A U.S. Giant Transforms Eastern Europe
For centuries — from the Hapsburg Empire through Communist dictatorship — peasant farmers here have eked a living from hogs, driving horses along ancient pocked roads and whispering ritual prayers on butchering day.
Old customs and jobs are dying and the air itself is changing, however, transformed by an American newcomer, Smithfield Foods. Almost unnoticed by the rest of the Continent, the agribusiness giant has moved into Eastern Europe with the force of a factory engine, assembling networks of farms, breeding pigs on the fast track, and slaughtering them for every bit of meat and muscle that can be squeezed into a sausage.
The upheaval in the hog farm belts of Poland and Romania, the two largest E.U. members in Eastern Europe, ranks among the Continent’s biggest agricultural transformations.
It also offers a window on how a Fortune 500 company based in Virginia operates in far-flung outposts. Smithfield has a joint venture in a Mexican hog farm located near where United Nations scientists are investigating a potential link between pigs and the new strain of influenza in humans. With the exact origins of the virus still in doubt, Smithfield emphasizes that the disease has struck none of its hogs or employees.
But Smithfield’s global approach is clear; its chairman, Joseph Luter III, has described it as moving in a “very, very big way, very, very fast.” In less than five years, Smithfield enlisted politicians in Poland and Romania, tapped into hefty European Union farm subsidies and fended off local opposition groups to create a conglomerate of feed mills, slaughterhouses and climate-controlled barns housing thousands of hogs.
It moved with such speed that sometimes it failed to secure environmental permits or inform the authorities about pig deaths — lapses that emerged after swine fever swept through three Romanian hog compounds in 2007, two of which were operating without permits. Some 67,000 hogs died or were destroyed, with infected and healthy pigs shot to stanch the spread.
In the United States, Smithfield says it has been a boon to consumers. Pork prices dropped by about one-fifth between 1970 and 2004, according to the U.S. Department of Agriculture, suggesting annual savings of about $29 per consumer.
In Eastern Europe, as in American farm states where Smithfield developed its business strategy, the question is whether the savings are worth the considerable costs. The company says it is “sensitive to our neighbors’ concerns” and that complaints are often from disgruntled residents left behind.
But Robert Wallace, a visiting professor of geography at the University of Minnesota says Smithfield’s global rise is part of a broader “livestock revolution that has created cities of pigs and chickens” in poorer nations with weaker regulations. “The price tag goes up for small farmers.”
In Romania, the number of hog farmers has declined 90 percent — to 52,100 in 2007 from 477,030 in 2003 — according to European Union statistics, with ex-farmers, overwhelmed by Smithfield’s lower prices, often emigrating or shifting to construction. In their place, the company employs or contracts with about 900 people and buys grain from about 100 farmers.
In Poland, there were 1.1 million hog farmers in 1996. That number fell 56 percent by 2008, as the advent of modern farming methods transformed agriculture, according to the Polish National Agricultural Chamber.
Two years ago, Daniel Neag housed 300 pigs in the empty stalls of his windswept farm near Lugoj, in Romania. Since 2005, membership in his breeder association plunged to 42 from 300. The secretary treasurer tends honeybees.
The impact on the environment is even more marked. With almost 40 farms in western Romania, Smithfield has built enormous metal manure containers to inject waste into the soil. “We go crazy with the daily smell,” said Aura Danielescu, the principal of a school in Masloc, who closes her windows tight.
Smithfield farms in Romania’s Timis County are among the top sources of air and soil pollution, according to a local government report, which ranked the company’s individual farms No. 13 through No. 40. The report also indicates that methane gases in the air rose 65 percent between 2002 and 2007.
Taxpayers footed part of the bill; Smithfield tapped into millions of euros in subsidies — from a total of €50 billion available in the E.U. last year — that are meant to encourage modern farming balanced with care for the environment.
In a similar chain of consequences, separate subsidies mined by Smithfield helped support the export of cheap pork scraps from Poland to Africa, where some hog farmers also are giving up because they cannot compete.
Smithfield representatives strongly defend their methods. They say they did everything they could to quash the Romanian swine fever outbreak, and they contend the lack of licenses was an oversight. “We have learned not to assume that a government’s awareness of our plans and operations is the same as permission to keep moving forward until we have obtained all necessary permits,” Charles Griffith, a company lawyer, said in answer to written questions.
Company officials also point to heavy investment in poor parts of Eastern Europe and a commitment to reinvesting profits locally. Mr. Griffith highlighted among Smithfield’s contributions the “acquisition, renovation, and construction of meat processing plants, swine farms, feed mills, and cold storage facilities,” and support for “networks of independent farmers that are contracted to shelter and feed pigs to market weights.”
For all that, some villagers in the new hog country say they are dazed. “For them, it’s like dealing with primitive people in the bush, where only power and strength is important,” said Emilia Niemyt, the mayor of Wierzchkowo, a Polish village of 331 people that has pressed complaints about odors. “They fulfill the idea of conquering the East with the methods of the Wild West.”
ASSEMBLY LINE OF PIGS
When the East beckoned in 1999, Smithfield exported a vertical integration strategy, copied from the poultry giant Tyson Foods. The chief promoter of that strategy was Mr. Luter, whose family transformed a 73-year-old meatpacking operation into a behemoth with almost $12 billion in annual revenue.
Every stage of a hog’s life — from artificial insemination to breeding genetic characteristics — is controlled. A handful of employees tend thousands of hogs that spend their lives entirely indoors, under constant lighting, to spur growth. Sows churn out litters three or four times a year. Within 300 days, a pig weighing roughly 120 kilograms, or 270 pounds, is ready for slaughter.
Smithfield fine-tuned its approach in the depressed tobacco country of eastern North Carolina in the 1990s. In 2000, money started flowing from a Smithfield political action committee in that state and around the United States. Ultimately, more than $1 million went to candidates in state and federal elections. North Carolina lawmakers helped fast-track permits for Smithfield and exempted pig farms from zoning laws.
As Smithfield flourished, the number of American hog farms plunged 90 percent — to 67,000 in 2005 from 667,000 in 1980. Some farm states grew wary. When Hurricane Floyd struck North Carolina in 1999, torrential rain breached six pig waste lagoons, prompting the authorities to impose a construction moratorium on new pig farms using lagoons.
Missouri, too, pressed Smithfield to install technology to reduce odor. In Iowa, Smithfield lobbyists fended off efforts to force meatpackers to purchase hogs on the open market instead of using only their livestock.
Facing more restrictions in the United States, Smithfield took its North Carolina game plan to Poland and Romania, where the company moved nimbly through weak economies and political and regulatory systems.
Today Smithfield is the biggest pork producer in Romania, where it owns an enormous meatpacking plant, almost 40 hog farms and croplands sprawling over 50,000 acres. In Poland, the company employs 500 farmers to raise hogs that are bound for its Communist-era slaughterhouse, Animex.
Smithfield declined to disclose the total of subsidies it has collected. Romania pays a levy of around 30 euros per pig raised suggesting that, by producing 600,000 a year, Smithfield was eligible for 18 million euros in special national subsidies intended to improve the leanness of hogs. Though the company said late Tuesday that not all its pigs qualified for the subsidy, it did not say how many are. Newly released Romanian data show the company collected almost €300,000 in cropland subsidies last year and more than €200,000 in special funding for new European Union states. In Poland, Smithfield reaped more than €2 million for its subsidiary Agri Plus.
“Subsidies are money,” Luis Cerdan, chief executive of Agri Plus, said. “It improves the profits of the company.”