Unstable farm markets prompt
more growers to look to
bargaining co-ops
By Dan Campbell, editor
argaining co-ops and production
contracts have
long played a role in helping
farmers and ranchers
secure a fair price for
secure a fair price for
their products, but the wilder-than-normal
swings in commodity prices in
recent years may prompt even greater
use in the future. Representatives from
the beef, poultry and processing tomato
industries, who participated on a
panel discussion at USDA’s 2002
Agricultural Outlook Conference
each described various ways these
tools can help producers meet the
challenges ahead.
Dan Looker, business editor of
“Successful Farming” magazine
and the moderator of the panel
discussion, said he began noticing
a sharp increase in interest in
bargaining co-ops about four
years ago, when a group of “progressive
farmers from Iowa, Illinois
and other Midwestern states
gathered to discuss something
that has been around for decades:
bargaining co-ops. They began making
trips to California, Maine and
other states where these types of coops
have been operating. Because of
that, our magazine also rediscovered
bargaining co-ops and began writing
about some of the more successful
co-ops,” Looker said. “Successful
Farming” also sponsored a “Marketing
Clout” conference last winter featuring
presentations by bargaining
co-op leaders.
Tomato growers struggle
to find market balance
“An old pot still cooks good soup,”
John Welty said, quoting an old French
proverb. Welty, executive vice president
for the California Tomato Growers
Association (CTGA), was referring to
the Capper Volstead Act, which allows
producers to jointly discuss price and
trade information, and has helped to
foster thousands of cooperatives and
bargaining associations. Welty is well
practiced in the art of bargaining for a
crop price, having long led CTGA in its
efforts to bargain for fair prices for California
tomato growers. California farmers
produce about 95 percent of the
nation’s supply (and 40 percent of the
world supply) of processing tomatoes.
The role of bargaining cooperatives,
such as his, is still not well
understood, but they play a vital role
in promoting the interests of farmers
particularly producers of specialty
crops who rarely qualify for subsidies
or other support programs, Welty said.
For the canning tomato industry,
reports given at the start of the conference
that the agriculture economy is
“reasonably stable” are far from accurate,
Welty said. The market may have
stabilized for producers of subsidized
crops, but specialty crop producers have
suffered a 20-percent decline in prices
during the past five years. “That’s a
huge drop in net income,” he said.
Production costs are high for specialty
crops averaging $1,800 per
acre and margins are “razorthin,”
usually 5 percent or less,
Welty said.
California, which produces
350 crops including the lion’s
share of many of the nation’s specialty
crops long felt it was insulated
from the supply price roller
coaster that farmers in most other
states live with. Growers in the
Golden State have long used crop
diversification as a primary risk
management tool. But that has
profoundly changed in recent
years, with markets for California
specialty crops “one by one succumbing
to over-planting, over-supply and
eroding prices,” Welty said.
CTGA has long argued that commodity
program “flex acres” not be
allowed to be switched over to vegetables,
because this kind of shift would
distort vegetable markets that had previously
been free from subsidy influence.
Welty noted that even small
shifts in program crop land into vegetable
crops could “ruin the markets
with near-instantaneous over-supply.
“And low and behold, that prophecy
became reality,” Welty said. “While we
were able to keep the wolf away from
the door for seven years, as program
crops lost their subsidies (and other
major producing parts of the world did
not remove theirs) world prices plummeted.”
U.S. program crops began
moving “freed-up acres into high-margin
crops,” Welty continued. “This
trend has completely undermined the
cornerstone of the risk-management
strategy of specialty crop growers.”
Contracts can spread risk
for specialty crop farmers
Almost one-third of U.S. crops and
livestock and 40 percent of U.S. fruit
and vegetables were grown under production
contracts in 1997, according to
USDA data he cited. That’s more than
double the amount grown under contract
a decade before, Welty said.
With contracts, the handler shares
the risk with the grower, he noted.
Quality incentive contracts reward better
quality crops, which also benefit the
processor.
“The ability to transfer title of vast
quantities of fresh, red-ripe, perishable
tomatoes in a manner that shares risk in
a rational fashion is a major asset, and
should not be trifled with,” Welty
stressed.
Growers used to worry about large
food companies vertically integrating,
buying land, buildings and production
capability, Welty noted. “But why own
farms if you can own the farmers?”
Welty said, quoting ag law expert Neil
Hamilton, stressing the vulnerability of
farmers in the marketplace.
“First we had marketing contracts,
where price was set before the crop was
produced,” he said. Under these contracts,
farmers retained ownership of
the crop up until delivery.
“Then we saw production contracts,
where processors maintained more
control of the product, from beginning
to end,” including seed variety, the
crop (once the seed was in ground),
harvesting and hauling.
“Now we are seeing risk-sharing
contracts,” which Welty said shift risk
“against the farmers’ side of the equation.
Many of these contracts are written
so that farmers have to take them or
leave them,” he said, suggesting that
farmers “should just say no to these contracts,
in general, until they have the
power to negotiate better agreements.”
