Protecting Contract Growers

The use of production and marketing contracts in agriculture has dramatically increased the vertical integration and concentration of U.S. agriculture. Processors benefit from extraordinary bargaining power, and are able to offer “take it or leave it” contracts to farmers. As a result, most contracts contain obscure language, payment plans, and confidentiality provisions that make it difficult to negotiate a fair deal. Once farmers agree to a contract, there are no provisions barring early cancellation, which may leave farmers with huge loans on production equipment and no market. Also lacking are laws preventing processor retribution against farmers who attempt to collectively organize. And when wastes from poultry houses spill into the environment, it is farmers- not processors- who remain liable, even though it is processors who own poultry and livestock under production contracts. While the negative trend towards contracting spreads from poultry to hogs and cattle, new rules are under development to protect growers.

Nationally, several bills protecting contract farmers stalled in the 106th Congress – the Poultry Farm Protection Act of 1999 (H.R. 2829) and the Family Farm Cooperative Marketing Amendments Act of1999 (H.R. 2830)

In the absence of federal legislation on the issue, states have developed rules of their own–though many of the laws needed to protect contract growers are not yet enacted. Recently the IA Attorney General’s office released a comprehensive model contract law- the “Producer Protection Act“- that draws on a variety of proposals and statutes in other states. Also under development are state laws that assign environmental liability to integrators for the wastes of poultry grown under contract.

On the federal level, U.S. Senator Harkin introduced the Agricultural Producer Protection Act of 2000 in October 2000. The Act incorporates many of the same elements found in the model law released by the IA Attorney General’s office.

Liability issues are of great concern to contract growers. Under production contracts, growers do not own the birds but are nonetheless responsible for waste spills and other permit violations. Under development are state laws that assign environmental liability to integrators for the wastes of poultry grown under contract. Several laws in Iowa were proposed in 2000 (HF 2245, SB 2182 and SF 2198, SF 2387) to make integrators liable for environmental violations committed by contract producers, but the bills failed. Kentucky’s Division of Water finalized regulations on concentrated animal feedlot operations (CAFOs) which include integrator liability.

Minnesota has a law that assigns responsibility to the parent companies of subsidiary processors to pay producers if the contractor fails to uphold the contract. Other states have proposed similar laws, though none have passed.

More Information:

Contract Growers Protections – Kentucky

Kentucky's Division of Water recently finalized regulations on concentrated animal feedlot operations (CAFOs) which include integrator liability. The KY law is the first of its kind in the country. Under the regulations, integrators must apply for a state permit (KPDES) even if they own animals kept by a farmer under contract. If the permit is violated, it is the integrators who are liable for consequences. The regulations were to go into effect August 24, 2000, but last June the Farm Bureau and other groups challenged the rule in court by arguing that it was pre-empted by another Kentucky law that precludes the state from passing legislation stricter than federal standards. They were granted a temporary restraining order specifically on the integrator liability provision.… Read More

Contract Growers Protections – Minnesota

Bills on parent company liability failed in Iowa and South Dakota ( SD 1997 S.B 202, vetoed by governor in 1997 see SD Contractor liability). Minnesota passed a law in 1990 (see link to Statute below) that assigns liability to the corporation that owns the processor for any unpaid debts due to growers.… Read More

Protecting Contract Growers – Iowa Producer Protection Act

Historically, Minnesota led the way to protect contract growers, setting guidelines on contract cancellation, requiring a mediation clause in contracts between growers and processors, and assigning parent company responsibility for contracts of subsidiaries. There is still a dearth of legislation and case law in this area, however, and new legislation is still focused on the basics: contract readability and a 3 day right to review (MN), contract leins to give producers the first priority to be paid (IA), and banning confidentiality on production contracts (IA).… Read More