Limestone County chicken farmers are scrambling to secure new contracts after Tyson Foods recently notified them that their seven-year supplier contracts would not be renewed.

A majority of the contracts are set to expire in 2015, according to Clements farmer Ty Smith. In 2009, he signed a seven-year deal to supply the Tyson’s nearest Tennessee poultry-processing plant, which is about 80 miles north in Shelbyville.

Worth Sparkman, a public relations manager for Tyson, confirmed this week a certain number of contracts are not being renewed due to the availability of suppliers located closer to the plant.

At least 15 farmers must secure a deal with another producer to remain solvent, Elkmont farmer Stan Usery Sr. said. He owns nine chicken houses in Elkmont and Athens with his son, Stan Jr.

“Roughly, it’s between 15 to 18 farmers in Limestone County but this contract affects everyone in North Alabama. It also affects 20 to 25 farmers in Lauderdale County,” said Usery Sr., a chicken producer for the past 22 years and a board member for several poultry associations.

Limestone generated $60.8 million and 332 jobs from poultry and egg production in 2010, which is the most recent data available. The figures came from a joint study released last year by the Alabama Cooperative Extension System, Alabama A&M and Auburn University.

Tyson feedback

Tyson officials declined to provide specifics when asked how many Limestone farmers would be affected by the non-renewals or the dollar amount for the expiring contracts, describing contractual data as proprietary for a global company with $34.4 billion in sales during fiscal 2013.

“We have not canceled any contracts with farmers … In 2008, we picked up several farmers in Alabama to supply our Shelbyville, Tennessee, complex. At the time, their contracts with (Pilgrim’s Pride) weren’t being renewed, and we had a need for more chickens. We signed seven-year contracts with those farmers, and we have let them know that when their current contracts expire in 2015, we will not enter future contracts with them,” Sparkman said.

Tyson’s economic footprint in Alabama is estimated at $217.3 million, with about 1,800 employees primarily located at plants in Cullman, Marshall, Etowah and Blount counties, according to company data. Sparkman said the estimate is derived from wages, farmer pay, utilities, taxes, donations, scholarships and other purchases, and does not include economic multipliers.

Chicken supply carousel

Pilgrim’s Pride shuttered its Athens processing plant in October 2008. At the time, some Limestone farmers had the option of staying with Pilgrim’s Pride and supplying its Russellville plant in Franklin County, or joining Tyson’s supply chain.

The Userys did not have the option to remain contracted with Pilgrim’s Pride when the Athens plant closed, according to the elder Usery. Smith said he and some of the other farmers could have remained with Pilgrim’s but chose to sign a more lucrative deal with Tyson, believing it would be a lasting partnership with a company he described as the nation’s “No. 1 chicken producer.”

A Tyson representative visited each of the farmers impacted by the nonrenewals on May 26 to inform them about the Springdale, Arkansas-based company’s decision, according to Smith and Usery.

“We thought it was going to be a longtime commitment … we felt secure about doing business for a long time with Tyson. They told me the reasons for not continuing the contracts were because of the distance from Limestone to Shelbyville and a weigh station on (Interstate) 65 near the state line that doesn’t allow them to carry as heavy of a load,” Smith said. “This is a unique situation because there is an underlying gentleman’s agreement that you keep doing business with suppliers unless they do something (to cause a non-renewal).”

Sparkman said that “another poultry company is seeking to sign contracts” with Limestone growers. The News Courier has learned the Pilgrim’s Pride processing plant in Russellville has signed at least two of the affected Limestone farmers.

“In fact, several of them have asked us to release them from their Tyson contracts early so they can contract with that competitor, and we have honored those requests. We also have contracts with a number of farmers in (Limestone) who have built new poultry farms in recent years, and we anticipate continuing those relationships,” Sparkman said.

Smith, who owns four large chicken houses on Holt Springer Road and is a former live production manager for Pilgrim’s Pride in Athens, said at least three county farmers built new facilities to supply Tyson through 10 or 15-year contracts. He said their contracts differ from the seven-year deals because it’s customary for a bank to require a lengthier contract term before agreeing to loan money for new chicken houses.

Moving forward

Smith has not signed on with Pilgrim’s but said he is actively seeking a contract before his deal with Tyson expires in 2016. He said a financial obstacle for Limestone farmers looking to produce for the Russellville plant would be Pilgrim’s requirement for 2-inch water lines at its suppliers’ chicken facilities.

“Some will be able to get back with Pilgrim’s Pride and cross that water meter hurdle, but some may not be able to,” said Smith, who is the District 3 representative on the Limestone County Water and Sewer Authority board. “Pilgrim’s is under no obligation to take us back because we left thinking we’ll be with Tyson from here on out.”

The cost for a Limestone farmer to transition from a 1-inch water line to a 2-inch line varies on a complex formula used by the Limestone County Water and Sewer Authority. Usery said he received a $62,000 estimate from the Authority to make the switch. He said surrounding counties have a maximum cost of $7,000 for a 2-inch water line.

“Every time we change to different companies, it means meeting that company’s specifications. When we went from Pilgrim’s Pride to Tyson for this seven-year period, (our business) spent a half-million dollars revamping our chicken houses to Tyson specs. We’re going to have to do it again to meet Pilgrim’s specs, and we’re working on that right now,” Usery said. “For our five-house chicken farm in Elkmont, it would cost us $62,000 for the 2-inch meter. And we’re already buying an average of $1,000 a month in water for our Elkmont farm. The reason (Pilgrim’s) requires the 2-inch meter is because it would provide a little more volume of water, and it’s a precautionary measure. They don’t want us to lose chickens to (lack of) water, and they are requiring it from other growers. They’re working with us but they also have to be fair.

“We’ll have to go to Russellville now because that’s the only available option we’ve got. We have a lot of growers here who have at least $1 million invested in their own facilities. We’re all having to go out and do what we have to do.”

Smith said the cost of the 2-inch water meter could be discussed at the next Authority board meeting, adding he plans to consult legal counsel on whether to abstain from voting if the board decides to take future action on the item.

The five-member board will meet at 3:30 p.m. Thursday, June 26, at the Authority’s customer service building.