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December 8, 1998

Miller: Provide Lien to Protect Pork Producers

Attorney General proposes legislation to provide lien for farmers who are raising pork and poultry under production contracts.

DES MOINES-- Attorney General Tom Miller said today that farmers who are raising pork and poultry under production contracts -- where the farmer doesn't actually own the animals but is feeding them on contract with other parties -- should be given the opportunity to protect themselves with a lien on the animals.

"This is a matter of fairness," Miller said. "Farmers should have the ability to protect themselves in the case of a contractor failing to make payments owed to them under production contracts. We have no reports of this kind of situation, but it is a concern that such a failure is possible with today's serious economic situation in the pork industry."

Miller's proposal would provide for a lien that grants Iowa producers who raise cattle, swine or poultry under a production contract a priority statutory lien in the animals in their facilities and the proceeds generated from the sale of the animals. The lien exists today for cattle producers, but not for hog or poultry producers.

"We all certainly hope that farmers never will need to use these liens to receive payment," Miller said, "but given the financial pressures that exist today it is important to give farmers access to this type of financial security."

"Farmers who raise livestock on contract -- which is more and more the case in Iowa -- should not be the last in line to be paid if a contractor has problems," Miller said.

Miller noted that production contracts have changed the structure of the pork industry in Iowa and across the nation. In 1980, he noted, two percent of hogs raised in the US were raised under production contracts. The percentage rose to 20 percent in 1994 and may be 40 percent today.

Under production contracts, farmers normally provide labor and facilities, and contractors provide the livestock and feed. Farmers are paid a contractual fee for the assets they provide (usually labor and facilities) and the contractors maintain title in the animals and receive the proceeds from the sale of the animals. Today, in the vast majority of cases, farmers are unsecured creditors for the amounts they are owed under their contracts.

The proposed legislation would not allow lien waiver in the production contracts, Miller said. "In general, there is a sharp disparity in the bargaining power of the contractor and the individual farmer. If we don't prohibit lien waiver, there could be strong pressure on farmers to waive the lien provisions."

Producers would perfect the lien by filing a form with the Iowa Secretary of State within twenty days of delivery of a group of animals to their facility. The form would ask for the estimated amounts producers would be owed under the contract, the estimated duration that the animals would be located at the producer's facility, the name of the contractor, and other basic information.

A perfected lien would give producers priority in case a contractor fails to pay them.

Miller and the Farm Division of his office have been working on production contract issues for several years. He convened a Production Contract Task Force in 1995 which included independent producers, contractors, packing plants, rural financial institutions, and representatives from the national and state pork producer associations.

The Task Force and Farm Division developed "Production Contracting Checklists" for livestock and grain farmers, identifying issues that farmers should consider before entering into such contracts. Over 10,000 copies of the booklets have been distributed in Iowa, the Midwest and even abroad.

"Raising pigs has been a crucial part of the Iowa farm economy and overall economy throughout the life of our state," Miller said. "This is one step we can take to give some protection in difficult times to people who contribute so much to Iowa."

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