USAgNet - March 12, 2010
Agriculture Secretary Tom Vilsack announced that USDA will expand guidance currently in place for loans to contract poultry operations meant to protect them from questionable business practices to include contract pork operations.
USDA currently provides guidance to county offices on the analysis and evaluation of applications for direct and guaranteed loans for contract poultry operations, and how those loans are serviced, to avoid making loans that may exacerbate integrator business practices that have left some producers suddenly without contracts and unable to pay back their FSA loans.
"Contracted poultry and pork operations face increased risk in these challenging economic times, and this additional guidance for pork, putting it in agreement with the poultry guidance, will aid the loan officers in our county offices as they continue to make informed decisions on loans for contracted pork operations, providing opportunities for producers while at the same time protecting the interests of the taxpayers who fund the loans USDA makes," Secretary Vilsack said.
Recent increases in energy and feed costs coupled with reductions in demand have affected profit margins and returns in the industry. In response to these conditions, some companies who contract with producers to supply poultry and pork have closed processing plants, reduced placements, and declined to renew contracts.
In some instances, it may have proven less expensive to cancel old contracts and begin new contracts with new producers, supported by FSA loans. The producers were sometimes left with debt for their contract operation facilities, but no contract to provide income and repay their USDA direct or guaranteed loan.
In addition to the contracting guidance expansion to pork production, USDA's Farm Service Agency will issue an Advanced Notice of Proposed Rulemaking to solicit input from the pork and poultry community regarding the prevalence of type of contracting situation. FSA will be soliciting proposals for the best way for USDA to address these contract situations in the long term.
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