The Meat Racket: The Secret Takeover of America's Food Business

by Christopher Leonard

  Chuck Wirtz had a simple theory: If someone was paying you money to raise hogs, he was doing it only because he could make more money than what he paid you. That concept rankled him. He, for one, wanted to make as much money as he could. If a company like Tyson or Smithfield Foods offered him a certain payment to raise pigs, Wirtz knew that it was making a certain percentage more than that. He wanted to capture that money himself rather than hand it over to an out-of-state corporation. So he decided to stay independent. He had every confidence he was smart enough to compete head to head with any pork producer in the country, even if it had hundreds of millions of dollars at its disposal.

  In the 1990s the cash market for pigs had the critical fuel that keeps any market functioning: It had competition. Wirtz dealt with several buyers from different slaughterhouses in and around Iowa who were interested in buying his hogs.

  On any given day, Wirtz was at his desk, a phone to his ear, calling around to local slaughterhouses and negotiating prices for loads of hogs. Wirtz ran his burgeoning hog business out of a small office in the feed store that his family owned in downtown Whittemore.

  The feed store was in a small brick building with a couple of tall grain silos behind it, where trucks arrived to pick up loads of feed to deliver to local farmers. Inside the feed store’s glass front door there was a wide-open area with a well-worn wooden floor where customers could stand at a counter and place their orders. Off to the side were two small candy machines and a coffeepot for the employees.

  Wirtz’s office was located through a side door behind the counter, and as customers waited out front he could sometimes be heard haggling with buyers for his hogs. He made the rounds on his phone, calling buyers one by one, trying to pit them against each other to gin up the highest price he could get.

  Hog farmers, like cattle ranchers, are at a fundamental disadvantage when it comes time to sell their animals. When it comes time to sell, their window of opportunity is short. Once an animal reaches the right size for slaughter, it has to be sold quickly. Otherwise it starts getting too big to be desirable. While the selling window is small, a farmer’s investment in the hogs is long term. He has money tied up in the land and hog barns, and he needs to pay those bills.

  The slaughterhouses know that a farmer has a lot of money riding on each hog and just a short time in which to sell it. So the hog buyers try to wait out farmers until they’re desperate to sell and willing to take a lower price.

  Over the years, Wirtz developed tricks for getting them to sweeten their offers. He called buyers before he was really ready to sell his pigs. And he told them his pigs cost some outrageous price, well above market average. When the buyer scoffed, Wirtz thanked him for his time and hung up. Wirtz acted more confident than he really was. Then he called the buyer back a couple of days later. By this time, the shock of the ridiculously high price Wirtz was asking for might have worn off a little. Wirtz might come down a little, feigning a need to sell quickly. He often clinched a sale price that would have been unthinkable just a day or two earlier.

  By staying independent, Wirtz took on greater risks but reaped bigger profits in the 1980s and 1990s, working a competitive market to his advantage. Wirtz couldn’t see a reason in the world why he’d want to sign a contract and raise pigs for anyone else. As long as there was a free market, there was a lifeline for the independent hog farmer.

  * * *

  By the mid-1990s, Bob Allen and his neighbors were getting better at their jobs. They steadily increased the number of piglets they could get from each sow, creating a steady traffic of hogs to Tyson’s nursery, where the animals were sorted and then shipped off to farms for fattening.

  Though Allen and his neighbors could not see it, the pigs they were raising and sending out to contract farmers had an invisible effect on the entire national hog market. It was an effect that was poorly understood at the time it occurred, and it became visible only with the benefit of hindsight.

  The hogs that were born in Oklahoma, raised in Arkansas, and slaughtered in Marshall, Missouri, never encountered an open, competitive cash market. They were moved through the supply chain under contract, owned the entire time by Tyson Foods. As contract hog farming became more prevalent, it meant that a smaller and smaller proportion of pigs were sold on open markets, at the kind of roadside sales barns where buyers and sellers haggled over an animal’s price.

