A USDA program that has financed the construction of hundreds and perhaps thousands of chicken houses for farmers who grow birds under contract to large poultry processors has become a political controversy. Agriculture Secretary Tom Vilsack has imposed new restrictions on loans to such growers, which are part of a nationwide credit guarantee program that is scheduled to lend $2.67 billion at favorable interest rates and a government repayment guarantee to farmers of all types this year.
The crackdown came in the wake of decisions by Pilgrim's Pride to close plants and cancel grower contracts last year as part of its reorganization to emerge from bankruptcy, leaving some growers with heavy debt.
USDA's Farm Service Agency, which makes direct loans to farmers and guarantees farm loans made by banks, directed its local loan officers in June 2009 not to approve loans to chicken producers who did not have a guaranteed contract for at least three years. "For income from a poultry production contract to be considered dependable, applicants not indebted for direct or guaranteed loans must have a contract for a minimum period of three years with an average of five flocks per year," the agency said. "The contract must also provide for termination based on objective 'for cause' criteria only and require that the grower be notified of specific reasons for cancellation."
Supporters of contract growers and other small-scale, independent farmers called on Vilsack in October to stop such loans for poultry and pig facilities altogether. Vilsack last month announced that he would extend similar restrictions to loans for contract pig growers in order to protect them from "questionable business practices". He also instructed FSA to avoid making loans that may exacerbate integrator business practices that have left some producers suddenly without contracts and unable to pay back their [USDA] loans.
Faced with lower returns in poultry and pork, some companies who contract with producers to supply poultry and pork have closed processing plants, reduced placements, and declined to renew contracts, Vilsack acknowledged. In some instances, he went on to say, it may have proved less expensive to cancel old contracts and begin new contracts with new producers, with financing guaranteed by USDA. "The producers were sometimes left with debt for their contract operation facilities, but no contract to provide income and repay their USDA direct or guaranteed loan," he said.
Vilsack also said that USDA would investigate allegations from producers that companies are targeting producers for contract termination to determine whether such practices violate federal laws which regulate packers and poultry dealers.
