's a 13 legal binding contract. I'm going to hold 14 you to it, you're not getting these 15 chickens". And, so, they left and they 16 went back. 17 On Thursday they had nine lawyers 18 in the judge's office in the De Kalb County 19 Courthouse behind closed doors. And they 20 got Circuit Judge Randell Cole to issue 21 them a writ of seizure notice against me 22 without my knowledge, without my 23 representation, without any -- any 203 1 opportunity for me to give my side to the 2 judge to show him my contract or anything. 3 He issued them a writ of seizure. He sent 4 a copy to the District Attorney's office. 5 He sent a copy to the Sheriff's office on 6 Friday. I didn't know the first thing 7 about it. 8 Monday morning, about daylight, a 9 deputy knocked on my door. And I'd done 10 been up since about 3:30 because of -- 11 you've got to get up early and go feed the 12 chickens, make sure the thing is going. So 13 I was sitting there drinking some coffee. 14 They -- they hand me this writ of 15 seizure. And they say, "Tony, the judge 16 has ordered us to come out here and see 17 that the chicken company gets those hens 18 out of your houses". 19 I said, "How can he do that? We 20 -- I haven't been notified, I haven't had a 21 hearing. I've got a contract. How can he 22 do that"? 23 "Well, we're just doing our job". 204 1 "Well, okay". 2 They go to chicken houses. And I 3 get in my truck and I go down there. 4 There's things that needs to be done when 5 you're going to catch chickens. You've got 6 to get your waters up and stuff like that. 7 And I had read every word of the 8 writ of seizure and it didn't say anything 9 about me not going to the chicken houses. 10 Me -- it just said I wasn't to interfere 11 with them catching them. 12 I go down there and I raised my 13 waters. And I tried to get my equipment 14 ready. And the deputies come. And I come 15 out of the chicken houses there. 16 And they walk up to me and say, 17 "What are you doing down here"? 18 I said, "I'm trying to take care 19 of my equipment I've got $500,000 in". 20 And they said, "Well, you're not 21 suppose to be there". 22 And, so, I said, "Well, alright, 23 I'll go home". 205 1 Well, they had the cars pulled in 2 behind my truck and had me blocked. And 3 they said, "No, you're going to stay here 4 until the chief deputy and the investigator 5 gets up here". 6 I said "No, if you'll just move 7 your cars, I'll go to the house and get out 8 of your way". 9 "No, you're going to stay here". 10 I hadn't broke any law. I hadn't 11 -- you know, I had threatened anybody, 12 anything. 13 So I get in my truck, it's cold 14 weather. I'd just had an accident about a 15 month before, broke my back, broke all my 16 ribs, busted my skull. I was just nearly a 17 dead man. Barely could walk. Sitting in 18 my truck with the heater on and the other 19 police come up. 20 And they jerked the door open and 21 dragged me out of my truck and downed me 22 and handcuffed me and throwed me in a 23 police car and carried me to jail. Kept me 206 1 in jail all day, all night. Didn't book 2 me, didn't fingerprint me or nothing until 3 the next morning about four o'clock, 4:30 4 in the morning. 5 They came and got me and 6 fingerprinted me and charged me with 7 interference with a government operation, 8 put a $500 bond, and released me on my own 9 recognizance. Told me I could call my wife 10 to come get me. 11 I went home and took a shower and 12 I drunk come coffee, made a few phone 13 calls, and I went Fort Payne. Went to my 14 lawyer's office and gave her $5,000 to 15 start defending me on them arresting me and 16 everything. 17 Went to the District Attorney's 18 office, he wouldn't talk to me. Went to 19 the Judge's office, he wouldn't talk to me. 20 Went to the Sheriff's office, he wouldn't 21 talk to me. 22 I go back home. I get on the 23 phone and I called a man that was here 207 1 earlier today, I wished he was still here, 2 Mr. Ron Sparks, the Commissioner of 3 Agriculture. And he knows me and I know 4 him. And I told him what had happened. 5 And he said, "Tony, I'll" -- this was 6 Tuesday about dinner time, a little after 7 dinner. 8 He said, "Tony, I'll be there the 9 first thing tomorrow morning and we're 10 going to check into this and we're going to 11 do something about this". 12 MR. FERRELL: Sir, if you could 13 just sum it up. 14 MR. GOOLSBY: Tomorrow morning 15 never came. I called two or three days 16 later they let me talk to his assistant. 17 His assistant said, "Mr. Goolsby, I assure 18 you we're looking into this, you will hear 19 from us". 20 That was in 2002. And I've never 21 heard from them. 22 The poultry company sued me, Cook 23 Foods sued me and Santa Rosa Farms for 4.4 208 1 million dollars for forcing them into 2 taking such a drastic action. 3 We went to court. And the jury 4 awarded me a verdict just like that 5 (snapping fingers). The Judge throwed the 6 verdict out and ruled in the chicken 7 company's favor. 8 I -- I appealed it down to the 9 State Supreme Court. And the State Supreme 10 Court throwed it out, ruled in the chicken 11 company's favor, but there was one legal 12 point that I had that they couldn't back up 13 on if the jury gave me a verdict, a 14 favorable verdict. I had the right to come 15 back to county court in De Kalb County and 16 start all over again. And, so, we did 17 that. 18 Cook finally settled with us. We 19 had done sold most of our farm. Done sold 20 our chicken houses to keep our home. We 21 had to sell just nearly everything we had 22 so we'd have a home to live in. 23 So that's what Cook Poultry done 209 1 to me. That's a personal -- all these is 2 personal stories that's been told today and 3 everyone of them is true. Every word 4 that's been said today is true. 5 This antitrust thing, the 6 Attorney General, the USDA, you've got the 7 power, but these lobbyists for these 8 integrators and these other big, huge 9 conglomerates that are buying the 10 legislation and buying the actions -- 11 MR. STALLINGS: We've got some 12 other people who need to talk, your two 13 minutes -- 14 AUDIENCE: Let him talk, let him 15 talk. Let him talk. Let him talk. 16 MR. GOOLSBY: I'm proud to be an 17 American. You know, I love this country, 18 but we need our government to step up for 19 us and quit -- quit working for the 20 lobbyists in Washington and down here in 21 Montgomery and start working for the 22 people. Our Constitution says, "We the 23 people". 210 1 I thank you for the opportunity 2 to speak. And I'm sorry for -- for my 3 emotions, I apologize. Thank you. 4 MR. STALLINGS: Thank you. 5 MR.FERRELL: I think for the 6 remaining four folks, if you want to go 7 ahead and give your comments, and then 8 we'll go to the next panel. And then we'll 9 pick it up with more comments after that. 10 Thank you. Proceed. 11 MR. GARY KUSHNER: Thank you for 12 this opportunity. 13 My name is Gary Kushner. And I 14 serve as General Counsel to the National 15 Chicken Counsel, which is the national 16 trade association representing a lot of 17 those bad guys we've just heard about. I 18 guess this is one of those days where 19 timing is everything. 20 In fact, I had hesitated to rise 21 to the microphone during today's session. 22 Believe it or not, I felt it important that 23 the many fine people who left their farms, 211 1 traveled long distances to come and share 2 their grievances deserved to have that 3 opportunity. 4 And it's hard not to be moved by 5 the passion with which they tell their 6 personal stories. But I felt it important, 7 particularly hearing Mr. Goolsby talk about 8 personal stories, to offer the perspective 9 of a lawyer, at least, who represents the 10 integrated poultry industry. 11 And I only want to make one 12 point, and it is just one point, and it's a 13 legal point because that what these 14 workshops largely are about. 15 And that is that I don't know the 16 facts of any of the specific allegations 17 that we've heard today. And it may well be 18 that there are contracts that are unfair, 19 that are -- that there are contracts of 20 adhesion as a lawyer would call them. That 21 there are contracts that have been 22 breached, that may well be the case. 23 But I've yet to hear anything all 212 1 day, other than the word competition, that 2 links those contracts and those grievances 3 that these fine people have shared with us 4 to anti-competitive conduct. 5 And, certainly, you folks at 6 GIPSA and at the Department of Justice are 7 aware that the law is well settled. Eight 8 Federal Circuit Courts have made very clear 9 that in order to bring a case under the 10 Packers and Stockyards Act alleging unfair 11 or unjustly discriminatory or deceptive 12 practices, there must be a showing of 13 adverse effect on competition. 14 That's not to say there are no 15 remedies for ill will or for a particular 16 personal experience that may not have been 17 handled properly that may be unjust, that 18 may represent a breach of contract. We 19 have a long and large body of competent -- 20 contract law well settled in common law and 21 in many states did provide ample remedy. 22 And where there is true and -- 23 and demonstrated anti-competitive activity, 213 1 there is the Packers and Stockyards Act as 2 well as the -- the number of laws that 3 Assistant Attorney General Varney touched 4 upon earlier today. 5 So I just wanted to make that 6 clear that it's not to belittle any of the 7 stories that we're told today, they are 8 heartfelt and heartwarming, but to just 9 make clear with purpose, as I understand it 10 of these workshops has been, and that's to 11 discuss competition and the laws under 12 which competition is regulated in the 13 United States. 14 Thank you very much. 15 MR. DONALD WALKER: I'm Donald 16 Walker from Oxford, Alabama. I'd like to 17 take this time and to talk about something 18 that's very dear to me. Valerie helped me 19 with this comment last night, but, Ms. 20 Valerie, I'm not going to do this, I'm 21 going to shoot from the heart. 22 What Mr. Goolsby just said, 23 folks, is happening to a lot of people. 214 1 This room is full of people that's 2 bleeding, not from the heart, but from the 3 hip and it's time this was corrected. The 4 integrator has run over growers for years 5 and years. 6 I've been in the poultry business 7 ever since I was eight years old. I've 8 grown up in the poultry business. I've 9 been in it since '90 on my own. But it's 10 time that things changed, not just here in 11 Alabama. We've got people all over the 12 Southeast here that's hurting. And it's 13 time that something happened, some way, 14 somehow, things has got to change or the 15 Third World is going to feed us. 16 This box lunch we got out there 17 for seven dollars and a half, may cost us 18 $20 ten years down the road if something is 19 not changed, people. 20 Young people not wanting to get 21 in the chicken growing end. And I've got 22 two children and I wouldn't advise either 23 one of them to do it. They've seen what 215 1 it's like, they don't -- they don't want 2 it. Mother and daddy is having to deal 3 with it, so they don't want any part of it. 4 But, again, I just thank you for 5 the opportunity to be here and I appreciate 6 this time. 7 HILDE STEFFEY: My name is Hilde 8 Steffey. And I'm here today representing 9 Farm Aid, which is the national nonprofit 10 organization working with family farmers to 11 stay on their land and to thrive. 12 At Farm Aid we hear from family 13 farmers every day. We've operated a 1-800 14 hotline since our beginning in 1985. And 15 last year we had just under 1,000 contacts. 16 What we're hearing from poultry 17 growers has us deeply worried. Nobody 18 knows more about the problems of 19 concentration in the poultry sector than 20 family farmers. 21 But you may notice the smaller 22 turnout at this workshop and smaller lines 23 at other hearings you hold this year. 216 1 Family farmers are fearful of retaliation 2 from integrators if they comment and for 3 very good reasons. 4 We've heard troubling stories 5 about what happens when a farmer speaks out 6 against unfair, one-sided and deceptive 7 contracts, many of the same stories you're 8 hearing today. Farmers are provided with 9 poor quality feed or sick chicks that die 10 within days. 11 Poultry companies halt or delay 12 the delivery of new birds. Farmers are 13 required to make expensive upgrades. 14 They're borrowing without fair 15 compensation, or their contracts are 16 suddenly drop altogether. 17 The lack of antitrust enforcement 18 in recent decades has been responsible for 19 the misguided trajectory and limited 20 balance of our current food system. 21 The result has been a severely 22 concentrated marketplace in which power and 23 profit are limited to a few at the expense 217 1 of countless, hardworking family farmers 2 who ask nothing more than a level playing 3 field. 4 We regret that recent 5 administrations have turned a blind eye to 6 the very real threat of corporate 7 concentration to family farm livelihoods to 8 these our national food security. 9 We applaud this administration's 10 historic commitment to address issues of 11 competition and concentration in 12 agriculture. And we urge you to make full 13 use of experience and wisdom of the family 14 farmers you're hearing from today. They 15 are very courageous to be here speaking out 16 against a contracting system that is not 17 just unfair, but plain wrong. Please don't 18 let them down. 19 Thank you. 20 MR. TERRY TUCKER: My name is 21 Terry Tucker. I'm proud to say that I am 22 fourth generation farmer in the community 23 that I live in. And I hope it don't end 218 1 with me as far as my family is concerned. 2 I've been in the poultry business for 18 3 years. 4 We did quite well in the poultry 5 business, but, you know, I also know the 6 different stories and I know the 7 manipulations that go on as well in the 8 poultry business. I saw my neighbors, you 9 know, lose their farms. I saw both spouses 10 having to go out and take other jobs just 11 to make their payments. And, you know, as 12 Americans we pride ourself with equality, 13 you know. We'll send our -- our children, 14 our daughters, our sons, our husbands, our 15 wives off to war to fight for this 16 equality. 17 And this ranking system that we 18 have in the poultry industry is ridiculous, 19 you know. You've heard a whole different 20 things that's going on in this ranking 21 system, you know, from bird delivery to 22 feed and several others. And I want to 23 address two of those. 219 1 And I want to address the bird 2 delivery. One of the things is the fact 3 that, you know, we don't have any control 4 over that if -- I raise straight run birds. 5 And that means that's mixture between male 6 and female birds. 7 Well, if I get more male birds on 8 my farm and Joe down the road, you know, 9 gets more females, guess who's going to -- 10 if he's -- if he's a halfway decent poultry 11 farmer and sees after his chickens, I'm 12 going to beat him out because I got the -- 13 I got the more dominant bird, I got the 14 male bird. Now, how fair is that? 15 Feed delivery, I want to address 16 that just for a minute, you know. If I run 17 out of feed during the course of a grow out 18 and let's just say -- I'm going to throw a 19 number out there. Let's say I'm out of 20 feed for 48 hours. Well, let's say Joe 21 down the road, he's not out of feed, we're 22 selling together under this so-called fair 23 ranking system, that's what the integrators 220 1 say, we know better. Guess who's going to 2 beat me out? Joe is going to do it. 3 We really need your help from the 4 Justice Department and the Department of 5 Agriculture to look into this ranking 6 system because it's killing us. Yeah, I've 7 made money in the poultry business, I can't 8 stand here and tell you that I haven't, but 9 I've also lost money due to this ranking 10 system. 11 So, please, we need your help. 12 Thank you. 13 MR. FERRELL: I think we're going 14 to go ahead and just take one more comment. 15 And then we'll go to the next panel and 16 we'll get to that panel; then we'll pick up 17 with more comments then. 18 So if there's still people that 19 would like to provide comments, we'll allow 20 more time to do that later on in the day. 21 MR. BRAD CAINEY: Thank you for 22 taking my comments. My name is Brad 23 Cainey. I'm from Nashville, Tennessee. 221 1 And thank you to Farm Aid who informed me 2 about these hearings. 3 My reason for coming down from 4 Nashville today is because I feel -- I have 5 to step off topic, I'm not a chicken 6 farmer, I'm a chicken eater. I believe the 7 health care crisis will not be solved until 8 we address ag policy and consumer 9 preferences. 10 David Kessler, the former of head 11 the FDA, says in his book, The End of Over 12 Eating, it took 30 years to challenge and 13 change the social stigma of cigarette 14 smoking. He estimates that one-quarter of 15 the population, 75 million Americans or 16 more, are addicted to food. We need to 17 change this epidemic of obesity. It is 18 national security. 19 In this past decade life 20 expectancy dropped. The processed food 21 part of our western diet is shortening 22 lives. According to Michael Pollen food 23 use to be 18% of household expenses. It is 222 1 now at 8 or 9%, thank God, but at what 2 price is this food so cheap? 3 Health care and health insurance, 4 in the same period, went from 10 to 18%. 5 Again, national security. 6 The medical term for the lost of 7 farmers is called a bleed out. One million 8 farmers is not safe, two million farmers is 9 safer. We need to grow more farmers. 10 If the trend continues to 11 urbanization, let's bring production to 12 urban areas. 13 Finally, on the subject of 14 justice, criminal, not civil penalties 15 should be applied to all polluters. And 16 this should reach international law. 17 Thank you. 18 UNINDENTIFIED SPEAKER: I've been 19 in the chicken business some 15 years. 20 I've watched the chicken business and 21 integrators evolve to a level that the 22 average farmer can no longer sustain a 23 living at, nor can we carry the rest as 223 1 we're asked to carry. 2 15 years ago growers only had a 3 7-year mortgage on new houses. Now, new 4 houses take 15 to 20 years to pay off with 5 very minimal base rate increase. I don't 6 know if these farmers are able to pay off 7 these houses. 8 I just want to tell my story. 9 There was a hundred and fifty growers 10 involved in a regional shut down. As we 11 was growers, we was ranked in the top big 12 bird division of Pilgrim Pride. 13 February 27th we got announcement 14 that our plant was going to be closed. By 15 May all birds was gone. 600 houses sitting 16 empty. In those houses who's going to feed 17 our children? 18 I would say shut down with no 19 reflection to the growers and producers. 20 We were told by Pilgrim staff we was the 21 best at what we did. Our community was 22 desiccated and most growers was heavily 23 indebted, owe $200,000. And we had growers 224 1 with new houses and with only three grow 2 outs. 3 900 jobs have been lost. Most of 4 our houses have been -- I mean cost of 5 upgrades. Our local businesses are 6 suffering because of loss of income in 7 local economy. A hundred and six million 8 dollars jerked out of our economy. 