  This caused a surprising shift within the hog market. Each 1 percent gain in the proportion of pigs sold under contract created a 0.88 percent drop in the price of hogs that were sold on the cash market. In other words, the rise of contract farming came at the direct expense of the independent cash market for pigs. Each hog that Bob Allen delivered to the Tyson nursery helped lower the overall price for pigs on the open market. Each contract a hog farmer signed sucked one more breath of oxygen out of the cash market upon which farmers like Chuck Wirtz depended.

  This created a new center of gravity within the hog industry. Each new contract farm made it that much harder to survive as an independent farmer. This wasn’t just a case of big farms driving out the little farms. Even if an independent farmer owned enormous hog barns and used the exact same high-tech methods to raise his pigs, he was at a disadvantage solely because he sold his pigs on the open market.

  No one realized this was happening at the time, but people like Bob Allen might not have cared anyway. He had worries of his own.

  * * *

  Bob Allen’s education in hog farming came fast. Every morning, Allen drove down a highway just west of Holdenville, pulling off at a small gravel driveway and then heading down a hill on the land his grandfather had farmed. Farther down the slope, there were two long, gleaming sheds with new metal roofs. They looked like chicken houses to the uninitiated, with curtained windows and big feed bins at each end. But as Allen walked in the front door of each house, he was greeted by the sight of hundreds of female pigs standing upright in two tight rows, wedged between metal bars that held them in place.

  The first thing Allen learned about pigs is that they were sensitive to the Oklahoma heat. The air was more humid, more scorching in the summertime than in Arkansas. Conditions that worked on Bill Moeller’s farm outside Springdale didn’t seem to hold when they were transferred to Holdenville. Many summer mornings, Allen would enter the pig houses to find that sows had keeled over dead from the heat. More often, the pregnant sows miscarried their litters, a mess that Allen would get down on all fours to clean up. Each dead sow, and each lost piglet, ate into Allen’s income.

  Allen was paid through a tournament system. His performance was ranked against his neighbors’, and Tyson docked his pay if he performed below the average. It didn’t seem quite fair to Allen because his ranking was so dependent on the quality of the pigs Tyson delivered, but he wasn’t one to complain.

  Allen quickly learned who was in charge. Tyson sent field technicians to his farm, and initially Allen thought their job was to give him advice. But he soon came to see that the field techs arrived to dispense orders. They had the college education, and Allen was just a country rube. It wasn’t smart for him to question their authority. Farmers like Allen were under strict protocols to clean themselves every time they left one hog barn before entering another. And they were told time and again to wear sterile rubber boots, and to step into a pan of disinfectant when they went in and out of each barn. These practices were critical, the farmers were told, to prevent the spread of disease. Allen watched with quiet anger as the college-educated field technicians marched into his houses without washing and tromped between barns without disinfecting their boots. They strode around his operation like they owned the place. Because, in a way, they did. Allen knew every day that Tyson could refuse to deliver him sows, and he’d be on his own to meet his debt payments.

  * * *

  When his first three-year contract with Tyson expired, Bob Allen drove to the company’s corporate office just outside Holdenville. The building was the biggest industrial com
plex for miles around, its cylindrical, concrete feed towers rising far above the modest skyline of the city nearby.

  Allen went into the offices and sat down across from John Thomas, who was the manager at the time of the Holdenville office.

  Thomas had some bad news: Tyson wouldn’t be able to offer Allen another three-year contract, as he expected. According to Allen, Tyson offered him a thirty-day contract, with another thirty-day contract available after that.

  Allen was stunned. He owed well near half a million dollars on the buildings he’d erected on his family’s land. He was being told now his economic security would be decided on a month-to-month basis.

  — You can’t do that, he stammered.

  Thomas explained that Allen wasn’t meeting Tyson’s production goals. When Allen first built his farm, the company set a goal that each sow should produce litters that averaged 16 piglets per litter. Allen had met and exceeded that goal, along with other farmers in the area. Tyson then raised its goal to 19 piglets per litter, a benchmark that Allen had also met. Now, Thomas explained, Tyson had set the bar at 20 pigs per litter. Allen was producing an average of just 19.

