BY DAVID IRVIN

Posted on Sunday, August 12, 2007

URL: http://www.nwanews.com/adg/Business/198378/

BERRYVILLE — More than a hundred Northwest Arkansas poultry farmers are lobbying Tyson Foods Inc. for contractual agreements that give them more money, a response to what they call years of inaction by the meat giant amid skyrocketing business costs.

The group’s leaders say the Springdale company is putting off raising the payments per pound of chicken to hedge against its own growing costs. Meanwhile, rapid increases in fuel and living expenses have put these independent farms in jeopardy, they say.

The farmers want another penny-and-a-half per pound added to their contracts, an increase in fuel allowances and an electricity allowance. As of last week, they had not heard back from Tyson.

Donnie King, Tyson’s group vice president of operations, said in a recent interview at company headquarters that Tyson is reviewing the poultry growers’ request for more money but is also looking at the long-term strategy for chicken production in Northwest Arkansas.

“We certainly have no intentions to make our [profit ] number, if you will, at their expense,” King said.

Tyson Foods has 6, 200 contract growers nationwide who contract with the company and are paid on a per-pound basis. Each grower belongs to what Tyson calls a “complex,” which is served by company technicians and managers who often live in the same communities as the farmers.

Don McClung owns four chicken houses, a realty business and other interests in and around Berryville, about eight miles east of Eureka Springs in Carroll County. Five years ago he returned to the Army Special Forces at the age of 54 to fight in Afghanistan. When he returned home, he faced another battle.

“When I got back in ’ 04, well, fuel prices started to really escalate and electricity started to increase,” McClung said recently from his office in Berryville. After weathering increasing costs for two more years, McClung and others in the Berryville / Green Forest poultry complex — which includes more than 200 farmers surrounding a Tyson processing facility— decided to circulate a letter and ask the area’s farmers to provide signatures of support and operational data to “prove our need for an increase in fuel or utility allowance and pay.” “ After you take the time to compile these numbers, you will see the loss you are absorbing, ” the letter states. “We can only absorb so much. Banks are already questioning poultry farms’ profitability and their ability to pay present or future debt.” The organizers received 118 signatures of support out of more than 200 in the complex. In April, they took the information they compiled to Tyson management at the corporate office to petition for a raise. After several months without an answer, the farmers contacted the Democrat-Gazette to tell their stories.

CASH CRUNCH “Tyson’s been good to me. I’ve gained a lot from working with them. But it’s just got out of hand. I could lose it, very easily,” said Dennis Doolin, a poultry farmer with 11 chicken houses in Oak Grove, about 10 miles northeast of Berryville in Carroll County.

The 56-year-old recently gained another grandchild and wants to leave the farm to his family once he retires. But he worries about the ultimate viability of the broiler-growing business. He still owes about $ 500, 000 on his farm and has seven years to pay it off.

“If it gets to where I’m gonna lose the place, I could sell for what I owe, but what good would that do ? It would get me out of debt, but I’ve been working a long time on this. I’d like to leave something to my kids,” Doolin said.

The cash crunch these farmers face is prompting some to find other work, often leaving the farm all day while they work somewhere else.

Joel Wolf has been raising chickens for four years. After he bought the farm and began raising his first flock, he quit his full-time job as a truck driver. He and his wife were able to rely solely on the farm income for a couple of years, but gradually, as the cost of propane began to rise, he had to look for more work off the farm. During the days, Wolf now works construction at a new subdivision just south of Branson, providing money that he said keeps the farm afloat.

There are many similar stories among Tyson growers, as well as contractors for other poultry processors.

“In their mind, they have a legitimate business concern, which I respect and appreciate,” said King, the Tyson vice president. “What we have to do is look at that [request for pay increase ] and make sure it makes sense. Because at the end of the day, we have to take that same raw material to market, as well.”

The economic situation nationwide for poultry farmers is bad, and relations are strained between contract growers and processors, analysts say. This is nothing new, but the situation is particularly severe now, they say.

For two decades, Dan L. Cunningham, a professor in the poultry science department at the University of Georgia at Athens, has tracked how Georgia broiler growers are doing financially. The economics they face today, he said in a recent telephone interview, are worse than at any other time he can remember.

“Certainly the houses are going to have to cash flow for the growers or we won’t have any chickens in the market,” Cunningham said, referring to the large buildings that chickens are raised in.

