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

by Christopher Leonard

  The Farmers Home Administration (FMHA) was created in the 1940s because private banks had backed out of the business of extending farm loans, fearing that the business was too risky. The FMHA’s job was to loan money directly to farmers. It also had a side business of guaranteeing farm loans made by private banks, promising, in essence, to bail out the bank and pay it the value of the loan if the farmer defaulted. Burnett’s FMHA office in Arkansas was a relatively sleepy little operation when he joined back in the 1980s. It extended loans to cattle ranchers so they could buy livestock, and it loaned money to row-crop farmers so they could buy or repair equipment. The FMHA extended some loans to chicken farmers, but that was a small part of the agency’s business because it wasn’t allowed to lend out more than $300,000 at time, which was hardly enough money to build a big chicken farm.

  Burnett and other loan officers noticed a change in the mid-1990s, when the FMHA got wrapped into a large agency called the Farm Service Agency. At that time, private banks started getting edgy about loaning money to poultry farms. The business was getting riskier, even as it was expanding and companies like Tyson were reaping record profits each year. In spite of the growth, more farmers were going under and selling their operations at a loss to get out of the business. It seemed increasingly routine for Tyson to cancel a farmer’s contract if he didn’t meet the company’s expectations.

  But the rate of chicken house construction didn’t slow, because bankers figured out a new way to keep money flowing to Tyson’s network of contract farms. They turned to the Farm Service Agency. While the agency was limited in how much money it could loan directly to farmers, it had far more leeway in the size of the loan it could guarantee. Under the guaranteed loan program, the FSA would pay back the bank more than 90 percent of the loan value if a farmer defaulted. The bank also got to keep any down payment the farmer made, plus any fees, interest payments, and other money it collected from the farmer before he went bankrupt. This meant the bank had nothing to lose if it could land an FSA guarantee for a poultry farm. One bank after another discovered this lucrative pool of taxpayer-backed loans, first regional banks in towns like Danville and Fort Smith, Arkansas, then national operations like U.S. Bank.

  The FSA became a pipeline of credit for chicken farms by the time Boonau Phouthavanong, Nouk Yang, and other Laotian farmers were ready to enter the business. In 1999 the Arkansas FSA guaranteed $49.9 million in new farm loans, with well over 90 percent of the loans going to chicken farmers, according to Burnett and other loan officers. By 2001, when Boonau was settling into Waldron, the FSA guaranteed $68.4 million in loans.

  As more Laotians moved south to buy up poultry farms, the value of loan guarantees exploded. The Arkansas FSA in Arkansas guaranteed $101.9 million in 2002 and $103.4 million in 2003. Banks were rushing to get in on the deal making. Backing the risky loans for poultry farms wasn’t a problem for the USDA. At the FSA, the biggest concern seemed to be that loan officers would get in trouble if they shut out aspiring farmers by failing to guarantee the loans. The USDA was confronting a dark legacy of discrimination against black farmers and other minorities, and it was eager to show it treated all new farmers the same.

  Between 1999 and 2009, the Arkansas FSA office alone guaranteed more than $797 million in new loans, leaving taxpayers on the hook if the farms failed.

  “We don’t discriminate against nobody,” Burnett said. “If it’ll cash flow in any way possible, we’ll make the loan.”

  The loans for new farms around Waldron were parceled out by small banks with local branches, like Chambers Bank of Danville, Arkansas, or Regions Bank in Alabama. These banks became a loan mill, churning out hundreds of loans to Laotian immigrants so they could overhaul existing farms or build new ones.

  The paperwork for these loans reflected the same sort of hazy math and willful blindness that characterized the wave of subprime mortgages being extended from Las Vegas to Florida. To get a loan from Chambers or Regions Bank, farmers had to submit a Farm and Home Plan that justified the amount of money they would borrow. The plan was meant to show how much money the farmers could reasonably expect to earn from their operation, balanced against the amount of income they would need to keep the farm running and support their family. If earnings from the farm were enough to support the family and cover expenses, then the loan could be approved.