9 All the equity each farm has 10 worked so hard to build overnight with our 11 house has turned into huge liabilities. 12 Paying insurance, taxes, no birds. 13 Several -- several growers were 14 not able to survive with such a hit. And 15 the uncertainty of our future most of our 16 local farmers have managed to keep credit 17 with our local suppliers and banks. 18 Now, we are asked to restart this 19 process and put our integrator's balance 20 sheets back into the green. This process 21 of restarting our houses has cost us 22 unnecessary thousands of dollars; however, 23 we do have another chance now. Our plant 225 1 will reopen. Almost a year and a half has 2 past. We will miss two years of income 3 where the interest has not -- has stopped 4 -- has not stopped accruing. 5 I do give Don Jackson, the CEO of 6 Pilgrim's Pride, an enormous amount of 7 credit. He managed to do the unthinkable 8 by saving Pilgrim's Pride through one of 9 the gloomiest times of financial ruin. 10 I would also like to take time to 11 give our local and state leaders credit. 12 They worked with us around the clock and 13 our CEO to put a feasible plans together 14 which led to the reopening of our plant. 15 But the balance of my future is 16 still, and my grower friends, is in the 17 hands of Pilgrim's. I would like to ask a 18 series of questions that will hopefully 19 ensure such trying times never occur in my 20 lifetime, my son's lifetime or future 21 generations. 22 How can my fellow growers be 23 protected from such an event ever happening 226 1 again? Should we be paid for down time or 2 should we get start up money? We are a 3 team, integrators and growers and poultry 4 workers, too. Should we have longer 5 contracts? Should we have guaranteed loans 6 from integrators? 7 Now, you tell me the industry 8 needs, it just not one company's problem, 9 but it's the whole industry's problem that 10 needs fixing. 11 We thank you for your time. And 12 we thank you for the opportunity to grow 13 birds again on our farms. We hope the 14 changes will make a brighter future for all 15 the growers and integrators. We are one 16 team. What can you do for us growers? We 17 are the South Georgia Division of Pilgrim's 18 Pride, Douglas, Georgia, the best of the 19 best. 20 MR. FERRELL: If our panelists 21 can come up to the table and we will get 22 started. 23 MR. FAMILANT: Hi everybody. My 227 1 name is Norman Familant. I'm the Chief of 2 the Economic Section at the Antitrust 3 Division of Justice that works on most 4 agriculture matters. 5 And we're going to have a very 6 fast paced discussion here among the 7 panelists. We're going to cover a lot of 8 issues. They're going to be many of the 9 same issues that we've been discussing -- 10 you've a been discussing so far today. 11 That's no surprise because those are the 12 issues on everybody's mind, but I think it 13 will be interesting to -- to see -- to get 14 the perspective of this panel. 15 During the -- during this panel 16 we're going to -- we have a plan, we hope 17 it will work. If you have questions, write 18 them down on the index cards that were 19 available when you came in and pass them 20 off to the sides where many of the 21 volunteers in the jackets, and the burgundy 22 outfits, will collect them and bring them 23 up. 228 1 I'll try to work them in. I 2 won't be able to work all of them. And I'm 3 not sure how much time we'll have left at 4 the end. But the -- but, as you've been 5 told before, there is an open testimony 6 hour directly after us. So, hopefully, you 7 can pose your question then. 8 Let me -- we -- we -- we have a 9 very capable and interesting panel with a 10 -- from a very wide array of backgrounds. 11 And, so, let me introduce them. I believe 12 they're all in alphabetical order here. 13 Benny Bishop currently serves as 14 chief operations officer for Peco Foods in 15 Tuscaloosa, Alabama. He grew up on a 16 poultry and row crop farm. And is a 17 graduate of Jacksonville State University 18 with a BS degree in business 19 administration. Benny has worked full time 20 in all areas of the poultry industry for 40 21 years. 22 He has served on the boards of 23 the Alabama Poultry Association, the 229 1 Arkansas Poultry Federation and is the past 2 president of the Mississippi Poultry 3 Association. 4 Let's see. Sorry for -- because 5 we're in the order here. 6 Max Carnes runs the Carnes Farms 7 in Baldwin, Georgia. His growing business 8 started in 1977 when he built three houses. 9 He has grown that business to 16 houses 10 now. That entire time he had contracted 11 with Fieldale Farms. He's a graduate of 12 the University of Georgia. He has two 13 other business interests. He's in the 14 paving business and on the Executive 15 Committee of the Georgia Highway 16 Contractors Association of which he is the 17 past president. He -- he also has an 18 interest in Zaxby's Food Operations in 19 North Carolina, but Zaxby does not buy its 20 broilers from Fieldale Farms. 21 Let's see. Next we have 22 Professor Michael Dicks. Doctor Mike Dicks 23 was raised in rural Orange County, 230 1 California. He began his agricultural 2 career working in the vegetable fields and 3 the ranches of the Irvine Company. He was 4 active in FFA and Ag Explorers. He 5 obtained degrees in biochemistry and animal 6 science from California Polytechnic State 7 University in 1975. 8 Doctor Dicks served in Kenya for 9 three and a half years with the U. S. Peace 10 Corps. He obtained his Master's and his 11 Doctorate in agricultural economics, 12 specializing in natural resource policy, 13 from the University of Missouri. He has 14 worked with USDA's Economic Research 15 Service in Washington, D. C. And is 16 currently at Oklahoma State University in 17 the area of agricultural policy. 18 Doctor Dicks has analyzed 19 contracts, production records and financial 20 information for hundreds of poultry growers 21 in eastern Oklahoma and western Arkansas. 22 And has measured the economic 23 impact of the poultry industry on a local, 231 1 regional and state economies. He has a 2 large number of professional publications. 3 He currently operates a hundred head Angus 4 cow calf operation. And is a member of 5 numerous community, church and social 6 organizations. 7 Number -- let's see -- sorry. 8 Next is John Ingrum. 9 John Ingrum is from Forest, 10 Mississippi. He's currently a poultry 11 grower for Cook Foods of Mississippi. He 12 also builds poultry facilities. He served 13 10 years in the U. S. Army on active duty 14 and six years with the Scott County 15 Sheriff's Department. He also worked as a 16 business manager at Killian's Motors, 17 Incorporated, Forest, Mississippi, for 18 12 years. 19 Let's see. Next to him -- I'm 20 sorry for the shuffling around here -- is 21 Cindy Johnson. 22 Cindy Johnson had an early 23 exposure to the poultry industry and a 232 1 grasp of how the industry works through her 2 father who has a PhD in poultry economics. 3 She majored in agriculture at the 4 University of Georgia and graduated from 5 the University of Georgia Law School in 6 1982. 7 After working in Valdosta for two 8 years, Cindy moved with her husband and son 9 to Dalton, Georgia. She was offered a job 10 as an appellate lawyer with the insurance 11 defense firm of Kenny and Kim, where she 12 remained for six years. In June of 1990, 13 she joined the law firm of Waycaster, 14 Morris, Johnson and Dean. Since 1990, 15 Cindy has represented hundreds of growers 16 in state and federal courts and in pre-suit 17 negotiated settlements. In 2002, she left 18 her former firm to join her husband in 19 their practice in Cohutta, Georgia. 20 Next is Doctor Robert Taylor. 21 Professor Taylor is the Alpha 22 Distinguished University Professor in 23 Agricultural Economics and Public Policy of 233 1 the College of Agriculture at Auburn 2 University. Prior to joining the Auburn 3 faculty in 1988, he held faculty positions 4 at the University of Illinois, Texas A&M 5 University and Montana State University. 6 He has conducted applied research on a wide 7 variety of topics, including market 8 concentration, conservation, buyer power 9 and bio-energy. He's authored or 10 co-authored five books and over 200 11 articles -- and 200 articles and reports. 12 And has testified before Congress on 13 concentration and consolidation in the food 14 industry, particularly on issues in the 15 livestock and poultry industry. 16 And, finally, is Mike Weaver. 17 Mike Weaver farms 350 acres in 18 Pendleton County, West Virginia. He raises 19 Angus beef cattle as well as broilers -- as 20 well as broilers for Pilgrim's Pride that 21 are processed at the Morefield, West 22 Virginia processing plant. 23 He started in the poultry 234 1 business with turkeys and switched to 2 broilers about six years ago. His broiler 3 facility is comprised of two houses with 4 94,000 birds per flock. 5 Mike is president of the Contract 6 Poultry Growers Association of the 7 Virginias. He is a retired special agent 8 for the U. S. Fish and Wildlife Service. 9 He served as a board member of t he 10 Allegheny -- Allegheny Highland Alliance, 11 the West Virginia Special Olympics Program, 12 the Potomac Highlands Wounded Warrior 13 Outreach and Roritan National. 14 So let's go right away to our -- 15 to my first question area. And -- and I'm 16 going to turn to some -- I'm going to turn 17 to specific panelists for the first 18 responses for all of these question areas. 19 Number one, in addressing our 20 trends in poultry panel topic, we first 21 need to gain some insight into key changes 22 in poultry production and marketing over 23 the past decade. What changes have 235 1 occurred in the typical initial investment 2 in the scale of efficient operation and the 3 time required for each flock to reach 4 maturity? 5 What do we know about the 6 quantity and quality of poultry produced 7 over the last decade and the importance of 8 exports? 9 And I'll, of course, turn to 10 Professor Dicks. 11 MR. DICKS: Thanks, Norman. 12 It's great to be here and thank 13 y'all for coming. It is a great country 14 that we can all come and voice our opinions 15 and be heard. And I hope that we -- we all 16 are heard respectfully. 17 Even -- even university 18 presidents -- university faculty aren't -- 19 aren't immune to being victimized or hurt, 20 intimidated. Even this morning I've had 21 groups call my dean and call my president 22 of the university asking for background 23 information and paperwork, Freedom of 236 1 Information Act to try to get me to cease 2 my participation in these hearings. So 3 those that know me know that I am 4 un-intimidated. 5 Let me -- let me start by giving 6 a few recent changes that, I think, are 7 important just to give -- to give a 8 perspective on the industry. 9 First of all, we -- we -- most of 10 know that the new top cool cell house has 11 largely been adopted by the industry by 12 this time. It's more efficient than the 13 others ones, particularly in terms of 14 energy efficiency, which has been a 15 tremendous help to the growers, although 16 that it is a much more expensive facility. 17 Sometimes -- the last estimates I 18 have on that was from 2007, 2008. Those 19 houses are about $225,000, which would 20 include all the equipment necessary to run 21 them. That's a fairly substantial 22 investment for one of those houses. And 23 I'm -- I'm saying the typical house is 237 1 40 feet by 400 feet. 2 Average farm size has increased. 3 We now -- in my area we're looking at about 4 three houses is the average farm size. I 5 think a decade ago that was probably two 6 houses. 7 The average market age of 8 broilers is 47 days, the same as it was 9 about 20 years ago. The average bird today 10 is heavier than it was ten years ago. It's 11 now about 5.63 pounds compared to about 12 five -- five pounds in 2000. 13 Feed efficiency has increased, 14 slightly, but that slight increase is a 15 tremendous gain in terms of profitability. 16 It's gone from 1.92 pounds to 1. -- sorry, 17 from 1.95 to 1.92 pounds. 18 On -- on farm mortality rate 19 dropped from 5% to 4.1%, which is -- which 20 is fairly substantial. 21 And if -- you know, for a 22 cow/calf operator to get below 5% would be 23 -- would be a real -- a real thrill. 238 1 Post-mortem condemnation rates 2 have dropped from 1.22% to .87% in 2009. 3 And, again, that -- that has some real 4 profit potential. 5 And then the last thing is on 6 that trend is that per capita consumption 7 of poultry continues to increase from about 8 80 at the start of decade to almost 90 9 today. 10 So those are the, I think, the 11 things that would indicate improvement in 12 the industry, more profitability, more 13 efficiency. 14 On the other hand there's some 15 things of a wider nature that I think are 16 important for all us to think about. It's 17 being interesting listening to all problems 18 today. And believe me, those things didn't 19 fall short on me. I am sensitive to 20 agriculture producers. I -- I spend a 21 great deal of my time -- I -- I -- I am an 22 agriculture producer. I'm probably out in 23 the countryside. I give 50 to 60 extension 239 1 presentations a year. And I -- and I do a 2 lot of work with producers. 3 So hearing your stories, I assure 4 you that I listen very intently to those 5 stories. They're not much different than 6 the stories I hear from cattle producers, 7 swine producers, wheat producers, corn 8 producers, et cetera. 9 While the trends that I've told 10 you indicate that there is an increase in 11 productivity and efficiency, these other 12 major trends that I think are -- are 13 exceedingly important. And one -- and the 14 things that I think you really need to 15 think about. And I'm sorry that Mr. 16 Vilsack has left because some of these fall 17 on his doorstep as we heard this morning. 18 One of the things that's created 19 some of the problems in the industry is -- 20 is -- started in 1994 with the 21 reorganization of USDA. When USDA was 22 reorganized, they took Farmer's Home 23 Administration and stuck into Farms Service 240 1 Agency. Then ASCS. 2 That reduced the staff and also 3 made changes in each one of those offices. 4 And that trend has continued. The total 5 number employes in the FSA -- in the local 6 FSA office has -- has dwindled, as well as 7 the number of FSA offices. 8 And that means there's less 9 people to service those loans and to look 10 and see if those loans are -- are worthy of 11 being delivered. 12 Also, as you-all know, we're in a 13 financial situation in this country and the 14 world. And a lot of that has to do with 15 cheap and easy credit policies, not only 16 from the federal government and the Federal 17 Reserve, but on down to the local banks. 18 And I think that's had a tremendous impact 19 on what you're seeing in the industry 20 today. 21 One of -- one of the largest 22 problems I see and I've commented on this 23 before the Senate Ag Committee in 1997, was 241 1 the Federal Agricultural Improvement Reform 2 Act in 1996. That -- that farm bill, as 3 most people call it, the Farm Bill of 1996, 4 eliminated -- essentially eliminated farm 5 storage programs. 6 So from that time on the 7 government virtually had no more commodity 8 storage programs. And I insisted at that 9 time -- because yields in the country are 10 increasing at a decreasing rate and 11 becoming increasingly more variable while 12 demand continues to increase, at some point 13 that means we're going to have price 14 spikes. 15 And if you'll go back and read my 16 testimony, I said that within a decade when 17 I was asked how long it would be, I said 18 within a decade we'd see some major price 19 spikes in commodities. Now I missed it by 20 a year. It was 2008 not 2007. So I missed 21 it by a year, but it is there and it's 22 going to happen again. And some of the 23 problems that you're facing today and that 242 1 are coming down on the integrators are 2 because we have gotten rid of commodity 3 policy and we're not -- we're not managing 4 supplies any longer. And, so, we're going 5 to see much more variation in -- in feed -- 6 feed prices. Much more volatility and 7 probably a continuing trend upward in those 8 prices. 9 So, I think, you know, again, 10 those are -- that's a -- that's a major 11 policy we're about to revisit. The current 12 farm bill is probably one of the most 13 complicated instruments that I've had a 14 chance to deal with. And I've been doing 15 it for a long time. I know Bob might want 16 to contact -- comment on that himself. 17 I think also reaching peak oil in 18 the last couple of years, meaning the total 19 amount of oil that's all out, is never 20 going to get greater. And -- and we have 21 no energy policy. That's had a tremendous 22 impact. I don't know how many people have 23 said that today, that those rising propane 243 1 prices and rising electricity prices are 2 squeezing profits. That's certainly the 3 case. 4 If you enter into a contract in 5 2004 for a set price, your propane price 6 between 2004 and 2009 went up from roughly 7 on the retail price for the nation a dollar 8 a gallon to two and a half dollars a 9 gallon. Now, that's a tremendous squeeze 10 on profit. And most people did have a 11 profitability to warrant that increase. 12 That's something, again, that -- 13 that falls back in the lap of Congress and 14 the federal government, is coming up with 15 that energy policy. 16 Finally, just one last thing. I 17 want to make sure that before I -- before I 18 get done that today I want to -- I want to 19 talk about this financial performance 20 sector. That's one thing that hasn't 21 changed. 22 You know there is, and I've heard 23 a lot of that today. There is one thing 244 1 that is common is agriculture, and I know 2 you've all heard this. There's an idiom 3 that come from 50 years ago I heard when I 4 was a kid, "Cash poor and asset rich". 5 And that literally means I've got 6 great profitability, which the U. S. 7 Agriculture sector does. Your --your 8 industry, your -- you growers, most 9 agriculture producers in this country have 10 a very high profitability. I'll explain 11 that if you'd like. But you have a very 12 low dollar sales per amount of fixed assets 13 you have. And that causes you to have a 14 low return on investment. 15 And essentially what I'm telling 16 you is, you're making good money, but 17 you're using it all to pay for your assets. 18 And I think you know that. That's true for 19 every part of agriculture. 20 MR. FAMILANT: Some follow-up 21 comments from Max Carnes. 