6 Forces Driving More
would eventually control nearly two-thirds of all hogs processed. Its
largest meat processor was also the largest retailer—Smithfield Foods.
Upon Farmland’s liquidation in 00 , Smithfield Foods snapped up
Farmland’s pork-processing assets—including its logo.
With four companies in control, individual contracts with farmers
now cover some 95 percent of all hogs marketed. Traditional competi-
tive markets are relics of the past. While contracts vary by company, the
essentials are the same. The corporation owns the pigs and provides
the feed and other supplies. The farmer puts up the land and finances
the construction of the confinement building per the company’s detailed
specifications. The corporation prescribes the exact rearing practices.
The farmer provides the labor.
At first glance, the dollar figures shown to potential farmers ap-
pear attractive. The corporation is providing the opportunity. Own-
ing a business suggests independence. In a rural economy with limited
options, the opportunity before them represents the new American
dream, one that can be passed along to future generations. But the com-
petitive markets of the past that ensured opportunity through many
buyers and sellers, with no one firm having undue influence over market
price, no longer exists. Instead, farmers are dealing with a multinational
corporation whose sheer size allows the company to dictate the formu-
las by which farmers will compete and prices are set.
Looking even closer raises an obvious question. Why would well-
financed, multibillion-dollar companies offer lucrative propositions
instead of keeping all the profits for themselves? The short answer is
that these contracts pass the lion’s share of financial risk on to farmers.
Contracts adapted to pork production were first pioneered by Tyson,
which was, decades ago, searching for ways to expand and integrate its
poultry business and saw an abundant supply of rural labor with few
opportunities for income. People signed up to be contract farmers.
Years later, when the sole source of income was raising chickens under
contract, 7 percent of the farmers studied were living below the poverty
line. Tyson, coincidently or not, is number one in poultry and number
two in pork.
The contracts reward performance—even though most of the per-
formance variables are outside the farmer’s control. The health of in-
coming pigs (or chicks), animal genetics, feed quality, inherent disease