On February 5, 2016 Maryland Senators Madaleno, Lee, Manno and Pinsky introduced legislation in the Senate known as the Farmers Rights Act (SB761). The bill was referred to the Senate Finance Committee.
A companion bill (HB 1496) was introduced in the Maryland House of Representatives on February 12, 2016 by Delegates Washington, Carr, Frush, Gutierrez, Kelly, Lam, Moon, Morales, Melnyk, Robinson, Smith, and Tarlau. It was referred to the House Environment and Transportation Committee.
The House Committee hearing is scheduled for today and the Senate Committee hearing is scheduled for March 9, 2016.
The legislation aims to provide farmers certain measures of protection in dealing with large companies that contract with them to produce company owned livestock. Most of this country’s chicken (97 percent) and hogs are raised under production contracts.
Understanding the nature of the beast, so to speak, is important to understanding the need for protections for farmers.
Most U.S. broiler (meat chicken) production is under contract with a broiler processor (chicken company). The grower (farmer) supplies the chicken house with all the necessary heating, cooling, feeding, and watering systems. The grower also supplies the labor needed in growing the birds. The broiler processor supplies the chicks, feed, and medications. The chicken company transports its chickens from the farm to the processing plant. In most cases, the company supplies the crews who catch the chickens for transportation to the company slaughter plant. This is known as vertical integration whereby the company owns everything from embryo to market shelf.
On average, off-farm income accounts for half of the total household income earned by contract growers (USDA Economic Research Service). While millions of dollars are invested by farmers in land, housing, and equipment it is not an investment with a return that can support a family. It has been said by farmers that collectively they invest at least half of the capital needed in the poultry industry. Many sources say that over 70 percent of contract farmers earn a below poverty level income from the chickens they raise for companies.
Many contract farmers feel that they don’t have equal power in the relationship between company and farmer although they have huge investments. The cost of 1 new chicken house today is approximately $380,000. While contracts are clear in saying that the farmer provides a service to the company, things get confusing and muddled with the company control of that service provided. Looking further into the contract, the price paid to the farmer for his/her service is an epic conundrum.
At the heart of it all is that everything relies on “good faith”. As a matter of fact the Farmers Rights Act begins by saying “For the purpose of establishing that certain contracts for the production of livestock impose a certain obligation of good faith on all parties;”.
Payment to farmers relies on pounds of broiler meat moved from the farm versus costs acquired to raise the flock of chickens. Based on the “good faith” of the company that weights stated are actual and true, is a good place to start. Was the company feed truck that delivered company feed to the farm really delivering the amount of feed stated? Were the weights stated for the chickens that moved off the farm by the company truck and weighed on the company scales, actual? Many growers question this?
Part of the “good faith” related to the Maryland legislation is that many times companies demand upgrades to poultry housing and equipment. Farmers bear the burden of cost for the upgrades adding to an already extreme shortage of cash flow on the farm. The contract is used in the process with a promise from the company that the contract will be terminated if the farmer doesn’t comply.
Although it’s questionable as to whether a service contract can be controlled by the party receiving the service insofar as what the service provider uses to accomplish the service, which with chickens the service is to raise them to a marketable weight.
Forcing a farmer to continually add debt on top of existing debt comes with no guarantee that the company will continue to contract with the farmer. Contracts have been terminated and the service provider (farmer) is left with no way pay the debt incurred because of the inducement by the company.
It could be further argued that when poultry houses are originally built it is done so accordingly to company specifications. Those specifications change, frequently.
There exists an imbalance of power within the contract system and undue influence is held by companies over the farmer through the contract.
Good Faith is described as “an honest intent to act without taking an unfair advantage over another person”.
However, contracts are nonnegotiable, designed by the company, and offered on a take it or leave it basis. The “unfair advantage” is easily seen in the take it or leave it when the farmer has to take it to have chicks delivered to the farm by the company. How else would the farmer service the debt?
Some of the imbalance in power is corrected with the Farmers Rights Act providing a mechanism for farmers to recapture capital investment and is something that will help curb company demands to spend more money based on a whim and induced by a contract.
Opponents of the legislation aren’t doing the chicken companies any favors. If “Good Faith” exists as what’s being argued than they have nothing to worry about over the bill and it becoming law. Unless, of course, “Good Faith” doesn’t really exist.