Welcome to the Department of Justice, Iowa Attorney General Tom Miller

For immediate release - Thursday, April 6, 2006.

Contact
Bob Brammer, 515-281-6699,or
Steve Moline,  515-281-6634.

State Reaches Hog Production Agreement with Hormel

DES MOINES.   Iowa Attorney General Tom Miller announced that United States District Court Judge Ronald E. Longstaff approved a Consent Decree today jointly submitted by the State of Iowa and Hormel Foods Corporation ("Hormel"). The Consent Decree sets out the terms of a settlement reached between the State and Hormel resolving a dispute over the constitutionality of Iowa's prohibitions against processors vertically integrating into pork production in Iowa.

"This agreement enables Hormel to pursue its stated plans to significantly expand its business operations in Iowa," Miller said, "and it protects the rights and interests of Hormel's contract producers."

Miller said: "I am pleased we have reached an agreement with Hormel that is very beneficial for Iowa's pork industry, especially since the likely alternative was lengthy and costly litigation with uncertain results. In the agreement, Hormel states a desire to significantly expand its business operations in Iowa, including increasing its swine procurement in Iowa, increasing the volume of pork processed at its Iowa plants, and taking advantage of the opportunity to engage in hog production contracting. Hormel's planned expansion is in connection with an increase in swine slaughter capacity at its Austin, Minnesota, and Fremont, Nebraska, plants. The agreement will allow this expanded business in Iowa to proceed, which is important for economic development and competition in the pork business," Miller said.

Gary Ray, Hormel's Executive Vice President Refrigerated Foods, said: "Hormel currently conducts very substantial business in Iowa, with several processing and distribution facilities employing over 1,000 people, and approximately $386 million spent to purchase 2.7 million hogs from Iowa producers in our last fiscal year. I am pleased we have reached an agreement with the State of Iowa that assists us in significantly expanding Hormel's business operations in Iowa."

Miller said: "Hormel has agreed that when it deals with Iowa contract growers it will be bound by rules guaranteeing fairness. Hormel contract growers will be given a 'contract producer's bill of rights' and the ability to enforce the safeguards in court, including the prospect of receiving attorney fees if they are successful. This is an important enforcement tool," he said.

"The agreement also has strong protections that will allow Hormel producers to organize and use bargaining associations. This will increase the economic bargaining power of Iowa contract producers and give them the opportunity to negotiate for their fair share of the returns in swine production," Miller said.

In return for Hormel's compliance with its commitments under the settlement, the State will not pursue enforcement of the ban on packer involvement in swine production with respect to Hormel, Miller said. The agreement has a term of ten years.

"There is no allegation here that Hormel violated Iowa law," Miller said. "On the contrary: Hormel approached our office to begin negotiations prior to engaging in production contracting. The agreement settles a dispute about the constitutionality of Iowa law and avoids litigation. It permits Hormel to move ahead with its stated intention of significantly expanding its business operations in Iowa and gives Hormel the opportunity to engage in hog production contracting -- in a manner that reasonably protects the economic and legal interests of contract producers."

Click here for a copy of the Consent Decree & Hormel's lawsuit (both filed 4-6-06.)

- 30 -

Background Information

Specific provisions of the Hormel agreement include:

Contract Producers' Rights. Hormel has agreed that its Iowa contract producers will have a set of identified producer rights, including the right to be a "whistle-blower," 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.

Hormel's Obligations. Hormel has agreed to refrain from a list of activities, including:

1. Coercion. Hormel 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.

2. Capital investment. Hormel 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.

3. Arbitration. Hormel must not require producers to use binding arbitration to resolve disputes under the settlement agreement.

4. Company-owned facilities. Hormel must not finish hogs in company-owned facilities for a period of 5 years.

Iowa Producers' Ability to Organize. Hormel has agreed that if its Iowa producers organize or adopt a collective bargaining association, Hormel will not retaliate against such producers and will negotiate in good faith with such an association.

Enforcement. Hormel has agreed that if any Iowa producer suffers damages as a result of Hormel'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 and be awarded attorneys fees.

Market Access/Transparency. Hormel has agreed that for two years 25% of the swine slaughtered at its plants in Austin, Minnesota, and Fremont, Nebraska, will be purchased on the open market from sellers other than Hormel affiliates.

Continued Operation of Iowa Plants. Hormel has informed the Attorney General that it currently intends to keep its Algona, Fort Dodge, Knoxville, and Osceola plants in operation. If those intentions change, Hormel has agreed to provide 90-day advance notice of any plant closure to the Attorney General.

The Hormel litigation:

The Consent Decree signed today settles a lawsuit also filed today by Hormel in the United States District Court for the Southern District of Iowa. In its lawsuit, Hormel asserted that Iowa Code section 202B.201 violates the United States Constitution. The Attorney General denies that Iowa Code section 202B.201 violates the United States Constitution.

The Smithfield Foods and Cargill litigation:

The agreement with Hormel announced today is very similar to the resolution of litigation between the State of Iowa and Cargill announced January 19, 2006, and between the State of Iowa and Smithfield Foods announced Sept. 16, 2005.

Summary of the Smithfield litigation:

On July 22, 2002, Smithfield Foods, Inc., Murphy Farms, LLC, and Prestage-Stoecker Farms, Inc. ("Smithfield Producers") filed suit against the Attorney General in the United States District Court for the Southern District of Iowa, Smithfield Foods, Inc., Murphy Farms, LLC, and Prestage-Stoecker Farms, Inc. v. Miller, No. 4:02-CV-90324.

The lawsuit asserted that Iowa Code section 9H.2, the predecessor to current Iowa Code section 202B.201, violated the United States Constitution.

On January 22, 2003, the United States District Court for the Southern District of Iowa permanently enjoined the Attorney General from enforcing Iowa Code section 9H.2.

Iowa Code section 9H.2 was amended by the Iowa Legislature in 2003 during the pendency of the appeal of the District Court's ruling by the Attorney General, and recodified at Iowa Code section 202B.201.

The United States Court of Appeals for the Eighth Circuit vacated the District Court's January 22, 2003, ruling and remanded the lawsuit for further proceedings in light of the 2003 amendment.

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

By agreement dated September 16, 2005, and with the approval of the United States District Court for the Southern District of Iowa, the Attorney General consented to an injunction prohibiting the enforcement of Iowa Code section 202B.201 by the State of Iowa with respect to the Smithfield Producers.

Summary of the Cargill litigation:

On January 18, 2006, Cargill, Incorporated, Cargill Meat Solutions Corporation, and Cargill Pork, LLC (collectively "Cargill") filed suit against the Attorney General in the United States District Court for the Southern District of Iowa, Cargill, Incorporated, Cargill Meat Solutions Corporation, and Cargill Pork, LLC v. Miller, No. 4:06-CV-20.

The Cargill lawsuit asserted that Iowa Code section 202B.201 violated the United States Constitution.

By agreement with Cargill dated January 19, 2006, and with the approval of the United States District Court for the Southern District of Iowa, the Attorney General consented to an injunction prohibiting the enforcement of Iowa Code section 202B.201 against Cargill by the State of Iowa.

END

Attorney General Home | News Release Home
COPYRIGHT 2000 THE STATE OF IOWA. ALL RIGHTS RESERVED.