Tyson-contracted hog farmers in Arkansas and Oklahoma claim that until Aug. 18 they had no idea the company intended to markedly cut back its pork business. Then, the letters and phone calls arrived at farms saying that “effective immediately” Tyson was pulling the plug on the vast majority of its pork production in the two states.
Citing the chief cause of the move being “transportation costs of both finished hogs to Midwest processing facilities and grain to the Southern finishing operations,” Tyson stated the “restructuring” of the company's pork division “will result in the elimination of approximately 200 jobs, the closure of company-owned and -leased hog farms and discontinuing relationships with 132 contract hog producers in Arkansas and eastern Oklahoma. All together, 159 farms will be affected….”
Producers claim they were blindsided by the news as Tyson — best known for its poultry division — had claimed only days earlier in some instances, that all was well.
“We feel we were suckered. That's it in a nutshell,” says one central Arkansas producer who claims Tyson representatives assured her only days before the Aug. 18 edict that “things were going well in Rogers (Tyson's headquarters is in Rogers, Ark.).”
“When we started in the swine business with Tyson 12 years ago… we were told this was a working relationship, a partnership, even a marriage. It would last as long as we wanted because this was Tyson, an Arkansas-based company that had a long working history with producers and that they were going to start a swine business just like they had poultry. They were going to build processing plants and sell directly to the consumer,” says Keith Stokes, a central Arkansas producer.
Tyson executives claim they had no choice but to downsize their pork division.
“Restructuring this group was a difficult business decision because it affects team members and contract hog producers, but it was one that had to be made based on our analysis. We've been running this division at an operating loss. Therefore, it is now time to do what we must to try and ensure long-term viability of the remaining part of this business,” said John Tyson, Tyson chairman and CEO when the restructuring was announced.
While 25 to 30 producers accepted a buyout offer from Tyson, some 90 other producers have joined a lawsuit against the company.
Filed in Pope County court in Russellville, Ark., the suit — filed by Little Rock firm Hare, Wynn, Newell and Newton — is being brought “for fraud and deceit, promissory estoppel, and punitive damages…. The plaintiffs' claims result from their detrimental reliance upon false representations of material facts by Tyson representatives, made with either knowledge that they were false or made with insufficient evidence upon which to make the representations or otherwise both false without sufficient basis. As a result of their reliance upon Tyson's representations, the plaintiffs were induced to build, and did build at great expense, commercial hog farms for the exclusive benefit of Tyson.”
Producers claim in order to be a part of the Tyson “family” they had to conform to the company's wishes. Hogs were raised to Tyson specifications, Tyson-specified equipment was bought and used in the operations and barn designs and building were also under Tyson control and supervision.
Unfortunately, say the producers, the burden of debt wasn't on Tyson, but on them. To get a Tyson contract, building the minimum of a four-barn hog operation costs well over $250,000.
Typically, contract farmers borrow between $150,000 and $750,000 to start up a hog-farming venture. When the company announced its plans last August, the farmers claim they were left with empty promises and huge bank notes to pay.
“Because they were the ones putting their necks on the line, producers knew that getting into this business would only work if this was a long-term investment. Tyson promised that was the case,” says Jerry Masters, executive vice president of the Arkansas Pork Producers Association. “And we're not talking about foolish people here. These farmers are college-educated with business savvy. The only way they were recruited into Tyson's pork division — and that's what happened: Tyson was actually recruiting producers — was by Tyson representatives' repeated assurances that they were going to make it work, that the company, come hell or high water, was with the producers all the way.”
Another issue facing farmers is what to do with the now vacant confinement buildings. Not useful for anything besides raising hogs, the buildings are unlikely to house new swine anytime soon.
Further, the producers are stuck not only with empty buildings, but waste lagoons that require constant monitoring. The lagoons, which are an undeniable environmental liability, are also a legal responsibility for the producers. Closing such lagoons (which look like ponds with high banks) is another daunting financial strain. Without agreeing to a Tyson buy-out, producers are left to fend with the lagoons solo.
“There's not a whole bunch of companies lining up to work with our producers,” says Masters. “There's a real sense of abandonment and fear among these folks. But hovering over all that is anger. I think the producers are really going to go after the company in court. They feel they've been betrayed.
“And as far as the lagoons, producers are in a Catch-22. To have (the lagoons), producers have to keep their environmental permits up to date. If there's any chance of another company coming in and contracting for hogs, those permits need to be kept. At the same time, without hogs, there's no reason for the lagoons and the value of the property isn't as great.”
On Oct. 11, Tyson lawyers filed a motion in a Pope County court asking that arbitration clauses in producer contracts be enforced. If that motion is granted, the suit would be dismissed and the two sides would be forced to come to terms negotiated through mediation.
“We believe arbitration is typically a quicker, less-expensive forum for parties to achieve resolution of disputes by submitting controversies to an informed, objective third party,” said Ruth Ann Wisener, Tyson assistant vice president and senior litigation counsel.
Producer attorneys filed a response to the arbitration motion. It is expected that a ruling will come down by mid-November.