  — Your production has not reached the point that allows you to have a three-year contract, Thomas told him.

  Allen was furious. He had mortgaged his family’s land, borrowed half a million dollars, and become a Tyson farmer based on the company’s promises. He vividly remembered having been told the company would provide contracts that would cover his debt payments for nearly a decade.

  — You can’t do that! That’s not legal. We borrowed money on your say-so, on your idea that you were going to fulfill three, three-year contracts, he said.

  Thomas seemed unmoved, and he appeared to be speaking from a tightly scripted statement. He told Allen there was no choice but to accept the shorter contract and that the change in plans was due to Allen’s shortcomings as a farmer. Thomas repeated the same lines, regardless of Allen’s protests.

  — We have met the end of the three-year contract, and we will not be renewing it. You will be renewed on a thirty-day basis.

  Allen left the office and began the drive back to his farm. He had walked into his meeting with Tyson as a man, and he left it as a chicken farmer.

  Tyson Foods refused to comment on this incident or make John Thomas available for an interview. The company said in a statement: “We don’t recall ever providing a contract hog farmer a month-to-month contract.” Allen did not have copies of his contracts, having lost or disposed of them over the last decade.

  * * *

  By the late 1990s, it was impossible for smaller hog farms to survive in the shadow of farms like Wirtz’s and Allen’s. Even at that point, the Midwest was still populated with thousands of small- to midsize hog farms that appeared healthy and viable from the outside. In fact, they had already been driven out of business but didn’t realize it yet. The reason behind their extinction was simple mathematics: Every pig raised on a small- to midsize farm was now a money loser.

  It took 342 pounds of feed and 23 minutes of labor to raise 100 pounds of pork on small farms with only 500 to 2,000 hogs that were raised in older, low-tech barns. Big farms could do the same thing faster and cheaper. On average, it took about 247 pounds of feed and 7 minutes of labor to raise 100 pounds of pork on a farm with about 5,000 pigs.

  Still, the smaller farms stayed in business despite this wide gap in economic efficiency. Even into the late 1990s, the business was profitable enough for almost everyone to make a buck. But all that would change in 1998, when the rise of industrial production led to an unprecedented crisis in the hog business. Like chicken farmers in the 1960s, America’s hog producers were about to experience the first chickenlike bust of a market.

  The hog market collapse of 1998 started slowly. No one really noticed. The year started out promising for the pork industry. Hog prices had risen in 1996 and 1997, and pork prices at U.S. grocery stores were standing firm. Smithfield Foods was looking to ramp up production at one of its biggest slaughterhouses in North Carolina, and hog farmers like Wirtz were borrowing money to build new, expensive hog barns to supply a growing market.

  It only made sense that farmers should be prospering. They were feeding a population that had more money to spend. The late 1990s were a boom time, with unemployment hovering around 4.5 percent and the Internet fueling a stock market surge. Then a financial crisis swept across Asia, and consumers there quit buying pork from the United States. Suddenly slaughterhouses didn’t need so many pigs because their export orders were drying up, even as more farmers were calling up with hogs for sale.

  The global drop in demand was worsened by local hog plant closures in the United States. It went largely unnoticed when Iowa Beef Processors closed a slaughterhouse in Iowa. Then Smithfield shut down a plant in South Dakota. The plants were old and inefficient, and the industry didn’t really miss them. But a subtle effect rippled out from the closures. When each plant was shut down, hog farmers had to look elsewhere to sell their animals. The remaining slaughterhouses suddenly had a glut of pigs at their front door.

  The market price for live hogs started to fall. Historically, that wasn’t unusual. Hog prices, like all commodities, rose and fell in waves that followed supply and demand. But when demand started to fall in 1998, it showed how radically the industry had been transformed in just one short decade. The old rules of supply and demand didn’t work anymore.

