Smithfield Foods: A Corporate Profile The Story Behind the World’s Largest Pork Producer Critical Mass Energy and Environment Program Washington, D.C. June 2004 Smithfield Foods: A Corporate Profile The Story Behind the World’s Largest Pork Producer Critical Mass Energy and Environment Program Washington D.C. June 2004 This document can be viewed or downloaded at www.citizen.org/cmep Public Citizen 215 Pennsylvania Ave., S.E. Washington, D.C. 20003 USA tel: (202) 546-4996 fax: (202) 547-7392 [email protected] www.citizen.org/cmep © 2004 Public Citizen. All rights reserved. Public Citizen, founded by Ralph Nader, is a non-profit research, lobbying and litigation organization based in Washington, D.C. Public Citizen advocates for consumer protection and for government and corporate accountability, and is supported by more than 150,000 members throughout the United States. Smithfield Foods: A Corporate Profile When it’s not violating U.S. water pollution and labor laws, Smithfield Foods, Inc. is gulping up its American and foreign competitors in the meat packing industry. Not content with being the world’s largest pig producer and seller of processed pork, Smithfield, as one newspaper described it, is the company that “still wants to be the biggest hog at the trough.”1 In the meantime, as its hunger to absorb smaller pork and other meat companies around the world continues, Smithfield has been charged with violating federal anti-trust laws over a four-year period.2 But to Smithfield executives, the company’s strategy of buying out vulnerable companies is simply taking a sow’s ear and making a nice silk purse. “Opportunistic acquisitions…are fundamentally part of how we do business,” Smithfield President and CEO C. Larry Pope recently told stock market analysts. “We buy them at the right price. We know how to integrate them into our organization. That integration does not include gutting the new purchases.”3 Tell that to the people who owned would be Pennexx’s undoing. In 2002, the Pennexx Foods, Inc., once a leading meat company suffered a net loss due to expenses processor in Pennsylvania that entered into a from its planned new, 145,000 square-foot joint venture with Smithfield, only to see its plant.4 meat plant seized by Smithfield when it got Smithfield, in the position to seize into financial trouble in 2003. Pennexx because the company had failed to Pennexx was founded in 1999 and meet a minimum net worth requirement in quickly became a leading meat provider – and the loan contract, agreed to hold off.5 But Smithfield competitor – to supermarkets in that didn’t last long. On June 11, 2003, the northeastern United States. Its deal in Pennexx, with foreclosure by Smithfield only 2001 to borrow money from Smithfield to days away, surrendered the deed to the plant expand its Philadelphia beef processing plant to Smithfield, which then sold Pennexx’s - 3 - Smithfield: A Corporate Profile assets to itself.6 Luter’s senior year in college, the younger Rendered a penny stock with no prop- Luter took over the company. He then sold erty or assets, Pennexx filed suit against the firm in 1969 and opened a ski resort in Smithfield in December 2003, seeking $226 Virginia.10 When the company was failing in million in damages.7 In the suit, Pennexx the mid-1970s, the younger Luter, lured back alleged that after first loaning the company by management, seized the opportunity to $6 million in 2001, Smithfield engaged in a buy out other investors’ shares for a fraction “predatory strategy” to take over Pennexx. of their worth – according to one analyst, just Smithfield’s scheme, Pennexx charged, 10 cents on the dollar. He cut costs by firing involved delivering less meat than Pennexx managers and embarked on a growth plan ordered, charging higher prices to Pennexx centered on buying up other meat companies. than other Smithfield customers and allowing His big break came in 1981, when he operating problems to develop in Pennexx’s snatched up a top but troubled competitor, meat packing plant.8 Gwaltney Packing, for only 35 cents on the Smithfield had dollar. Luter also taken over Pennexx’s swooped in and got assets for a song – for Smithfield, a company fined other meat packers, like only the $13 million $12.6 million for violating federal Hancock’s Country that Pennexx had pollution standards, is known for Hams. By 1987, borrowed over two Smithfield was raising years. Maurice Mitts, gobbling up competitors even as and slaughtering pigs one of Pennexx’s attor- it faces anti-trust action by the and processing the meat neys, told the Philadel- U.S. Department of Justice. – into hot dogs, bacon, phia Inquirer that sausage and cold cuts – Smithfield “eliminated a for wholesale and retail competitor for a fraction of the value of the markets.11 company.”9 Luter’s blueprint for