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

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  1. By 2013 the average had risen to 81 pounds of chicken a year.

  CHAPTER 5

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  Cage Match

  (2004–2012)

  DURING 2004, it was common to see groups of Laotian immigrants touring the ruined farms around Waldron. When someone like Jerry Yandell or his neighbor Edwin went bankrupt or decided to sell his place, he could count on the arrival of big white rental vans full of visitors. Groups of Laotians would step out of the van and walk the grassy lots around Waldron, touring big empty chicken houses and speaking among themselves in their native tongue. The local farmers had only the vaguest ideas of where these groups came from, but it didn’t matter. It was clear they were willing to borrow hundreds of thousands of dollars to buy farms that locals were desperate to unload.

  And so it happened that in 2004, a short Laotian man named Boonau Phouthavong1 walked the length of a chicken house just outside Waldron in 2004, scanning the building for signs that it could turn him a profit. The houses he looked over belonged to a local farmer named Edwin, who had grown to despise and even fear the old buildings, which Edwin considered to be Ground Zero in a long chain of events that ruined his life. Edwin had given over years of his life to working on the barns, only to end up on the edge of bankruptcy. They were a lodestone around his neck, a sinkhole of debt he longed to escape, and a shabby-looking monument to the misfortune that Edwin believed had swamped his life.

  But Boonau looked over the buildings with different eyes. He saw promise, and he saw a future. He eyeballed the houses, measuring their square footage and the size of the flocks they would hold against the loan payments he would take on to buy the place. The math seemed promising to him. Boonau knew he’d have to borrow at least several thousand dollars to update the chicken houses, but he thought he could make it work.

  Boonau might have been looking to buy a ruined business venture in Edwin’s farm, but he was nobody’s fool. As he looked over Edwin’s buildings, he had good reason to believe he could make some money off the place. Boonau was already operating five chicken houses, three of them on a farm west of Waldron and another pair near his own modest farmhouse south of town. He had moved to Waldron four years earlier.

  Immigrants like Boonau brought with them to Arkansas a sense of visceral optimism that was often missing in longtime residents around Waldron. The Laotians believed in hard work, believed in farming, and believed that Tyson could provide them a path to the American Dream. Boonau and his wife approached the chicken business in much that same way Jerry and Kanita Yandell did in the 1970s. The Laotians thought that hard work would pay off and that the seven-day workweeks would eventually make them independent farmers, free of debt.

  Laotian immigrants seemed like the one group that could make a go of it as Tyson chicken farmers. They were frugal to the extreme, willing to live in conditions many local farmers considered impoverished. The Laotians helped each other do farm work to keep down labor costs, and they seemed to have no complaints about working the long hours. But in the end, even they found it difficult to keep their farms out of bankruptcy.

  This is because the immigrants were just pieces in Tyson’s ongoing game, players in a grinding tournament that the company orchestrated to pit one neighbor against the other. Tyson Foods dominated the poultry industry so thoroughly by the time Boonau bought his farm that the company could easily manipulate the price it paid farmers for their work. Tyson exercises this power in a way that systematically depresses the prices it pays to many farmers, creating a new breed of high-tech sharecroppers who live on the ragged edge of bankruptcy. The Laotians unwittingly joined this tournament and helped drive local farmers, and then one another, out of business. The rules of this tournament illustrate the logical conclusion of vertical integration, and what it means for farmers and rural communities when one company gains control over the levers of meat production. And at the heart of this tournament is Tyson’s secretive system for paying farmers.

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  At the end of any given week, a series of letters is mailed out from the Tyson complex in downtown Waldron. The thick envelopes carry a crisp, bright red TYSON logo as the return address, and each bears the name of a company farmer behind a clear, plastic screen. These letters carry an economic verdict that is meted out to each farmer, determining who will survive and who will be driven out of business.

  The letters are several pages long and packed with complicated financial figures. The farmers call them settlement sheets. The one critical piece of information the settlement sheets contain is the going price of chicken, or, more accurately, the price that Tyson deems appropriate to pay.

  Each farmer receives their own price, determined by the tournament system that ranks each farmer against his neighbor. At the end of each week, Tyson makes a competitive pool out of all the farms that have delivered chickens to the plant. Tyson managers in the complex run a series of calculations that compare the efficiency of each farm against the others in the pool. The company has far more data about the farms than their owners; the company can compare how much feed each farm consumed compared to its neighbors, how many birds died and how much weight they gained overall. The company can measure a farm’s performance down to the number of calories the birds consumed, a figure that is helpfully included in the letter.

  All of this information is fed into an equation that spits out a simple ranking: the most efficient farms on top, the least efficient at the bottom. The key metric that Tyson uses to pick winners and losers is how much feed it takes a farmer for his chickens to gain one pound of meat, a neat little number the company calls its “feed conversion.”

  As each farmer opens the envelope, he or she sees a cover page with a ranking of every farm that delivered birds the previous week. There are twelve neat rows of figures just to the right of the rankings, showing how many birds were placed at each farm, how many pounds each farm delivered, and what the feed conversion ratio was at each operation.