  When Wirtz was growing up, hog production was flexible. Farmers could get in and out of the market easily. When prices fell, farmers scaled back the size of their herds. They could do that easily because the hogs were just one part of a diversified farm. The hogs were the “mortgage lifter,” but not the bread and butter. The roughly 700,000 hog farmers could read the market and respond adroitly by cutting back their supply. After time, the supply got low enough that prices bounced back, and farmers entered the business again.

  By 1998, the business was dominated by operations like Wirtz’s. Smaller hog farms were replaced by expensive, confinement operations holding several thousand pigs. The infrastructure was expensive, the costs were fixed, and producers didn’t have the choice just to back out of the market when prices were low. They had big mortgage debts and utility bills to pay. Modern hog barns had to be filled, almost regardless of the price hogs commanded on the market. The scale of the industry demanded it. So when prices started to fall in 1998, the supply stayed rigidly high. The industrial machine couldn’t slow down.

  By the end of 1998, the price of hogs fell to 10 cents a pound, lower than they had been during the Depression. For the rest of America, the dot-com boom was in full swing, but in towns dominated by corporate hog production a deep recession had set in. The hog price collapse, unprecedented in American history, immediately began to wipe out farmers.

  The pain wasn’t shared equally. The downturn of 1998 disproportionately destroyed the smaller independent hog farms. Big industrial farms connected to meatpackers like Tyson and Smithfield had an advantage as they slogged through the downturn. Because they owned the slaughterhouses, companies like Smithfield reaped an enormous surge of profits from the crash of 1998. The companies bought hogs at Depression-era prices, then turned around and sold the pork at dot-com-era prices. The retail price of pork at grocery stores and restaurants remained relatively stable. The meatpackers sat in the middle and collected a surprise windfall worth millions. Their farms might be losing money, but the losses were more than recouped by the high prices consumers paid at the grocery store.

  Smaller, independent farms reaped only the losses, and it drove them out of business. Between 1997 and 2000, the number of farms with 2,000 to 3,000 pigs fell by 18 percent. The number of farms even smaller than that, with fewer than 2,000 pigs, fell by 14 percent. At the same time, the number of farms with 10,000 to 50,000 hogs almost doubled. The number of megafarms with more than 500,000 animals grew by 11 percent.

  Not only did the big operations survive, they multiplied durin
g and after the downturn. This increased their market share and made it yet more difficult for the independent producers to compete.

  The hog market started to recover in 1999, and eventually it returned to profitability. And the farms affiliated with the nation’s biggest meat companies were the survivors who benefited from the upswing.

  * * *

  Bob Allen was on his knees. He was scrubbing the floor in one of his hog barns outside Holdenville, Oklahoma, and his head felt like it might split open. Sharp, rhythmic stabs of pain shot through his brain like lightning. But he labored on, scrubbing the floor after a mother sow aborted another litter of pigs. The work was unpleasant enough, but his labor was made all the more torturous by the headaches that now visited Allen every day.

  Allen didn’t let on how much pain he was in to the young men who worked on his farm. They were mostly Mexicans whom Allen could barely afford to pay. He needed the help, and it was nearly impossible to find anyone in Holdenville willing to put in an honest day’s work at the hog barns. Only the Mexicans were willing to do the job. Over the years, Allen had developed a crew of men he could more or less depend on to show up every day. He hid his headaches because he didn’t want them to know their boss was almost crippled by excruciating pain.

  Eventually, Allen went to the doctor in town and told him about the headaches. The arc of pain neatly mirrored his career as a hog farmer. He hadn’t suffered from headaches as a young man. The headaches started after he built the hog houses and spent seven days a week working inside them. Over time, they increased in intensity. It felt like there was a blade wedged into his forehead, and someone spent the day twisting it.

  Allen underwent a series of tests, and his doctor told him he had an aneurysm. A blood vessel in his head was inflamed, and as it pulsed it pressed against a nerve. The doctor prescribed medication, and it helped. Allen took one or two pills every morning.