  A review of the Farm and Home Plans submitted by a single loan officer in Arkansas named Larry Skeets reveals the sort of rigor that went into the process.7

  The paperwork for Tria and Mai Xiong, for example, shows that the couple and their son planned to spend about $20,000 a year for their living expenses. That budget made their loan application look pretty feasible, leaving the family a total annual income of about $61,000 a year after expenses.

  Curiously, it appears that farmers Lue Her and Mai Yang also budgeted $20,000 a year in living expenses, according to loan documents, even though it was just the two of them, with no children. Strikingly, a farmer named Tou Lee also budgeted $20,000 a year in living expenses. So did Lao.

  All these families decided to budget their living expenses at $20,000, which was luckily just the right amount to make their farms appear profitable on paper.

  Maybe a banker reviewing Skeets’s loan documents would think the $20,000 was some traditional Laotian family budget, a number they all used in the same way they decorated houses with identical plastic flowering vines. But the numbers start to look really strange in the case of Pa Chay Xiong, who also, not surprisingly, budgeted living expenses of $20,000 on the loan application for a farm. The thing about Pa Chay was that he had seven kids. That means he budgeted $6.11 per day to feed each person in his family, or $42.74 a week. Xiong’s neighbor Don Lee seemed to make an identical calculation, budgeting $20,000 to feed his family of nine.

  These rubber-stamp numbers did not seem to raise serious objections for senior loan officers. All of the loans went through. Throughout Arkansas, Oklahoma, and Texas, similar loans were being approved. Laotians had no trouble borrowing $500,000 or $2 million at a time for their operations, even as local farmers declared bankruptcy, had their contracts canceled by Tyson, or simply put their farms up for sale because they couldn’t pay their bills.

  It’s difficult to determine how much money taxpayers spend every year to support Tyson’s system of contract farms. Clearly, billions of dollars underpin the construction of new chicken farms in the United States. This steady flow of easy credit allows Tyson and its competitors to cast off farmers without worrying that banks will hesitate to lend money to the next chicken grower in line.

  One reason it’s difficult to put an exact dollar amount on this subsidy is that the government itself does not know. The FSA knows the total value of loans it guarantees every year and the total value of bad loans that it has bailed out. But it doesn’t track its loans by industry, meaning the agency doesn’t know how many loans each year go to buy new tractors and how many go to build new chicken houses.

  Jim Radintz, who was an officer in the FSA’s farm loan division in Washington from 1989 until late 2010, said the agency isn’t required to track which type of agriculture consumes most of the agency’s money. The FSA was created to support all farms equally, so it doesn’t need to track how much money is used to bail out poultry farms versus, say, catfish hatcheries. Congress didn’t set up the FSA as a profit-making enterprise, Radintz said, so it ultimately doesn’t matter if one kind of agriculture is a bigger drain on taxpayer money than another.

  According to one internal FSA audit, the agency guaranteed more than $568.9 million in new loans for poultry farms in just 2008 and 2009 alone, the only two years for which it tracked the number. The internal audit didn’t track the value of losses paid out for bad poultry farm loans. The FSA paid a total of $468 million to bail out bad farm loans between 1999 and 2008, but what proportion went to poultry farms is unknown.

  While the FSA office in Washington doesn’t track the value of loans to poultry farmers, its lo
cal offices do. Each loan file says what kind of business the money was used for. But a series of open records requests sent to the nation’s biggest poultry-producing states met with mixed results. Some states, like Mississippi and Alabama, quickly responded with precise figures showing the value of loans they guaranteed for new poultry farms. (Alabama said it guaranteed $287 million in loans for chicken houses over the last decade, while Mississippi said it guaranteed $150 million.) Other states, like Arkansas, provided less detailed records that showed only the total value of all the loans they guaranteed (loan officers in Arkansas said well over 90 percent of all the loans were for chicken farms).