  But there are critical pieces of information that Tyson keeps secret. The company doesn’t tell the farmer whom he competed against in a given tournament. On the far left side of the settlement sheet, where the names of the farmers should be listed next to each farm’s results, there is just a large void of white space. When someone like Jerry Yandell, Doug Elmore, or Boonau Phouthavong reads over his settlement sheet, he sees only his own name, sitting there alone in the field of white, placed wherever he landed in the ranking. Sometimes near the top, sometimes at the bottom.

  If a farmer ranks near the top, he might earn 5 cents a pound for his labor. If he ranks in the middle, he would get paid 4.5 cents. Close to the bottom, he would make 4.1 cents. Cattlemen, corn farmers, and hog producers nervously watch the futures markets to see the price change for their goods. A swing from 5 cents a pound to 4 cents a pound is terribly significant. But rather than look at the futures exchanges, a modern chicken farmer nervously reads over his settlement sheet, seeing where his name ranks against a phalanx of his anonymous neighbors.

  The differences in pay are severe. One farmer who lived just outside of Waldron watched helplessly during the winter of 2008 as he fell lower in the tournament, his ranking and his pay driven downward with every settlement sheet he received.2

  A survey of the farmer’s settlement sheets in 2009 shows just how severe the results of the tournament could be. When this farmer ranked 6th out of 14 farms, he was paid 5 cents a pound. He later fell to the rank of 16th out of 20, and he was paid only 4.5 cents a pound. That meant he took a pay cut of $846, making his total payment $7,618.

  Later in the year, this farmer did even worse, ranking 12th out of 14 farmers. For that flock of birds his pay was docked $1,428, leaving him just $6,596. He took an 18 percent pay cut because of where he ranked in the tournament.

  With gas and electrical bills to pay, a pay cut of $1,428 could make the enire flock of birds a loss. The farmer, in other words, often worked for free, seven days a week for si
x weeks, to deliver as much as 161,000 pounds of meat to Tyson.

  When a farmer gets hammered in the tournament, it might seem prudent for him to approach his neighbors and ask what they were doing differently. This is tough to do, and not just because the names on the tournament ranking are left blank. Each page is clearly marked with the warning: “Confidential and Proprietary Information of Tyson Foods, Inc.” If farmers were to meet and compare their settlement sheets, or show them to a journalist or lawyer, Tyson can sue them for leaking confidential information. To put it lightly, this has chilled the flow of information about the tournament among farms.

  Only Tyson has access to the centralized pool of information that it uses to rank each farmer, giving it immense power over how the tournament is played. Tyson determines which chickens will be sent where, and when they will be picked up for slaughter. That means it chooses which farms compete against one another in any given tournament. If the company wants to leave a farm out of a given tournament, it simply delays picking up the chickens at that farm by a couple of days. Conversely, it can throw a farm into competition against others of Tyson’s choosing by picking up birds there a few days early.

  Only Tyson can see clearly how the game is played, watching the tournament through its centralized databases that tally the results. For the farmers, the tournament unfolds almost like a game of chance when they open their settlement sheets and get the latest rankings.

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  Around 2008, longtime farmers who raised chickens for Tyson Foods in Waldron noticed a change in their paychecks. It happened slowly, but it was unmistakable. It was as if some kind of bad weather system had come rolling in over the mountains, plunging the barometric pressure. An invisible force hung over their farms, steadily driving down their paycheck each month.

  The change was a prime topic of conversation at Scott County Tractor, a repair shop that passes for a social hub on rural Highway 80, about a dozen miles east of Waldron. The tractor shop is really just a glorified shack with a tin roof, located just across a broad gravel driveway from the small house of its owner, Coy Butler.

  On a typical morning in the fall of 2008, Butler sat at his desk just inside the shop’s front door, next to crowded shelves of spare auto parts and piles of paper. Men come and go from the shop all morning long, chicken farmers most of them, dropping off broken mowers or tractors or looking for replacement parts.

  Richard Moore is a frequent customer, although more often than not he stops by simply to catch up on local gossip or bring fresh vegetables from his garden. Moore is a tall and rangy man in his sixties, with a sharp face and white hair. Both he and Coy Butler have grown chickens for Tyson Foods since the 1980s. The men sit around the shop and talk business, trading stories and news about Tyson and their farms.

  Having been in the business for decades, Butler and Moore have the air of men who have seen it all. They survived the still mysterious plague of 2004, when flocks of sick birds were delivered to farms around Waldron and drove many of their neighbors out of business. They know which farmers are doing well and which are on the edge of bankruptcy. They are survivors, old-timers who seem to have figured out how to make it work in a difficult business.

  Moore in particular seemed to have an inside line when it comes to Tyson, having been a manager at the slaughterhouse downtown for more than twenty years. He had known many of the Tyson managers since they first arrived in town, and he seemed to know all the Tyson field technicians by their first name.

