Bankrupt farmers cooperative settles deal for pork unit

KANSAS CITY, Mo. -- More than a year after choosing bankruptcy over a buyout offer from Smithfield Foods Inc., Farmland Industries Inc. announced it had agreed to sell its pork unit to Smithfield, the largest pork processor in the country.

Some farmers and politicians are worried about what the sale will mean for the pork industry, now that Smithfield will hold 27 percent of the market. Others who follow the industry contend the deal announced Tuesday is good news for hog farmers, because Farmland Foods' facilities would become part of a healthy company.

Under the agreement, which is subject to the approval of the U.S. Bankruptcy Court in Kansas City and the U.S. Department of Justice for antitrust considerations, Smithfield would keep all Farmland Foods' 6,100 employees, keep open Farmland's three slaughter plants and six processing plants, and maintain union contracts and contracts with Farmland hog producers.

"It's good news for the hog industry in the Midwest in that we are quite sure that Farmland facilities are in a viable company," said Glenn Grimes, an agricultural economist at the University of Missouri-Columbia. "Otherwise, anytime you're in bankruptcy proceedings, you're in uncertainty."

Farmland Industries, once the nation's largest agricultural cooperative, filed for Chapter 11 bankruptcy protection in May 2002 after rejecting an offer from Smithfield, Va.-based Smithfield Foods, the country's largest pork producer and processor, to buy its pork and beef operations.

Selling off businesses

Since then, Kansas City-based Farmland has sold or announced plans to sell its beef and crop production businesses to other companies. Farmland officials had considered reorganizing the cooperative around its remaining major business, Farmland Foods, but instead agreed to sell it to Smithfield for $363.5 million. Other potential bidders could still top that price in bankruptcy court, forcing Farmland to hold an auction.

Some hog farmers, especially those with relatively small farms, say they are worried because Smithfield already controls 20 percent of the market and raises its own hogs -- 12 million of the 20 million per year it slaughters.

"I'm concerned that I, as a small producer, have a marketplace for my pigs," said Curtis Meier, a farmer in Clarinda, Iowa, who is also president of the Iowa Pork Producers Association.

Meier said he raises about 2,000 hogs each year on his farm and used to sell exclusively to Farmland until the company closed its buying station in the far southwestern Iowa town of Clarinda a few years ago.

Iowa farmers produce more than one-quarter of U.S pork, making that state No. 1 in pork production, and Iowa's two U.S. senators, Republican Chuck Grassley and Democrat Tom Harkin, also have expressed opposition to the deal.

In a letter Tuesday, Grassley, who is a member of the Judiciary Committee, asked the Antitrust Division at the Department of Justice to scrutinize the deal.

"If a Smithfield acquisition of Farmland is allowed, it could shut out the family farmer from fair and open markets. I believe it would have a serious, adverse impact on family farmers and independent producers in Iowa," Grassley said.

Rhonda Perry, a hog farmer in Armstrong, Mo., and a representative of Campaign for Family Farms, which has fought the U.S. Department of Agriculture's pork-checkoff program, said the Smithfield-Farmland deal would "further erode competition in the pork industry." Perry said industry consolidation has led to a decrease in how much producers receiver for their hogs, while consumers have seen an increase in the price of pork products.

Another concern for hog farmers, Meier said, is how long Smithfield will keep Farmland processing plants open and whether Smithfield will cut back on how many hogs are slaughtered at Farmland plants.

However, C. Larry Pope, president and chief operating officer of Smithfield, insists hog farmers have nothing to worry about. Smithfield has agreed to honor Farmland's contracts and Pope said farmers would be able to sell their livestock at fair market value.

"They should not see any significant change from where they've been," Pope said.

BB&T Capital Markets analyst Andrew P. Wolf said the deal is great for Smithfield and should boost its sales and earnings. As for Smithfield's promise to keep Farmland plants open and to honor that company's contracts, Wolf said, "The question is: How long?"

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On the Net:

Farmland Industries: http://www.farmland.com/

Smithfield Foods: http://www.smithfieldfoods.com/