The 1967 Ag Fair Practices Act
which does not require good-faith bargaining
and dispute resolution and
enforcement is “flawed and has fallen
out of use,” Welty said. The main flaw,
he continued, is that it does not compel
good-faith bargaining by handlers, and
implies that handlers are not required
to deal with bargaining associations.
“The need for growers to secure
fair, reasonable prices has never been
more pressing,” Welty said, adding that
this should be a critical component of
U.S. farm policy.
Poultry growers still
seeking national voice
Mary Clouse, project director for
Rural Advancement Foundation International
(RAFI) in North Carolina,
said income for chicken producers is
also lagging far behind a fair level, and
that the industry has been struggling
for many years to forge an effective
national cooperative or bargaining
association that can help growers gain
better margins.
In the early days of the industry,
farmers owned their chickens, bought
their feed and built their own poultry
houses. “They sold their birds when
they were ready.
“But efficiency dictated that it was
better for the processor to own the
birds, own their own feed mills and
hatcheries and to contract with farmers
to raise birds. In the process, farmers
lost much control over their operation,”
she said.
Virtually all broilers in the United
States are currently raised under contract
to an ever-declining number of
large processors. She estimated that
there are 24,000 contract poultry growers
in the United States providing more
than 7 billion broilers to 42 major poultry
companies. “When I started in the
poultry business there were 160 major
companies, so there has been tremendous
consolidation in 25 years.”
Tyson Foods is by far the largest
processor, with 42 plants in 17 states,
65,000 employees and 7,000 contract
farmers, she said. Gold Kist, a cooperative,
is a distant second, with 12 plants
in five states.
Clouse said the current economic
structure keeps producers at the mercy
of the poultry companies. It costs about
$125,000 to build and equip a modern
poultry house, which will provide an
average income level of just $4,000 per
year. About 76 percent of poultry growers
earn less than $29,000 per year, and
45 percent earn less than $14,000 annually.
She said more than half of poultry
growers fall under the federal poverty
level based on a family of four that
depends on poultry alone for income
(and she said many do).
Ranking of growers for pay by
processors is done by a process they
call a “tournament.” But Clouse said
growers believe these pay tournaments
force growers “to play in a game
where everyone gets different equipment
and with no referee. The poultry
processors control all the inputs, tell
them how to grow birds, decide when
to take birds, and when to bring feed.
The company decides whether to continue
to use your facility and any dispute
resolution method.”
With the switch in most contracts to
binding arbitration between the company
and individual growers, farmers have
lost their access to the courts. Some
cases are still going to court anyway,
with producers claiming the contracts
were signed under duress, Clouse noted.
“We hope state and federal laws will
set higher standards for contracts,” she
said, noting that it “may take a combination
of forces to bring this about.”
Clouse was a founding member of the
National Contract Poultry Growers
Association (NCPGA) in 1990, and
worked as a field organizer in the South.
She started a newsletter that at first went
to 250 farmers, but within two years
went to 10,000 farmers. Fear was so great
among producers who attended early
organizational meetings that some
attended wearing disguises and under
aliases, she recalled. The co-op was chartered
in Arkansas in 1990, and was in 16
states by 1992. Its early efforts included
offering group insurance and equipment
buying programs to members.
Early NCPGA successes
crushed by new contracts
After success in those early years,
the industry decided to “lower the
boom” in 1994, Clouse said. Processors
called in all contracts in Alabama
(where the association had its largest
number of growers) and then issued
new contracts with binding arbitration.
“The 40 members who refused to sign
it got no more birds,” she said, noting
that 11 of those growers are still
involved in litigation against the companies.
Thirty of its leaders were
forced out of business or “intimidated
into leaving the organization. This had
a chilling effect on the rest of the organization.
Growers were frightened
back into the woods,” she said.
“Fear still rules the roost,” Clouse
continued, noting that many producers
are afraid to promote a stronger bargaining
cooperative for fear of reprisals
by processors. She painted a grim picture
punctuated by cases of poultry
farmers who have committed suicide
over economic desperation and even
one murder where a producer shot and
killed a company production manager
and then killed himself.
As it stands today, producers should
be treated as company employees, not
independent suppliers, because the reality
is that they are piece-wage producers
under near total control of the processors,
Clouse said. “Our course of action
now is to get protections first we’re
not trying to organize a big, bulky organization.”
She said efforts are concentrating
on regaining access to courts and
connecting with other producer groups.
“Our farmers like what they do
they feed the country; they don’t want
to ruin the industry or drive it offshore,”
she said. Clouse noted that “chicken can
be grown anywhere,”and said China is
building “huge feed mills” to expand its
poultry industry. Country-of-origin
labeling will help the domestic industry,
she said, stressing that consumers prefer
U.S.-raised meat. “But if companies
leave the U.S., what’s to stop farmers
from starting their own plants?”
Clouse said producers are finding new,
non-traditional allies in some consumer,
environmental and church groups.
