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HPPR Economy and Enterprise

Hog farmers split on packer-owned pigs

Grant Gerlock/Harvest Public Media

Nebraska hog farmers aren’t seeing eye-to-eye on a proposal that would allow meatpacking companies more control over the state’s hog industry. And farmers all over the country are watching.

Currently, a 1998 state law bans meatpacking companies from owning and raising the hogs they process. But lawmakers have proposed an end to the ban, which would allow for more vertical integration of the hog industry.

Years ago, big meatpacking companies found they could often squeeze out more profits by owning animals from birth to slaughter and by paying farmers to raise hundreds or thousands at a time, for economy of scale. In many cases, companies have found success in the vertical integration of the supply chain.

Contract livestock farming, as it’s called, is permitted in other states, including pork leaders like Iowa. And many worry that repealing rules against corporate ownership of livestock and farms will make it tougher for independent farms to stay in business.

The hog industry has already undergone increased consolidation. When hog prices collapsed in the 1990s, so did thousands of hog farms. More than 34,000 quit raising pigs nationwide. Nebraska alone lost 63 percent of its hog farms from 1997 to 2007.

University of Missouri agriculture economist, Ron Plain, says in the ‘90s hog farmers had to grow to survive. Many moved into contract feeding.

“Nearly half of the hogs raised in the United States aren’t owned by the person who owns the farm that’s raising them,” Plain said. “The individual that owns the farm and owns the buildings is being paid to take care of the hogs by the person or company who owns the hogs.”

Currently, 30 percent of the hogs in the U.S. are owned by packers like Tyson or Smithfield Foods. But not in Nebraska, thanks to the 1998 law that prohibits meat processors from owning hogs or cattle or the farms where they’re raised.

Keeping control

Credit Grant Gerlock/Harvest Public Media
Jim Knopik used to raise 500 hogs each year in a confinement building on his farm in Fullerton, Neb., but now his family only raises 50 in an open air pen. He downsized as contracting and consolidation became larger parts of the pork industry.

At one time, Jim Knopik was in a position to become one of the large contract hog feeders, but 15 years ago he took his farm near Fullerton in central Nebraska in a different direction.

“We were probably one of the largest farms in western Nance County then,” Knopik said as he drove his small, dusty SUV to where they raise their pigs today. “I had a hog confinement building. Around 500 at a time is what we did.”

There’s no confinement building at Knopik’s pig farm these days. In fact there’s no building at all. The pigs roamed the open dirt lot not quite the size of a football field, surrounded by a double-wire electric fence. A few steel huts were filled with hay for shelter.

Jim Knopik and his son Tom now raise about 50 each year, which are sold through a local food co-op. Jim Knopik says he got out of conventional hog farming in the late 1990s because he saw consolidation changing the business.

“Packers started contracting with the larger operations and once they filled their needs, then they started taking away from the smaller producers,” Knopik said.

Farmers like Knopik think contracting with packers is the wrong direction for the pork industry. To win contracts, farmers have to give up a lot of control over how they raise pigs and they often have to take on debt to build big confinement barns.

Consolidation has already changed the chicken industry. About nine out of ten birds are owned by poultry processors, not farmers. John Hansen, president of the Nebraska Farmers Union, says banning packer-owned livestock in the pork business ensures farmers still have some control.

“When you have no control over what kinds of birds you get or what kind of feed you get, how much control do you have?” Hansen asked. “You’re really a hired hand on your own operation where you’re taking a huge amount of risk because you’ve provided the capital to build the facility.”

Keeping up with the competition

Many hog farmers, on the other hand, look at these contracts as a way to grow the state’s livestock industry.

The Nebraska Pork Producers supports a proposal in the state legislature that would lift the packer ban on hogs.

Credit Grant Gerlock/Harvest Public Media
Osceola, Neb., farmer Kevin Peterson says allowing meat packers to own pigs in Nebraska would make the state more competitive in the pork industry.

Farmer Kevin Peterson, who raises 4,800 hogs near Osceola, Neb., says he’d prefer to work on contracts with meatpackers.

Sitting in the cab of a semi-truck while waiting to unload corn at the local ethanol plant, Peterson said he likes contracts because they provide predictable income. Whatever happens to the cost of feed or price of pork, he knows what he’ll earn up front. That makes it easier to budget and to get a loan.