  Several of the biggest chicken-producing states, including Oklahoma, Texas, Tennessee, and Georgia, refused to provide records for their guaranteed poultry loan programs. The loan files were indisputably public information. But FSA officers in these states said they were not obligated under the law to dig through their files and compile information about poultry loans that were extended in different counties, as several other states had done.

  If the FSA is hesitant to disclose its figures, it is easy to understand why after looking at the figures from Arkansas. Even as the state was guaranteeing more loans each year over the last decade, it was simultaneously paying out ever-larger sums to cover losses. The state paid just $125,237 to bail out failed farms in 1999. By the middle of the decade it was paying at least $2 million a year, and by 2009 it paid out $4 million. Over ten years Arkansas spent $20.6 million to cover loan losses.

  One thing the loan program has going in its favor is that most chicken house loans aren’t a complete loss when farmers default. In the vast majority of cases, a bank is able to sell off a farm and recoup at least some of the loan value, sparing taxpayers the burden of paying off the entire debt.

  But farmers don’t get any of that money. A system that was once designed as a safety net for struggling farmers now serves the opposite purpose. The FSA is a safety net for Tyson, the banks, and the tournament system.

  The farmers are left to fend for themselves.

  * * *

  Rural Americans have a word for what has happened to the economy of towns like Waldron and what has happened to the livelihoods of people like Boonau, the Yangs, and Jerry Yandell. They have been chickenized.

  It’s a silly sounding word to outsiders, chickenized, but farmers and ranchers spit it out with all the vitriol of a racial epithet. The word describes a miserable state of existence, a powerlessness that Boonau and others have come to accept as the inevitable state of the American rural economy. Chickenized. It describes what happens to farmers like Boonau who struggle to eke out a living in Tyson’s shadow. It describes a system where massive federal subsidies help keep a company like Tyson afloat at the expense of working families.

  As Tyson Foods expanded during the 1980s and 1990s, so too did the reach of chickenization.

  Tyson’s domination of the chicken industry became so complete by the late 1990s that the company could take it no further. Jim Blair, Don Tyson’s top attorney, repeatedly reminded his boss that U.S. antitrust laws prohibited Tyson Foods from taking over the entire market. There were limits to how big Tyson could get, no matter how much cash the company had on hand to buy competitors or build new plants.

  But that didn’t mean Don Tyson was content to stop growing. There were other horizons the company could conquer, other businesses in which the company could compete.

  There were billions of dollars in profit being made each year in the livestock industry, for example, a fact that did not escape Don Tyson’s attention. Even by the 1990s, rural America was still home to a patchwork of independent cattle ranches, feedlots, and hog farms, whose owners still operated the kind of midsize operations idealized by Thomas Jefferson two hundred years ago. They lived on their farms, owned their animals, and sold their herds on open, competitive cash markets. Cattle ranchers and hog farmers still made a good living, and the towns where they lived prospered much more than Waldron did.

  Perhaps it was inevitable that Don Tyson and his lieutenants would eventually set their sights on the lucrative business of raising cattle and hogs. The company had to look outward, beyond the poultry sector, in their search for more profit.

  The livestock industry was one of the economic pillars of small-town America. And it was ripe for the taking.

  * * *

  1. Pronounced Boo-now Poot-uh-voong.

  2. This farmer chose to remain anonymous because even discussing his ranking in the tournament, let alone sharing his ranking information as he did, could get him sued into bankruptcy by Tyson.

  3. For those who can understand this kind of thing, Taylor describes the equation this way: “AFC” is the weighted average flock cost, “ci” is flock cost for the “ith” flock (flocks 1-20), “qi” is the net pounds sold for the “ith” flock.

  4. The account of this meeting is based on Greg Owens’s recollection of it. The general tenor and substance of the meeting conforms with the accounts of other chicken farmers in Waldron who found themselves unable to meet the demands of Tyson Foods. Tyson Foods refused to make Gary Roper available for interviews.

  5. Tyson Foods acknowledges pitting newer houses against older houses, but says the arrangement is necessary to reward farmers who spend money to upgrade their facilities. The company pointed out that it also reinvests in its slaughterhouses and other facilities.

