ST. LOUIS POST-DISPATCH
Smithfield: Pushing pork as it seeks to polish its image
By Jeremiah McWilliams


C. Larry Pope looked out from the podium on more than 100 hog farmers and delivered a grim assessment of the industry's risks: recalls, bio-security hazards, animal-welfare scandals stirred up by undercover spies, and regulators pressured to crack down.

"We're in a zero-tolerance world, and it scares me," Pope, chief executive of Smithfield Foods Inc., said at the National Pork Industry Forum this month in St. Louis. Later, he cautioned: "We have to be aware of what people think of us outside."

The warning, aimed at pork producers in general, could as easily have summed up the challenges facing Pope's own company.

Smithfield, based in the small Victorian town of the same name in eastern Virginia, is the dominant player in the U.S. and Missouri pork industries. It controls dozens of brands, including Cook's hams, Armour hot dogs and John Morrell bacon.

Known for its opportunistic takeovers, Smithfield also is a lightning rod for foes who accuse it of labor abuse, unnecessary cruelty to animals and environmental degradation.

Led by its blunt CEO, Smithfield is vigorously defending itself in the court of public opinion — as well as in the Missouri courts.

"If you're Smithfield, you really have to worry about your public perception," said Peter Carstensen, a University of Wisconsin law professor who lobbied against Smithfield's most recent acquisition on antitrust grounds.

"I'd like to say they're responding because they're really trying to make a fundamental change in their corporate behavior. I am skeptical — I believe it's a media show."

A 'GLOBAL FOOTPRINT'

From its roots as a Depression-era pork packing plant, Smithfield has grown to become the world's biggest pork processor and hog grower. The $12 billion company has operations spanning the globe — Romania, Poland, the U.K. and across the United States.

Smithfield has a "global footprint" — enabling it to ship hams from North Carolina to France and conduct worldwide currency arbitrage — Credit Suisse analyst Robert Moskow wrote in December.

The U.S. pork industry increasingly has become a big player's game, consolidated into large operations. Between 1992 and 2004, the number of hog farms dropped 70 percent while the average hog operation grew to 4,646 animals from 945, according to the Agriculture Department.

During that time, Smithfield aggressively bought smaller meat companies and transformed itself into a behemoth. Its pork division operates more than 40 processing plants and boasts a daily slaughter capacity of more than 100,000 hogs.

Smithfield raises one of every six hogs in the U.S. and has nearly a third of the country's pork-processing capacity. Smithfield, which owns a 49 percent stake in Butterball LLC, recently agreed to sell its beef-processing and cattle-feeding operation, giving it the freedom to focus more closely on pork.

MAJOR PLAYER IN MISSOURI

Thanks to its $800 million purchase last year of Kansas City-based Premium Standard Farms, as well as the acquisition of bankrupt Farmland Foods in 2003, Smithfield now has more than 1,500 employees statewide, with numerous hog farms and facilities spread across the northern and western borders of Missouri. The state is the nation's seventh-largest producer of hogs.

"It hit us suddenly that we are getting to be a large player in Missouri," said Dennis Treacy, Smithfield's vice president of environmental and corporate affairs. "Missouri all of a sudden has become a rather large presence for us."

But the buyout of Premium Standard — a hog farmer and rival pork processor — also made Smithfield the inheritor of environmental litigation and nuisance lawsuits that dogged Premium Standard before the acquisition.

Residents of northwest Missouri have filed numerous lawsuits since 2002 complaining of the odor and groundwater pollution from nearby Premium Standard hog farms. Premium Standard won a jury trial in December, but still faces more than 20 trials in Missouri.

"To them, it's a cost of doing business. … There's no way to put that many hogs in a confined area — hundreds of thousands of them — and not have odor," said Jerold Drake, a lawyer in Grant City, Mo., who has sued Premium Standard over environmental complaints. "The environmental problems are just devastating."

