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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.

Pig Farm
Pig Farm

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.

Pig Farm
Pig Farm

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.”

Paying taxes and bringing pollution

But Mr. Griffith, Smithfield’s lawyer, characterizes total benefits as tiny. Even more so, he said, “when you consider that we have not taken any cash out of these operations and have no plans to do so in the foreseeable future.”

HELP AT HIGH LEVELS

When it first arrived in Eastern Europe, Smithfield courted top politicians in both Poland and Romania, the latter a particularly poor country of 23 million with a weak government and under constant E.U. pressure over corruption.

In the post-Communist disorder, it is essential to know your way about. In Bucharest, Smithfield turned to Nicholas Taubman, a wealthy Republican businessman who was the U.S. ambassador to Romania during the administration of President George W. Bush. Mr. Taubman escorted Smithfield’s top executives during meetings with the Romanian president and prime minister and president.

“I’m from Virginia and they’re a large corporation and I know them very well,” Mr. Taubman said, noting that he had also helped Ford Motor, which had an easier time in Romania because it had the support of a government minister.

Once the top leaders in Romania showed their support for Smithfield, developments fell into place; about a dozen Smithfield farms were designed by an architectural firm owned by Gheorghe Seculici, a former deputy prime minister with close ties to President Traian Basescu of Romania, who is godfather to his daughter.

Further help came from a familiar front: Smithfield’s lobbyist, the Virginia firm McGuireWoods, set up a Bucharest office in 2007 to liaise between Smithfield and the Romanian government. In many ways McGuireWoods was the perfect choice; it had also represented Romania for three years to press its NATO-membership campaign.

Mr. Basescu, the president, was not shy in acknowledging the company, which he praised at a joint news conference with President George W. Bush at a NATO summit meeting last year. Smithfield was also very visible in its appreciation: It contributed €20,000 to pay for Romanian ceremonial uniforms at the summit meeting, according to the Foreign Ministry.

Mr. Taubman said that access was vital. “It’s extremely difficult to do business there unless you have someone like the prime minister or someone in the prime minister’s office who reaches down to whomever is concerned and says this is what to do,” he said.

As straightforward as that may seem, lobbying on the part of a big firm from the United States — the superpower that East Europeans seek to please — raised some eyebrows.

“We understand public diplomacy and political lobbying,” noted Steen Steensen, an agriculture expert at the Danish Embassy, whose country has also expanded hog farms into Eastern Europe. ‘’But we trust that the business and commercial channels operate in a normal and fair way.”

“Smithfield’s dominance and manifest aggressive approach is worrying,” Mr. Steensen said in one agricultural report.

ENVIRONMENTAL DISASTERS

The connections in the upper reaches of government meant that Smithfield could weather protests from local communities. The company was fined €9,000 for spilling manure on a local highway while transporting waste from a leaking container; €35,000 for a leaking bin that seeped hog waste into soil; another €35,000 for four farms operating without permits in Arad County; and €18,500 for not preventing water pollution.

Some villagers, however, concentrate on the advantages. “I have land near them and there’s no problem,” Dorin Mic Aurel, mayor of Masloc, said. Smithfield is the biggest taxpayer in Masloc, contributing $27,000 yearly that helped bring running water to the village.

But Smithfield found it hard to overcome fallout from the swine fever outbreak that struck Cenei. At the time, hog corpses lay in heaps, and residents remember chaotic efforts to shoot and burn them. That particular strain affects only hogs, but scientists have found elements of swine viruses — one from Europe or Asia, the other from North America — in the genetic code of the new influenza A(H1N1) virus.

When Ioan Ciprian Ciurdar, deputy mayor of Cenei, said that the stench from nearby farms was overpowering, Smithfield responded that a heat wave was to blame.

Mr. Ciurdar said that he had visited the farm with a colleague who snapped photographs until a security guard demanded the camera and destroyed the pictures. “If you’re an owner,” he said, his voice rising, “it doesn’t mean you can do whatever you want.”

Smithfield contends that “it is impossible to know” why the pigs got sick, while noting a breakdown in the supply of government-supplied swine flu vaccines. But several officials on both sides of the debate believe that Smithfield was overwhelmed by its own industrial machine and its ever multiplying pigs.

Dreaming of Italy or Spain

“Thousands of piglets were born,” Mr. Seculici, the architect, said. “There was no place to put them because the new farms weren’t finished. Nobody admits this, but this was the cause of swine flu. They were forced to improvise.”

Smithfield acknowledges that it placed young pigs on farms under construction, but insists that doing so had no impact on health.

“It was done too fast; that caused a lot of problems,” Mr. Taubman, the former U.S. ambassador, said.

When it came to cleanup, Smithfield again turned to special E.U. subsidies, requesting $11.5 million in compensation. But the local authorities — those with the power to dole out the money — balked at the demand, outraged that the epidemic was taking place on unlicensed farms which they accused of lax biosecurity measures.

A special mission of the European Commission confirmed some of their complaints, finding that Smithfield had failed to submit regular reports on the deaths of its pigs and that employees moved freely between farms despite suspicions of swine fever.

“Although we acknowledge these dysfunctions, this does not mean that our farms were operating outside the purview of Romanian authorities,” Mr. Griffith, a lawyer for Smithfield, wrote. “Our farms were operating openly and in regular, day-today contact with those authorities.”

“When we discovered that a number of our farms in Romania were operating on an emergency basis without all required permits,” Mr. Griffith said, Smithfield acted “to obtain all required permits.”

Blocked from collecting the money, Smithfield turned to Valeriu Tabara, head of the Romanian Parliament’s agricultural committee. With support from other politicians, Mr. Tabara pushed for an amendment that would enable animal owners to be compensated for disease-driven losses regardless of ignoring proper biosecurity measures.

Smithfield is uncertain if the amendment will be beneficial to the company. The revision, Mr. Griffith said, “would generally not apply retroactively to our claim.”

Mr. Tabara has no doubts, however, saying that “Smithfield is in the category of companies that have registered losses.”|

A STRUGGLE ACROSS CONTINENTS

When Mr. Neag, the former hog farmer, strides his land, only two animals trail him: battered mutts.

He is a cereal farmer now, like many other former hog farmers who complain their annual incomes have fallen by about half to €5,000.

“I didn’t think they were the enemy like someone who comes to take the bread from our mouth,” Mr. Neag said, recalling the arrival of Smithfield.

That lament echoes as far away as the Ivory Coast.

Patrice Yao’s pig farm in Abidjan, near a local prison, is part of a cluster where farmers like him and Basile Donald Yao are trying to survive despite a flood of cheap frozen pork from Europe.

“My farm isn’t working,” said Mr. Yao, 27, who owns about 45 hogs, compared with 100 three years ago. “The Europeans are sending all their cheap meat to our market.”

The Animex packing house spokesman, Andrzej Pawelczak, declined to identify where the Smithfield pork products were sent in West Africa. But in Polish Farmer Magazine he identified the countries as Liberia, Equatorial Guinea and the Ivory Coast.

According to Polish agricultural officials, Animex collected more than €3 million in export funds.

In the face of that, Ivorian farmers cannot compete. Fresh local pork sells for under $2.50 a kilo, while Europe’s frozen offal is a bargain in bustling markets at $1.40.

Mr. Yao said that many pig farmers have left, in search of work. Like Romanian ex-farmers combing Europe’s construction sites for work, he is considering becoming an export himself.

“I’ve already got my passport and when the occasion presents itself I am going to leave,” he said.

“I dream of leaving for Italy or Spain. There is nothing here for us.”