  6. The Yang children will remain anonymous because they are minors.

  7. The loan documents described here were uncovered by Fayetteville attorney Mark Henry.

  PART 2

  * * *

  THE GREAT CHICKENIZATION

  CHAPTER 6

  * * *

  Pig Cities

  (1973–1994)

  IN THE early days, Don Tyson’s hog farms were only a sideshow compared to the company’s chicken business. The company funded a few scattered hog barns primarily as a way to discard used chicken feed, letting hogs eat it rather than throwing it away.

  But over time, Don Tyson saw something special as he looked over the balance sheets of his small network of experimental hog farms. He saw a possible new future for his company, one that made it less vulnerable to the brutal swings of the poultry market. Tyson Foods could raise pigs without spending too much money, and it made a decent profit when it sold them to meatpackers like Armour. Tyson realized that pork prices rose and fell on a completely different cycle than chicken prices. If Tyson kept growing hogs, it might buffer the company from chicken’s permanent boom and bust pricing cycles. The hog barns could be an insurance policy of sorts, a hedge against the volatility that drove modern chicken companies out of business. While Tyson’s competitors were focused on chasing the next order for drumsticks, Don Tyson quietly funded his small cluster of hog houses.

  Tyson’s strategy was based on short-term profits. But it launched a sweeping change that would overtake traditional ranching and hog farming, transforming them into the industrial meat system that exists today. Farming as it had been practiced for centuries would be replaced in a matter of decades by a centralized, tightly controlled system modeled on the poultry business.

  The takeover started in 1973, on a nondescript farm in northwestern Arkansas. A young man named Bill Moeller lived on the property, and he woke up early every day to start his farm work. Moeller was a full-time employee of Tyson’s Foods. His job wasn’t simply to raise meat or even necessarily to make money. Moeller’s job was to learn. The farm he ran was a hidden experiment, an investment that would ultimately yield Tyson billions in profit.

  In the predawn hours, Moeller donned rubber boots and work clothes and walked from his small house out to a group of low-slung sheds that sat secluded on a stretch of green pasture. When Moeller opened a shed door and went inside, he was greeted by the acrid smell of feces. There was a rustling and grunting sound, the clattering of hooves as a pink mass of bodies shied away from Moeller and bumped into one another, the startled whining of
pigs crammed into a small space. The barn was a novel invention, a hybrid between a pigsty and a chicken house. It was a gamble on Tyson’s behalf, a learning center where the company tested the theory that pigs could be raised under the same industrial model as chickens.

  There was ample reason to doubt the gamble would work. Chickens and pigs were leagues apart biologically. Chickens were simple creatures, docile birds that could be packed next to one another for the six short weeks they were scheduled to be alive. Pigs, on the other hand, were not only bigger than most people, but they were far more biologically similar to humans than to birds. The internal organs of swine are so close to a human’s that the animal became a favorite for medical dissections and tests of the digestive tract, stomach, and heart.

  For over ten thousand years, pigs had been raised mostly outside, like cattle or horses. They wallowed in mud, they furrowed for food. The females suckled their young and cared for them with all the attentiveness of a mother cow or dog. It seemed unlikely the animals would be able to adapt to the production model of a chicken house, crammed into a barn, shoulder to shoulder, all four hundred pounds of a boar pressed up against all four hundred pounds of his neighbor. In many ways, it was the biological equivalent of putting hundreds of large people in a barn with no toilets or running water, and very little heating or cooling.

  Moeller, however, was game to try. He was a cattleman by heart, raised about fifty miles east of Springdale in the town of Berryville, Arkansas. He graduated from the University of Arkansas and planned to get into the ranching business. But his wife wanted to live near home, in northwestern Arkansas, which meant Tyson’s Foods was his best bet for a job. He applied, willing to take what the company offered, and was a little taken aback when one of the nation’s biggest chicken companies told Moeller they wanted him to work with hogs.