February 9, 2016
During the peak of the Avian Flu (also known as “bird flu) outbreak in 2015, the National Sustainable Agriculture Coalition (NSAC) wrote about the problems with USDA rules that placed the burden for certain losses on contract growers, paying indemnities only to the integrators (companies that own but don’t raise the animals). At the time, integrators were only required to share indemnities they received from the USDA with contract farmers for Low Pathogenic Avian Influenza events, not for losses from Highly Pathogenic Avian Influenza (HPAI). Since that time, NSAC has urged USDA to amend its HPAI rules to ensure fair treatment of farmers.
On February 5, 2016 the USDA finally released new interim rules on indemnities for HPAI, which help ensure that contract poultry growers who lose birds to the disease are treated fairly. Under the new rules integrators will now be required to share indemnity payments with contract growers, the group who assumes much of the risk inherent in raising the birds.
While this rule is now in effect, USDA is still accepting comments through April 11.
Why Indemnity Payments so Critical to Contract Growers
Last year the U.S. experienced its worst outbreak of HPAI to date. By mid-2015 the disease had killed over 50 million birds and was widely reported on in both the agriculture and mainstream media. What was often less reported, however, was how the flu affected farm livelihoods–by July 2015 the economic damage in Iowa alone (the country’s number one egg-producing state) had reached nearly $1 billion.
Contract growers are only paid for birds that survive until they are picked up by the integrator. Under the old rules, if an HPAI hit, all the affected birds would euthanized and the contract growers would be left holding the bill.
This was particularly challenging for farmers, considering that many of them are straddled with heavily mortgaged poultry barns that demand monthly payments whether they have birds in them or not. An HPAI infection can mean no bird deliveries for months, which would have meant months of no income for poultry farmers.
Contract farmers raise poultry owned by another company, aka the integrator. The integrator provides the feed and tells the farmer how to raise the birds, while the contractor pays for the poultry barns, owns the land, and pays the taxes and upkeep on those assets. In other words, the grower/contractor owns most of the things that cost money, and the integrator corporation owns most of the things that make money.
To learn more about the contractor/integrator system read about our work on contract agriculture. We would also highly recommend watching this video by John Oliver, which aired in May 2015 on HBO’s Last Week Tonight.
What the New Rule Says
The new rule lays out the formula by which indemnity claims for HPAI will be split between the integrators and the contract farmers. The formula is based on the portion of the production cycle that has been completed. It reads:
The dollar value of the contract the owner entered into with the contractor will be divided by the duration of the contract in days as it was signed prior to the HPAI outbreak. The resulting figure will then be multiplied by the time in days between the date the contractor began to provide services relating to the destroyed poultry or eggs under the contract and the date the poultry or eggs were destroyed (APHIS-2015-0061, page 6).
As well, the indemnity payment to the contractor will also be reduced by any amount they receive from the integrator for the destroyed poultry under the contract.
The rule makes two other extremely positive changes: 1) It clarifies existing policy providing an indemnity for eggs that must be destroyed as the result of HPAI, and 2) It creates a requirement that in order to receive and indemnity payment a biosecurity plan must have been in effect at the time of the detection of HPAI.
NSAC applauds USDA’s move to increase fairness in the contract poultry and egg production system. However, this is just a small step of many needed to rectify the myriad of injustices faced by farmers in contract agriculture– not just in poultry, but also by those in the cattle and hog industries.
Contract farmers in all industries face an unfair payment system that pits them against their neighbors, lack of access to markets due to consolidation caused by lax anti-trust enforcement, and retaliation from integrators when they speak out about unfair treatment.
NSAC’s appreciates the effort of USDA and Agriculture Secretary Tom Vilsack in taking this important step toward more fairness for contract poultry producers. We look forward to even greater progress in the future.
Check out the links below to learn more about the integrator/contract grower system and locate resources:
Categories: Competition & Anti-trust, Food Safety, Sustainable Livestock