One of the keys to the success of our company is the business relationships we have formed with independent farmers. These relationships have provided opportunities for many hundreds of farmers and their families to stay on their family farms, to make investments in their future, to stabilize their incomes and to diversify their operations. These relationships have increased farm incomes and provided a level of financial stability that would not have been possible otherwise. Farmers who have contract production agreements with Smithfield’s Hog Production Division have been able to provide a higher standard of living for their families and to create real incentives for their children to remain in production agriculture if they are so inclined. All of these factors have the effect of preserving family farms as viable and sustainable enterprises, farms that otherwise would likely have gone out of production and could have been sold for other uses.
What do we mean when we refer to “contract grower”?
Contract grower is a term that refers to private landowner and independent farmer who has entered into a contractual business arrangement with Smithfield’s Hog Production Division to produce livestock for the company. This contractual agreement is mutually beneficial to the company and to the contract grower.
In this relationship, who does what?
The typical contract growing arrangement as practiced by Smithfield’s Hog Production Division requires certain things from the independent farmer and certain things from the company, which is sometimes referred to as the “integrator.”
The grower provides:
- A farm site which meets all the relevant local, state and federal legal, regulatory and permitting requirements
- Animal production facilities that meet contract and animal care requirements
- Day-to-day management of the farm
- Financing for the construction and operation of the farm
Smithfield’s Hog Production Division Provides:
- All the animals to the grower
- All the feed to the grower
- Transportation of all animals to and from the grower’s farm
- Veterinary support services
- Ongoing advice to ensure the animals are properly cared for
- A predictable and stable payment based on agreed-upon contract terms
What are the risks and benefits to each party in the integrator-grower relationship?
Under this type of arrangement the integrator assumes the risks associated with the variable costs of feed grains and other inputs as well as fluctuations in the price of hogs in the marketplace. The benefit to the integrator is the ability to grow a larger number of animals in facilities owned and financed by others.
Under this arrangement the grower’s risk is limited to his or her investment in facilities and his or her ability to properly manage the operation. The major benefit to the grower is the absence of risks associated with input costs and the fluctuations in the market price of hogs.