As the poultry industry expands in South Carolina, farmers are finding the deck stacked against them.BY ALEX TODOROVIC
When George Faust turned 50 he decided he was through working for everybody else. Last January, he made a phone call from his home in Chester County to Circle S Ranch in Monroe, N.C. Two months later, he was approved for a $300 thousand loan to build turkey houses.
His young turkeys, or poults, are two weeks old, and Faust is excited about the $20 thousand he expects to make annually raising turkeys.
"Turkeys in this area seem to be what's going on," he said. "It's a way for a man to make a living."
Like many newcomers to the business in South Carolina, Faust has no experience with turkeys. Today's corporate farming techniques have made experience obsolete.
Circle S Ranch is what is known as a vertical integrator, a company that has control over virtually every aspect of production. The company specifies exactly how the brooding and range houses are to be built, provides poults, feed and medicine.
A Circle S service man frequently drops by to check on the birds and gives Faust advice. After 18 weeks, Circle S sends a truck to take the birds to slaughter. All Faust has to do is follow directions and rake in the money. After 10 years, his $300 thousand loan will be paid off.
So say the integrators.
Faust is one of a growing number of Chester county residents who is throwing his fortunes in with turkeys. In the last year, DHEC has taken at least 10 applications for turkey farms in Chester County.
Circle S, like other poultry integrators, requires an enormous capital investment, usually obtained through a farm credit bank. The farmer is only able to secure the loan because he has a contract with an integrator.
Jeffrey Bruce Collins, for instance, obtained a $287,700 loan by mortgaging 66 acres, valued at substantially less than the loan. Collins actually never sees the check, and the money is kept in a special account. The new Circle S grower also receives a bonus amount of $15 thousand "to help get started."
After falling hundreds of thousands of dollars into debt, the only guarantee a new grower has is that Circle S will buy one flock of birds, the equivalent of a four-month contract. A grower typically averages three-and-a-half flocks each year.
According to Mitchell Deese, a Circle S representative, "The contract is renewed based on the performance expectation of the contract. If the contract is fulfilled with acceptable compliance, we are not in the habit of cutting people off. It is an ongoing contract, a long-term agreement."
If the integrator does pull out, the grower is left with a debt that could cost him his farm. Faust and Collins raised these concerns with Deese before signing on the dotted line. They were assured, "Circle S has never pulled out on a grower."
Clinton Phillips, of Marshville, N.C., began growing for Circle S in 1988. "In 1991, they terminated my contract," he said. Phillips had 10 years of turkey growing experience when he started with Circle S. "We worked harder for this company and made less than with any other company. I cannot say anything good about them."
Phillips declared bankruptcy and refinanced $85,000 in outstanding debt. Phillips says he did everything by the book, but had a cholera problem on his farm after he started growing for Circle S.
"They introduced the virus on my farm," he said. "They mess up your farm and then walk away. They blame the grower for everything." He explained that all growers experience diseased farms if they are in the business for a few years.
Deese acknowledged that disease is one of the industry's greatest problems, but regarding the Phillips matter said, "I refuse to answer any questions on specific cases. I will say that the Phillips arrangement was temporary."
When told of the new Circle S growers in South Carolina, Phillips said, "Anybody who can figure two and two and would still invest a quarter of a million dollars for a one-year contract is a poor business man. It is foolish. When the supply gets a little higher and prices drop, that will be it."
According to many growers and Deese, Circle S is the industry standard. The reasons for a grower being dropped are myriad and whimsical. Poor performance is the most common reason given for termination, but as one longtime grower said, "You can do everything well and still lose your rear end."
The most unpredictable variable is the quality of the poults, according to growers. The industry is growing so rapidly that poor-quality poults are no longer weeded out as they once were. That means a higher mortality rate and more disease, which forces growers to spend more on medication.
Although relatively few poultry growers lose their farms, a common scenario is for growers to be endlessly trapped in debt. Critics charge that integrators misrepresent the industry by luring growers with the promise of steady income and a 10-year amortization on their debt. They don't talk about the constant upgrades in equipment that will require more loans, resulting in an endless cycle of debt.
Thomas Marsh, a former grower familiar with Circle S, said the upgrades integrators demand are often unnecessary and are intentionally designed to make growers indentured servants. As one grower put it, "As long as we have large debts, we have to do what they tell us."
The newly constructed Circle S turkey houses in Chester County, for example, are already behind industry trends. Deese acknowledged that the trend is toward "single-aged" turkey facilities, meaning that each farm has either brooding houses or range houses, but not both. "This is to reduce the significance of disease factors because there is no cross traffic between different aged turkeys." Deese said.
The newly constructed turkey facilities in Chester County, however, include one brooding house and two range houses on each farm. When asked if that means Chester County turkey growers will eventually have to convert to the new system at a cost of about $100 thousand for each farm Deese said, "Improvement means change. If there are scientifically proven ways to improve, then the company will adapt those methods."