  But for all its familiarity, the countryside around Moore was changing. The most noticeable transformation was the death of farms that were owned by his longtime neighbors and the arrival of immigrants who had taken their place. Increasingly, the motorists whom Moore passed on the highway as he drove to town were Laotian. They nodded and waved, but they didn’t speak the language. He didn’t know their families, and they didn’t know his. Moore drove past the same hills and leaning wooden barns he had always known, but the men who tinkered on machines there and worked on the farms looked as if they inhabited a different nation altogether. It was as if Moore had been transplanted to the rolling hills of some Asian country that only closely resembled his own.

  At the age of sixty-eight, Moore has known a life of stability. He and his wife, Joyce, live in a big white house with a porch and painted columns on Highway 248, east of town. He and Joyce thought they were on an easy path toward a quiet retirement, a peaceful life of long afternoons on the porch with the occasional noisy visit from the grandchildren. They own four long chicken houses, a sizable farm that yielded steady pay over the years. After twenty years in the business, Moore knew what he was doing. He knew how to ride out the bad times and stay afloat.

  But now the farming business was like riding a Brahmin bull. From one month to another, Moore was never sure what he would be paid for his work. He worked his hardest, put in seven days a week, and delivered a flock of chickens to Tyson that he considered among his best, only to find that the price they fetched wouldn’t cover the cost of raising them. While there were wild ups and downs, Moore noticed that overall his pay was steadily declining. Some grinding, quiet force was pushing down the price he was paid for his birds.

  Moore and Butler had their suspicions as to what was behind the economic changes they faced. It had something to do with the Laotians who were moving to town and their willingness to take on huge loans to retrofit the old farms they bought.

  “We’re competing against them—it’s hard to beat them,” Moore complained. “They’re at the top of the list!”

  There wasn’t much overt racism against the newest farmers in Arkansas, but nor was there real closeness. The social pattern followed closely what happened a decade before in Tyson’s slaughterhouses, when immigrants from Latin America and Mexico filled jobs that locals found too low-paying and dangerous. Hispanic immigration reshaped backwater towns like Green Forest and Berryville, Arkansas, which suddenly boasted their own strip malls of bodegas and clothing stores with signs written only in Spanish. The immigrant community lived side by side with Arkansas natives but never truly integrated. The Hispanics and Laotians spoke little if any English, and the Arkansans didn’t bother to learn a second language.

  In the absence of real communication, each group invented stereotypes about the other. Laotian farmers in Waldron were convinced their white neighbors got special breaks from Tyson and favoritism from the field technicians. There were rumors that the white farmers always carried guns, so Tyson’s men were scared to ever criticize them.

  The local farmers, by contrast, spun wild theories about the shady forms of financing the Laotians must be using to build their farms. The most common assumption was that the Laotians had access to some sort of cheap government loans because they were minorities.

  “I don’t know how their money works,” Moore complained. “They get it cheaper than we do.”

  Of course, the ethnic differences between each group were ultimately meaningless when it came to determining their success or failure as chicken farmers. That was determined by Tyson Foods. And it hinged on mathematical equations and the rules that Tyson set for its tournament.

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  Tyson and its defenders say the tournament price incentivizes farmers to work hard, and it rewards the good farmers over the bad. That might make sense if farmers had any control over their operations, but they don’t. Anyone with any experience growing chickens cannot argue one basic point: The success of any given flock of chickens rests primarily on the quality of the feed birds eat and the healthiness of baby chicks when they are delivered. A farmer can be a genius and can put in ten-hour days, seven days a week, but he will not raise a good batch of chickens if his feed is bad or he gets sickly chicks. The farmer can have an impact on the margins: If he completely neglects his birds, they won’t gain as much weight. If he is in the chicken houses constantly, they will gain a little more.

  Very few people understand this better than C. Robert Taylor, a professor
of agricultural economics at Auburn University. Pretty much any farmer who has sued a chicken company over the last thirty years has hired Taylor to help him. He has made a small cottage industry out of being an expert witness for big lawsuits. This role has given him a unique perspective on the tournament system. He has reviewed massive databases of confidential information from the poultry companies themselves, including Tyson, showing exactly how much they pay farmers through the tournament and how the system really works. Taylor has looked over the tournament for tens of thousands of flocks of chickens at different poultry complexes, but confidentiality agreements bar him from releasing the data he has seen. But Taylor dryly notes that the confidentiality agreements don’t bar him from sharing what the data has taught him.

  To understand what the tournament truly incentivizes, Taylor looked over farmer settlement sheets, including one from Waldron, and used the data in them to reverse-engineer the secret equation that Tyson uses to rank and pay its farmers:

  Payi = [AFC - ci + .05] * qi

  This formula is exactly as arcane and difficult to understand as it looks, which in Taylor’s view is the primary reason Tyson is able to get away with using it.3 This way, farmers have a tough time truly comprehending the mathematic realities of the payment scheme. Chief among these hard mathematical truths is the fact that the tournament is a zero-sum game.