22 MR. CARNES: I'll give a short 23 one. Thank you. Going back -- we started 245 1 our family in 1977. And, at that time, we 2 built three houses for about $26,000 each. 3 The last houses that we built were 500 by 4 50. And they're approximately a hundred 5 and seventy-five or 225,000. I can't 6 remember which now. 7 But going back over some of the 8 changes that we have seen through the 9 years. When we started out we had the old 10 time eight foot drinkers that you would 11 slosh out or rub out with your brush and 12 whatnot. And, of course, now we've gone to 13 the nipple drinker that's a lot more 14 efficient and a lot easier to operate. 15 Our lighting program has changed 16 dramatically. And to begin with, we had 24 17 hours of daylight. And now we manipulate 18 it for the different size birds that we 19 want. And we -- we've gone from an 20 incandescent bulb to a fluorescent bulb and 21 back to an incandescent. And that will 22 probably change again, too. 23 Also, when we first started, we 246 1 had the regular pancake brooders in the 2 middle of the house. And then that has 3 changed to a forced air heater on the side 4 of the house. And that has gone back now. 5 We have a combination of the brooders and 6 the forced air heaters. 7 Of course, a cool cell is one 8 thing that I think has helped us more than 9 anything else in the world. To be able to 10 cool the birds, I know always before when 11 the chickens got about 93 degrees you might 12 as well -- or the inside temperature got to 13 be 93 degrees, you might as well plan on 14 start picking up some dead birds. That has 15 been, I think, the biggest innovation that 16 -- that we have had since I've been growing 17 chickens. 18 Also, now, we have the computers 19 that control everything in the house, which 20 makes everyone's job a whole lot easier. 21 It's just a -- a -- a big, big help to have 22 that temperature change so minutely so that 23 everything works out well. 247 1 The other thing that we have 2 changed in our houses, when we first built 3 our houses we had posts in the house. All 4 of those have been changed now and we have 5 all clear span houses. 6 So we have seen tremendous amount 7 of innovations in the -- in the farming 8 industry. And it has been a big help. 9 It's -- it's made our job a lot easier, but 10 you still have to pick up those dead 11 chickens. I can't fix that for you. 12 Thank you. 13 MR. FAMILANT: Any -- any brief, 14 follow-up comments by any of our panelists? 15 On this question, yeah. 16 Everybody okay? 17 Alright, let's go to question 18 two. Let's get to the contracts. We'll 19 deal with the compensation aspects, that 20 is, the tournament ranking system and 21 requirements for improvements in additional 22 investments and the two questions that 23 follow this one. 248 1 But, first, let's address the 2 basics. Although there surely is variation 3 in the contracts, what are the key 4 non-compensation terms in the contract with 5 which you are familiar? 6 What's typical -- what's the 7 typical term of the contract? 8 When there is concentration -- 9 when there is -- excuse me. When there is 10 a contraction in the market, do the 11 integrators cut back on the frequency of 12 flocks in the contracts, or do they cut 13 back on the number of chicks placed? 14 And I'm going to ask Mr. Bishop. 15 MR. BISHOP: Thank you for the 16 opportunity to be here and speaking on 17 behalf of my company Peco Foods, and also 18 on behalf of the poultry industry. 19 The key non-compensation terms 20 that we have in our current contract, of 21 which I'm most familiar with, there's a -- 22 or are a long list of these things. 23 But, first all, we've got to 249 1 consider the terms of broiler contracts. 2 And it's important to keep them in 3 perspective the nature of a processor's 4 business. And my company is the same way. 5 First of all, all us, as poultry 6 processors, are producing chicken products 7 for, not only the U. S. food supply, but 8 also a global market. It's critical these 9 products be wholesome. 10 And, second of all, we have 11 customers and markets out there that demand 12 a specific sized bird and a uniformed bird. 13 We can't just arbitrarily go out and grow 14 any kind -- any size bird, any kind of bird 15 we want to, we have to have something to 16 market. 17 Processors like us rely on 18 hundreds of growers to help us grow these 19 various type birds and various sizes. The 20 chicks that we own, of course, as 21 processors, are entrusted to growers. They 22 have to properly care for them, not only 23 from a cost competitive standpoint, but 250 1 also from an animal welfare standpoint. We 2 all depend on these animals for our very 3 existence. 4 You talk about non-compensation 5 terms of contracts, first of all, the 6 processor provides chicks, feed and 7 medication. The processor also provides 8 management guidelines and technical service 9 support. 10 The grower provides housing, 11 equipment, labor and utilities to care for 12 these chicks and grow them to the proper 13 weight. The contract prohibits the grower 14 from having other fowl on the farm and 15 prohibits the growers -- grower from using 16 any other type feed, rodenticides 17 pesticides, insecticides, herbicides, any 18 kind of medication that's not provided by 19 the company or the processor or approved by 20 the processor. 21 The processor is looking for that 22 grower's individual skills and experience 23 on that farm. And the contract prohibits 251 1 any successor or reassignment of that 2 contract unless approved by the processor. 3 The processor is also given the 4 right to access on the grower's farm for 5 the purpose of inspecting the flock and the 6 grower's operations. The contract 7 generally provides that a grower is an 8 independent contractor and not an employee 9 of the grower or the company -- the 10 processor or the company. 11 Any veterinarian's reports 12 considering -- concerning flock health is 13 also available to the grower upon request. 14 The processor agrees to pay for damage on 15 the farm caused by his employees. Feed and 16 live birds are to be weighed by bonded 17 weigh masters. Feed trailers will be 18 sealed if requested by the grower. 19 Growers have the right to be a 20 member of and participate in any 21 organization or association they choose. 22 The contract generally has 23 default provisions with an opportunity to 252 1 cure, in except in circumstances where 2 there is serious violations that might 3 threaten the processor's property, the live 4 birds or the processor's employees. 5 The second part of the question, 6 what's a typical term of the contract. I 7 can only speak for our company. And I'm 8 sure it varies throughout the industry. 9 But the terms of our contracts at Peco are 10 from flock-to-flock to up to 15 years and 11 anywhere in between. Our new house 12 contracts are 15 years. Contracts on older 13 farms, depend on the age and condition of 14 houses, and, also, some circumstances 15 surrounding those houses. 16 Some lending agencies that 17 finance some of our farms dictate the lien 18 or the terms of the contract and we abide 19 by those. We currently grow in houses that 20 age from brand new to 40 years old. The 21 average age of our 1570 houses is 15 years 22 old. 23 Our company has been in business 253 1 for 73 years. And in the last 10 years 2 we've had 749 contracts. We've terminated 3 3% of those contracts for just cause. 4 The last -- the third question, 5 when there's contrast in the market, do 6 processors cut back on the frequency of 7 flocks and contracts are then cut back on 8 numbers of chicks. 9 Again, I can only speak for our 10 company. During the recent severe market 11 contractions, and there have been a few in 12 the last several years, Peco Foods has 13 attempted to manage through these 14 contractions by simply cutting back the 15 frequency of flocks grown. That's the only 16 thing we have done. 17 In an effort to mitigate the 18 impact of these contractions on our 19 growers, we've offered an increased out 20 time pay to help the growers' cash flow. 21 As a result of this action, our 22 company, rather than the grower, has borne 23 the principle brunt of these market 254 1 contractions. 2 Thank you. 3 MR. FAMILANT: Mike Weaver. 4 MR. WEAVER: There's several 5 different aspect of contracts that directly 6 affect growers. And I'm going to try to 7 address those here. 8 They're talking about these 9 non-compensation aspects of the contract. 10 Probably one of the most significant for us 11 as growers is the term of the contract. I 12 believe Mr. Bishop here says that theirs 13 flock-to-flock. And, as a general rule, 14 from what I've seen, and I've seen many 15 contracts from many different companies 16 around the country, flock-to-flock is about 17 the standard. 18 You may see on your contract, 19 I've had one myself in the past, where it 20 said the term of the contract is five years 21 or ten years or 15, but in reality, that -- 22 that contract is flock-to-flock. And 23 because it also goes on to give the company 255 1 the authority to terminate that contract 2 with or without cause. And they vary a 3 little bit on that, too. 4 Some of them say, however, some 5 of them say with cause, some of them say 6 with or without cause. 7 One of the biggest problems I 8 think with the poultry contracts is that 9 there is no input from the growers. We 10 have no say so whatsoever in that contract. 11 As -- as all you growers know here, and I 12 -- Mr. Bishop's company might be different, 13 I don't know, I hope it is, but they are 14 more or less take it or leave it contracts. 15 When they bring it to you, you sign it, you 16 grow chickens, you don't, you don't grow 17 chickens. 18 There's termination requirements 19 or stipulations in those contracts. As I 20 just mentioned, capital investment 21 requirements, which never used to be 22 listed, but now, thankfully, under the 2008 23 Farm Bill that has to be included in the 256 1 contract. All it does, though, is tell you 2 that you may be required to make capital 3 investments. It doesn't say how much it's 4 going to cost you, how long it's going to 5 take you to pay it back or how much money 6 in addition they're going to give you to 7 pay you for making those capital 8 improvements. 9 One of the -- one of the real 10 problems with the contracts is, and I 11 expect most growers here have experienced 12 this is, that it's only a contract until 13 they bring you the next one, you know. It 14 might say 15 years, but two months from now 15 they might decide to change that contract. 16 So they bring you a new one and you sign it 17 or you don't grow chicks, you know. To me, 18 that's not a contract. If get one for 10 19 years, it should been for 10 years. 20 We also have no control over the 21 age they take the bird for processing. 22 It's up to the company. It's their -- in 23 my case -- in my case, I grow a four pound 257 1 bird. And recently they've been taking our 2 birds as early as 34 days. We're lucky to 3 get a three and a half pound chicken in 4 that amount of time. And that loss of that 5 weight, we don't get paid for it, is our 6 loss. They don't get -- that doesn't made 7 up to us in anyway whatsoever. 8 We have -- we have no say so in 9 the number of breeder chickens. It says 10 specifically in the contract that that -- 11 the number of birds they place on your farm 12 is up to them. And you have nothing to say 13 about it. So if they bring you 10,000 14 chickens or they bring you 2,000 chickens, 15 it's completely up to the company. 16 The transferability in that 17 contract, we have no input into. If I 18 decide to sell my farm and I have somebody 19 wants to buy my farm, I can't transfer that 20 contract to them without the approval of 21 the company. In reality, that company has 22 a new -- or negotiates a new contract with 23 that person. 258 1 And that's -- the requirement for 2 upgrades has become a real problem as far 3 as any growers that want to try to sell 4 their farm because somehow the company has 5 figured out that if they want to force 6 somebody to make upgrades on their farm 7 that they're trying to sell, they'll -- 8 they either make those upgrades themselves 9 at their expense so that they can sell 10 their farm or the person that buys the 11 farms is forced to make those upgrades. 12 And I think that's absolutely wrong, too. 13 In my particular case, under the 14 2008 Farm Bill, we were given the right to 15 opt out of binding arbitration, which is a 16 wonderful thing, and I hope nobody in here 17 agrees to binding arbitration, you 18 shouldn't. If you do, you need to talk to 19 your attorney about that. 20 But we -- my company restricted 21 me, even though I can opt out of binding 22 arbitration, from a jury trial. It says my 23 only right is through a trial in front of a 259 1 judge. So I got out of binding 2 arbitration, but now I can't even go before 3 a judge. And I thought this was America. 4 I thought we are able -- we were all 5 entitled to a jury -- a trial by jury. 6 Under my contract, I'm not. 7 MR. FAMILANT: Any other quick -- 8 quick comments before we move on? 9 MR. TAYLOR: I'd like to 10 emphasize one point Mike made. 11 In recent years contracts are 12 going for longer and longer periods. There 13 are 3-year contracts and seven and some 14 ten. 15 15-year contract mentioned, I 16 have yet to see a multi year contract that 17 required the integrator to provide more 18 than one flock of chicks. It could be for 19 a thousand years, it doesn't matter. 20 You're guaranteed one flock of chicks. And 21 then after that the integrator can change 22 the contract or whatever. That's when what 23 economists called hold it up can occur. I 260 1 have not seen Peco's contract, but all of 2 the others I've seen. 3 MR. FAMILANT: We should turn now 4 to the key compensation aspect of the 5 contracts: The tournament ranking system. 6 First, let's get a brief 7 description of a typical payment scheme. 8 When did this compensation aspect of the 9 contracts emerge? When -- when did we get 10 terms? And why do you think these emerged? 11 And this last question is 12 particularly of interest to me as an 13 economist, why do we observe it so 14 universally in broilers, but not so in 15 raising other animals? 16 And I'm going to turn John 17 Ingrum. 18 MR. INGRUM: First of all, I want 19 to thank everybody for being here today. 20 I've grown poultry for ten years. And the 21 problem I see in the ranking system is it's 22 not fair. And there's no way it could be 23 fair, you know. 261 1 A lot of the growers will tell 2 you that the companies tell you that the 3 ranking system is a fair way of judging the 4 grower on their performance, but there's no 5 way it could be -- it could be fair because 6 we don't have any control over the birds 7 they bring us. 8 Sometime's I've -- I've dumped 9 chickens that -- you know, there's a 10 hundred chickens in a tray. And I've 11 dumped the chickens where's there 35 to 40 12 of those chickens dead in that tray. So -- 13 and I -- and, also, one of the growers said 14 earlier I have been out of feed for two or 15 three days with six-week old chickens. And 16 it's based on the breeder chickens you get 17 and whether they're male or female. And it 18 also is based on how long you out of 19 chickens. If you're out of chickens 14 20 days, and you're out of chickens 21 days, 21 that has an effect on how your chickens are 22 going to be perform based on your litter 23 quality. So I don't -- I don't see how the 262 1 ranking system could ever be a fair system, 2 you know. 3 The poultry industry has really 4 been strange to me because I have a son 5 that's a computer expert. And we use to 6 try to figure out how to come up with our 7 feed conversions on -- based on what our 8 chickens should weigh. This kid is a 9 master on a computer, never could figure 10 out the chicken business, never could 11 figure out the feed. And, so, I knew then 12 that it was something wrong. 13 But, as far as a ranking system, 14 there's -- there's no way it could be fair. 15 And to base our performance if -- if the 16 company -- I was out of feed one time as 17 long as three days when my chickens started 18 to eat on each other, but when I sold those 19 chickens they still based my performance on 20 what I done, but I had no control over the 21 feed that they brought me. So there's no 22 way that the ranking system could ever be 23 fair. That's in my opinion. 263 1 MR. FAMILANT: Professor Taylor, 2 any follow-up on this? 3 MR. TAYLOR: Well, your question 4 about why is that in the poultry industry 5 and not others, is simply because the 6 integrators require it. They set it up 7 that way. 8 There's the myth that this system 9 takes grower -- eliminates grower's risk. 10 It doesn't. It actually -- the common pay 11 system -- if you have a high cost, you get 12 a low unit price, or if you have a low 13 cost, you get a high unit price. And it 14 doubly penalizes or doubly rewards growers 15 for good or bad flocks. 16 A very troubling aspect is a 17 grower cannot verify any of the numbers 18 used to calculate pay. 19 The second thing is feed quality 20 varies, chick quality varies. Economists 21 call this pay system a tournament, to me 22 it's a lottery. And the problem is, it can 23 be a rigged lottery, I'm not saying it is a 264 1 rigged lottery, but it can be and a grower 2 has no way of figuring out if they were 3 singled out for good chicks or if they had 4 a sweetheart deal and were singled out for 5 really good feed and really good chicks. 6 So it's a very troubling aspect 7 that a grower cannot verify the numbers 8 used to compute their pay. 9 MR. FAMILANT: I've seen some 10 discussion that we're -- we're beginning to 11 see tournaments in some other animals. 12 Have -- have -- have -- are you 13 familiar with any evidence of that? 14 MR. TAYLOR: Not like the poultry 15 system. 16 MR. WEAVER: I have a comment on 17 this. 18 MR. FAMILANT: Sure. 19 MR. WEAVER: There's -- stop and 20 think about this my fellow growers. 21 Under the ranking system if 22 you're provided with poor -- poor quality 23 chicks and poor quality feed, which is an 265 1 input from the company that we have no 2 control over, you're going to have poor 3 production. 4 This means you're going to have 5 less pounds than you should have if you got 6 inputs from that company. So you're going 7 to lose money on the weight that you don't 8 have. Plus, under the ranking system, 9 you're going to have points deducted from 10 your pay because you -- you produced 11 poorly. 12 So under the ranking system we 13 get hit twice, we get subtracted on twice. 14 And there's no way that that is fair. 15 Another way that it's not fair is 16 the fact that it robs Peter to pay Paul. 17 Why should it be fair for -- for the 18 companies to be allowed take money away 19 from you to give it to me because I did 20 better than you did. There's no way that 21 could be fair and it shouldn't be legal. 22 We've -- we've got to have a 23 better system of paying our growers here in 266 1 the United States. 2 MR. FAMILANT: Professor Taylor, 3 what's the problem? 