Farmers Take Millions In Loans To Raise Chickens For Big Box Retailers: The Salt: NPR
Grant Gerlock / Harvest Public Media
Tim Mueller has grown corn and soybeans on 530 acres near Columbus, New Brunswick for decades, but now he’s planning to take a huge bet.
Big box retailer Costco is building a new chicken processing plant in Fremont, New Brunswick, about an hour from Mueller’s farm. The company plans to slaughter 2 million poultry per week. To raise all of these chickens, Costco is recruiting about 120 farmers to sign up as contract poultry breeders.
Mueller wants to come in. But to do this, he plans to take out a massive loan of $ 2 million to finance the construction of four henhouses.
As pork and poultry production expands in the United States, this is an increasingly common arrangement. Farmers sign multi-million dollar deals to do business with big companies. The company supplies animals and food. The farmer builds the barns and takes care of the animals. This requires a significant investment on the part of the farmers who enter into the deal.
About 50 yards from a gravel driveway from Mueller’s house is a cornfield dotted with young green stalks. This land is where he wants to build up to 12 new henhouses, with enough room for 180,000 birds. This would require approximately $ 6 million in loans.
“It makes me a little more diverse, brings additional income,” says Mueller. “Every farmer needs extra income.”
Mueller never raised chickens except for backyard birds. But like many farmers, the possibility of having a stable income when grain prices are falling, as they are now, has caught his attention. Also, he says, adding chickens would help two of his sons get back into the business.
Grant Gerlock / Harvest Public Media
You can hear the excitement in Mueller’s voice when he talks about raising chickens, and maybe some nerves too, thanks to this big loan. If her two sons joined the business, they would have to take out similar loans.
“My wife and I have talked a lot about this investment,” says Mueller. “She said the same thing, ‘God, that’s a lot of money.”
Buying another section of farmland to produce more corn would cost almost as much, Mueller says. The poultry contract is supposed to pay off the debt.
“You take out a 15-year loan, you pay off your barns, and you bring home a lot of money to live on,” says Mueller. “That’s why when you compare the purchase of land to this investment, for me it’s healthier.”
However, this best case scenario is not guaranteed. In other parts of the country, poultry contracts have not always been a good investment.
“The initial promises of a poultry production contract are really enticing,” says Christopher Leonard, author of The meat racket, a book on ruthless contracts in the poultry industry.
In states like Arkansas, Leonard says, poultry farmers often sign contracts for one flock at a time, with no guarantee that there will be another. They are also usually paid according to a tournament system: the best farmers are paid on top, the money being taken away from the farmers below.
“These enterprising farmers go into great debt, and then after only a year or two find themselves really locked into expensive conditions they never expected to find,” says Leonard.
Lincoln Premium Poultry, the Costco affiliate that manages the Fremont project, says the Nebraska contract is worded differently. It will pay extra for the best chickens, but will not reduce the wages of farmers whose chickens are below average. In addition, the contract will not be flock to flock. The company will ask the farmers to sign a 15-year contract, for the same duration as the bank loan needed to build the henhouses.
“I would have liked to have had this contract that I give to these producers in Nebraska, that’s how strongly I feel it,” says Walt Shafer, project manager for Lincoln Premium Poultry and contract poultry producer in Virginia.
Ultimately, Costco wants to make the arrangement work, Shafer says, because the company needs all the chicken farmers can produce. “We’re sold out and we haven’t produced a product yet,” he says.
Other observers say the Costco contract is far from certain.
The Organization for competitive markets (OCM), a non-profit organization that advocates for antitrust issues in agriculture, and the Nebraska Farmers Union sent a letter to Costco outlining their concerns about a first draft contract. For example, if the project is in financial difficulty, Costco can cancel the contract. This can force farmers to pay for expensive building improvements. And farmers can always lose money on a bad batch of birds.
“A flock disaster, I call them,” says CMO president Mike Weaver, who raises contract poultry in West Virginia. “They get a disease that stunted their growth. And that will eventually happen (to the farmers). They have no control over the food and the chicks, but their salary will be based on them.”
Weaver says neither Costco nor Lincoln Premium Poultry responded to the concerns raised by the groups. Shafer says the company responded to some questions raised by a growers advisory committee made up of potential contract growers, including Mueller.
Mueller says he understands the potential pitfalls, but is always ready to sign. He spoke to other contract farmers and presented cost-benefit scenarios. He also executed the contract through his banker, lawyer and accountant.
“There are things that are not perfect, but you will never get a perfect contract,” says Mueller. “And then again, you’ve got to have some faith and you’ve got to have some confidence.”
In the coming weeks, Mueller plans to sign a final contract with Costco. The black and white language of this document will largely determine whether its optimism pays off or if it is just wishful thinking.
Grant Gerlock reports from Nebraska for NET News and Harvest public media, a public radio reporting collaboration that focuses on issues of agriculture and food production.