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Chicks in Forefront of New Housing Crisis

If the housing crisis is not shrinking, some of the housing involved would seem to be. The Wall Street Journal (02/12, “Farmers Face Empty-Nest Syndrome Amid Chicken Housing Crisis” by Lauren Etter) reports: “Center Ridge, Ark. – Like many Americans, Darris and Sarah Dixon are struggling with mortgage payments and trying to avoid bankruptcy.

“But the home the Dixons live in isn’t the problem. The problem is their three chicken houses, on which they owe nearly $500,000.

“‘There’s no way we’ll make the chicken house payments,’ Mr. Dixon says from his farm abutting the Ozark Mountains.

“A chicken housing crisis has cropped up in the US, and it’s producing some of the same bleak results as the human one – foreclosures, lawsuits and devastated homeowners.

“In the wake of last year’s bankruptcy filing by poultry giant Pilgrim’s Pride Corp., hundreds of farmers find themselves unable to make mortgage payments on their pricey chicken coops.

“To cut costs, Pilgrim’s, the nation’s second-largest chicken company, has terminated contracts with at least 300 farms in Arkansas, Florida and North Carolina. Under these contracts, farmers receive a set price per pound for raising chickens supplied by Pilgrim’s until they are ready for slaughter. The company turns the birds into nuggets, wings and other food.

“Pilgrim’s still has more than 5,000 contracts nationwide, and executives say they are trying to cut as few contracts as possible. They say the reason the 300 farms weren’t needed was that Pilgrim’s stopped or reduced production at processing plants in those areas recently. ‘It’s a very sad situation,’ says Don Jackson, the company’s president and chief executive. But ‘the company is in bad shape.’ Last year Pilgrim’s had a loss of nearly $1 billion.”

Which is very sad indeed. But shouldn’t there have been some government office to warn the farmers assuming the risk of looking of financing the costly huge, chicken houses, rather than the company that shifted the responsibility to dirt farmers that cannot be expected to understand the implications of signing a mortgage for a hunk of real estate that is beyond their ability to foresee once the huge corporation that has sidestepped the responsibility, wants out. There is a lesson there in elementary ethics that governments must not be allowed to overlook.

“For the farmers who have been cut loose, no contract means no chicks – and no money to pay off the coop mortgages. Chicken houses without chickens or contracts have virtually no resale value.”

That improves on the hazards of subprime human housing mortgages – value drops to zero instantaneously.

“With the poultry industry in retreat, rival producers aren’t looking for new growers. Tyson Foods Inc., the largest chicken company, and Perdue Farms Inc., the third largest, both say they’re not cutting contracts with their farmers because of the industry downturn.”

That means that Pilgrim’s was allowing its ethical trousers to drop down to pass on a major corporation risk to dirt farmers who could not even conceive of the extent of the risk that was being passed on to them.

“Today’s chicken houses are bigger and more sophisticated than the coops of yore. Made from corrugated metal and wooden beams, the cavernous shacks can be longer than a football field and cost more than $200,000. To maximize profits, many farmers own at least four houses, meaning high-six figure mortgages are common.

W.K.

From Economic Reform, April 2009

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