by Mia DiFelice
In July 2022, the Department of Justice filed a lawsuit and proposed consent decree against three poultry processors for alleged antitrust violations and unlawful labor practices.
Once the federal court signs off, the $84.4 million settlement would end a long-running conspiracy between Sanderson Farms, Wayne Farms and Cargill Inc. The three allegedly worked together to suppress worker pay at poultry processing plants.
The settlement would also address the companies’ abuses against contract poultry growers. These contract growers raise and care for the companies’ chickens before slaughter.
As part of the settlement deal, Sanderson and Wayne agreed on a guaranteed base payment to their growers. The deal also requires them to give growers more information about the risks involved in contracting with these mega-corporations.
These disclosure requirements mirror a new rule USDA proposed in June. The rule would aim to increase transparency in the notoriously unfair “tournament” payment system widely used throughout the poultry industry.
The new rule is the first in a series of anticipated USDA actions meant to strengthen protections for farmers and growers. These actions are sorely needed. But alone, this transparency rule won’t come close to fixing our broken system.
How The Poultry Giants Dump Costs On Their Contractors
From feed to egg to chicken, to the packages we see at the supermarket, just a few players call the shots. Those players are the processor giants like Sanderson and Cargill. They’re also called integrators because they bring nearly every link in the supply chain under their control.
Rather than raise chickens and market to consumers, integrators found it’s much cheaper to have others do it for them. Even better — they can force growers to take on huge debt to build out single-purpose chicken houses designed to the integrators’ exact specifications. A typical operation with four chicken houses can cost $1 million to build. That doesn’t include costly upgrades that integrators frequently demand growers make to keep their contracts.
And even better for integrators, they place all risk of environmental and public health impacts on growers. They shield themselves from the pervasive harm caused by the practices they force growers to adopt.
Though they avoid the biggest costs, the processor giants maintain tight control over how chickens are grown. Through contracts, processors provide — and control — the chicks, the feed and the veterinary care.
This system has hurt poultry growers for decades. Within it, integrators reap all the rewards without bearing the risks or costs. They force the public to cope with the industry’s polluted air and water. Meanwhile, growers’ livelihoods depend on an unpredictable, unfair and abusive payout system.
In Poultry Tournaments, Processors Don’t Play Fair
Once the flocks are ready for slaughter, the integrators survey the weights of all the birds for every grower in a tournament group. (The integrator decides who is in which group.) They take the average, and then dock pay of growers below the average. What they dock, they add to the payouts for above-average growers.
The actual quality of a grower’s work is not what determines their pay. Rather, their pay is strictly a matter of where a grower falls compared to the other tournament group members.
Because of this, a grower can almost never estimate their payout at the end of each flock. This is especially true because the integrator-controlled inputs can vary in quality, with big impacts on flock performance. In other words, integrators shift all the risk of substandard inputs onto growers. The growers then suffer in the tournament due to variables they have zero control over.
Moreover, integrators keep growers in the dark about input variability. This allows integrators to retaliate against growers who speak out against the integrator. Growers who do so have been known to receive low quality inputs, ensuring they do poorly in the next tournament.
Together, these practices lead to wildly volatile incomes for growers. In fact, the range of incomes across U.S. poultry growers is wider than that among all other agricultural sectors and among U.S households.
Poultry tournaments are a zero-sum game for growers, where there are always winners and losers. But like a rigged casino, the integrators always win. Because integrators transfer pay from below-average to above-average growers, they’re only ever paying for the average rate per flock. Integrators have profited handsomely from their growers’ precarity.
USDA’s Proposed Changes Fall Short Of Needed Systems Change
This year, USDA aims to tackle tournaments by strengthening its rules under the Packers and Stockyards Act (PSA). Congress passed this century-old legislation to protect farmers and prevent abusive and monopolistic practices by meat processors.
However, outdated regulations, incorrect interpretations in court and lax enforcement have weakened the PSA. As a result, exploitative practices have persisted throughout the industry, especially in the poultry sector.
As part of these improvements, USDA has proposed a new rule meant to foster greater transparency in poultry contracts and tournaments. If issued, the rule would require integrators to disclose more information at the time of contracting.
This essential information would include realistic ranges of expected earnings and minimum flock placements. Knowing these factors would help growers better understand what they’re signing up for. They could better decide whether to enter or remain in this risky and often abusive system.
The rule would also require integrators to provide information about the variability and quality of inputs. That could help growers identify when inputs are being distributed in unfair, unjustly discriminatory or unduly preferential ways.
But the proposed rule is not enough. Simply requiring integrators to disclose their control over a grower’s success will not stop their patently abusive contracting practices. USDA must also follow through on its commitment to prohibit the harmful practices themselves, as the PSA empowers them to do.
Moreover, processors have been able to abuse growers for so long in large part due to their extreme power over local and regional markets. Until recently, the four biggest poultry giants held 50% of the national market.
In response, the USDA has proposed a $200 million lending program to support small processors and increase competition. But $200 million will not make a dent in the market power held by the country’s poultry giants. This July, Cargill and Continental Grain (which owns Wayne Farms) announced they acquired Sanderson for $4.5 billion. Now, we can expect the Big Four’s market share to increase to 60%, tightening their grip on growers.
Food & Water Watch Is Fighting Big Poultry
Hyper-concentrated markets, like we have in factory farming, hurt farmers and families. Across the meat industry, growers’ share of profits have fallen while meat and poultry have become the largest contributor to our rising grocery bills. Giants like Cargill and Continental Grain rack up more cash while squeezing every penny from small growers and families.
While greater transparency in the poultry industry is a welcome first step toward addressing these problems, USDA can and must do more.
The Department has signaled its intent to issue future rules on the tournament system and on specific practices that violate the PSA. In the months to come, our lawyers will be working to ensure that USDA issues strong rules that actually protect growers. We submitted our comments on the proposed transparency rule in August, and will continue engaging in the public process on other PSA updates throughout the fall.
Everyone needs to know: Poultry giant shouldn’t get away with abuse.