Industry under pressure

BY JOHN KRUPA

Posted on Sunday, February 18, 2007

LINCOLN — Northwest Arkansas has treated the Pitts family well the last 93 years.

Sterling Chambers Pitts bought land about 3 miles southwest of Lincoln in 1914 and turned it into a fruit orchard. His grandson, Roger Pitts, traded the apple and peach orchards for two chicken houses in 1967.

Since then, the Pitts family farm has swelled to nine houses.

Roger Pitts, 68, now raises 1 million broilers on the farm each year.

A fifth-generation of Pittses, Roger Pitts’ grandchildren, could work the family farm one day.

Despite the operation’s apparent success, however, Roger Pitts wonders if that will be possible. Like so many Northwest Arkansas poultry farmers, a perfect storm of pressures is clouding the future of Pitts’ poultry operation. They include the sky-rocketing cost of energy and feed, developer demand for rural land, the looming threat of environmental litigation and the potential for epidemic disease. “It doesn’t matter to me much anymore because I’m out of the picture soon, but I’m concerned about my son’s generation and my grandsons’,” Pitts said. “Agriculture is just under tremendous pressure now.”

FEELING THE STRAIN The increasing cost of energy and feed is putting a tight squeeze on Northwest Arkansas chicken farmers.

The price of propane, used to heat chicken houses, is hurting Northwest Arkansas farmers in particular.

Pitts, who can store up to 60, 000 gallons of propane at one time, bought fuel for 45 cents per gallon in 1999.

He spent $ 1. 17 per gallon of propane in October — a 160 percent increase.

Large poultry companies are not only feeling the squeeze from the rising price of energy, but are also under the crunch of feed prices.

The price of corn, a key component in chicken feed, is increasing thanks to the growing demand for ethanol.

The U. S. monthly price for corn was $ 1. 77 per bushel in November 2005, according to the U. S. Department of Agriculture. Corn sold for $ 2. 87 per bushel in November 2006.

Corn used for ethanol is expected to increase 34 percent to a record 2. 15 billion bushels over the next year, according to the U. S. Department of Agriculture.

Gene Pharr, a Lincoln farmer who raises broilers for George’s Inc., said the Springdale-based company is spacing out the time between flocks to compensate for the increasing price it’s paying for feed.

The typical two-week lag between flocks has increased to three for Pharr. That may not seem like a lot, but Pharr estimates that it costs him $ 5, 000 each additional week his five chicken houses sit empty. Combined with the rising value of land in Northwest Arkansas, Pharr said it’s becoming awfully tempting for farmers to leave the business — and nearly impossible for newcomers to build houses. “Farming is not a high-profit business to start with, and it’s just getting tougher all the time,” he said. “It’s a cyclical industry, and now seems like one of the worst times we’ve seen in many years.”

FROM THE TOP DOWN These pressures have had significant impacts not only on Northwest Arkansas chicken farmers, but also on the region’s poultry corporations.

Springdale-based Tyson Foods Inc., the world’s largest meat company, posted its third straight quarterly loss in November.

Tyson executives said the company lost $ 56 million, or 17 cents a share, in the fourth quarter that ended Sept. 30.

Janet Wilkerson, vice president of human resources for Decatur-based Peterson Farms, said the company’s profits fell to their lowest point ever in 2006. Privately-held Peterson Farms does not disclose revenue details.

The company’s loss led executives to freeze spending, reduce production and cut about 30 jobs from its 1, 000-employee work force.

A key concern for executives like Wilkerson is Oklahoma Attorney General Drew Edmondson’s pending lawsuit against the region’s poultry industry.

Edmondson sued eight Arkansas poultry companies in the summer of 2005 claiming that they are polluting the 99-mile Illinois River that begins in Arkansas before crossing into Oklahoma near Siloam Springs.

The companies, which include Tyson and Peterson Farms, spread poultry litter on pastures to fertilize crops. The practice causes poultry waste to wash into the river, thereby polluting it, Edmondson claims. “It’s a scary time in the industry,” Wilkerson said. “We just don’t know what’s going to happen.”

FIGHTING THE FLU Concerns over biosecurity, driven by nightmare scenarios of an avian influenza outbreak, are also on the minds of Northwest Arkansas chicken farmers. The deadly H 5 N 1 strain of avian influenza jumped from bird to human in separate outbreaks over the last three years in Thailand, Vietnam, Azerbaijan and Indonesia. Though person-to-person spread has been rare and unsustained, the poultry industry has spent millions of dollars preparing for an outbreak on U. S. shores.

Richard Lobb, a spokesman for the National Chicken Council, said both farmers and corporations are adopting biosecurity measures never before enacted.

Workers and vehicles that travel between chicken farms go through extensive disinfecting processes, and states have drawn up emergency preparedness plans to implement in case of an outbreak in the United States.

Because all such plans involve the culling of entire flocks and the quarantine of farms, individual growers have a strong incentive to practice sound biosecurity measures, Lobb said. “The farmers have all gotten really wise to this and they are very, very serious about it,” Lobb said. “They know this is their livelihood, and if anything did happen and they were shut down, they could go out of business.”

HERE TO STAY Despite all these pressures, demand and production of chicken continues to grow nationwide. Last year the average person consumed an average of 88. 6 pounds of chicken, according to data from the National Chicken Council. That’s up from 87 pounds in 2005 and 70. 2 pounds in 1996.

U. S. broiler production also grew during the same period.

American farmers raised 35. 6 billion pounds last year as opposed to 34. 9 billion pounds in 2005. Only 26. 1 billion pounds were produced in 1996.

Arkansas also remains at the top of the list of broiler-producing states nationwide.

The state ranked second nationally, only trailing Georgia, for broiler production in 2005.

Arkansas largely has Benton and Washington counties to thank for its poultry preeminence.

Benton County in 2002 had more chicken farms in operation than all but two other counties in the country. Washington County ranked seventh on the same list.

Consequently, poultry remains an integral part of Northwest Arkansas’ economic backbone, said H. L. Goodwin, professor of agricultural economics at the University of Arkansas at Fayetteville.

At least 10 percent of the region’s economy is still tied to the poultry industry, he said.

And with the region’s poultry giants invested in millions worth of poultry infrastructure in Northwest Arkansas, the industry likely isn’t going anywhere.

“There are too many structural things that are positive for the industry to say it’s going to go away in my lifetime,” Goodwin said. “But we all have a lot at stake in making sure this industry remains viable.”