Marsh has seen the same scenario played out time and again with integrators. "An integrator forces growers to take on more debt by saying, If you don't make these new fans or new heaters, you won't get any more turkeys," he said. "Then, when they are in debt, they can be intimidated. They sustain higher profits through one-sided contracts. The grower can't object. They control the growing operations, but the farmer and his family have placed their farm and home at total risk."
One grower said, "Typically, the poultry grower does well for the first few years, but once his depreciation tax write-off ends in five years, and the integrator begins making demands for new equipment, they realize the trap they've fallen into. I've been in this business for 15 years and still owe $125 thousand. If you get into it, you're into it for life."
The formula by which a grower's profit is calculated is complex; most growers readily admit they can't figure it out. The amount of medicine and feed used to raise a flock is plugged into a formula, as is the poult mortality rate. Those growers who had to use more medicine because they had poor-quality poults make substantially less money. After the figures are computed, the growers are then ranked against each other and paid accordingly. Farms with a high mortality rate are not included in the ranking.
Many growers dislike the ranking system because it makes them distrustful of one another. A Saluda grower said, "No matter how well everyone does, there is always going to be a bottom 30 percent that gets paid a lot less. You're competing against each other rather than trying to make good turkeys. It keeps farmers separated."
Another variable is widespread disease, a phenomenon known as "spiking mortality" that can wipe out an entire flock. One grower said, "A few years ago, I lost $50 thousand because of spiking mortality."
Many growers say that it was possible to do well 20 years ago, but now the market is tighter and the contracts are structured differently. In the late 1980s, Marsh noticed the contracts getting worse every year. Echoing the sentiments of many growers, Marsh said, "I felt like my farm had become an experimental facility for new medicine and different feed. If they didn't work, I was the loser."
Marsh and Phillips can talk to the press without fear of reprisal because they are no longer in the turkey business. Other growers agreed to be interviewed only if granted anonymity. They all fear retaliation from integrators.
John Morrison, director of the National Contract Poultry Growers Association, a group started in 1991 to address industry abuses, said retaliation is common against growers who start conferring with one another or who talk too much. The NCPGA newsletter is full of anonymous letters complaining about abuses. He said the lopsided relationship between the integrator and grower enables integrators to have complete control over the terms of the contract and results in unfair treatment and pay. "The risk/reward relationship is not properly reflected in the income," he said.
Numerous allegations of unfair practices prompted Secretary of Agriculture Don Glickman to appoint an advisory committee last February to study the impact of integration in the hog, lamb and poultry industries.
Growers say that unfair tactics include "blacklisting" growers who open their mouths, thereby preventing them from contracting with any integrators. Marsh says that all it takes to put you out of work is for an integrator to label you "a diseased farm," and all farms have disease at one point or another. Phillips also said that nobody would take him on after he was dropped by Circle S.
According to a description by the Rural Advancement Foundation International (RAFI), Chester and Lancaster counties fit the perfect profile for a poultry integrator. "They tend to move the industry into areas of high unemployment or poverty, lax environmental laws, and family farmers who own land which can be mortgaged to provide capital for new poultry houses."
Marsh said, "They use your land as collateral for their operation which enables them to expand faster."
Not all poultry growers are unhappy. The University of Louisiana recently conducted a growers' survey and found that half of all growers said they were satisfied with their integrator. Growers who do well have a diversified farm and can make use of the tremendous amount of waste generated from a poultry operation. They are then less susceptible to the ebbs of the business.
The poultry industry's record is well known among farmers in states like Arkansas and North Carolina, but South Carolina has only recently entered the list of top-10 turkey producing states, and farmers have comparably little experience with integrators.
Other states with large poultry industries have growers' associations. Deese said, "Growers are welcome to participate in an established organization like the Poultry Federation."
But Batesburg grower Sylvester Hall said, "Growers feel that the Poultry Federation is more of an integrator's organization."
Another grower noted, "Up until a few years ago, there didn't even used to be a grower on the poultry board. It is not a grower organization." The Poultry Federation has four growers on its 16-member board.
Aside from some South Carolina growers who have joined the North Carolina growers association, this state has no organization that addresses growers' problems or which provides information about industry abuses. The state Department of Agriculture provides no information about contract growing.
South Carolina growers tried to start a growers' organization in 1991. Sylvester Hall helped found the South Carolina chapter of NCPGA, but explained, "The growers were scared of the integrators. They were afraid that the integrators were going to cut them off.
"We were just trying to have an organization, to share information about how to grow a better chicken, but the integrators were afraid we would strike. For a guy who has a $300 thousand mortgage on his land, striking is the furthest thing from his mind."
The group held a few meetings, the largest of which drew 200 growers. Hall had to distance himself from the group when he noticed a sharp decline at his poultry supply company. He, like everyone else, depends on the integrators for his livelihood.
"You can do everything well and still lose your rear end."
longtime grower for Circle S