USDA Issues New Regulations Protecting Contract Farmers

The USDA released regulations (PDF link) this week that will provide new, much-needed protections for contract poultry farmers.

Contract farming generally refers to a system in which a farmer raises or grows an agricultural product for a larger company. Contract poultry farmers invest their own money to build poultry barns to company specifications. Under contract, a company delivers the chicks to the grower who uses company feed and medicine to raise the chicks. The company retains ownership of the birds and dictates how the chicks are to be raised. The grown birds then go back to be processed by the poultry company for a previously agreed-upon price based on the birds' weight.

A typical chicken house costs about $300,000 to build, and most companies encourage growers to build at least four houses, for an investment in excess of $1 million. Frequently, growers take out loans covering that entire expense, only to find themselves dropped by the company, often with little or no notice. While there exists the potential for fair contracts in this agricultural system, that has not been the case historically. Contract growers have typically been extremely vulnerable, the contracts tilted against the grower who is subject to the whims of the poultry company. These new regulations issued by the USDA's Grain Inspection, Packers & Stockyards Administration will help change that system.

Under the new rules:

• Companies must provide farmers with a written copy of the contract before the farmer makes an initial investment in his or her poultry houses;
• Contracts with confidentiality clauses must allow farmers to discuss contract offers with federal or state agencies, immediate family members, business associates, farmers who contract with the same company, accounting services hired by the farmer, a lawyer or financial advisor before signing;
• Contracts must state that if a farmer is put on a performance improvement plan (in other words, if they've received a warning that could potentially lead to their contract being terminated), they must be told why, what steps will be taken to help them improve, how they can regain good standing, and the factors that will be used to determine when or if the contract will be terminated;
• Farmers must be notified in writing within 90 days before a contract is terminated, expired, not renewed or not replaced.

"I'm glad that USDA is taking action to protect growers," said Kevin Hux, a farmer in El Dorado, Arkansas, who raised chickens for Pilgrim's Pride until April, when the company closed its El Dorado processing plant and terminated 170 growers.

"When the company terminated my contract, the company representative left a message on my answering machine saying that the flock of chickens that we had would be our last," Kevin said. "We had no warning. No one should be in that situation."

Mickey Box, a farmer in Berryville, Arkansas, agreed. "Growers have been left in the dark," Mickey said. "When I was put on a performance improvement plan, I knew I could lose my contract. It would have helped to know how I could get back in good standing."

Becky Ceartas, director of the contract agriculture reform program at Farm Aid-funded group Rural Advancement Foundation International-USA (RAFI), said these rules increase fairness, transparency and good business practices.

"Before farmers make the financial commitment to build poultry facilities on their farms, they need to know exactly what's expected and what the terms of that arrangement will be," said Ceartas. "An informed farmer can make better decisions, and that benefits everyone."

Farmers and concerned consumers can get more information about these rules by calling Ceartas at (919) 542-1396 x209 or by visiting www.rafiusa.org.

The Administration will release additional proposed regulations in early 2010 that will deal with other competition and fairness issues in poultry and livestock agriculture—stay tuned!