North Carolina's battered hog industry reshapes itself
Wednesday, October 6, 2010
Buffeted by economies woes and environmental crises, producers in this major hog-producing state have had to deal with multiple new regulations, a moratorium on new barns and the disappearance of many independent producers
By MARY BAXTER
Gerald Warren built his first confinement hog barn in 1971 for about US$20,000. Today, the 61-year-old's North Carolina farm operation and its partners maintain a sow herd of 10,000, as well as 8,800 nursery spaces and 34 finishing barns with a combined capacity of 30,000 spaces.
In April, Warren took an afternoon break from planting sweet potatoes to discuss how the phenomenal growth of North Carolina's swine industry has transformed the family operation and Sampson County, where the farm's headquarters are located.
At the time, and like the hog industry elsewhere in North America, the state's industry was beginning to recover after two years of the most brutal set of economic blows ever to hit pork production – high feed costs; low hog prices; a global recession and a misguided perception that linked swine production with the spread of the H1N1 virus.
By April, prices had rebounded in the Tar Heel state. And there was no sign of these industry woes in the Warren farm office's cramped lunchroom where Warren sat, flanked by his son, Bartley, and Deborah Johnson, executive director of the North Carolina Pork Council. Warren farms with his two sons, his brother and nephew. Along with pigs and sweet potatoes, they grow tobacco, corn, soybeans, wheat and cotton, and also produce cattle.
Stimulated by favourable laws and the establishment there in 1992 of Smithfield Foods' Tar Heel processing plant (the world's largest plant), the state's hog industry expanded rapidly, jumping to second from seventh in the United States in production between 1987 and 1997.
Warren calls the growth "the best scene that's ever happened in our part of the county." The industry has helped maintain a higher standard of living and provided farmers with financial security, he says.
Many of the more than nine million people who call the state home think otherwise. Their concerns stem from production crowded into a few of the state's 100 counties on a sandy coastal plain and the open-air lagoons that are used to treat manure. The 1995 rupture of an outdoor lagoon at Oceanview Farms and revelations the same year of how the industry had manipulated the state's political process to achieve legislation to stimulate its growth appeared to confirm their worst fears.
"It isn't about raising hogs and eating meat," says Rick Dove, a lawyer and representative of the Waterkeeper Alliance, a non-profit environmental organization. He's been monitoring the industry since 1991 and wants to see the lagoon systems replaced with municipal waste management systems. "It's about the methods they use," he says.
When images of the Oceanview lagoon failure began to be used to oppose the development of large-scale hog production elsewhere in North America, it became apparent that the state's producers were not the only ones affected by public backlash.
Suddenly, what happened in North Carolina was every hog producer's business, and countering the general public's fears about environmental risks mushroomed into an industry-wide challenge. Back at ground zero, public reaction would influence industry development as much as the establishment of the Smithfield plant.
Manure management controls
In 1997, shortly after the Oceanview disaster, the state introduced a moratorium on building barns. It also established a permit system that required farms with more than 250 pigs to develop a manure management plan. (The state had previously introduced requirements for registration and certification of swine facilities). Today, all forms of intensive livestock operations must obtain permits, but the terms are more restrictive for those with liquid manure holding facilities, such as swine, dairy and egg operations.
The program requires swine producers to test both manure and the soil to which it's applied, keep records, attend annual continuing education programs, develop plans for odour control and strategies to minimize environmental risks in an emergency and submit to annual government inspections. Producers must also register their farms' size, location and the number of lagoons with the state and declare when a facility changes hands or a contract agreement changes.
The arrival of Hurricane Floyd in 1999 flooded hog barns and lagoons, which in turn resulted in the death of thousands of pigs and contaminated water supplies. (Industry representatives stress that the damage caused by overloaded human waste treatment systems was far greater than that caused by the lagoons).
The next year North Carolina's attorney general inked a US$17 million agreement, known as the Smithfield Agreement, with Smithfield Foods and Premium Standard Farms to fund studies on how to replace the lagoons with other technologies. (Smithfield contributed most of the funds, as well as $50 million towards environmental enhancement programs; Frontline Farmers, a group of independent swine producers, joined the agreement two years later).
In 2007, the state swapped its previous law controlling barn development (the 1997 moratorium had since been loosened somewhat) for one that made the technology approved in the Smithfield agreement "by default acceptable," says Keith Larick, supervisor of animal feeding operations in the soil and water conservation division of the North Carolina Department of Environment and Water Resources. The division administers the barn permits.