U.S. cattle industry
regaining lost markets
Paul Hitch, a Guymon, Okl., feedlot
operator who helped launch the Consolidated
Beef Producers bargaining
cooperative, said to regain lost markets,
the cattle industry needs to look to the
poultry industry and the way it markets
consumer-driven products.
Cattlemen look back at the 1970s as
the good old days for their industry,
Hitch said. In those days, John Wayne
was still the nation’s idea of a movie
star, big belts, buckles and western hats
were all the rage and, he continued,
“beef was king of the meat case while
chicken was just a commodity that cattle
producers paid little attention to.”
Flash forward to 2002, and beef has
lost its crown to chicken, which is
increasingly sold under brand names
“while beef is just a commodity.”
“We forgot about the people who ate
beef and didn’t want to spend six hours
making a pot roast. The poultry people
did not forget the consumer, and so
they started selling breaded, boneless,
skinless, microwavable chicken in every
cut imaginable.” By about 1970, the
beef industry had begun experiencing a
two-decade-long erosion of market
share. “We were marching down the
road if not to oblivion at least to a
position of less significance.”
Cattle producers, he said, should
have been thinking of themselves as
beef producers first, not cattlemen.
“The person who eats beef is our king
and queen. They want consistent-quality
products that are easy to prepare in
a short period of time. And if you don’t
give it to them, somebody else will.”
The pork industry has been quicker
than the beef industry to emulate the
marketing success of the poultry
industry, Hitch said. But the beef
industry is finally heading in the right
direction. In addition to offering
leaner, more consistent beef in a
greater variety of easy-to-cook cuts,
Hitch said branded beef products are
becoming more common.
As a result, beef has increased its
market share by 5 percent in the last
couple of years.
So, with the beef industry heading in
the right direction, the challenge for
ranchers and feeders is to make sure they
can supply the type of beef needed to
sustain and expand these market gains
and to earn a fair return for their efforts.
Hitch said that means moving away
from cash markets, which “worked
well as long as there were lots of sellers
and buyers dealing in a non-differentiated
product.” But with the
numbers of feeders, packers, ranchers
and retailers contracting more and
more, he said the situation has
changed dramatically.
Beef packing concentration
sparks need for co-ops
The top four beef companies in the
United States now control 80 percent
of beef packing in the nation. The top
seven retailers control 45 percent of all
beef sales to the public, and that is
expected to climb rapidly to 75 percent,
Hitch said.
He noted that some say this concentration
is the result of a “conspiracy” to
take control away from farmers and
ranchers, but Hitch said this process is
really just the result of basic market
forces at work.
The Texas Cattle Feeders Association
(which covers Texas, Oklahoma
and New Mexico) first floated the idea
of forming a cattle marketing co-op in
about 1986, but it died for lack of
enthusiasm. “It came up again in 1992,
and failed by a smaller margin,” Hitch
said. “Then it came up again in 1997,
but still didn’t have quite have the critical
mass to go forward.”
In 2000, Hitch whose family
feeds about 300,000 cattle in Oklahoma
and Kansas was chairing the
Texas Cattle Feeders Association
when his board told him the time was
right to form a marketing co-op to try
to earn more for their members. The
idea was that instead of independent
feedlots each selling separately to
packers, and being worked against
each other, they would commit cattle
to a co-op that would sell to packers
on their behalf.
Formed in April 2000, the co-op
recruited its first members in May
2000, enrolled 2.1 million cattle and
“closed the books” on membership by
October of 2000. “That is a significant
number of cattle twice the size
of the largest independent cattle feeder
in the nation,” Hitch said. In
March 2001, Consolidated sold its
first cattle.
Since then it has sold 60 percent of
the cattle submitted by its members.
Cash sales have accounted for 39 percent
of sales, premium-grid sales 39
percent and in-the-beef (or carcass
weight) sales the other 22 percent. “I
wish we had more negotiated grid
sales I think we need to get away
from the cash market,” he said. Consolidated
members have netted $8 per
head more than on the cash market.
“So yes, Consolidated Beef has
achieved some success, but it is not as
successful as it needs to be,” he said.
Hitch noted that the co-op had a small
loss of $160,000 the first year (against
cash reserves of $2 million).
“It’s been a tough, tough time for
cattle sellers,” Hitch said. “There’s too
little packing plant capacity and too
many cattle to sell. That does not give
you much traction as a seller.”
Again, about that pot roast. Now the
industry is offering consumers a goodtasting
roast that is mircowavable in
seven minutes and has potatoes and
carrots with it, Hitch said.
“When you brand your product,
there is huge incentive to line up a consistent
supply of the right kind of product
to make your brand successful. And
that’s where I want Consolidated Beef
to fit in. I want the packer to make
more money,” he said, but he also
wants his members to make more money
“by making Consolidated Beef the
supplier of choice for a packer/retailer/
branded program that provides the
right kind of cattle at the right plant at
the right time to make the program
work. We are not there yet, but that’s
where we are headed.”
