NSAC's Blog

Avian Flu: What About the Contract Poultry Grower?

July 30, 2015

There has been a lot of talk about the Avian Flu outbreak from the media, including many reports by outlets that don’t often don’t spend much time covering agriculture. They have covered the 34 million birds that have been euthanized and the skyrocketing cost of conventionally produced eggs.

What they have not been covering is the plight of the contract poultry producer. Well over 90 percent of poultry raised in the United States is done so under contract. Under this system a farmer has chickens they don’t own placed with them by an integrator. The integrator also provides the feed and specifies how the birds must be raised. The contractors owns the land, takes out a loan to build the chicken houses, and disposes of the waste.

In other words, the grower/contractor owns most of the things that costs money and the integrator/industrial corporation owns most everything that makes money.

To learn more about this system, read about our work on contract agriculture, or watch this video by John Oliver that aired on HBO’s Last Week Tonight.

The injustice that these farmers experience doesn’t end with the system they are sucked into, it extends to how they are treated when USDA destroys their flock because a dangerous disease is discovered in their poultry house.

Generally, when USDA has to destroy a flock of poultry, a heard of cattle or a drove of pigs because of disease, they indemnify the owner by paying them the value of the animals.

The Avian Flu Payment Problem

The problem for the vast majority of chicken farmers? They don’t own the birds they raise.

Under current regulations, when Low Pathogenic (Path) Avian Influenza is the cause for indemnity payments to be made, the USDA regulations specify a formula to split the indemnity between the owner of the birds (integrator) and the contract producer. The rules also specify that the value of the layers include the value of their future egg laying potential.

These two provisions, however, are not contained in the regulations governing the destruction of poultry flocks where High Pathogenic (Path) Avian Influenza is found. High Path Avian Influenza is at the center of the current crisis and has been devastating turkey and egg facilities in Iowa and Minnesota and is expected to spread to other production areas.

The poultry integrator, who owns the birds, can voluntarily share the indemnity payment with the growers, but it is not at all clear that is happening in practice. According to John R. Clifford, DVM, the Chief Veterinary Officer at USDA, during a July 8, 2015 Homeland Security and Government Affairs Committee Hearing, contract farms “may” be indemnified. This 2011 APHIS presentation explains how the split “may” be made.

Secretary Vilsack addressed this issue at an Avian Influenza meeting in Iowa on July 28.

We have been working on the indemnification issue as well. We know that there are some concerns about this. Concerns about why high path and low path [avian influenza] are treated differently. Well the reality is that low path occurred first and we developed regulations to deal with it. We are in the process now of making sure that whatever we do with high path and low path are consistent. We also know that there are some concerns about where the resources go when you’ve got a situation where the birds aren’t necessarily owned by the producer. How does that work? We assume that growers and the industry would work out a division of the indemnification payments. In some cases that has been happening, in some cases that has not.

The National Sustainable Agriculture Coalition is hopeful that the Department will quickly issue a new interim rule to bring high path regulations into synch with the low path rules.

The Bigger Issues

On top of this, these poultry producers have no guarantee that, even after a flock has been destroyed and the barns they spent hundreds of thousands of dollars on have been cleaned, they will ever see another bird again.

Most of these farmers don’t have long term contracts, and the integrators could choose to never send them another flock. As a result, they would be stuck with an essentially worthless barn and a huge mortgage with no way to pay it off.

There is not currently any insurance policy that a poultry contractor can buy that would help them with this situation. One was considered during debate on the last farm bill, but it was dropped as too expensive, despite the $9 billion a year price tag included in the bill for crop insurance subsidies.

The farm bill did contain a requirement for USDA to study the feasibility of a catastrophic poultry insurance policy, but that will not likely be released until later this year or early next year.

That is also just a study, not action.

Moreover, USDA’s Packers and Stockyards Program, which has responsibility under the Packers and Stockyards Act for ensuring a fair marketplace for livestock and poultry, has been prohibited by the repeated actions for recent Congresses from implementing and enforcing the law through rulemaking. For more on this continuing travesty, see our earlier blogs on the issue, Kaptur Pingree Briefing on GIPSA Rider and What’s All the Flapping About and recent congressional activity House Appropriations Committee Passes Bill Without GIPSA Rider.

Back to Avian Flu

With the expectation that Avian Influenza will be back this fall, we could be in a situation where many more poultry farms will have flocks destroyed and contract farmers will be the ones carrying the burden, while the big contractors, Tyson, Pilgrims Pride, and Purdue get paid.

We hope that these multinational companies are sharing their indemnities with their contract producers. But we also urge USDA to move quickly modify the current regulations to rectify this injustice and make grower payments a matter of right.

Categories: Commodity, Crop Insurance & Credit Programs, Competition & Anti-trust, Farm Bill

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