The law allows other technology to be used as long as there is proof it meets required performance standards. Larick likens the standards to those "you would see with municipal or conventional waste water treatment systems."
The law came into effect last year. By July of this year, only one permit had been issued for an expansion. "They are expensive systems and, with the weak economy, it's kind of inhibited growth in general of the industry," Larick says.
Todd See, head of North Carolina State University department of animal science, says the state's measures have created such a steady demand for barn space that "existing farms hold their value pretty well" even in market contractions.
A case in point is Jay Sullivan's operation. Sullivan, 48, has been involved in hog production since 1991. His Sampson County farm has a 3,000-head nursery and 2,400-head finishing farm.
In 2009 Sullivan was using his facilities to finish hogs under contract to Coharie Hog Farm Inc. That year, Coharie, based in Clinton, was the largest of three independent producers to declare bankruptcy. In November, Sullivan was wondering how he was going to fill his barns. By January, however, he had signed a contract with the state's second largest producer, Prestage Farms.
Valued operations
Murphy Brown, the production arm of Smithfield, values its North Carolina operations so much that when it decided to reduce its U.S. sow herd by 13 per cent to counter the past two year's economic hardships, the herd there was unaffected. "We actually shut down some production facilities in other states and we did close some of the older, least efficient sow farms here in North Carolina," says Don Butler, a spokesperson for Murphy Brown.
Like many other companies in the industry here, Murphy Brown changes its barns to suit its needs. Currently, it is relocating its North Carolina sows from barns in more densely populated areas to former finishing barns situated in areas of sparser hog populations within the state. The goal is to reduce PRRS outbreaks in its breeding herd. "We feel we can go a long way toward breaking that cycle by moving these sows to less populated regions," Butler says.
Glen Almond, a professor of pig health and production with North Carolina State University's department of population health and pathobiology, explains that concentrated pig populations make PRRS a persistent problem in the state. Different attempts to control the virus have only brought temporary relief before "the virus changes or there's an introduction of a new strain of the virus and it flares back up again."
At the Warren farm, expansion is achieved mostly by buying existing facilities. In one instance, the family was able to add a capacity of 9,000 finishing spaces by acquiring a permit attached to a property where the facility was being condemned. The former owner had pulled political strings to obtain permission to move the facility, but this came with the provision that the new location must meet stringent setbacks, which he couldn't meet. The Warrens, however, had a location that met the criteria and so built the new facility there.
Gerald Warren estimates that finishing barns he built for US$88-$90 per pig (lagoon exempted) would currently sell for between US$190-$200 per pig (with lagoon and the spray field included). He expresses frustration that the regulations with which his operation must comply are not applied to all intensive livestock operations in the state.
"The ammonia is really bad out of those (poultry) barns in the hot summertime, but nobody ever says anything about it," he says. "But if there was a visible lagoon right beside it with four or five million gallons of fluid in there, people would have a problem with it."
Yet he calls the moratorium a blessing. "I'm afraid that, had we not had a moratorium, we could have grown ourselves into a big problem." Deborah Johnson also calls the restrictions on expansion a boon to the industry. "It stabilized us," she says.
Statewide, the industry now produces 18 million hogs a year, of which about 14 million are slaughtered either at Smithfield's Tar Heel plant or at plants it owns in Clinton and nearby southeast Virginia. These run at full capacity, which for Tar Heel is 32,000 head per day and for the Clinton plant 10,000 a day. The remaining animals – 3.7 million in 2009 – are shipped out of state as weanlings, mostly to the Midwest.
With physical expansion impossible, the focus is on how to improve production within existing facilities. Litter sizes average 13.5 live born, with weaning rates averaging about 11.5 per litter. Such rates have become harder to estimate than before, Almond says. "Everyone's a lot more secretive about production numbers."
Since the 1980s, the number of farms reporting swine production has shrunk to about 2,300 from 15,000. Finishing contract operations have between two to 10 barns with the number of animals in each ranging from 880 to 1,200.
It's difficult to find an independent producer here. There are a handful of larger operators, such as TDM Farms, owned by Hog Slat Inc. or J.C. Howard Farms. See estimates that there are now well below 100 operators who maintain farrow-to-finish operations, own their own pigs and grain, and sell on the open market.
