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September 16, 2005

State of Iowa Settles Litigation with Smithfield Foods

Settlement resolves Smithfield's constitutional challenge of Iowa's prohibitions against pork processor vertical integration

(DES MOINES) Attorney General Tom Miller announced that United States District Court Judge Robert W. Pratt today approved a Consent Decree jointly submitted by the State of Iowa and Smithfield Foods Inc., Murphy Farms LLC, and Prestage-Stoecker Farms Inc. (collectively "Smithfield").

The consent decree sets out the terms of a settlement reached between the State and Smithfield resolving litigation brought by Smithfield in 2002 that challenged the constitutionality of Iowa's prohibitions against processors vertically integrating into pork production in Iowa.

"I am pleased we have reached an agreement with Smithfield that is very positive for Iowa's pork industry. This matter has been litigated for nearly six years and could have been litigated for many years to come, with an uncertain outcome," Miller said. "The agreement contains important provisions that will ensure fairness in contracts for Smithfield's contract hog producers, increase openness and transparency in Iowa's hog markets, and promote the use of best environmental practices in hog production."

"Smithfield producers are given a 'contract producer's bill of rights' and the ability to enforce the safeguards in court, including the prospect of receiving treble and punitive damages and attorneys fees, if successful. These are powerful enforcement tools," Miller added.

"Additionally, the agreement has strong provisions allowing Smithfield's producers to organize and use bargaining units," Miller said. "The settlement clearly increases the economic bargaining power of Smithfield's approximately 400 contract producers. In a broader context, the settlement should serve as a model of the type of protections that are vital for Iowa's family farmers as agriculture becomes increasingly concentrated."

The agreement was finalized after Miller consulted with, and received general approval, from Governor Tom Vilsack and Democratic and Republican legislative leaders. In return for Smithfield's compliance with its commitments under the settlement, the State will not pursue enforcement of the ban on packer involvement in swine production. The agreement has a term of ten years.

Specific provisions of the agreement include the following:

  • Contract Producers' Rights: Smithfield has agreed that its Iowa contract producers will have a set of identified producer rights including the right to be a "whistleblower," the right to join an association, the right to use a contract producer lien, and the right to publicly discuss and disclose the terms of their contracts.
  • Prohibited Smithfield Activities--Smithfield has agreed to refrain from a list of activities including the following:
    • Coercion. Smithfield must not take actions to coerce, retaliate against, or discriminate against a contract producer who exercises producer rights. This would include actions that would affect the execution, termination, or renewal of the producer's contract or alter the quality, quantity, or delivery times of contract inputs to the producer.
    • Capital Investment. Smithfield must not require a contract producer to make a capital investment in addition to the capital investment required by the producer's contract, unless fair compensation is paid to the producer.
    • Arbitration. Smithfield must not require producers to use binding arbitration to resolve disputes under the settlement agreement.
    • Company Owned Facilities. Smithfield must not finish hogs in company-owned facilities for a period of 5 years. The only exception to this provision is in cases where Smithfield needs to replace producers who decide they do not wish to continue finishing hogs for Smithfield under the same or better economic terms.
  • Iowa Producers' Ability to Organize: Smithfield has agreed that if its Iowa producers organize or adopt a collective bargaining unit, Smithfield will not retaliate against such producers and will negotiate in good faith with such unit.
  • Enforcement: Smithfield has agreed that if any Iowa producer suffers damages as a result of Smithfield's breach of the producer's contract or the provisions of the agreement, the producer may bring a civil action, and, if successful, may recover damages (including treble and punitive damages) and be awarded attorneys fees.
  • Market Access/Transparency: Smithfield has agreed that for two years 25% of the swine collectively slaughtered at its Iowa plants and its plant in Sioux Falls, SD, will be purchased on the open market from sellers other than Smithfield affiliates.
  • Continued Operation of Iowa/South Dakota Plants: Smithfield has informed the Attorney General that it currently intends to keep its Iowa plants and its plant in Sioux Falls, SD, in operation. If those intentions change, Smithfield has agreed to provide 90 days advance notice of any plant closure to the Attorney General.
  • Environmental Program: Smithfield has agreed to fund and participate in an environmental program at Iowa State University that will train Smithfield's producers in the best environmental practices. Funding will be $100,000 per year for 10 years.
  • Grants for Innovations in Iowa Swine Production: Smithfield has agreed to fund a grant program for Iowa citizens and organizations pursuing innovative programs to advance swine production in Iowa. Funding will be $100,000 per year for 10 years.

Miller was joined at the news conference by Richard J.M. Poulson, Executive Vice President and Senior Advisor to the Chairmen of Smithfield Foods, Inc. and George Richter, President and Chief Operating Office of Farmland Foods.

Background Information on the Litigation
The Consent Decree signed today settles a lawsuit filed in the United States District Court for the Southern District of Iowa on July 22, 2002. The lawsuit asserted that Iowa's corporate farming statute violated the United States Constitution.

On January 22, 2003, United States District Judge Robert W. Pratt issued an order granting Smithfield's motion for summary judgment based on his finding that Iowa's corporate farming statute violated the dormant commerce clause of the United States Constitution.

On January 30, 2003, the Iowa Attorney General filed an appeal of Judge Pratt's ruling with the United States Court of Appeals for the Eighth Circuit. Subsequent to the filing of this appeal, the Iowa Legislature amended Iowa's corporate farming statute by removing language which, in part, served as the basis of Judge Pratt's order.

On May 21, 2004, the Eighth Circuit issued an order reversing Judge Pratt's order, which had granted Smithfield's motion for summary judgment, with instructions for the District Court to consider the case in light of the legislative amendments.

On December 30, 2004, the United States District Court for the Southern District of Iowa issued an order scheduling the a trial for the case to begin on March 13, 2006.


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