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Iowa federal judge overturns state law barring corporate pork processors from owning own hogs

(Monday, Jan. 27, 2003 -- CropChoice news) JERRY PERKINS, DES MOINES REGISTER via The Agribusiness Examiner: A federal judge in Des Moines on Wednesday struck down an Iowa ban that prevents pork processors from owning hog operations, saying the state law violates the commerce clause of the U.S. Constitution.

The ruling by Judge Robert Pratt in a case involving Smithfield Foods Inc., the world's largest pork producer and processor, drew immediate criticism from farmers and politicians.

If the decision withstands an appeal, it would undermine decades of efforts in Iowa to protect small farmers from competition from conglomerates and it would open the way for further consolidation in agriculture.

"This ruling can only be viewed as devastating to family farmers in Iowa," said Curtis Meier, a hog producer from Clarinda who is president of the Iowa Pork Producers Association. "The Iowa law, first adopted in 1975, was intended to allow packers to be packers and let farmers raise pigs."

The case emphasizes the "urgent need for Congress to pass . . . a nationwide ban on packer ownership of livestock," said Sen. Tom Harkin, Dem-Iowa. Richard Poulson, Smithfield's executive vice president and general counsel, disagreed. "Restrictive laws do nothing more than harm the people they are designed to protect," he said.

Smithfield's lawsuit was the first constitutional challenge to Iowa's corporate farm law, which was passed in 1975. The law was amended in 1988 and again last year to ban packer financing of livestock operations.

In the ruling, the judge said he "deeply sympathizes with Iowa's attempt to protect its family farmers," but added, "the evidence makes clear that the State enacted (the corporate ban) with an eye towards nothing more than protecting local economic interests from out-of-state behemoth Smithfield Foods."

The packer ban "unconstitutionally discriminates against out-of-state interests in favor of local ones," Pratt wrote. "The statute blatantly protects the rights of Iowans to engage in conduct forbidden to out-of-state entities," including Smithfield.

Smithfield and two related hog producers in Iowa, Murphy Family Farms and Prestage-Stoecker Farms, sued the state after Smithfield acquired Murphy, a nationwide company with sizable hog operations in Iowa, three years ago. Murphy tried to sell its Iowa hog operations to Prestage-Stoecker, but Iowa Attorney General Tom Miller called that sale a "sham" and moved to block the Murphy sale.

Smithfield's Poulson said: "We believe our system" of raising hogs on contract with farmers "will be best for Iowa and will do more to preserve the family farm in Iowa." Attorney General Miller said he was disappointed by Pratt's ruling and expects to appeal it to the 8th Circuit Court of Appeals.

"We argued strongly that Iowa's law is constitutional, that it makes no distinction between in-state and out-of-state swine processors, and that the Legislature's stated purpose - "to preserve free and private enterprise, prevent monopoly, and also to protect consumers" - is legitimate and not discriminatory," Miller said.

Smithfield, with headquarters in Smithfield, Virginia, has annual sales of $8 billion, produces 12 million hogs a year, and processes 20 million hogs annually.

Its challenge to Iowa's corporate farm law pitted the powerful, multinational company against the leading hog-producing state in the country. There were 15.3 million hogs on Iowa farms in December, according to the U.S. Department of Agriculture, or about one-quarter of the U.S. swine inventory. Iowa packing plants slaughter more than one-quarter of the hogs in the United States.

The case spotlighted a national debate over the structure of agricultural production and states" attempts to ensure that independent producers can compete against giant, vertically integrated corporations such as Smithfield, which raises 60% of the hogs it slaughters. Miller said the ruling shows the need for Congress to pass a national ban on packers owning hogs.

"Congress has clear authority to act, and to act in all states," Miller said. "It should do so now." In its complaint against the Iowa law, Smithfield said its vertical ownership of hog production and processing allows it to maintain "a high degree of quality control . . . to produce a consistently excellent line of value-added pork products and processed meats for national and international consumption."

Smithfield's lawyers argued that the Iowa law banning packer ownership of livestock amounts to taking property without just compensation. The law also discriminated against Smithfield because cooperatives and other businesses with more than 60% farmer ownership are exempt from the ban, the pork processor argued.

The Iowa law prohibits beef or pork processors from owning, controlling or operating livestock operations. It also says that a processor cannot enter into contract feeding arrangements with Iowa hog producers. Companies were granted two years to comply with the law.

Iowa is one of nine Midwestern states that enacted statutory limitations on how agriculture ownership can be structured. The Iowa law has been used as a model for other state laws.

A federal court in South Dakota on May 16 overturned a similar state law, calling it unconstitutional for different reasons from those argued by Smithfield. The decision has been appealed to a federal appeals court in St. Paul, Minnesota.

A similar ban on packers owning livestock was contained in a version of the farm bill that passed the U.S. Senate, but the ban was dropped from the final version because of opposition in the U.S. House. Both of Iowa's senators --- Republican Charles Grassley and Democrat Harkin --- support a national ban. Grassley has said he will re-introduce legislation banning packer ownership of livestock this year.