Should a Poultry Farm Be Considered a Small Business? The OIG Says No

The OIG took a look at the loans issued by the Small Business Administration, a federal agency that guarantees loans to – you guessed it – small businesses that might otherwise have trouble getting them. Specifically, this report looked at loans to contract poultry farmers, and it comes to a startling conclusion: these farmers are so controlled by the corporation they’re contracted to (like Perdue and Smithfield) that they literally don’t count as independent small businesses.

Roughly 97 percent of poultry farmers in the United States are “contract farmers.” This means each farm has an exclusive contract with a gigantic corporation like Tyson, Pilgrim’s Pride, or Perdue. The corporation gives the farmer the chicks, which the farmer raises to slaughtering age, then ships them back off to the corporation for processing. The corporation has an insane level of control over the farmer: they can decide how many and what quality of chicks to give, they can demand at a moment’s notice that the farmer make significant and expensive changes to the farm, and the farmer is legally not allowed to sue for unfair practices. In one lawsuit, the word “cartel” was used to describe chicken producers. It is, without exaggeration, indentured servitude. It also does not really work; roughly 71 percent of contract farmers are at or below the federal poverty line, according to a Pew survey.

As with many other businesses within the agricultural industry, it is incredibly difficult for a contract poultry farmer to get a loan – even though they need them often. Why? If the chicken producer decides that all its farmers must have, say, a different-shaped ventilation window – seriously – they can demand that the farmers make those changes on their own dime. And if they don’t or can’t, the corporation could cancel the contract and the farmer will swiftly go out of business. The Small Business Administration (SBA) is one of a select few agencies that makes it possible for farmers to get those loans. In other words, the SBA makes the entire system possible. “We, taxpayers, have actually been subsidizing the business models of multinational corporations,” says Joe Maxwell, a spokesperson for the Organization for Competitive Markets, which fights for the rights of independent farmers and ranchers.

But SBA loans have specific requirements, and one of those requirements is that the recipient of these loans has to actually be an independent small business, and in the OIG’s view, the corporations have way too much control over the farmers for their farms to be considered independent small businesses. From the OIG’s report: “This control overcame practically all of a grower’s ability to operate their business independent of integrator [corporation] mandates.” From 2012 to 2017, says the report, the SBA guaranteed about $1.8 billion in loans that maybe should not have been made in the first place.

The OIG recommended that the SBA do some reviews to figure out whether loans to contract poultry farmers are fair; the SBA says it will do those reviews.

The most extreme outcome of this report is that the SBA stops guaranteeing loans to contract poultry farmers. (This is not necessarily likely, given the current administration’s bald support of agriculture corporation interests.) There is an argument to be made that by not helping poultry farmers get loans, the SBA would be hurting poultry farmers. To Maxwell, though, the SBA is currently propping up a wildly damaging system. “We tell farmers, do not go into the contract poultry business,” he says. “You will go broke, and they will ultimately own your farm.”

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