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

For immediate release - January 19, 2006.

Contact Bob Brammer, 515-281-6699, or
Eric Tabor, 515-281-5191.

State Reaches Hog Production Agreement with Cargill

DES MOINES.   Iowa Attorney General Tom Miller announced that United States District Court Judge Robert W. Pratt approved a Consent Decree today jointly submitted by the State of Iowa and Cargill, Inc., Cargill Meat Solutions Corporation, and Cargill Pork LLC (collectively "Cargill"). The Consent Decree sets out the terms of a settlement reached between the State and Cargill resolving a dispute over the constitutionality of Iowa's prohibitions against processors vertically integrating into pork production in Iowa. Click here for a copy of the Consent Decree.

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

Miller said:

"I am pleased we have reached an agreement with Cargill that is very beneficial for Iowa's pork industry, especiallys since the likely alternative was lengthy and costly litigation with uncertain results. In the agreement, Cargill states a desire to significantly expand its business operations in Iowa, including hog production contracting. The agreement will allow this expansion to proceed, which is important for economic development and competition in the pork business," he said.

"At the same time, Cargill has agreed that when it contracts with Iowa pork producers it will be bound by rules guaranteeing fairness. Cargill producers 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," Miller said.

"The agreement also has strong protections that will allow Cargill 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 Cargill'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 Cargill, Miller said. The agreement has a term of ten years.

"There is no allegation here that Cargill violated Iowa law," Miller said. "On the contrary: Cargill 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 Cargill to move ahead with its stated intention of significantly expanding its business operations in Iowa by engaging in hog production contracting -- in a manner that reasonably protects the economic and legal interests of contract producers."

Specific provisions of the agreement include the following:

Contract Producers' Rights. Cargill 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.

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

1. Coercion. Cargill 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. Cargill 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. Cargill must not require producers to use binding arbitration to resolve disputes under the settlement agreement.

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

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

Enforcement. Cargill has agreed that if any Iowa producer suffers damages as a result of Cargill'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. Cargill has agreed that for two years 25% of the swine slaughtered at its plant in Ottumwa, Iowa, will be purchased on the open market from sellers other than Cargill affiliates.

Continued Operation of Iowa Plants. Cargill has informed the Attorney General that it currently intends to keep its Ottumwa plant in operation. If those intentions change, Cargill has agreed to provide 90-day advance notice of any plant closure to the Attorney General.

Miller was joined at a State Capitol news conference by Tom Hayes, President of Cargill Meat Solutions Corporation.

Background Information on Cargill Litigation

The Consent Decree signed today settles a lawsuit filed late yesterday by Cargill in the United States District Court for the Southern District of Iowa. In its lawsuit, Cargill 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.

Background Information on Smithfield Foods Litigation

The agreement with Cargill announced today is very similar to the resolution of litigation between the State of Iowa and Smithfield Foods announced Sept. 16, 2005. A summary of the Smithfield litigation follows:

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.

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