4 MR. TAYLOR: Let me mention one 5 thing I've observed about the tournament 6 pay system. There are a lot of subtleties 7 dealing with whether an average is used or 8 whether a median is used or whether a 9 weighted average is used. And the 10 integrators exclude some flocks, sometimes 11 high, sometimes low. They completely 12 determine what is excluded. They have min 13 and max pay. 14 The point I'm getting up is, in 15 contracts, most of them have a stated base 16 contract pay. Let's say it's five cents. 17 And there are bonuses for those that really 18 have good flocks above that and penalties 19 for those below. But a base pay of five 20 cents, if you take a weighted average of 21 all of those for flocks, it usually comes 22 out to be less than what a contract says. 23 And to me, that's deceptive and unfair. 267 1 MR. FAMILANT: Benny Bishop. 2 MR. BISHOP: I just wanted to 3 make the comment, there's been some 4 comments talked about poor chick quality, 5 poor feed quality. 6 And, first of all, you know, from 7 the company's standpoint, it's not in the 8 best interest of any company in this 9 business, and, again, I'm speaking for our 10 company, but for the industry as a whole, 11 to send out poor quality chicks and bad 12 feed to any grower. I'll say that to 13 anybody in this room or in this industry. 14 And if you look at what's 15 happened in the industry over the last ten 16 years, we've improved livability by over 17 1%. Back in 1999 and 2000 the average 18 livability was only 95%. Today 2009, 2010, 19 we've raised that livability to 96% plus. 20 USDA records show that whole 21 birds condemns are over 1%. Ten years ago 22 1.2, 1.3. Today, the last 12 months, the 23 average whole bird condemned is less than 268 1 one-third of one percent. 2 And the industry does not achieve 3 this with poor quality chicks and poor 4 birds coming off the farm. 5 MR. WEAVER: I'd like to make 6 another comment about that if I could. 7 MR. FAMILANT: Go ahead, briefly. 8 MR. WEAVER: The reason industry 9 is allowed -- is able to achieve that is 10 because of good growers. 11 MR. BISHOP: I agree, good farm 12 management, but there's some good inputs, 13 they're not all poor. 14 MR. DICKS: If I could just make 15 a couple of comments. 16 MR. FAMILANT: Go ahead. 17 MR. DICKS: You know, you asked 18 about the -- you know, I grew up in the 19 tomato industry. And I can tell you that 20 they have the same kind of a tournament 21 system basically in the tomato industry in 22 terms of providing those tomatoes to the -- 23 to the processor. And that's what we did. 269 1 And you're -- you're paid based on how much 2 sun scald there is; how much rot there is; 3 how much different than -- if it's less 4 than -- if it's more than 12%, they turn 5 the whole tub back around, 40 something 6 tons of tomatoes, and back to the fields 7 and you get to dump them. So it's the same 8 kind of deal, but a little harsher. 9 In the beef industry I'm pretty 10 glad that we've gone to the grid system. I 11 get paid, not only the quality of my 12 carcass, but the yield of my carcass in 13 terms of also the rib eye, back fat, all 14 kinds of characteristics on that. So, 15 again, there is -- there is something to 16 the merit system. 17 And I want to follow-up on what 18 Benny says. You know, one of the things 19 for me, as an economist, is try to figure 20 out why things are the way they are. And 21 just so you understand, you know, I don't 22 want to put a lot into all the nuances of 23 these -- of these -- of this tournament 270 1 system. And I know there's lot of ways it 2 could be improved probably and they're 3 probably some things wrong with it, but -- 4 but let's look at why it's happening. 5 First of all, the -- the 6 integrators don't make a large profit. 7 That's a lot -- you know, a lot of -- but 8 here's what I want to tell you. And I know 9 you're all rolling your eyes about that. 10 If you take the cash sales and 11 divided by the cash expenses or, sorry, you 12 take the cash sales and minus the cash 13 expenses and divide by the cash sales, 14 that's profit, okay. That's not return on 15 assets. These -- these integrators are 16 making 1 to 2% profit. The thing that 17 they're -- the way they're making returns 18 their return on assets is by lots of 19 quantity. 20 What they have to do is run those 21 plants at a hundred percent capacity. They 22 cannot afford to produce chicks and not 23 have those chicks come back live, as big as 271 1 they can. 2 And, so, what they're doing is 3 they're reimbursing those growers to try to 4 induce the biggest birds they can get in 5 the most efficient production. Now, that 6 just makes sense. So that's what -- that's 7 what that whole tournament process is. 8 Now, I want to -- the reason I'm 9 saying this is because if you have a better 10 way, right, of -- of -- of -- of coming up 11 with a formula -- and you're in the 12 business -- I always tell farmers that, 13 you're in the business, you're on the 14 ground, if you have a better way of coming 15 up -- a way of paying yourself for being 16 efficient, bring it forward, bring it 17 forward, let's talk about it. Maybe -- 18 maybe that's what the industry will go to. 19 MR. WEAVER: I have a suggestion 20 for that. If you don't mind, I'd like take 21 a couple a minutes here. 22 MR. FAMILANT: We have talked -- 23 we've got to move along. So just try to do 272 1 it real quickly in 30 seconds. 2 MR. WEAVER: Well, okay, plain 3 and simple. What we need is a base pay, a 4 true base pay for growers that can't be 5 subtracted. Once we get that, we'll be in 6 a position to where we know what our pay is 7 going to be at least. And the companies 8 won't be at their will to take away from us 9 when they want to. 10 If we -- we have a set amount 11 that we know we're going to receive, we can 12 budget ourselves and operate on that. 13 And it has to be an amount that 14 allows us to pay our bills and make it a 15 reasonable amount of return. 16 MR. FAMILANT: Okay. As -- as I 17 suggested earlier, we also want to address 18 another aspect of the contract, situations 19 in which integrators require upgrades and 20 additional investments by growers in order 21 to hold their contracts. 22 How often does this occur? What 23 do the processors cite as the reason for 273 1 these demands they make? What is the 2 evidence on whether these upgrades lead to 3 cost effective improvements in the quantity 4 and quality of poultry grown to maturity? 5 And what is the effect on the growers? 6 So we'll turn to Mr. Weaver 7 first. 8 MR. WEAVER: Just to go down the 9 list there. 10 The first one is, how often does 11 this occur, that varies tremendously. 12 You-all know that as well as I do. But, as 13 a general rule, major upgrades are pretty 14 much on the five to 10-year cycle. It 15 depends on how old your houses are and the 16 whim of the integrators essentially is what 17 -- what it comes to. 18 Integrators -- I -- I -- it says 19 processors. And I'm assuming you mean all 20 integrators? 21 MR. FAMILANT: Yes. 22 MR. WEAVER: Cite reasons for 23 these demands as typically can improve 274 1 production, but one of the problems with it 2 is they never delineate who the -- who the 3 improved production is going to be, is it 4 going to be for them or is it going to be 5 for us as growers, but we're the ones who 6 have to bear the cost for it. And that's 7 -- that's the true problem that I see. 8 The integrators don't bear any of 9 that cost typically. Now, sometimes they 10 do cost share a little bit. 11 One good example I can give you 12 is one of our growers was forced to do 13 $600,000 in upgrades in his poultry 14 operation and they cost shared with him. 15 They gave him $78,000. So that was a 16 really big cost share, wasn't it? 17 AUDIENCE: Good return on 18 investment. 19 MR. WEAVER: Yeah, that's right. 20 Another thing they don't do is 21 give us a cost projection on how this is 22 going to help us, you know. 23 I would -- I would -- if they 275 1 could -- if they could come to me and say 2 we want you to make this hundred thousand 3 dollar improvement. And here's a cost 4 projection as to how you're going to get 5 paid back for that, and here's how much 6 increase we're going to give you, and it 7 take you this amount time to make this 8 back. If they could show that to me in 9 black and white and make it reasonable, I'd 10 agree to do it. They wouldn't have to 11 force me. 12 And that -- it should tell 13 everybody who -- who even pays any 14 attention to that situation at all, and you 15 all have heard it all day in here, they 16 bring that contract to you with that 17 upgrade in it and tell you if don't sign 18 it, you're going to get -- you're not going 19 to get chickens, well, that's forcing 20 people to do it, isn't it? 21 But if they came to me and showed 22 me this cost projection and said we're 23 going to pay you this much more. And we 276 1 can prove to you that this improvement is 2 going to make you this much more money and 3 here's how long it will take you to get it 4 back, I'd gladly do it, but that never 5 happens. 6 What's the evidence on whether 7 these upgrades lead to cost effective 8 improvements and quantity and quality of 9 poultry growth? From what I've seen 10 there's very little evidence. 11 You all know, as well I do, that 12 at times it's just the whim of the 13 integrator. We all have our opinions as to 14 why they force us to do them upgrades and 15 go into additional debt. 16 A lot times there is just 17 speculation on the part of the companies. 18 Like I said, if they brought -- 19 brought me a spread sheet and showed me 20 this is how much it's going to cost you and 21 this is how long it's going to take you to 22 get your -- recoup your investment, it 23 would be a whole lot easier for me to make 277 1 a decision on whether I do that or not, but 2 the way it is, my decision is not too hard 3 anyway because they can come to me and say, 4 "If you don't do this, you're not going to 5 get chickens". And that's -- like I said 6 earlier, this is the United States of 7 America, I don't think we should have to 8 suffer through that. 9 Where they're asking us to take 10 on additional debt for these improvements 11 that -- that many times is not funded. And 12 even when they do give us an increase for 13 it, it doesn't cash flow, there's no way to 14 pay for itself. 15 More times than not these 16 improvements that they force us to do 17 benefits the integrator 100%, or at least a 18 whole lot more than it does the growers 19 that are being forced to make these 20 upgrades. 21 So I think we need to encourage 22 packers and stockyards to create some 23 regulations saying that if poultry 278 1 companies have upgrades, that they'd like 2 to make, if they think it's worth it to 3 them and their production is going to 4 increase that much, they should pay for it. 5 MR. FAMILANT: Cindy Johnson. 6 MS. JOHNSON: Thank you. I guess 7 you folks were starting to wonder whether I 8 was going to talk today or not. 9 I'm Cindy Johnson. And think I'm 10 the token lawyer, maybe the token woman on 11 this panel as well. I'm humbled, I'm 12 honored to be here today. I want to, first 13 of all, thank whoever turned the 14 air-conditioner off because I thought I was 15 going to have to chatter through this. And 16 I also want to thank especially my husband 17 and my law partner publicly, for having 18 traveled down this road representing 19 chicken farmers for a very long time with 20 me at great risk to our family. Thank you, 21 honey, I love you. 22 I was talking to our 24-year old 23 daughter back a few weeks ago because I was 279 1 trying to remember how long I've been doing 2 this. And I said, "Elsa, how long have I 3 been representing these chicken growers? 4 It seems like forever". 5 She said, "Momma, I don't know". 6 She said, "All I know is when I 7 was little girl I used to think that 8 ConAgra must be a very bad man". 9 So it's been a long time, but 10 I'll get to upgrades. 11 Back in the '90's I was assisting 12 some other attorneys and some people that 13 were active in the industry trying to 14 organize poultry growers in the State of 15 Georgia. And I went to a lot of meetings 16 and did hearings around the state. 17 And one of the things that always 18 came up was upgrades and how the companies, 19 the integrators would keep growers in debt 20 with upgrades. And that's the same song 21 and dance I hear today when -- from these 22 growers is we just can't get out of debt 23 for the upgrades. 280 1 From a legal perspective, as a 2 lawyer, it's always puzzled me that the 3 chicken processing companies call poultry 4 growers independent contractors and at the 5 same time control the manner and the method 6 of how they grow chickens. The legal 7 definition of an independent contractor in 8 the State of Georgia is by definition, 9 "Being able to control the manner or method 10 of how you produce a result". 11 If the integrators want to 12 experiment with new technology, they should 13 do that at that their own expense, not at 14 the expense of the grower. 15 If -- if a grower is growing as 16 good a chicken as the man down the road 17 with the fancy new equipment at the same 18 cost to the company as the guy with the new 19 fancy new equipment, why should he have to 20 go and get into a lot more debt to put in 21 the fancy, new equipment when it's not 22 going to result in any additional money to 23 him? I don't understand it. 281 1 And I think it's a symptom of the 2 problem we have with the lack of power in 3 growers who have invested more than half of 4 the capital in chickens in this country 5 collectively. 6 And there's a problem when you 7 have a group of people who have invested 8 more than half the capital in chickens and 9 have no power and no say and get as little 10 money as they do compared to the profits of 11 the processors. 12 MR. FAMILANT: John Ingrum. 13 MR. INGRUM: It always puzzled me 14 the word upgrade. Upgrade to what? 15 I have a -- my farm is down the 16 street from another guy. And his farm is 17 probably 35 years old and my farm is 15. 18 And this guy repeatedly beat me every batch 19 after batch after batch. Me and him was 20 good friends. I go down there to try find 21 out what he was doing differently from me, 22 but his houses was older than mine. 23 And my serviceman came out one 282 1 day and he said, "We're going to close so 2 and so down the road down". 3 And I said, "Why"? 4 He said, "Well, his houses is too 5 old". 6 I said, "Too old"? 7 This guy is kicking my butt month 8 after -- batch after batch. I mean, that 9 shouldn't have nothing to do with how old 10 his houses is. And they ended up putting 11 him out of business, closing him down. 12 Then I had another friend. He 13 had $600,000 he owed on his farm. He had a 14 10 house farm. And he had to do upgrades. 15 When he got through upgrading on 16 that ten house farm he owed 1.2 million 17 dollars on a farm that was 15 years old. 18 He upgraded his self slap out of business. 19 He ended up -- he couldn't -- when he'd 20 make a chick it ended up costing him money 21 to grow chickens. He simply walked away. 22 You know who suffered, SBA, 23 because the SBA guaranteed his loan to get 283 1 that upgrade. 2 And then I had another friend -- 3 there was four brothers in chicken 4 business. And they upgraded and upgraded 5 and upgraded to where these guys owe a 6 million dollars on a farm that's 15 to 7 20 years old. 8 When -- I mean, when do the 9 upgrades get to the point to where we don't 10 upgrade to the standard? It's -- we only 11 upgrade to the -- to the point of our 12 service tech because every service tech 13 that comes requires us to do different 14 things. 15 I had to put lights down the 16 center of my chicken house, half house. My 17 service tech said, "I want these lights 18 down to make it brighter, the chickens will 19 do better". 20 I said, "Okay". 21 Did it. It wasn't very much 22 expense, $1500. 23 The next service -- this guy was 284 1 only there three or four months. 2 The next service tech came out 3 and says, "Why did you put them lights only 4 half way down that chicken house"? 5 I said, "Well, because the guy 6 told me before to do it". 7 He said, "Well, you know, I don't 8 like that, I want them all the way down the 9 chicken house". 10 And then I had another service 11 tech after that, it's about six months 12 after that, because, you know, they rotates 13 them around to keep you from jumping on 14 them. 15 And he came out and he -- I mean 16 -- I -- I work on poultry houses. So I had 17 my stuff in order. 18 So he comes out and he's looking 19 up in the air because they don't really 20 need -- they was trying to figure out a way 21 to extend my out time because they really 22 didn't need me to be in rotation at that 23 time. So he was looking up in the air. 285 1 And I said, "Hey, the chickens 2 are down here, tell me what the problem 3 is". 4 He said, "Do you see that power 5 line up there"? 6 I said, "Yes". 7 He said, "I want that down". 8 I said, "Well, I'm sorry, bud, 9 but that belongs to Mississippi Power. I 10 don't have no control over that". 11 And he says, "You're not getting 12 chickens until you take that line down 13 because our feed trucks might hit it". 14 Well, my feed bins are not even 15 close to the power. 16 So I said, "I can't do that". 17 So I go to Mississippi Power. 18 And they said, "Yeah, you can do it, we can 19 take them down, but it's at your expense". 20 $6,000. When do the upgrades 21 stop? Was than an upgrade or was that just 22 a want? And that's what we have -- we 23 have. And, I mean, I see this grower after 286 1 grower after grower. 2 I've got a friend Charles -- 3 Charlie -- Charles Moore. He's suppose to 4 have been here today. He cried on the 5 phone last night because he couldn't be 6 here. 7 He was a Wall Street investor. 8 When he bought his chicken farm he had over 9 $300,000 in the bank, cash. He was getting 10 a retirement check and -- about $2500 a 11 month with $300,000 in the bank. He was 12 doing pretty good, wouldn't you think? 13 He messed around and got into the 14 chicken business. 15 MR. FAMILANT: Mr. Ingrum, if you 16 could wrap up pretty quickly. 17 MR. INGRUM: They -- they 18 upgraded him out to where he's broke. 19 Upgrades, so when do upgrades stop? 20 MR. FAMILANT: Okay. I want to 21 turn to the topic that's come up today. 22 Let's talk about the options that growers 23 have to choose among alternative processors 287 1 with which -- with whom they might 2 contract. 3 What is the distance span from a 4 grower within which the grower can consider 5 a processor? Do further distances impact 6 the market weight? How typical is it for 7 growers to have two or three options within 8 that business plan? And has -- and has 9 such choice become less comon over the last 10 decade? 11 Some obvious related questions if 12 we can get to them. Does grower profit 13 increase as the number of available 14 processors increases? And how often do 15 growers switch processors? 16 We've heard over here about 17 difficulties they face, but I'm -- I'm 18 interested if -- if -- in any data, that 19 anybody, any of the panelists have about 20 how often growers do switch. 