Patrick Pilkington, vice president of Live Production Services for Tyson Foods, said broiler growers are visited at least once a week by Tyson’s service technicians and that most of the problems farmers face can be resolved by that contact.

“When the situation changes, they [the managers ] know about it immediately,” Pilkington said.

Growers usually get about 5 cents per pound for their birds, depending on where the growers are in the country and which processor they link with. The Berryville growers on average receive 4. 75 cents per pound, they said. An updated house with cooling cells can receive 5. 25 cents per pound via a premium contract, the growers said.

A modern chicken house with 20, 000 chickens could gross about $ 5, 000 per house per flock, assuming each bird weighs about 1 5 / 2 pounds and 95 percent survive to slaughter. But all the expenses from the business are taken out of that gross income, and for older chicken houses that don’t convert energy as efficiently as newer ones, turning a net profit is increasingly difficult.

That’s particularly significant now that the price of propane, natural gas and electricity — all used to control the fledgling chicks ’ environment — has skyrocketed. The price of propane rose 92 percent between May 2002 and May 2005, according to the Energy Information Administration, the federal agency that watches energy prices. Natural gas increased 100 percent over the same period, and electricity went up 27 percent.

COMPANY ACTIONS Tyson analysts recognized the impact of higher utility costs. In late 2005, the company approved and paid more than $ 26 million to broiler growers across the nation as a supplemental fuel payment, King said. The next year, Tyson re-examined that program and paid only about half that much as a supplemental fuel payment in 2006. Tyson officials point out that while the amount did go down, Tyson had no contractual obligation to pay any supplemental fuel payment at all. “We obviously, in our operations, we buy a lot of utilities, too. We understand what those costs are,” King said.

Company spokesman Gary Mickelson noted other expenses the poultry company has shouldered without being contractually obligated to, including flock treatment costs.

“Anytime Tyson recommends treating a flock to prevent or treat illness, the company covers the cost,” Mickelson wrote in a recent e-mail.

To back up the statement, Tyson pointed to Ronnie and Jackie Eldridge, who raise chickens for the company four miles east of Springdale. The couple confirmed that two years ago Tyson paid to eliminate cases of dermatitis, a skin condition to which chickens are prone. At $ 400 to $ 500 per chicken house, the total cost for Tyson was tens of thousands of dollars across the Springdale poultry complex.

Tyson and other large processors also are contending with higher prices for corn and soybeans, which make up the feed the company provides to the contract farmers. Soaring production of ethanol continues to increase prices of those commodities. The company says that in the quarter that ended June 30, it absorbed $ 120 million in excess grain costs.

Ray Atkinson, a spokesman for Pittsburg, Texas-based Pilgrim’s Pride, the nation’s largest poultry producer, said the entire industry is facing tight margins, not just the growers.

Despite the economic factors facing the processors, some poultry growers in Northwest Arkansas believe the processors can afford raising the per-pound payment, citing recent earnings reports. Pilgrim’s Pride earned $ 63 million in the third quarter, which shattered analyst estimates; and Tyson earned $ 111 million.

Mark Stone owns a custom pistol business, a storage company and several chicken houses near Berryville. He is also one of the primary organizers of the group of broiler growers petitioning Tyson for a raise.

“For three and a half years, they’ve been saying, ‘ We’re gonna get you a raise, it’s over at corporate, ’” Stone said in a recent interview at McClung’s office. “But nothing ever happened.... I truly believe they will continue to put it off as long as they can, because it is money in their pocket every day they put it off.”

Tyson officials said it is very rare for broiler growers to contact the corporate office at all, as the Berryville area growers did. In 10 days in the middle of July, Tyson officials granted perpound price increases to three poultry complexes around the country, without any formal petition or request from the growers to the corporate offices, King said. Those farmers got more money after Tyson analyzed their costs and determined a bump in payments was justified, he said. King said analyzing the request from the Berryville growers “has probably taken longer than we would like, but it is analysis we have to do to make the right longterm decision.” “ We are trying to determine what our longer-term path needs to be in Northwest Arkansas, ” he said. “There are a lot of moving parts in Northwest Arkansas, from urban encroachment, to watersheds, to changes in bird weights. We’ve been wrestling with Northwest Arkansas. We’re trying to figure out the best thing for all of us.”