FACING AN UPHILL STRUGGLE

Treacy, who was Virginia's top environmental regulator before becoming Smithfield's point man on environmental issues, said it can be an uphill struggle to escape the stigma of the meat industry reflected in Upton Sinclair's muckraking novel "The Jungle."

"Your reputation tends to precede you," he said. "People tend to think of factory farms."

That image is not a pretty one. Smithfield was ordered to pay a federal fine of $12 million in 1997 for discharging hog manure that polluted the Pagan River and the Chesapeake Bay. It was the largest civil penalty imposed under the Clean Water Act to that time.

Also in the late 1990s, scores of hog waste lagoons — including Smithfield sites — flooded across the eastern part of North Carolina, sending stews of pollutants and contaminants downstream. The state enacted a moratorium on the construction of farms with more than 250 hogs or the expansion of existing large farms.

Smithfield also is embroiled in a decade-long struggled with the United Food and Commercial Workers over the union's effort to organize 5,500 employees at a massive plant in Tar Heel, N.C. The union has alleged unfair-labor practices at the plant; violations were found by the National Labor Relations Board and upheld by a federal appeals court in May 2006.

The company said it has complied with an NLRB order to allow a new union election, but accuses the union of malicious conduct and a smear campaign. Late last year, Smithfield took the rare and aggressive step of suing the union under the Racketeer Influenced and Corrupt Organizations Act, accusing the union of an extortionate pressure campaign.

Labor relations "tends to get them a lot of press, and it's not always good," said Carl Tobias, a law professor at the University of Richmond.

The company also is a constant target of activist groups such as People for the Ethical Treatment of Animals, which recently sent an undercover investigator to a North Carolina pig farm that supplied Smithfield.

The group said it found abuses of pigs that it believed to be in violation of state anti-cruelty laws, and called on prosecutors to press charges.

DEADLY SERIOUS

Smithfield executives insist the company has turned the page on past troubles.

Smithfield is seeking ISO 14001 certification, a designation that would attest to rigorous environmental controls, for its Premium Standard facilities.

Premium Standard has "stepped up and corrected its mistakes" — for example, by installing filters to screen the air emanating from its facilities — said Jim Fisher, chair of the Missouri Pork Association.

"We're beginning to act and behave like a large company," said Treacy. "We're going to work very hard in Missouri to bring Premium Standard Farms to our corporate expectations."

Smithfield said it was working aggressively to cut the number of environmental "notices of violations," which rose to 64 in 2006 at its majority- and wholly owned U.S. operations. The total was 33 in 2005 and 82 in 2004.

The world is changing, and Smithfield — supplier to McDonald's Corp., Subway restaurants and Wal-Mart Stores Inc. — is trying to adjust.

With retailers on high alert about food safety, Smithfield now fields requests from big clients demanding to know the sources of salt and vinegar that went into a shipment of meat. The company may have as little as four hours to respond.

"For God's sake, take the bio-security deadly serious," Pope told hog farmers this month in St. Louis, flipping to a slide titled "How to Prepare for Turbulent Times." In an interconnected industry, "you can ruin our business, and we can ruin your business," he said.

Smithfield is getting some welcome backup from hog farmers, some of whom give the company kudos for buying more hogs on Missouri's open market.

Stung by the sense that the public doesn't understand the industry and views it with a jaundiced eye, farmers are making a concerted push to build trust.

Pork convention delegates in St. Louis endorsed a wide-ranging "statement of ethical principles" covering food safety, animal well-being, employee care and the environment.

"Practically all the hog farmers I know have a social conscience," said Glenn Grimes, professor emeritus at the University of Missouri-Columbia's department of agricultural economics. As well as helping their bottom line, it's "a part of their personality to treat animals well."

Deferring to customers' concerns about animal welfare, Smithfield plans to phase out "individual gestation stalls" — which subject sows to cramped quarters — in favor of more open pens or group housing at company-owned farms.

"We're going to have to handle these animals differently," Pope said this month, noting that animal abuse is an immediate firing offense at Smithfield facilities. "We're going to have to figure out ways to do it better, and that's going to be acceptable to the outside world."