21 And I'm going to turn Max Carnes. 22 MR. CARNES: I feel fortunate 23 where we are, there are four or five 288 1 integrators that I could choose from. But 2 I can tell you this, the best time to 3 choose your integrator when you're building 4 that brand new house. It's a lot harder to 5 talk to somebody else once you've been 6 growing birds for a single integrator. 7 Distance that grower can consider 8 a processor. Of course, you could look 9 around from your house and see if there are 10 any other -- different type integrators or 11 different types farms from you. But, as a 12 general rule, I would think probably 75 13 miles is going to stretch it pretty close 14 to the -- how far they want the feed trucks 15 to come. 16 Do distances impact market 17 weight? Absolutely. The longer that bird 18 is sitting in that haul truck the -- he's 19 losing weight the whole time. Of course, I 20 know the people that I work with, and I 21 assume everybody else, the first thing when 22 that truck gets through the processing 23 plant then he is weighed then. So your 289 1 weight loss turns to your integrator after 2 it's weighed then. 3 And do -- does profit increase 4 with the number of integrators? And I -- I 5 really don't think it does. I think we've 6 already talked about this earlier today 7 that the contracts are going to be very 8 similar. It's hard to sell a chicken a lot 9 more expensive than -- than somebody else 10 has. So I -- I don't think there's a whole 11 lot of difference, it's just the type 12 person that you want to fit in with, the 13 type integrator that you fit with. You -- 14 you can be comfortable with all of them, 15 but you -- you need to talk with the people 16 who grow for those -- for that company and 17 find out whether it's a good fit or not. 18 And I -- there are very few 19 people who switch integrators from one to 20 the other. And I would think that the ones 21 that do switch are -- will be switching all 22 the time. You have some people who are 23 never satisfied, I think, but -- I feel 290 1 very fortunate where I am. 2 MR. FAMILANT: Professor Taylor. 3 MR. TAYLOR: Okay. There are 4 five sub questions here in a couple of 5 minutes. So I'll try to hit them fast. 6 On the distance issue, it's 7 roughly 40 miles out is as far. And they 8 would prefer only 20 or 30 miles out. 9 Tyson had a web page up for quite a while 10 that said 40 miles. 11 The main reason, minimize feed 12 hauling costs. So the location of the feed 13 mill is the number one consideration. 14 Processing plant is number two. So they 15 want to minimize feed and bird hauling 16 costs. And that concentrates the poultry 17 operations. 18 Does grower profit increase? 19 Well, the publicly available data indicates 20 that there's no profits. Grower profit 21 related to the number of integrators. 22 There's no public data on grower pay, none. 23 Integrators have it, but they share it with 291 1 each other by complex and by region. 2 That's not available. So there's 3 no publicly available data with which to 4 answer that question. My impression is, 5 no, it doesn't matter. 6 On the whole switching issue, no, 7 publicly available data on that either, but 8 switching is very, very low. My crude 9 subjective estimate is it would less than 10 1% per year. 11 The real problem with switching, 12 you build a house that's got an economic 13 life of, let's say, 30 years. You have two 14 integrators, A and B. If you start with 15 integrator A for a few years, you might 16 have 25-year life remaining. You look at 17 switching to B. Well, it's the same 18 contract and basically the same pay. And 19 if a grower for A switches to B; then they 20 make integrator A mad and they're stuck 21 with B forever. 22 So switching is very low, 23 tremendous barriers to switching, including 292 1 the mandated upgrades. Switching rarely 2 occurs without a grower, even with fairly 3 new house and equipment, being required to 4 make some kind of expensive upgrades. 5 MR. FAMILANT: Before we leave 6 this area of contracts, I -- we have one 7 question from the audience that seems to 8 fit in here. The question is: Why don't 9 we observe at least one or two processors 10 owning -- owning growing facilities? 11 Why don't we see that 12 experimentation? It just seems so 13 systematic that -- that we have the grower 14 contract system. 15 Do any of you have any response 16 to that question? 17 MS. JOHNSON: I would like to 18 respond to the question because I've had 19 that come up in trying to organize farmers. 20 And I'll tell you, it's about as easy to 21 herd cats as it is to organize growers. 22 And the reason for is, that it's 23 an atmosphere that is permeated by fear. 293 1 Growers don't like to be seen at grower 2 association meetings. They don't like the 3 companies to know they're talking to each 4 other. They fear retaliation and, hence, 5 they don't get together and try to 6 coordinate efforts. 7 MR FAMILANT: No, no. But why -- 8 why doesn't the processer just decide to 9 own farms and -- 10 MS. JOHNSON: Oh, I see the 11 question, I misunderstood the question. 12 Because it's much cheaper to talk 13 a farmer in to doing it. Of course, it's a 14 cost decision, of course. 15 MR. WEAVER: It's because of the 16 investment. 17 MR. FAMILANT: You think that the 18 processor is not willing to make those -- 19 that scale of investments in the growing 20 facilities? 21 MS. JOHNSON: If there was money 22 growing in chickens, the processors would 23 be growing chickens. 294 1 MR. FAMILANT: I think we should 2 now step back and pull together a lot of 3 previous discussion into a really important 4 question. What do we know about the 5 current state of grower profitability? 6 What are the key factors that 7 would lead to a prediction of grower 8 profitability, which grower is going to be 9 profitable, which is not? How sensitive is 10 grower profitability to a reduction in the 11 number of flocks he or she raises each 12 year? And what is happening to the ability 13 of growers to meet the terms of their 14 existing loans and secure the loans? 15 And I'll turn to Professor Dicks 16 first. 17 MR. DICKS: Well, I think I -- 18 you know, first of all, I want to -- sorry, 19 is that working? 20 I want to define profitability 21 again. You know, I think there's a 22 disconnect between what some people think 23 profitability is and what we, as economists 295 1 or finance people think it is. And I think 2 when -- when people talk about 3 profitability one thing that you're 4 thinking at is my return on -- to my 5 assets, my total return. 6 And when we say profitability, 7 what I'm talking about is when I take those 8 gross sales and divide by those -- or the 9 cash sales and divided by that -- or 10 subtract out those cash expenses and divide 11 by cash sales again. That's my 12 profitability, that's my profit margin. 13 And, again, I've already said 14 that for the growers that profit margin is 15 15 to 30%. And -- and -- and, so, if you 16 think about that, what am I telling you? 17 You know, if you'll take -- if you'll take 18 your revenue and consider that a 45 to 50% 19 of that revenue is going to go to your 20 operating expenses. Alright. 21 AUDIENCE: (Inaudible). 22 MR. DICKS: Then -- then that -- 23 yeah -- you know -- again, I can only go 296 1 off what data I have. 2 And here is the -- here are -- 3 the other problem is, and I want to get 4 this right out front is, we have very 5 little data. Okay. Most of the data we've 6 collected on -- on -- on -- on farm -- on 7 poultry growers comes from Schedule F's, 8 Schedule F's or Schedule K's. And that -- 9 that data is not poultry enterprise data, 10 that's farm data. A lot of times there's 11 categories on there that have nothing to do 12 with the poultry enterprise. So we have to 13 kind of nitpick about it. 14 I've -- I've probably done, I 15 don't know how many, hundreds of poultry 16 farms in Eastern Oklahoma and Western 17 Kansas -- Western Arkansas. And I'm going 18 to limit my comments to that, but I would 19 be willing to bet that given the state of 20 the industry, that that will not to 21 atypical for the rest of the United States. 22 And, again, I'm telling you what we've 23 looked at, that's what that profitability 297 1 measure is, is about 15 to 30%. 2 But the problem is, again, is 3 that sales to fixed assets ratio. How many 4 sales am I generating per dollar of my 5 fixed assets and that's incredibly low. 6 It's low by every standard that was set for 7 financial -- for the financial standards. 8 And that should be in the neighborhood of 9 80 cents to 90 cents and it's only 20 to 30 10 cents. So you have tremendous -- you're 11 over capitalized. And that is true for all 12 of agriculture, you know. 13 I'll -- I'll tell my students 14 over and over again that buying land is a 15 poor business decision if you're a crop 16 farmer. Buying a poultry house is a poor 17 business if you're a -- if you're a poultry 18 grower, but it's a great -- it could be a 19 great investment. 20 So remember that what you're 21 doing is, again, you're -- you're using 22 profitability to pay for those assets in 23 the hopes at -- at some point those assets 298 1 are paid for and I'm going to get both the 2 gains from the profit margin and from that 3 sales of fixed asset ratio. So -- so 4 that's -- but that's -- that's the -- 5 that's the reality of it. 6 So let me just wrap this up. You 7 know, what affects profitability? The two 8 -- probably the biggest -- the biggest 9 expense that you have is your -- is your 10 electrical expense, your -- your energy 11 expense, electric and propane. 12 MR. WEAVER: No, your mortgage. 13 MR. DICKS: Well, that's -- 14 that's a fixed expense. So I'm talking 15 about just the variable expenses right now, 16 the cash expenses. 17 And -- and you have no control 18 over them, none of us do. And that -- 19 that's stung you hard in the last -- in the 20 last three years. And, of course, the 21 budgets that I'm telling you -- the data 22 I'm talking about, I haven't updated it 23 since 2006, 2007. Of course you know that 299 1 those costs have gone skyrocket since that 2 point in time. I, as a producer, can tell 3 you also that the fertilizer prices have 4 gone through the roof. And that's -- it's 5 killing us. 6 Those are the things that I think 7 I want to make -- make sure I get across 8 now. 9 In terms of profit per flock. 10 You know, the -- the profit that you make 11 per flock is a function of the number of 12 birds you get; correct. But the profit you 13 -- but then the return on assets that you 14 -- that you make is both a function of the 15 number of birds that you get and the number 16 of flocks that you get per year. So -- so 17 the control of those two numbers is going 18 to affect your return on assets, you know. 19 Why is it that you would -- would 20 you -- that you would get less birds or 21 less flocks? The poultry industry, because 22 it's a vertically coordinated industry, is 23 trying to manage your supply. 300 1 Why is it trying to manage that 2 supply? Because market conditions exist 3 that warrants doing something with supply 4 to maintain a price, a price that's 5 acceptable, a price that will give you some 6 kind of return and give the -- give the 7 integrator some kind of return. 8 And when the market dies, as it 9 did, because exports dropped from almost 10 20% down to 16% of supply, it dropped 11 fairly substantially, they have to do 12 something to make up that difference. 13 If they continue to put out the 14 number of birds, you're going to have a 15 huge drop in price in order to get rid of 16 them or you're going to dump them in a 17 ditch, one or the other. So the only thing 18 you can do is cut back on -- cut back on 19 output. And if they do it uniformly, they 20 have two choices, they can give you less 21 birds per flock or they can give you less 22 flocks per year, both of which affect your 23 profit margin. 301 1 But they also, again, remember as 2 I told you, the integrators have to try to 3 get a hundred percent of capacity. They 4 have to try to manage those plants at full 5 steam in order to make a profit themselves. 6 And when they cut back birds, they know 7 they're going to lose money, they have to 8 know that. You're losing money, they're 9 losing money, the industry is losing money. 10 You know, that's -- that's the 11 way the market works. I don't -- I mean, I 12 -- I don't know what else to say. But, you 13 know, I understand I'm -- I'm in the -- I'm 14 in the business myself of raising cattle 15 and the market is pretty tough on us. 16 You know, I had a hundred and 17 sixty-six head in 2000. I'm down to 30 and 18 wish I had them down to zero. For the same 19 reason that -- that some -- some of you, 20 I'm sure, wish you were not in the poultry 21 industry because it's been pretty hard in 22 the last five years. 23 Alright. Now, we're back being 302 1 in a turnaround and maybe I'd like to be 2 back to a hundred head after the prices 3 I've seen. But, unfortunately, it's going 4 to take me five years to get there because 5 I can't move them every 40 days. 6 So, anyway, I'll let -- did I do 7 okay? 8 MR. FAMILANT: John Ingrum, quick 9 comments. 10 MR. INGRUM: You know, I sit up 11 here and I listen to all of these things 12 that comes around, but the bottom line is 13 that our -- is our market on the chickens 14 is based on our weight and our feed and the 15 number of flocks we get versus the number 16 of chickens we have placed in the houses. 17 And the -- a lot of the 18 integrators are cutting the number of 19 chickens we get in the houses or increasing 20 our out time to a longer period of time in 21 which resulted in us missing chickens and 22 that has something to do -- a greater 23 affect on what we get paid, but most of our 303 1 payments are still based -- it's the same. 2 I bought my farm from a guy that 3 was in -- in the farm 30 years, in the 4 chicken business 30 years. And he told us 5 -- told me that we get paid the same thing 6 that they use to get paid when they were 7 growing chickens, but the difference is the 8 houses cost 200,000 now and 50,000 when he 9 built his, but we get paid the same. 10 And when you talk to a lot of 11 growers they'll say, "Well, we use to make 12 good money". And they did. 13 But when you -- when you pay 14 50,000 for a house and -- and then you pay 15 220,000 for a house, it's -- and you get 16 paid the same, I don't see how anybody can 17 make money in chickens. 18 And when we go in to talk to that 19 banker or we talk to that integrator, they 20 don't tell us these things, they just shows 21 us the numbers and our head swells and we 22 want to get into the chicken business. 23 My son is 22 years old. He asked 304 1 me one day, he said, "Daddy, how could you 2 anybody talk you in to being in the chicken 3 business"? 4 And I said, "Son, they told me 5 how much money was I going to make". 6 He said, "Yeah, you might cash 7 flow that money, but the bottom line is 8 this". 9 I gave up a job making $80,000 a 10 year to go into the chicken business to 11 make 30. There's something wrong with 12 that. And -- but it's based on the 13 numbers. 14 MR. FAMILANT: Professor Taylor. 15 MR. TAYLOR: Well, the only set 16 of information on actual profitability for 17 contract poultry producers done with 18 managerial accounting, rather than tax 19 accounting, is the Alabama Farm Business 20 Analysis Association, which I have nothing 21 to do with. But trained farm management 22 experts sit down with participating farmers 23 and ranchers and growers who have to pay 305 1 quite a bit to participate. And they go 2 through everything, every little receipt 3 and decide what percentage of the pair of 4 gloves you buy goes to cows and to poultry 5 and so forth. Those records go back to 6 1995. 7 10 of the 15 years, after taking 8 out basically minimum wage, there is a 9 negative return. They've lost money, on 10 average, 10 out of 15 years. And the loses 11 are much larger than the gains. 12 Another set of public 13 information, is a highly detailed survey 14 done by USDA. It's called an ARMS Survey. 15 And you can go, even online, and get a 16 summary for different production 17 specialties. 18 For the poultry specialty 19 averaged over 1996 through '08, 13 years, 20 the average rate of return on equity, they 21 take out a charge for unpaid family and 22 operator labor, after taking that out, 23 there is a negative return on equity. 306 1 Part of the deception that goes 2 on, and I've seen this in a written 3 representation made by an integrator to 4 growers, they show 20% return, you're 5 making 20% on your money. 6 They're not using the same 7 accounting concept that they're required to 8 use in their own financial statements. 9 They're including what little you get for 10 your labor there. If you take minimum wage 11 out for labor, it's probably negative. 12 MR. FAMILANT: Let me -- let me 13 continue with this thought because this is 14 going to be a question for Professor 15 Taylor, too. What information do growers 16 have when they enter into the business and 17 sign those very first contracts? 18 Are there significant 19 opportunities for the integrators to exert 20 what economists call post contract 21 opportunism and impose unanticipated 22 demands on the -- on the growers? And with 23 what frequency do we -- do we observe this? 307 1 Do we -- is there any data on the -- on the 2 frequency? 3 MR. TAYLOR: Frequency is 4 basically is every one of them. 5 The -- there is very little 6 public information on contract poultry 7 production. There's all kinds on wholesale 8 and retail chicken prices weekly, highly 9 detailed. 10 You can go to your USDA web sites 11 or listen to the news and you can get 12 morning and afternoon cattle and hog 13 prices. There is nothing on average 14 contract pay, not even annual. 15 You can go to USDA and get cost 16 of production budgets for corn and cotton 17 and hogs and cattle, nothing on poultry. 18 So potential growers are really 19 at the mercy of representations made to 20 them by integrators. 21 MR. FAMILANT: Mr. Bishop, your 22 comment? 23 MR. BISHOP: What information do 308 1 growers get when they first enter the 2 business and signed the contracts? 3 Of course, we have a list of 4 things that we furnish any potential 5 grower. And that grower also has to make a 6 decision to sit down with his banker and 7 get a lot of the information there, too. 8 So if they're misguided, I think it would 9 be from the lending institution. 10 First of all, whenever we get a 11 new grower, a potential new grower, we give 12 them a packet that offers a copy of our 13 contract. We don't hide anything. They're 14 eligible to take a look at it, read it. 15 Copy of the building 16 specifications. List of contractors and 17 builders that service the area. List of 18 equipment suppliers. We furnish a list of 19 banks and lending agencies that finance 20 poultry loans. 21 We show and discuss any company 22 cost projection and calculations. 