Nine-day-old chicks drink water at a Foster Farms ranch near Turlock
Fri, March 24, 2023
By Leah Douglas and Tom Polansek
(Reuters) -Tyson Foods Inc gave its chicken suppliers two months' notice of its plan to shut a Virginia processing plant in May, raising concerns among farmers and legal experts about the company's compliance with antitrust regulations requiring it to give 90 days' notice before ending a contract.
The planned closure of the plant has left dozens of Virginia chicken growers scrambling to find new buyers in a region with few other options. It could also expose Tyson to fines under the century-old Packers and Stockyards Act (PSA), the U.S. antitrust law requiring the minimum advance warning, according to Peter Carstensen, a professor of law emeritus at the University of Wisconsin-Madison Law School who previously served in the antitrust division at the U.S. Department of Justice.
Tyson told Reuters the company is not canceling any farmers' contracts and instead has committed to paying the growers for the full-term of their remaining contracts, keeping in compliance with federal regulations.
Antitrust issues, particularly in meatpacking, have been a priority for the U.S. Department of Agriculture (USDA) under President Joe Biden, who in 2021 directed federal agencies to tackle consolidation. Four companies, including Tyson, control 55% to 85% of the beef, pork, and chicken markets.
Tyson alerted Virginia farmers by phone on March 13 and later by mail that it will shut its Glen Allen plant on May 12, according to three poultry farmers who supply the plant. The company said there are 55 farmers with 73 contracts who supply the plant with chickens raised for meat.
Tyson owns chickens it slaughters and pays the farmers to raise them. The company hatches baby birds and trucks them to farmers. The farmers then raise the birds for about six weeks, until they reach the size to be slaughtered and are trucked to the processing plant.
Tyson spokesperson Alicia Buffer confirmed farmers received notice last week of the May 12 closing, and said Tyson intends to stop supplying them with chicks after March 28.
She said that instead of canceling their contracts, Tyson is offering farmers a voluntary buyout package, or the option to retain them and be paid through their duration.
The three farmers interviewed by Reuters have between three and 10 years left on their contracts.
Farmers told Reuters they felt pressure to accept the buyout option because they were not sure how the contract could remain in force after the plant is shut and the chicks stop coming.
Roger Reynolds, a farmer in Crewe, Virginia, said retaining his July 2012 contract with Tyson is not a viable option, in part because it would prevent him from selling to another poultry company if one entered the region.
Another farmer with a contract to supply the plant, who asked not to be named, said they may eventually have to sell their third-generation farm as the buyout offer would not cover long-term expenses like property taxes.
Carstensen, of the University of Wisconsin-Madison Law School, said it was unclear if Tyson's approach would absolve it of its requirement to provide farmers 90 days' notice before ending a purchase contract, because closing the plant means it won't be processing chickens there anymore.
PSA violations can carry a $29,270 fine, according to the USDA website, and Carstensen said fines could apply for each contract.
The USDA, which enforces the PSA, told Reuters it is "closely monitoring" Tyson's planned plant closure.
'WE'RE DONE'
Under normal circumstances, Tyson supplies farmers with chicks, while farmers assume the costs of land and chicken houses.
Documents reviewed by Reuters show the company's proposed buyout package offers payment to farmers based on their average payment per flock in 2022.
They also show that farmers opting to retain existing contracts instead of accepting the buyout would have to meet Tyson's contractual requirements for their facilities even after the company stops providing chicks.
Tyson said those growers would have to perform "routine and preventive maintenance" to meet contract requirements and called the options generous.
Farmers must choose between the options by the end of March, according to the document.
On Monday, about 20 Tyson farmers and local government officials gathered in a fire station in Burkeville, Virginia, and raised concerns about Tyson's short timeline for closure of the plant, attendees said.
Taylor Lee, a farmer in DeWitt, Virginia, who attended the meeting, said he built two new chicken houses in 2017 and raised about 400,000 birds annually for Tyson, and is unclear what will happen to his investment.
"When we're done growing chickens (for Tyson), we're done, unless somebody else steps in," Lee said.
The nearest chicken plants to Glen Allen are 100 to 150 miles away, outside the ideal radius of 60 miles, said Hobey Bauhan, Virginia Poultry Federation president. Longer distances hike transportation costs and health risks to chickens.
(Reporting by Leah Douglas in Washington and Tom Polansek in Chicago; editing by Richard Valdmanis and Nick Zieminski)
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