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

by Christopher Leonard

  This lack of legal assistance crippled GIPSA. Its economists could look for theoretical violations of antitrust laws, but they didn’t have the legal power to press cases.

  Even the investigations that were launched tended to stagnate. GIPSA didn’t have a formal tracking system to follow its own investigations. That meant there was virtually no accountability when a case was opened, no central way to see if it had been pushed to completion. Cases wandered along at the whim of scattered investigators at various GIPSA offices around the country.

  GIPSA’s leaders promised to solve the problems after the 2000 audit. They would set up a tracking system and forge partnerships with the Department of Justice. But strengthening antitrust enforcement was not a top priority for the Bush administration.

  In 2006, a follow-up audit found none of the changes had been made. GIPSA was a ship without a rudder. Any meaningful regulations would have to be enforced on the state level. And not many states were interested in taking on big meat producers. There just wasn’t much of an upside for politicians to pick a fight like that. Just a matter of months earlier, one of the biggest fights had already ended.

  * * *

  In late 2005, Eric Tabor and Steve Moline waited for the delegation of Smithfield lawyers to arrive at the attorney general’s office. They had a meeting room ready, with piles of papers waiting to be signed. The state was prepared to drop its lawsuit against Smithfield, which had dragged on for years. The last stand against corporate hog farming was over.

  The team of Smithfield lawyers arrived, but this time they didn’t bring the hard-charging chairman, Joe Luter. The attorneys filed into the meeting room after exchanging pleasantries, and they sat down at opposing sides of the table, ready to begin the long parade of signatures.

  The document they were ratifying that day was remarkable in its broad-reaching effects. It was no simple surrender on Tom Miller’s part. Miller and Tabor had thought of one way they could escape the case with something in hand. When they crafted the settlement with Smithfield, they borrowed heavily from a piece of legislation that had been killed in sixteen states and Washington: the Producer Protection Act.

  Miller agreed not to enforce the state’s ban on vertical integration, but only for ten years. In return, Smithfield was required to voluntarily comply with a boiled-down version of the Producer Protection Act.

  With the Smithfield settlement agreed to in 2005, Miller passed a kind of shadow legislation, enacting the strongest protections for contract farmers passed anywhere in the United States.

  The settlement required that Smithfield allow its contract farmers to organize in any kind of association they wished, a right that had eluded Tyson’s contract farmers in the South for decades.5 The settlement also required that Smithfield allow its farmers to become “whistleblowers,” taking concerns they had about the company to regulators or the media without fear of retaliation.

  The settlement made it all but impossible for Smithfield to keep its contracts confidential. Farmers could discuss and share the documents with lawyers or regulators. The wall of secrecy around contract farming in Iowa was torn down. In Arkansas, by contrast, farmers still aren’t even allowed to share the settlement sheets Tyson mails them to outline their performance in the tournament system. All documents are stamped “Confidential.”

  The settlement banned the use of a tournament system, which remains the pillar of Tyson’s farms in the South. Smithfield is not allowed to dock a farmer’s pay or cancel a contract based on his performance. The company is allowed to pay bonuses to good farmers but cannot use rankings as a financial punishment.

  Farmers were also given the right to collect attorney fees from Smithfield if they sued the company and won. Without that right, most farmers were rendered legally helpless in the face of wrongdoing because they could not afford to pay an attorney out of pocket to sue the company.

  Smithfield’s attorneys signed a sweeping pact that day that could have saved countless Tyson farmers from bankruptcy in Arkansas and other states, had they been afforded the same rights and protection. With one document, a single regulator managed to tilt the scales of power in favor of rural communities and away from multibillion-dollar corporations.

  The agreement, along with years of strong enforcement from Tom Miller’s office, has provided concrete benefits for the state’s farmers. Smithfield’s hog farmers in the little town of Algona, for example, formed a growers’ committee that met with Smithfield managers. The committee members pressed for benefits and aired grievances, and they exercised a bargaining power that was unimaginable for chicken farmers in Arkansas. The group pushed for Smithfield to stop using a tournament system to pay farmers, and the company complied.

  Tyson, Cargill, and Hormel signed similar agreements to win the right to do business in Iowa. In spite of the legal limitations, they reap massive profits from their operations there.

  The agreements didn’t get much press when they were signed, and the companies didn’t work to publicize them. Outside of Iowa, farmers labored under a different set of rules. In Arkansas, for example, Tyson’s chicken farmers were still put out of business by a tournament system that was banned for Iowa hog farmers. Farmers throughout the South filed waves of lawsuits to recoup their losses, but their efforts never had the same impact as the settlement Miller imposed in Iowa.

  The disparity in regulations between states showed that any really meaningful reforms for the meat industry would have to be passed on the federal level. And there was increasing pressure to do so. The fact that Tyson Foods kept chicken farmers on the verge of bankruptcy was gaining more attention with each lawsuit that was filed against the company. The lack of competition among meatpackers became the focus of a major class-action lawsuit that generated national headlines. Activist groups sprung up around these causes and lobbied lawmakers to pass reforms. By 2007, a window of possibility seemed to be opening. Academics like Bill Heffernan (who studied Louisiana chicken farmers back in the 1960s) and regulators like Tom Miller were finally being listened to.