23 We tell them to sit down with the 309 1 bank and let them go through this totally 2 again and decide if they want to get in the 3 chicken business and if that bank wants to 4 loan them the money. 5 We file a list of other items 6 that are needed such as the amount of 7 property, permits, utilities, dead bird 8 disposal provisions, litter storage, dirt 9 work, road construction. Even have to 10 remind them about the equipment they'll 11 need like tractors to operate their farm. 12 We want to them know everything 13 there is before they get into the business. 14 A copy of our live production program is 15 given to them. We encourage every 16 potential grower to go and visit with other 17 growers, go and talk to them, see what they 18 think about the business. 19 Take your contact and discuss 20 with whomever you want to, your family, 21 your friends, your attorney. We'll offer 22 to take you to visit the poultry operation. 23 We offer to take you on tours of our 310 1 plants, our hatcheries and our -- our feed 2 mills. 3 It's all about post contractural 4 opportunism and unanticipated demands. 5 Again, I can only speak for our company. 6 We look at the relationships of 7 our growers as being long-term. If it's 8 not mutually -- something is wrong if it's 9 not mutually beneficial to both of us. 10 It's not in the best interest of our 11 company or any other company, I don't 12 think, to impose economic hardships on a 13 grower. And as long as we keep continuing 14 to put growers out of business, the bank is 15 not going to loan money to get new growers 16 to replace them. 17 A productive grower network is 18 important for us. It's essential for us to 19 compete in the marketplace. We have to 20 have good growers. 21 Our management feels strongly 22 about upgrades for the ones that are 23 lowering costs or improved efficiencies on 311 1 our live operations. We'll offer 2 incentives to offset those costs. It has 3 to be mutually beneficial to both us and 4 the grower or we're not interested in 5 looking at it. 6 These changes in technology 7 improvement -- improve management 8 practices, not only in this industry, but 9 as in any other business. And to what 10 frequency, I think it's varying. 11 MR. FAMILANT: I think this leads 12 to a natural follow-up question that at 13 least three of you have submitted in some 14 form. 15 In most areas there are -- there 16 still are numbers of -- of people who 17 wanted to grow broilers and wanted to -- 18 they want to secure loans. 19 How are we suppose to integrate 20 this fact that there are -- there are these 21 people lined up to get in the business? If 22 growers don't expect to see a return on 23 their investment, why are they getting into 312 1 the industry? And, again, as many people 2 have asked from the audience, why do banks 3 lend to these people? 4 Let's -- let's turn to Mr. 5 Weaver. 6 MR. WEAVER: Is that my question? 7 MR. FAMILANT: Yes. 8 MR. WEAVER: I have some other 9 comments I'd like to make as far as the 10 growers income and such that we were 11 addressing earlier and I didn't get to 12 address. 13 But current growers are 14 increasingly discouraging their families, 15 their sons and daughters, their nieces and 16 nephews to get into the poultry business 17 because they, plain and simple, will not 18 make money doing it. 19 I'll use myself for example. And 20 I think the statement has been made here 21 that the biggest cost you have is your 22 fuel. And outside of your mortgage, that's 23 true. 313 1 But my mortgage on my poultry 2 operation is $84,000 a year. Last year I 3 grossed a hundred and nine thousand 4 dollars. And I was the number one grower 5 three times last year. 6 So what does that tell you folks? 7 Part of that was -- one -- one of 8 the previous questions was that the 9 companies cut back on the number of flocks 10 or placing the number chickens you get. 11 Part of that drop in my income 12 was that I lost the equivalent of a whole 13 flock of chickens last year because of the 14 cutbacks. 15 We're -- a lot of our growers in 16 our area are so frustrated, they've lost so 17 much money, that they intend to close down 18 their operation in the very near future. 19 Luckily for them, they're most of the 20 people who have their operations paid for 21 and they can do it without losing their 22 home and their farm. But most of us are in 23 debt to one degree or another. And if we 314 1 do that, we're probably going to lose our 2 home and our farm. 3 Somebody this morning made the 4 comment that that farm had been in their 5 family for eight generations. Those are 6 the kinds of situations we're placed in. 7 And the question being what -- 8 you know, why would people want to get into 9 these contracts like this? 10 As a general rule, the majority 11 of growers I've talked to that have done 12 that, when the companies that -- no 13 disrespect to Mr. Bishop, I don't know how 14 he runs his business, I hope everything he 15 said is true, and I wish it -- I wish it 16 was that way industry wide. 17 But, as a general rule, the 18 figures that growers get when the companies 19 trying to talk them into building houses 20 are misrepresented. 21 Now -- and I've seen them do it. 22 They'll say, "Well, now, here's -- here's 23 the average that growers make, but if you 315 1 do real good, you can make as much money as 2 you can". And that's another 30, $40,000 a 3 year. 4 Well, unfortunately I have never 5 met a grower that is on top every time. If 6 there's one out there, I wish you raise 7 your hand, I'd like to shake your hand, and 8 I'd like you to tell me how you do it 9 because I've never met anybody else who 10 could do it. I don't think this happens. 11 And I read statistics that Doctor 12 Taylor here did that show that it doesn't 13 happen. 14 MR. FAMILANT: If we could move 15 along because we've got -- I really want to 16 get in at least one more question and let 17 -- and let Professor Dicks respond to this. 18 And we're coming up on our hard 19 stop on our time. 20 MR. WEAVER: This last question 21 here says, if they don't want these 22 particular contract terms, why do they sign 23 them? 316 1 MR. FAMILANT: Yeah. 2 MR. WEAVER: I think we've 3 already answered that. They get an 4 ultimatum, you sign here or you don't get 5 chickens. 6 MR. FAMILANT: Professor Dicks 7 for some -- some quick thoughts. 8 MR. DICKS: Well, just a couple 9 of things. 10 You know, Mr. Weaver, if I'll ask 11 you, you know, you said you had an 12 eighty-five -- $84,000 dollar mortgage 13 payment. How much of that was interest? 14 MR. WEAVER: I don't know. Let 15 me think a second here. It's like $25,000 16 of that was interest. 17 MR. DICKS: So that's the only 18 expense. The other part is principle. 19 That doesn't -- you know -- that's -- 20 that's the same as money in the bank. 21 MR. WEAVER: It's not principle, 22 but -- 23 MR. DICKS: You know -- you know, 317 1 but look here, folks, this is -- you know, 2 one of the problems in America today, and 3 you know this is true for all of America, 4 is we have a real problem with financial 5 literacy in this country. And that's why 6 -- that's why we're having the problems we 7 have with all the mortgages crisis and 8 that's why we're having a problem having 9 this conversation. 10 You know, if we're going to tap 11 -- if we're going to talk about finance, we 12 ought to talk about using the same terms. 13 You have to look at the same things; right? 14 If you were making a principle 15 payment that's no different -- you've made 16 the decision to investing in a poultry 17 house rather than invest in the stock 18 market. That's an investment. That's not 19 -- you can't make that -- you can't use 20 that as a deduction. I understand that 21 that means you have less money, but 22 nonetheless, but that principle payment is 23 not -- not considered in finance as an 318 1 expense. So you can't use that. 2 And that's one of the things I 3 want to come back to -- 4 AUDIENCE: Well, look at -- 5 MR. DICKS: -- excuse me, let me 6 finish. 7 MR. FAMILANT: Let him finish, 8 please, please. 9 AUDIENCE: -- is down by 76%, it 10 is an expense. 11 MR. FAMILANT: Let him make his 12 point. 13 MR. DICKS: Well, let me just say 14 this, I'll just make it real easy on you. 15 You know, I -- I -- yeah -- 16 again, I -- I can tell you -- I can't -- in 17 -- in my twenty -- 21 years plus at 18 Oklahoma State University, I don't know how 19 many farms, both my students and I, have 20 analyzed doing business plans for. 21 But I will tell you this, across 22 the country I've -- you know, I've farmed 23 in four different states, I've been all 319 1 over the United States and all over the 2 world, and I can tell you that of all the 3 farms in the United States that I've looked 4 at, I bet you less than 2% of them have the 5 financial records necessary to run a 6 business. And I'm not dissing anybody, 7 that's a real problem, that's one that I'm 8 -- I'm trying to fix. 9 You know, I'll just ask y'all out 10 there, how many people have an income 11 statement on hand, a balance sheet, a cash 12 flow statement, enterprise budgets and the 13 financial ratios necessary to look at your 14 operations? 15 And I guarantee you this, if your 16 bank doesn't have it, your bank shouldn't 17 have lent you any money. And I've looked 18 at a lot of the Farm Service Agency 19 guaranteed loans and they don't have them. 20 And, in fact, just to let you 21 know our state office, our state office, 22 our state FSA office this week has sent out 23 a notice that provided guidelines to the 320 1 banks on what was necessary in order to 2 give loans for concentrated feeding 3 operations. 4 So it -- it -- it indicates there 5 is a problem out there. And one of the 6 problems that -- that this question is 7 getting at is why are people -- why are 8 people getting into the poultry industry 9 when you-all have these problems. 10 Well, number one, is they're not 11 being told -- they're talking to you and 12 they're getting -- they're getting a form 13 that's only giving them that gross profit I 14 was talking about. So it looks pretty 15 good. 16 And they go down to the bank. 17 And what does the bank give them a loan on, 18 their collateral, plus it's a guaranteed 19 loan. 20 All of those things set in motion 21 something that we're seeing here today is a 22 lot -- a lot of problems in the industry. 23 If you're not -- if you're taking 321 1 out a loan, right, and you can't cash flow 2 with 60% of your variable expenses, you 3 shouldn't have taken out that loan in the 4 first place because if you took it out with 5 the understanding that you were going to 6 only have 45% of that be variable expenses, 7 and the propane expense went up or the feed 8 expense or something else happened, you're 9 going to be underwater and you're not going 10 to be able to pay your note. 11 And if I'm a banker, I don't want 12 to do that. I don't want to give you that 13 because I don't have want to own a poultry 14 -- I don't want to own a poultry farm. 15 MR. WEAVER: Mr. Dicks, here's 16 something right here I'd like to offer for 17 an example. And anybody that wants to is 18 welcome to come and look at this. 19 This is a grower settlement from 20 1985. In 1985 these growers could make as 21 much as 4.85 cents a pound for their 22 chickens. Today the company I grow for our 23 base pay is 5.05, that's two-tenths of a 322 1 cent more than it was 25 years ago in 1985. 2 That's the problem, that's part of the 3 problem. 4 Another part is this right here. 5 This -- this is a receipt for Kentucky 6 Fried Chicken for a 12-piece bucket of 7 chicken that was purchased last week. This 8 -- this 12-piece bucket of chicken costs 9 $26.99. And out of that -- out of that 10 $26.99, the grower that raised the chicken 11 got 30 cents. 12 MR. FAMILANT: Alright. Let's -- 13 MR. WEAVER: The -- the state and 14 -- and the city that sold this, where this 15 was purchased, got $2.16 and they didn't do 16 a thing for it. 17 MR. FAMILANT: Alright. 18 Everybody -- everybody wants to keep 19 talking, but indulge me here. We've got to 20 stop very, very shortly and I want to get 21 this last question in because it's very 22 important. This will be our last question. 23 We've recently had court rulings 323 1 stating that producers must prove 2 competitive harm before succeeding in a 3 case alleging an unfair practice under the 4 Packers and Stockyards Act. 5 What are examples of how alleged 6 unfair practices might and might not be 7 related to competitive harm? In view of 8 these decisions, what will growers or USDA 9 have to do differently in order to 10 challenge a possibly unfair practice? And 11 what could a grower, an ordinary grower be 12 able to put together? What kind of 13 economic evidence could that grower put 14 together to support such a complaint of an 15 unfair practice? 16 And I'm going to turn to Ms. 17 Johnson for that. 18 MS. JOHNSON: Thank you. I 19 appreciate it. 20 As I said, I've been representing 21 growers for a long time, about 20 years. 22 And back in the 90's when we were trying to 23 get these growers in Georgia organized I 324 1 use to go to meetings and I would be the 2 featured speaker most of the time. 3 And they would get up and they 4 would introduce me and they'd say, "Ms. 5 Johnson here has won every case she's had 6 for every poultry farmer she's ever 7 represented". And that wasn't quite true. 8 I'd lost one, it was on a technicality. 9 But I would get up and I would 10 wave the flag and talk about how there's 11 this wonderful sword that growers have 12 available to them. And it's called the 13 Packers and Stockyards Act. 14 And it prohibits any unfair or 15 unjustly discriminatory or deceptive 16 practice. 17 And when they terminate your 18 contract because you're at this meeting we 19 can go forward and we can file this claim 20 under the Packers and Stockyards Act and we 21 can get your chickens back. And that gave 22 a lot of comfort to the farmers who stuck 23 their necks out in Georgia back in the 325 1 '90's. 2 And it grieves me to have to tell 3 you folks who are sitting here today that 4 that sword that we had available to us to 5 use for all those years has turned into 6 more like a feather than a sword. 7 I don't see a single grower here 8 from Georgia. And I know why that is 9 because the growers in Georgia who took on 10 this battle have been pretty much cut down 11 and stomped on. 12 The fellow who was here earlier, 13 the gentleman from the Council, Poultry 14 Growers, what's that called again? 15 National Broilers Growers, or whatever, 16 Council -- Chicken Growers. I can't get 17 the name right. 18 He made a good point. The 19 Council has spent a lot of money on lawyers 20 to convince our courts that growers ought 21 not have any federal rights. And that is 22 -- that's a snowball. It's keeps on 23 rolling down the hill and gathering up more 326 1 and more snow and keeps rolling over 2 farmers. 3 The most recent decision is the 4 Terry Case out of the 6th Circuit. And 5 that case isn't over yet. And I'm not real 6 comfortable talking about a case that's not 7 over, and, especially, when the lawyers for 8 Tyson are sitting over there on the second 9 row. 10 But suffice it to say, there's 11 something wrong in America when a grower 12 like Mr. Terry over here in the red shirt 13 complains to the -- to GIPSA, to the USDA, 14 the federal agency that's charged with the 15 responsibility of making sure that growers 16 receive adequate pay for their efforts 17 complains because Tyson is stealing from 18 him, gets cut off for his efforts and has 19 no remedy. There's something wrong with 20 the laws in America if he has no redress. 21 MR. FAMILANT: Thank you. Any 22 quick comments from any other panelists on 23 this, on this particular topic? 327 1 MR. CARNES: We do have one 2 grower from Georgia. Thank you. 3 MS. JOHNSON: Or the panel. And 4 if I can make an observation. And I have a 5 lot of respect for Mr. Carnes. We talked 6 before the panel today. And he seems to be 7 a very capable grower, a very astute 8 businessman, but I believe he's a -- also 9 in another business. And that's the paving 10 business. 11 And it's possible to grow 12 chickens when you have another business and 13 do it profitably. And it's -- it's called 14 writing off some of your losses. 15 And I don't know whether you've 16 ever lost any money in the chicken 17 business, but I want to address -- the 18 question that you had a little while ago 19 that I misunderstood, I've had a little 20 time to think about that question. And it 21 really goes to the upgrade question as 22 well. 23 And that is, why don't -- why 328 1 don't companies go out and build their own 2 chicken houses and hire their own employees 3 and put their own employees in these 4 chicken houses and grow chickens and I'll 5 tell you exactly why they don't. It's 6 because of supply and demand. 7 It's because if they were 8 investing more than half of what they've 9 already got in processing plants, they got 10 to turn around and put the same amount or 11 more money into the houses to grow the 12 chickens. First of all, they have that 13 huge capital outlay in the -- in the 14 assets. 15 And then they've got to hire all 16 the employees to grow the chickens. And 17 those employees are entitled to benefits 18 under federal law as employees, including 19 unemployment if they're laid off. 20 Including workers' compensation if they get 21 hurt in the chicken house. All those 22 benefits that you get if you're employed, 23 you don't get if you're an independent 329 1 contractor; right? 2 AUDIENCE: Right. 3 MS. JOHNSON: What was -- when 4 was the last time you got a check from the 5 government when the -- for unemployment 6 when the chicken processor left you out of 7 chickens. It doesn't happen. Okay. So 8 it's a way for the processing companies to 9 control costs and to adjust for the ebbs 10 and flows of the market. 11 And I'm not an economist, I'm a 12 lawyer, but that's what I have observed 13 over the last 20 years. 14 MR. FAMILANT: Thank you. 15 I want to thank the panelists for 16 a truly spirited exchange here. 17 And I want thank the audience. 18 You guys were as attentive as any panel 19 audience I have ever seen in my life. You 20 guys paid great attention. 21 Thank you very much. 22 Ten minutes -- ten minute break 23 now before the next open discussion. 330 1 (Whereupon, the taking of the 2 proceedings was recessed from 3 approximately 3:53 p.m. to 4 approximately 4:16 p.m., after 5 which the following proceedings 6 were had and done:) 7 MR. FERRELL: We're going to go 8 ahead and get started again. And for the 9 next hour we'll have another round comment 10 period. 11 And we'll use the same form as we 12 did before, if people who got a ticket who 13 wanted to have -- provide some comments, 14 could just line up in front of each 15 microphone. 16 And I -- I would -- I ask for 17 your all's cooperation in trying to keep it 18 as two minutes as close to possible because 19 for each persons that provides a longer 20 term amount of comments means fewer people 21 get to actually provide comments. So if 22 you could keep it closer to two minutes the 23 better. 