success was clear – Pennexx serves as the perfect example of acquire competing pork companies in order Smithfield’s carnivorous corporate policy of to buy more. Luter told a news reporter in taking over competing companies to elimi- 2001 that he focuses on the future, leaving nate competition – from North America and the operational stuff to underlings. “It’s more South America to Europe and Asia – in the fun building a business than running a multi-billion-dollar global processed meat business,” he said.12 market. In 1998, Smithfield branched out to buy companies outside the United States. From A History of Buying 1999 to 2003, when its sales reached $8 Weak Competitors billion, Smithfield spent more than $1 billion to buy all or portions of 17 companies. It now If left to its devices, Smithfield would owns or holds significant interests in meat become the world’s only provider of “pack- companies in Poland, Spain, France, China, aged animal protein.” That appears to be the Brazil, Mexico and Great Britain.13 In May motivation of Smithfield Chairman Joseph 2004, Smithfield was said to be interested in W. Luter III, whose father started the family’s buying Pick, a meat-processing firm in Hun- ham curing business in Smithfield, Virginia, gary.14 As of 2003, Smithfield’s foreign sales in 1936. totaled $1.3 billion.15 After his father died in 1966 during Smithfield easily takes the biggest bite 4 Public Citizen Smithfield: A Corporate Profile out of the U.S. pork industry. The company ticking time bombs – if they overflow or grows and sells pieces of 27 million pigs each burst, the result can be an environmental year, a 27 percent share of the whole Ameri- disaster if the waste flows into rivers, streams, can hog market. About 41 percent of the pigs lakes or wetlands. Swine waste contains Smithfield butchers are reared on enormous, pathogens 10 to 100 times more concentrated company-controlled pig operations. than in human waste. 20 Further, farm Its most profitable products are ham and animals in the United States produce 130 bacon, which made up 51 percent of the times more waste than people.21 company’s revenues in 2003, and serve as the Pig manure and urine contain high focus of the company’s growth strategy along levels of the pollutants phosphorus and with buying beleaguered meat companies.16 nitrogen that contaminate drinking water and kill fish by removing oxygen from water. Polluting Facility Draws Hog manure also contains pathogens such as Record Clean Water Act Fine fecal coliform bacteria that lead to gastric illnesses in adults and even death in infants “Factory farms” full of thousands of pigs and emits hydrogen sulfide, a toxic gas that in generate tons of liquid and solid waste that one documented case caused dizziness, nausea, not only produce an overwhelming stench vomiting and other health problems to but a major potential health hazard to hu- people living near a hog farm in Renville mans and wildlife. On large industrial pig County, Minnesota. operations like those managed by Smithfield Another way that CAFO waste pollutes – known as confined animal feeding opera- is through the “sprayfield” system, which is tions (CAFOs) – thousands of pigs are supposedly meant to fertilize crops. The crammed together and are typically unable to untreated liquid manure is drawn from the see sunlight, breath fresh air, or move natu- lagoon and sprayed over cropland and pas- rally. tures using large sprinklers. But often too The rivers of swine feces and urine from much of the waste is sprayed, resulting in crop these CAFOs are maneuvered into open-air damage and contaminated soil and groundwa- “lagoons.” These lagoons are often enormous, ter.22 covering 6 to 7.5 acres, with as much as 20 to Meanwhile, the pork companies attempt 17 45 millions gallons of wastewater. In one to evade responsibility for the pollution their such farm in North Carolina, about 2,500 lagoons cause. They often sign contracts with pigs can annually produce 26 million gallons contractors who own the land and run the of liquid waste, plus a million gallons worth of facility, whereby the company owns the hogs, sludge and 21 million gallons of slurry, per and the contractor owns the waste product to year. All told, hogs send 27 billion gallons of be sold as fertilizer, thus permitting the 18 water waste into U.S. lagoons each year. producers to point the finger at the contrac- The solid and liquid waste in these lake- tors if any pollution results from lagoon like lagoons contain massive quantities of leakage or overspraying.23 toxic bacteria that place adjacent cropland As the world’s leading hog producer, and groundwater at risk. The waste also through shoddy management and careless- releases malodorous hazardous gases that ness about the potential dangers of its waste, 19 pollute the air.