  One politician, in particular, seemed sympathetic to their cause. In 2007 a freshman senator named Barack Obama launched his presidential campaign with the promise of making big reforms. As he traveled through farm states during the Democratic primary campaign, farmers and activists pressed him to take up their cause. Once again, a regulatory fight over meat companies’ market power would find its beginning in Iowa. This time, the seeds were planted on the campaign trail, as Obama heard farmer after farmer tell him the same disturbing story.

  * * *

  1. Horizontal integration happens when one company buys another and expands its reach across a market.

  2. The Grain Inspection, Packers and Stockyards Administration, to be exact.

  3. Page would later become CEO, in 2007. He still held that title in 2012.

  4. In 2002 Lilygren would leave the American Meat Institute to take a job as Tyson’s chief lobbyist in Washington, D.C. In 2009 she graduated from that role to become Tyson’s senior vice president over “external relations” (another term for lobbying).

  5. It’s true that in a few isolated cases, Tyson’s contract farmers have met to discuss issues of shared importance, but they had no legal guarantees to protect their contracts if they publicly joined a farmers’ union. The lack of that protection has kept a real farmers’ association from ever forming. Even in 2011, Tyson farmers in states like Arkansas were terrified to be associated with any kind of effort that resembled a farmers’ union, fearful the company would discover it and cancel their contracts.

  PART 3

  * * *

  TYSON’S PRIDE

  “Under those conditions, integration is not primarily a means to efficiency, but an instrument of power.”

  —HAROLD BREIMYER, 1965

  CHAPTER 11

  * * *

  The Transition Team

  (2007–2011)

  BARACK OBAMA looked tired. The Harvard-trained lawyer and U
.S. senator had been campaigning through rural Iowa, and the relentless travel schedule seemed to be wearing on him. Obama could be forgiven if he looked a little haggard. Every day was becoming an uphill slog. By late 2007, the common political wisdom held that former first lady and U.S. senator Hillary Clinton had all but locked up the Democratic Party’s nomination for president, even before the primary voting had begun. Clinton had the type of political celebrity and financial support that made her seem like an unbeatable candidate. The national primary race was so lopsided that Obama’s candidacy looked like little more than a quixotic campaign, a catharsis for the liberal left. In Iowa, however, the race was tighter. It was an opportunity Obama’s campaign planned to exploit.

  On the morning of November 10, 2007, Obama was determined to woo one voting block that seemed estranged from Clinton’s campaign. Obama was going to win over white farmers.

  Obama set himself apart from Clinton by staking out territory on farm policy that Clinton had largely abandoned. As he traveled the state, Obama heard stories about the rising power of corporations like Tyson Foods, Monsanto, Smithfield, and ConAgra. He heard a narrative of frustration, and he appealed to it. Obama told farmers that his administration would take a different approach to agriculture, and it would take on the oligarchy of giant corporations that now dominated U.S. food production.

  So on that chilly morning in November, a road-weary Obama found himself at a small event called the Food and Family Farm Presidential Summit. The forum was sponsored by the Iowa Farmers Union, and it was Obama’s chance to show the crowd that if they got behind his campaign, Washington might finally do something about the consolidation of corporate power in agriculture.

  As Obama prepared to take the stage, Dave Murphy busily helped execute the final details of the presidential forum. Murphy was a political activist with the Iowa Farmers Union and a sixth-generation Iowan. Murphy called himself a Prairie Populist, and as such he had the ear of many farmers throughout the state. By November, he was telling them that Obama might be their man.

  There was deep skepticism among farmers when it came to politicians who talked tough about big agribusiness. For decades, the Farmers Union watched an endlessly rotating stream of legislators promise they would take on the increasingly powerful agribusiness corporations, only to see them quietly abandon their fight once safely in office. But every campaign season, the Farmers Union still rallied its members to cast their votes, ever hopeful that the outcome might be different.

  Murphy had been talking with the Obama campaign staff in Iowa for months, and he was impressed so far with what he had seen. It was clear to Murphy that Hillary Clinton had very little support in farm country. As an Arkansas native, Clinton’s name was forever tied to Tyson Foods. Her husband, President Bill Clinton, was seen as Tyson’s greatest political patron, who’d helped usher in the age of vertically integrated meat production—and had profited handsomely along the way from Tyson’s campaign donations. Hillary Clinton’s tenure on Wal-Mart’s board of directors also didn’t help. The world’s biggest retailer left raw feelings throughout dilapidated small towns in Iowa, where Wal-Mart had single-handedly decimated the locally owned businesses that once thrived on the town square.

  A few months prior to the presidential candidates’ summit, Murphy was visiting the Obama campaign headquarters. A reporter came in and said she had just been to Clinton campaign headquarters, where the staff was certain they’d sweep the Iowa caucuses and put a quick end to the Obama candidacy. Murphy laughed out loud.

  — You’ve got to be kidding me, Murphy said. She’ll be lucky if she comes in third! I don’t know a single farmer who would vote for her.