331 1 And, so -- oh, and I just might 2 mention, just to help you keep staying 3 closer to two minutes, we do have a timer 4 that has a light. And it goes from green, 5 yellow to red. 6 And, so, anyway, we'll go ahead 7 and get started right here. 8 MS. LYNN HAYES: Hi, I am -- I 9 want to thank you all for this opportunity 10 to be here. And appreciate the fact that 11 both the DOJ and USDA are playing very 12 close attention to this issue. 13 My name is Lynn Hayes. I'm an 14 attorney with the Farmers Legal Action 15 Group. We're a nonprofit law firm that 16 represents farm -- family farmers and 17 ranchers. We've been working with contract 18 poultry growers for probably 15 to 20 years 19 now. And since I'm a lawyer I have a very 20 hard time with two minutes, although, I'm 21 use to seeing those lights. 22 But let me just try to make some 23 suggestions on how DOJ and USDA should work 332 1 together on -- particularly to enforce the 2 Packers and Stockyards Act. 3 And I think the first thing that 4 we need to -- that the Department of 5 Agriculture needs to be very firm on is the 6 understanding that the Packers and 7 Stockyards Act is different than every 8 other antitrust and unfair practices act in 9 this country. 10 The emphasis of that act was not 11 just to protect consumers, but separately 12 to protect producers. And, therefore, we 13 need DOJ and USDA to develop a very clear 14 policy analysis of how they are going to 15 protect producers under that act. 16 We need to have them develop, in 17 detail, how they're going to take all these 18 scenarios that have been presented in the 19 poultry industry today, from the ranking 20 system to the insecurity on the duration of 21 the contracts, to the upgrade issues. And 22 take those scenarios and develop the legal 23 analysis that will be used under the 333 1 Packers and Stockyards Act to address those 2 issues, which aspects of them can you 3 address and how. 4 And I think that it's absolutely 5 imperative that the agencies have a clear 6 analysis of that. 7 And my suggestion would be with 8 this joint task force is that you put your 9 best and brightest lawyers and your best 10 and brightest economists together and you 11 sit down and you have the lawyers do the 12 legal analysis for each individual scenario 13 or practice that has been raised. 14 And to the extent that you don't 15 automatically have the information, in 16 part, because there's so limited 17 information in the industry, you ask the 18 economists what do we need and how would we 19 ask the question and how do we get it. 20 Then you use the very broad and 21 effective investigation and information 22 gathering authorities that USDA has and 23 force the integrators to give you the 334 1 information. That has never been done, to 2 my knowledge, was the attempted effort to 3 have regular reports from the integrators. 4 And my understanding, I believe 5 under the Packers and Stockyards Act, you 6 have the authority to ask the integrators 7 for any information on their relationship 8 with the growers that you want and need to 9 assess their practices and whether they're 10 legal under the act. 11 With that regard, I don't want -- 12 I -- I also think that it's absolutely 13 imperative that in these regulations that 14 USDA will be issuing in the near future 15 that they take -- that the Agency maintain 16 it's position. That under A and B of 17 Section 192 that you don't to prove 18 anticompetitive effect. That has been the 19 position of the Agency, I believe, from day 20 one in the passage of the Act. You should 21 maintain that position. 22 In addition to that, you should 23 go the next mile and define how it is at 335 1 that -- how the various practices that you 2 will be addressing in the rules do, in 3 fact, affect competition or injure, cause 4 adverse competition. 5 And when you do that it needs to 6 be looking, not at the consumer, which 7 traditional antitrust law does, but, in 8 fact, at the producer and the monopsony 9 power of the integrators and how that 10 affects the producer. 11 And I think that's the unique 12 aspect of the Packers and Stockyards Act. 13 And that we need to develop a very strong, 14 clearly defined policy and guidelines on 15 exactly how you're going to enforce in each 16 of the livestock and poultry industries 17 under the specific -- to apply it to the 18 specific scenarios that you're hearing 19 about. 20 And that, then, in addition to 21 that on a long-term basis -- that can be 22 done right now. But on a long term basis I 23 think you should be issuing regular orders 336 1 requiring packers -- or integrators in this 2 case to report to you the information that 3 the Agency needs to investigate and 4 maintain a handle on exactly what is 5 happening in the markets. 6 And I think that you have the 7 authority to do that. Have a system that 8 you will then use that information, analyze 9 it on a regular basis and bring any 10 enforcement actions between USDA, referring 11 them to DOJ, that that information on an 12 ongoing basis presents. 13 My time is up. Thank you very 14 much. 15 MR. FRED PARRISH: My name is 16 Fred Parrish. And I had a statement 17 prepared, but pretty much most of it has 18 been covered real well. But -- so I just 19 wanted to share some experiences under this 20 tournament pay or performance pay. 21 I've had add some flocks of 22 chickens that were delivered that were 23 sick. One had aspergillosis and the 337 1 company knew it, it come from the hatchery, 2 and I had a high mortality and the birds 3 didn't perform. And I had one that had 4 rickets and a high mortality and the birds 5 really didn't perform. And I wound up with 6 a, I think one of them was a hundred and 7 sixty-seven and one of them was a hundred 8 and eighty-four points below average. And 9 the company knew that it wasn't anything I 10 did, but I'm the one that suffered the 11 loss. 12 They took my performance and 13 subtracted it from base pay and that's what 14 I got. But it wasn't anything I done, it 15 was something that happened to the birds 16 before I got them. 17 I've had them bring feed out that 18 would be molded and you couldn't get it out 19 of the bins. To them it doesn't matter, 20 you know. You'll hear them say, "Well, 21 yeah, it does matter, why would they do 22 that"? They do it, I don't know why, but 23 they do. 338 1 And I wound up on the -- the 2 probationary thing. They cut placement, 3 which cuts my pay because I had fallen down 4 to the six block average of 60 points below 5 average. 6 And -- but, now, you know, when 7 they wanted something out of me the next 8 batch, they wanted me to take birds back 9 early because somebody wasn't going to be 10 ready. And I told them, you know, is 11 you-all done this to me, you knew it was 12 your fault that I'm here, you know. I'm 13 not doing you no favors if you're not going 14 to help me. I told them, "You know, if you 15 give me back my birds, you know, take me 16 off probation then I will take them back". 17 Well, I reckon they needed bad 18 enough at that time and they did give them 19 back to me on my next flock and took me off 20 of probation. 21 As it was them, and I lost a lot 22 of money off of that because I've got six 23 houses that holds -- well, now, I was 339 1 getting 12 -- was getting 20,000 for the 2 house, but they've cut it back to 19, but, 3 at that time, we were only getting sixteen 4 seven. And when we originally started with 5 them we were getting 20,000 to the house. 6 And the only thing that changed was the 7 number of birds we got. The weights went 8 down when they was suppose to go up. 9 And whatever they say they make 10 things so that you can't hardly get out of 11 debt. It keeps you in debt one way of the 12 other, you know. They may give you a 13 raise, but they cut weights and you still 14 ain't making no more money. 15 I made as much as $50,000 the 16 first year I put in a batch. Now, after 17 I've spent close to $200,000, I think my 18 best check has been 52 or $53,000. That's 19 with an incentive pay. And that's been 20 12 years that I've been with them, you 21 know. 22 It's just not right the way they 23 did it. I mean, it's manipulative. 340 1 Thank you. 2 MS. PATTY LAVERIA: Hi. My name 3 is Patty Laveria, but I'm actually going to 4 read a statement for someone who -- a 5 grower who is very interested in coming 6 today, but couldn't make it to this 7 meeting. 8 His name is Reed Phifer. And 9 he's grown turkeys and broiler chickens for 10 23 years under three different integrators 11 with -- with many contract changes. 12 And, so, what he wrote was that I 13 believe when a poultry company entices a 14 grower to borrow and a lending institution 15 to loan a very large amount of money to 16 build what I consider to be no more than a 17 company farm, the company should be forced 18 to see that the debt is paid in full. 19 I think this should be done even 20 it means making the poultry company a 21 co-borrower and as much as responsible as 22 the primary borrower. This means that if 23 money is borrowed to be paid back in a 341 1 10-year time frame, the contract should 2 stay in place for that period of time. 3 What the company can accomplish 4 through this channel is to have in 5 possession a facility that produces their 6 poultry with cheap labor and no capital 7 outlay. This is labor the company knows 8 they cannot afford -- this is labor the 9 company knows cannot afford to question 10 anything asked of them. 11 I feel making the integrators 12 stand behind their contract until the debt 13 is paid in full should be mandatory. This 14 is the -- this is for when the contract was 15 presented to the lending institution. This 16 was the major factor used in calculating 17 how this very large amount of money will be 18 repaid. 19 The integrator is selling the 20 lender a bill of goods that the loan will 21 be repaid on the premise that the payback 22 numbers are generated by the integrator's 23 contract are exact and guaranteed. 342 1 I understand from talking with a 2 previous grower that Tyson is going to a 3 guaranteed payback contract. This is not 4 to say they want a burden of this 5 magnitude, but it is saying the lending 6 institutions are not loaning money unless 7 their payback is guaranteed. 8 A second point that he makes is 9 just that a poultry company should never 10 have authority to require mandatory 11 upgrades without measures in place to fund 12 the additional work at no cost to the 13 grower. 14 The company should feel confident 15 in their ability to define the exact 16 procedures needed to produce their poultry. 17 This should be clearly defined in their 18 initial contract wording so as to make sure 19 there is no need to add amendments which 20 could cause the grower undue stress. 21 When and if the company learns of 22 new technology that will help profit the 23 production of their poultry, they should be 343 1 responsible for the additional capital 2 outlay. 3 And one last point that he makes 4 is that the grower should have some piece 5 of mind concerning contract security. They 6 honestly have no idea what may happen from 7 one day until the next. 8 This is one reason I would 9 suggest that companies needing additional 10 space for growing their poultry be required 11 by regulation to stand behind any loan 12 acquiring monies for this purpose until 13 paid in full. 14 UNIDENTIFIED SPEAKER: I'm 15 reading a comment on behalf of a grower who 16 would not come here today, was not able to 17 come here today because of fear of 18 retaliation. I'm reading his conclusion 19 first. 20 These comments are real and 21 serious. I cannot reveal my identity for 22 fear of severe consequences, like no more 23 chickens. There is, incidentally, a 344 1 blacklist among integrators so any grower 2 cut off will not be picked up by another 3 integrator. 4 The subject for this memo is, 5 "Input as a contract poultry grower the 6 Secretary of Agriculture and the Attorney 7 General for USDA Poultry Workshop". This 8 is an uncommon opportunity and I thank you 9 for it. 10 Unpaid mandatory upgrades. 11 Requirements prefaced by you will not 12 chickens get back until 36 months ago new 13 cool cell pads 20,000 -- $2,000. 24 months 14 ago demand arms, $2500. 20 months ago new 15 feed bins $8,000. 16 Requirements prefaced by, perhaps 17 you should just stop growing chickens 18 because you're old and it would cost too 19 much to bring your houses up to standard. 20 12 months ago new ceilings, new ceiling, 21 new heaters, new baffles, new cool cells 22 door, a hundred twenty thousand dollars, 23 and four months lost production. 345 1 Requirements prefaced by, you 2 want to sell farm, new controllers will be 3 required: Two months ago new controllers, 4 $14,000. 5 Summary, a hundred and fifty 6 thousand dollars over three years for the 7 privilege of remaining to be a contract 8 grower. 9 Recommendation: Integrators are 10 paid in full for required upgrades. 11 Two, lack of contract security. 12 I get a one year contract, which says that 13 if I fail to respond to any requirement, 14 they can refuse to put chickens back in my 15 houses. 16 Summary: Integrator has 17 demonstrated numerous times by you will not 18 get chickens back until that there is not 19 even 1-year security. 20 Recommendation: Integrator 21 should be required to give real contract 22 which extends through the amortization of 23 houses and improvements. 346 1 Unfair payment system: The 2 tournament method of payment has been used 3 for years. This means that the integrator 4 computes the flock average cost, covers how 5 that's done. 6 Summary: There's a common thing 7 that the integrator than can send the check 8 with the chickens, meaning that all the 9 factors are controlled by an integrator. 10 Recommendation: USDA should 11 declare this practice as unfair. 12 Insufficient base rate increases: 13 Got a token raise of about 5% two years, 14 which brings compensation for over a 15 million dollar facility to just under 16 minimum wage. 17 Summary: Why do I do this? My 18 children will have no part of it. 19 Recommendation: For the industry 20 to survive, there has to be better 21 compensation to contract growers. 22 Financial institutions are 23 rapidly slowing the number of poultry farm 347 1 loans and requiring more security. This 2 will bring the industry and this country to 3 its knees. 4 Finally, lack of Packers and 5 Stockyards action. I had a visit from 6 Packers and Stockyards about ten years ago. 7 They listened to my story and thanked me 8 for my time and left. Do they still exist? 9 Summary. As it currently 10 operated, it has not effect on the poultry 11 industry. 12 Recommendation. Congress should 13 amend the Packers and Stockyards Act to 14 give USDA full enforcement over unfair and 15 deceptive practices in the poultry sector. 16 Congress should prohibit poultry 17 companies from cancelling contracts without 18 adequate cause. 19 Packers and Stockyards should be 20 required to enforce growers rights rather 21 than uphold poultry companies. 22 Thank you for your time. 23 UNIDENTIFIED SPEAKER: Thank you 348 1 for the opportunity. The purpose, my 2 friend could not make it, he just got cut 3 off of chickens last week. They pulled his 4 contract. And he asked me to come and give 5 this testimony of what me -- what he has 6 proposed that might would help all of us in 7 the chicken business. 8 The purpose of this is to protect 9 and give security to the livelihood and the 10 source of retirement for each farmer who 11 has worked for years, years of no 12 comfortable future for their family. 13 He said one permit should be 14 issued to each existing poultry house under 15 contract at present by the federal or state 16 government before any more houses to be 17 built. 18 A new person interested should 19 have to purchase a permit house per house 20 solely from the owner who has permit in 21 hand, one permit to a house. 22 Example, if there was 975 houses 23 in a state, the integrators could not build 349 1 no more houses unless a new fellow, a new 2 person interested should have to find a 3 farmer that wants to get out of the 4 business on his own terms, buy his 5 permitted houses from him so that no 6 integrator could cut him off for little or 7 no reason. 8 This is to ensure that the 9 permitted farmer has a little security for 10 his or her future. No more houses could be 11 built in the state without a permit. 12 One permit equals one house. If 13 a farmer has four houses he has four 14 permits. One permit is valued at $30,000. 15 People in cities and counties are 16 complaining about the smell, flies and 17 environmental impact to these communities. 18 The chicken companies want to 19 build new houses every year so houses that 20 have a little age can be cut off or made to 21 update to comply with their rules, 22 regulations so they have you so deep in 23 debt that you cannot make a rational 350 1 decision. 2 At present farmers have put up 3 all their land, houses, everything they 4 own, their parents and grandparents to get 5 into this operation with no say so at all 6 to where someone else pushes the pencil to 7 how much you make. 8 This is the first million and a 9 half dollar investment for a minimum wage 10 job that I've ever had with no security at 11 all. 12 I thank y'all. 13 MR. BILL RONICK: Good afternoon. 14 My name is Bill Ronick. I'm with the 15 National Chicken Council. And I appreciate 16 the opportunity like many of the other 17 speakers and panelists today, we appreciate 18 this opportunity. 19 I'd like to mention a couple 20 things for the record, they've been said 21 before, but I'd just like to reemphasize 22 those and I have a couple of other 23 thoughts. 351 1 Companies have tremendous 2 economic and competitive incentives to 3 produce good chicks and good feed. If they 4 don't, they're at a competitive and 5 economic disadvantage to other companies. 6 And, so, they want to produce the best 7 chicks and the best feed that they can, but 8 it's a biological process in the case of 9 the chicks, and that makes it much more 10 difficult. 11 For 35 years, until last year, 12 broiler production increased. We talk 13 about volatility in agriculture, there 14 certainly is that, there's certainly is 15 that in broilers. But if there's stability 16 in agriculture, I would suggest that the 17 broiler industry offers more stability than 18 some other parts of agriculture based on 19 that 35-year record. If you go back 35 20 years, I would suggest the reason 21 production was adjusted downward then was 22 because of government policy. And I'm not 23 suggesting the reason we adjusted 352 1 production down last year was government 2 policy, but I think it was part of it. 3 This year broiler production, 4 luckily, is increasing again, USDA says 2%. 