The Warrens used to operate independently, but switched a significant portion of their operations over to contract production in 2003. "We lost a ton of money in 1998. That's when hogs got down to six cents a pound for a few days," Gerald Warren explains. "I just decided I didn't want to continue to take the risk" of being independent. They hold contracts with Murphy Brown, which buys the weaned pigs the family's sow herd produces. In turn, the family finishes many of these on their own premises.
The move may have helped minimize challenges, such as fluctuating market prices and rising feed costs, but being part of such a large operation has introduced another problem: greater disease risks.
"A loading crew coming in here brought TGE (transmissible gastro enteritis) into our finishing barns," he says. The disease hadn't been on the farm for 10 years. "We lost three weeks of growth on the finishing farm." With the sow barns only 1,000 feet away from the finishing barns, the family feared the sows might get infected.
Spreading the risk
The economic climate of the past two years is shaping the industry once again. North Carolina's sow herd has shrunk by 10 per cent. Butler attributes the loss to smaller companies going out of business.
Kelly Zering, associate professor and extension specialist in the department of agricultural and resource economics at North Carolina State University, says contracts buffered many producers for the first year of the crisis, but the next year some agreements were not renewed or producers received fewer animals to finish. See says that to spread risk and mitigate situations like bankruptcies, some producers now divide their business between contracted and independent operations or hold contracts with more than one company. Corporations may change some of their contract arrangements, too, because of rising feed costs, he predicts.
Many say finishing animals elsewhere, such as the Midwest where feed costs are lower, is becoming a trend. That's something the Warrens have been doing in partnership with others for more than two years. It's yet another way to spread risk, Gerald explains.
There is also a concern the industry will shrink as the state's human population grows.
North Carolina is one of the most rapidly growing states in the country, with population projected to reach 13 million by 2030. This could have an impact on land values and create competition for labour. But, for now, herd numbers are in a holding pattern primarily because of the limitations on barn construction, but also because shackle space at the plants is full, say Johnson and Butler.
Worries about the environmental impact of hog farms are no longer the issue they once were, industry representatives say. Concerns about animal welfare and the use of antibiotics are now more prevalent. State compliance statistics show the number of spills into surface water from swine operations has declined over the past three years, as have incidences of over-application of manure in fields. Butler says having to manage operations within what may be "the most comprehensive and complex set of regulations in the country" has helped silence critics.
In 1997, Murphy Brown went one step further by adopting ISO 14001 certification, an international standard of environmental management. The certification requires annual audits by a third party auditor to ensure the certification requirements are met. "Being very visible here, we knew that, if we didn't do a good job of management, we were going to catch hell in the papers, in the general assembly and in the minds of the public," Butler explains. "We were the first livestock operation in the world to achieve that certification."
The industry might describe relations with environmental groups as relatively quiet, but the groups have a different perspective. This year, the Neuse Riverkeeper Foundation and the Waterkeeper Alliance filed a legal complaint against independent J.C. Howard Farms for one of its operations in Jones County. They allege that manure applied to fields at the location is contaminating a tributary of the Neuse River.
Dove says his group also remains concerned about a loophole in the 2008 intensive livestock facilities legislation that allows producers to build a new lagoon if it replaces an existing one that is in danger of failing and can't be repaired. But Larick says his division has only received one inquiry about the provision. The producer elected instead to repair the existing lagoon.
Seven years ago, the state's Waterkeeper Alliance petitioned the state to beef up enforcement, says Dove. The North Carolina Environmental Management Commission subsequently submitted a proposal to introduce mandatory discharge testing to the state government in 2009. The state's senate passed a bill that put the proposal on hold until 2011. Some senators even proposed to strip the Commission of its rulemaking powers altogether until 2011. The proposal was resubmitted for public comment again this summer.
These days, North Carolina's swine industry no longer waits for its critics to attack before pulling punches. Earlier this summer, the North Carolina Pork Council succeeded in helping to temporarily quash a senate bill that proposed to establish standards of care at commercial cat and dog breeding operations.
That this conflict could have existed with such vehemence for so many years and continues to persist seems improbable while walking around the finishing barns at the Warren Farm. A slight breeze ripples the surface of one of the farm's lagoons, which emit no odour. Nearby, cattle graze on pasture that receives manure applications from the lagoon through an overhead boom spray system.
Then again, experiencing such great volumes of spring pollen that police must wear masks while patrolling downtown city streets on Segways seems improbable, too.
In North Carolina, expect to find both. BP