  On the morning of the candidates’ summit, Murphy was eager to hear what Senator Obama would say. It was Obama’s chance to cement his role as the voice of rural communities. But Murphy thought Obama looked listless and worn out as he started his speech. The senator’s delivery was short on the emotional cadence and passion that made Obama such a gifted orator. But the message was exactly what Murphy, and his constituents, wanted to hear.

  “And it’s about time that your voices were heard,” Obama told the crowd. “Because for far too long, you’ve had to listen to politicians tell you one thing out on the campaign trail, and then close the door and do another thing in Washington when they make rural policy. You’re sending your message, but sometimes you can’t get through because there’s a lobbyist who’s already in line.”

  During the speech, Obama aligned himself with Iowa’s longtime senator Tom Harkin, who sponsored the unsuccessful Producer Protection Act in Washington that was derailed by the meat lobbyists. Obama said he would give politicians like Harkin a new audience in the White House and a new lease on power. Obama would help them pass reforms that had been stalled for over a decade.

  “When I’m president, you’ll have a partner in the White House. Tom Harkin will have a partner in the White House,” Obama told the farmers. “And we’ll tell ConAgra that it’s not the Department of Agribusiness, it’s the Department of Agriculture!”

  The crowd ate up that line, and it would echo in Murphy’s memory for years to come.

  Just a couple of short months later, Obama won the Democratic caucus in Iowa. Clinton came in third, as Murphy had predicted. The victory woke up American voters to the possibility that Senator Obama’s campaign might be more than a liberal fantasy. Obama could win a state that was largely rural and white.

  Obama won Iowa in part because he won over many of its farmers. And he did so with the promise that he would back their interests and take on the consolidated meat industry. It was a promise Obama wasn’t going to forget.

  * * *

  When Donnie Smith arrived for work at Tyson Foods headquarters in mid-November 2008, it was like reporting for duty on a sinking ship. Smith had been working at the company for nearly thirty years, diligently climbing the corporate ladder and earning the rank of senior vice president over poultry and prepared foods. The CEO’s office was finally in sight for Smith. Richard Bond, the former IBP executive who replaced Johnny Tyson as CEO, still ran the company. But there were grumblings about Bond’s performance. Tyson Foods continued to drift, with no clear vision for where the next wave of growth would come. Don Tyson spent more time at the office, and he enlisted his two longtime friends Buddy Wray and Leland Tollett to come back as full-time “consultants” to help get the management team back on track. Even as Dick Bond tried to steer the company, he had Don Tyson, Buddy, and Leland looking over his shoulder. For an up-and-comer like Donnie Smith, the pathway to CEO looked clear.

  But, Smith’s luck being what it was, he was in line for the top job just as the chicken industry was entering one of the biggest train wrecks in modern history.

  Smith walked toward the black steel-and-glass office building where he worked. In his position, he was responsible for all of Tyson’s chicken operations. It was fast becoming the company’s biggest money loser.

  The economy was in a state of collapse that winter, with banks failing and the stock market crashing deeper each day. But even that broad chaos was just a distraction from deeper problems that had all but crippled Donnie Smith’s business over the last couple of years. The cost of feed grains like corn had reached the highest levels in history due to new ethanol subsidies that President George Bush signed into law in late 2005. The ethanol mandate worked at direct cross-purposes with the USDA’s multibillion-dollar crop subsidies, which had delivered cheap corn and soybeans to Tyson Foods since 1996.

  Newly built ethanol plants were consuming more than a third of the entire U.S. corn harvest, wiping out grain supplies, boosting prices, and taking away the cushion of cheap grain that had helped keep Tyson profitable for more than a decade.

  At the same time, consumer demand had fallen through the floor. Americans weren’t eating at restaurants or buying Tyson’s chicken nuggets at the grocery store. For the first time since World War II, per capita chicken consumption wasn’t growing on
a year-over-year basis. For fifty years, the economic underpinnings of the U.S. economy had been breaking in Tyson’s favor. But now that Donnie was almost in charge, the tide of history was going the other way.

  The story was told in stark terms in the numbers that ran across an electronic banner just inside the doorway of Tyson’s front lobby. All day long, the banner ran a display of Tyson’s stock price. That month, some of the most dismal numbers in all the company’s history crawled across the display: . . . $7.02 . . . $7.12 . . . $7.19 . . . In between the stock quotes, the sign made little electronic fireworks bursts. The sign was probably installed as some kind of morale booster or incentive machine, but the numbers played like an unending insult to Tyson’s current management team. A decade before, the stock had been worth $25 or more a share.

  But none of this seemed to drag Smith down. Smith was a trim man, who still looked young and healthy at forty-nine years old. He was boyish almost, and his energy had driven him through the ranks since he joined Tyson in December 1980, just after graduating college with a degree in animal science. His career neatly mirrored the upward growth curve of the newly emerging chicken industry. Smith moved from the division that worked with farmers to the trading desk, where Tyson Foods bought billions of dollars worth of grain a year; then he moved on to oversee the company’s transportation system. He was a natural company man, with a thick southern accent, a sharp business sense, and a self-deprecating manner that masked his ambition.