5 I think maybe we can do a little bit more 6 than that, but every other meat, beef, 7 pork, turkey, their production is down this 8 year. Broilers is the only one that's 9 going up. Next year we're going up again 10 more than 2%, 3%, maybe more. So we're 11 continuing to get back on this track of 12 continually growing year after year. 13 One of the questions is why don't 14 companies grow -- own grow out facilities. 15 Well, a large company in 16 California, one of the largest companies 17 does, in fact, grow its -- own essentially 18 all their grow out production. In 19 California they're one of the most 20 profitable companies, I haven't seen their 21 books, but I understand they're one of the 22 most profitable companies. 23 There's a small company in Ohio 353 1 -- I've already spoke for two minutes. 2 A small company in Ohio does 3 that, owns their own production, so whether 4 large or small. And then there's other 5 companies in between that grows -- that 6 owns some of their own production. 7 And just quickly, Brazil, Mexico, 8 China, a lot of other countries would not 9 only just like to take our export markets 10 overseas, they would like to export their 11 product here. 12 And I'm going to say -- and we're 13 not going to get into the word if, I'm 14 going to say when these companies meet 15 USDA's inspection requirements, their 16 product will be coming here. And we will 17 be competing against not just their 18 product, but their growers, their feed, 19 their chicks. So it's a global world 20 competitively and it's getting more so. 21 International trade, our exports 22 take about 20% last year. Russia and 23 China, as we speak, are disrupted, they're 354 1 our two biggest markets. They account for 2 40% of our exports. We hope those markets 3 return, but, as I speak, they are 4 disrupted. And, luckily so far, I don't 5 think that problem has gone back to the 6 growers, I think there's some insulation 7 there. 8 The one question I was asked that 9 I didn't hear a good answer is, when I talk 10 to companies, most companies, many 11 companies, if not most companies, have a 12 list of people who want to grow chickens or 13 want to add to production. 14 Now, I understand in the short 15 run, perhaps, you can misrepresent the 16 information, but we've been doing this for 17 four, five decades. And as Abraham Lincoln 18 said, "You can trick some of the people or 19 fool some of the people some of the time, 20 but it's very difficult to fool all the 21 people all the time". So I'd like to hear 22 an answer about, if this such a bad deal, 23 why have we've been able for four or five 355 1 decades to continue to have people who 2 would like to get into the business. 3 And I appreciate this 4 opportunity. Thank you. 5 MR. KIRBY NASERY: I'm Kirby 6 Nasery. I've been in the business for 21 7 years as a poultry grower. 8 To answer your question that you 9 just asked. When I got in it in 1989, I 10 was working offshore on an oil rig. My 11 father had retired. My wife had a really 12 good job and we were doing really good. We 13 put every dime back we made back into 14 chicken -- six chicken houses for seven 15 years. We paid for them in seven years. 16 That's -- that's unheard of, but we put 17 every dime we made back into them. 18 I wasn't even going to bring that 19 up, but the reason I got up was for the 20 ranking system. Right now I'm number nine 21 out of 333 growers on a six block average. 22 I've got two three house farms. I'm also 23 number 126 of 333 farms. 356 1 Now, how is the ranking system 2 fair? Everything I have got is the same. 3 I've got the same equipment. Get the 4 chickens the same day, sell them the same 5 day. How is this possible if the ranking 6 system is fair? 7 Do I spend more time in three 8 houses than I do the other three houses? 9 Do I better -- do I do a better job? 10 My -- my opinion of it is we get 11 a lot of split loads of feeds. And I have 12 never called the Packers and Stockyards 13 about this, but we will get three farms -- 14 three different farms on one truck of feed. 15 You've got a driver that comes 16 out there, stays on the cell phone the 17 whole time he's unloading feed, you know. 18 6,000 pounds on three houses, which is one 19 bin of feed, makes two points feed 20 conversion. Two points feed conversion can 21 cost me $3,000. 22 I just -- you know, I don't -- I 23 don't know the answer for the ranking 357 1 system, but what we've got is not fair. I 2 have been on top and I have been on bottom. 3 And, like I say, I don't have an 4 answer for it, but, anyway, thank you. 5 MR. DONALD RAY WILKES: I'm 6 Donald Ray Wilkes from Geneva County, 7 Alabama. 8 There's been a lot of things 9 discussed here; a lot of things that I've 10 dealt with. One thing that I'd like to 11 mention, a lot of it's been talked about, 12 is upgrades. 13 And the biggest thing in our 14 input into chickens are feed. The 15 technology that's available today, why 16 aren't there some sort of technology on 17 that truck to let them know that this house 18 and this bin putting this much feed in it. 19 If they can do it at a feed lot where 20 there's cattle running across the trough 21 there and he moves a foot and knows he's at 22 the wrong spot, why can't this be done with 23 chicken feed because I had it happen to me? 358 1 A load of feed came in on a 2 Saturday. When it -- so I had the best 3 feed conversion of anybody, wasn't nobody 4 around me. 5 So they came down and I told them 6 to go back and look for the feed tickets. 7 He said, "We haven't got it". 8 I told him to come back on that 9 Friday if they didn't get it because all 10 they was going to do was hurt another 11 grower. 12 So I produced the ticket for him. 13 He said, "We haven't got it". 14 A week later in the mail they 15 made up a ticket and sent it to me. So the 16 technology that's available today, why 17 aren't they upgrading the feed trucks. 18 Thank you. 19 MR. ALTON TERRY: I guess a lot 20 of you might know who I am. I'm Alton 21 Terry. All I wanted to do was watch my 22 chickens get weighed. The company wasn't 23 doing it, it wasn't letting us watch our 359 1 chickens get weighed. 2 I was on the horn to Jim Baker, 3 the former GIPSA administrator. 4 He said, "No, you have the right 5 to watch your chickens get weighed". 6 I knew that they were messing 7 with the weights in our complex, I knew 8 that they were doing that, but every time I 9 wanted to go and watch my chickens get 10 weighed they would never let me weigh it. 11 And, as I understand it, the complex 12 manager even had to sign off that we got to 13 watch our chickens get weighed. 14 I want to know why the Packers 15 and Stockyards Act isn't working -- 16 administration does not have real penalties 17 for me asking this question, for me to 18 watch my chickens get weighed, and for a 19 few other little things, they cut me off 20 from growing business and cost me hundreds 21 of thousands of dollars. 22 Where is the penalty to them? 23 If they can't weigh a chicken 360 1 right should they even be allowed to weigh 2 the chickens, you know? Maybe that 3 function, that part of vertical integration 4 should be taken away from them. If they 5 can't weigh the feed right and give a 6 ticket right to us, maybe that should be 7 diversified -- you know, divested from 8 their part of their integration. If they 9 can't handle their business correctly and 10 want to cheat the farmer with their power, 11 their market power that they have, that -- 12 those parts just need to be taken away from 13 them. 14 Now, I understand the Packers and 15 Stockers Act is being undermined by this 16 proof to harm to competition. When they're 17 cheating all of these farmers out here, 18 they're getting a monetary advantage in the 19 market. 20 When they're all doing it they're 21 colluding in that -- that -- in getting 22 that advantage from the farmers. They're 23 making money off of the farmers by farming 361 1 the farmers and that gives them a 2 comparative advantage to any new entrant in 3 the market that wants to come in. 4 And, so, you know, they're 5 colluding already. And that's the excuse 6 that the federal judges say that we -- you 7 know, that we can't have this law enforced. 8 I want to know something, do 9 these guys not know the difference between 10 or and and? Do they not think the people 11 who legislated this law know the difference 12 between or and and? I mean they did know 13 the difference. 14 These prohibitions were there so 15 that these companies right here could not 16 cheat the farmer to gain value and to be in 17 the marketplace competing with each other. 18 It reduces the price of the market that all 19 of the people get in the market. And if I 20 get cut off of chickens I can't get ten 21 other growers and go and compete with them 22 because they're cheating growers to get a 23 lower price. 362 1 I mean, this is ridiculous what's 2 been happening with these federal judges in 3 the court cases. 4 And, you know, if Congress needs 5 to act -- I mean, they've acted time and 6 time and time again, maybe we need to get 7 rid of a few judges, maybe we need to get 8 the House Judiciary Committee to take out 9 some of these judges who are just siding 10 with these corporations and cheating the 11 family farmer. 12 I mean, what else can we do? 13 That's what the Constitution 14 allows, maybe the Justice Department should 15 ask for that. 16 MR. WEAVER: I don't know if 17 gentlemen were here for the last panel that 18 I was on. There's a couple of points that 19 I didn't get to finish on that panel that 20 I'd like to clarify for the folks here if 21 you don't mind. And it's directed to you, 22 too, because these are things that you can 23 have input on, too, and, hopefully, make 363 1 some changes on. 2 They didn't give me the 3 opportunity to express my example about the 4 KFC price, $26.99 for a 12-piece bucket of 5 chicken. And us, as growers, got 30 cents 6 of that. And that being the case, there is 7 something fundamentally wrong with -- with 8 our private enterprise system here in this 9 country. 10 But when I do -- I had these 11 chickens if I raised them, I had them for 12 at least 35, 36 days. The integrator has 13 them for three days; the day they get them 14 from the layer; the day they take them out 15 of the hatchery and bring to me; and the 16 day the process them. So, you know, where 17 is the equity in that? 18 We've got them ten times longer 19 than the integrators do and they make, Lord 20 knows, how much more profit than we do 21 because they'll never tell us. 22 And the example that I had of a 23 settlement from 1985. I don't know if you 364 1 gentlemen saw that. We have proof that in 2 1985 growers were making 4.85 cents a 3 pound. And today our base pay is 5.05 4 cents, two-tenths of a cent a pound more 5 than it was in 1985. How is that fair? 6 Look -- look how much all of 7 other costs have increased, fuel, 8 equipment, labor, taxes, insurance, but 9 two-tenths of a cent a pound increase. 10 So we -- we have to rely -- we -- 11 we can't do it as individuals. Even as 12 associations, we don't have the power or 13 the authority over the mega corporations 14 that run agriculture in this country that 15 you folks do. And to me, that's your job. 16 We need your help to change the 17 way that agriculture is run in this 18 country, you and the Department of Justice. 19 I forgot, we got the Department of Justice 20 here, too. Please help us. We need your 21 help. 22 MR. MARK HUDSON: Hello. My name 23 is Mark Hudson. I'm a poultry grower from 365 1 Red Boiling Springs, Tennessee up near the 2 Kentucky line got involved in the poultry 3 industry 2004. And, probably, as many here 4 would tell you, I picked the absolute worst 5 years to get -- to get into the poultry 6 industry. 7 The issues I'd like to -- like to 8 bring to light probably isn't as pertinet 9 to GIPSA as it just the finances of the 10 poultry industry. 11 As Professor Taylor alluded to 12 earlier, one of the unintended consequences 13 of vertical integration is that it has 14 created a blackhole of information. 15 In other words, those people that 16 -- that would be on that waiting list to 17 get into the poultry industry do not have 18 good and accurate information that is 19 unbiased from the industry. 20 Looking back into my own 21 mistakes, that would the chief mistake. I 22 did search at great length to find the 23 pertinent information, not just necessarily 366 1 just -- just the costs, but the units, how 2 many kilowatt hours of electricity, how 3 many gallons of gas per -- per house top. 4 I tried to find that information and that 5 information did not exist. Both myself and 6 my lender relied on the cash flow statement 7 as delivered by the -- by the integrator. 8 Now, I think we've heard 9 testimony numerous times today that those 10 -- those particular cash flow instruments 11 are not accurate. And both myself and the 12 lender based their -- their decision to go 13 with the loan and go into production on 14 that particular document. That document 15 wasn't accurate from the first flock that I 16 placed and set. I think their estimate, at 17 that time, was that it would be a 28 -- 28 18 cents out of every dollar would go to cover 19 my variable costs. And that would leave me 20 about at 72 -- 72 cents out of every dollar 21 to handle my fixed costs, you know, my 22 personal income and to maintain the 23 facilities. 367 1 And the situation that we've got 2 into on the facilities is that we have far 3 exceeded the threshold of diminishing 4 returns. 5 The capital investment of these 6 facilities, while they may be greatly 7 benefiting the integrator, are not 8 returning any value to us whatsoever. When 9 you compare that to the fact that we're 10 making to within a very small fraction of 11 we were generating in income in 1985. The 12 poultry industry is in great danger of 13 self-regulating itself because these truths 14 as to how much it costs to operate things, 15 and also the overhead cost and ability of 16 income to sustain that, will tell on itself 17 eventually unless something is changed 18 about the industry. 19 So the industry representatives 20 are here. This is a great threat to you. 21 It's already a present threat to the 22 growers, but if you want to continue to 23 grow in the United States, you're going to 368 1 have to find out how to overcome this. 2 Either it has been mentioned, you 3 cosign on, you become a full partner with 4 us, or you pay for the part that's going to 5 return you some money and leave us the part 6 of the investment that returns us some 7 money, but we will have to partner on this. 8 And apart from any GIPSA issues 9 that may come up, you're facing a real 10 economic problem in the United States on 11 overhead and the inability to sustain that 12 overhead with the income that you're 13 returning to us. 14 So that would be my statement. 15 Thank you. 16 MR. FERRELL: Well, seeing no 17 more folks wanting to provide comments, 18 suddenly you got bashful. No, I'm just 19 kidding. 20 Well, I just want to thank 21 everybody for coming to today's competition 22 workshop. I think we heard a number of 23 issues today and we learned a lot from our 369 1 panelists. And I thank them for taking the 2 time to participate today. 3 I especially want to thank the 4 president of Alabama A&M and all the folks 5 here at the University that did everything 6 they could to get everything ready and they 7 did a great job, and I thank them greatly 8 for doing that. 9 I also thank our folks at USDA 10 and DOJ for helping get all the logistics 11 and everything put together. And, as I 12 have said at the Iowa workshop, I 13 appreciate the good working relationship 14 we've had with the Department of Justice 15 working on these issues and looking forward 16 on that. 17 I want to thank Congressman Davis 18 and Alabama Agricultural Commissioner Ron 19 Sparks for attending this morning. 20 And I will just mention that our 21 next competition workshop will be held on 22 June 25th. And it will focus on 23 competition in dairy issues in Madison, 370 1 Wisconsin. Then we'll have a livestock 2 competition workshop on August 27th in Fort 3 Collins, Colorado. And then a workshop on 4 margins on December 8th in Washington, 5 D. C. 6 I will turn it over to, Dudley, 7 or, Bill, if you have any comments. 8 MR. STALLINGS: I just want to 9 reiterate on behalf of the Department of 10 Justice our thanks to the Alabama A&M 11 University. It's been truly a privilege 12 for us to be here. And a lot of people put 13 in a lot work behind the scenes to get this 14 -- to get this event going and -- and I 15 think we had a really good and productive 16 day today. 17 I especially want to thank all of 18 you for coming here. We have heard 19 throughout the day that there -- there is a 20 real hardship in you being here, either for 21 fear of retaliation or just the mere fact 22 of having to take a day off of work to come 23 here and tell your story. We have -- we 371 1 have heard your stories, we -- we 2 understand them, we appreciate them and we 3 understand the importance of the issues 4 that have been talked about here today. So 5 once, again, I just want to thank you all 6 for -- for being here. 7 MR. DUDLEY: I'd just like to say 8 that -- I want to reiterate and tell you a 9 fact. The last time that the Packers and 10 Stockyards Act was on a presidential agenda 11 was on Woodrow Wilson's agenda. That's 12 back when it was passed. 13 The Act is on President Obama's 14 agenda. I think we have shown today that 15 we are serious about this. To have the 16 Secretary of Agriculture, to have the 17 Attorney General, the Assistant Attorney 18 General here. If for nothing else, it 19 costs a lot of money to get them down here. 20 But they are very, very 21 interested, as we are, in solving problems 22 in agriculture. It is very important, not 23 only to the industry, but to the producers, 372 1 the farmers and the consumers and we're 2 committed to do so. And I want to thank 3 all of you for taking time out of your busy 4 schedules to come and visit with us and 5 make comments. 6 MR. WEAVER: We owe thanks to 7 these people right here. So they need a 8 really big hand. 9 10 END OF HEARING 11 12 13 14 15 16 17 18 19 20 21 22 23 373 1 C E R T I F I C A T E 2 STATE OF ALABAMA ) 3 SHELBY COUNTY ) 4 I, ROBERT KEITH KENNEDY, Notary Public for the 5 State of Alabama at Large, hereby certify that I am the 6 Certified Court Reporter who made machine shorthand notes 7 of the foregoing proceedings at the time and place stated 8 in the Caption thereof; that I later reduced my shorthand 9 notes into typewriting; that the foregoing pages numbered 10 seven through three hundred seventy-two, both inclusive, 11 contain a full, true, and correct transcript of proceedings 12 had on said occasion. 13 I further certify that I am in no way related 14 to nor employed by any of the parties, the witnesses or 15 counsel, and that I have no interest in the outcome of this 16 matter. 17 Given under my hand and seal this the 18 6th day of June 2010. 19 20 21 ____________________________ 22 Robert Keith Kennedy CCR License No. 318 23 My Commission Expires September 5, 2010