Farmers, firms fretting suit over poultry litter

— Clods of poultry litter, infused with the smell of ammonia and a tinge of rotten molasses, are piled 8 feet high in a rustic shed on Jerry Hunton's farm about seven miles south of Prairie Grove.

Hundreds of tons of this poultry litter "de-cake" are scraped out of chicken barns after each flock moves on. The stuff often is used instead of expensive fertilizer on cow pastures and helps poultry farmers eke out a living when they sell it to other farmers.

But piles like this are the focus of a lawsuit against the poultry industry in Northwest Arkansas. In 2005, Oklahoma Attorney General Drew Edmondson sued Tyson Foods Inc., Simmons Foods Inc., Peterson Farms, George's Inc. and other poultry companies with contracts in the Illinois River watershed. His lawsuit in U.S. District Court for the Northern District of Oklahoma claims the company's growers severely polluted the river by spreading the litter.

If the lawsuit succeeds and prohibits the use of poultry litter on farms in the region, people who rely on the financial benefit of free fertilizer to enrich hayfields and cow pastures could lose what makes their farms profitable.

But their biggest concern is that the processors named in the suit will move production from the region or go out of business, since finding another way to dispose of poultry litter could drive up production costs. That could devastate the poultry economy, a major contributor to Northwest Arkansas' financial health.

Hunton, who also is the Washington County judge, worries that if the court agrees with Edmondson, that could result in major fines for the industry and stop farmers from spreading litter. His gloom is common across this region, as farmers, equipment dealers, chicken-house cleaners, bankers and insurers realize howentwined their fates are with the outcome of the case.

"They are talking about destroying Northwest Arkansas. I don't know why people aren't talking about that," Hunton said.

Edmondson's office declined to answer any questions about the lawsuit's economic effects on Northwest Arkansas, but did point out some negative economic consequences that contamination in the Illinois River has had on eastern Oklahoma.

"Unfortunately, now is not the appropriate time to discuss the items you want to explore, as they involve our trial strategy and dam-age assessment efforts," Edmondson's director of communications Charlie Price wrote in an e-mail.

Discovery and pre-trial motions in the case are set to continue until January 2009, when the trial is scheduled to begin. However, a recent motion by Cargill Inc., a defendant, asked the court to push the trial date back to summer 2010. The court has yet to rule on that and many other pending motions.

In 1952, Siloam Springs was a sleepy town of 3,300 people but it had a relatively large poultry plant capable of processing 10,000 chickens a day. Three years later in the town on the Oklahoma border, Bill Simmons bought out his partner in what was then Pluss Poultry and began to expand the business. Today, Simmons Foods employs more than a thousand workers in and around the town.

Over the same period, Springdale-based Tyson Foods established itself as the pre-eminent poultry king of Northwest Arkansas, gobbling up competitors. Today, Tyson slaughters about 42 million chickens a week in plants across the country.

RIVER CONTAMINATION

The growth of those and other companies led to thousands of poultry-growing contracts for farmers in Northwest Arkansas and eastern Oklahoma. Chicken houses sprang up around Fayetteville, Springdale, Rogers, Siloam Springs, Prairie Grove and Gentry, all of which are near the Illinois River and its tributaries.

The Illinois River watershed - which extends from Rogers to Tahlequah, Okla., south to Lake Tenkiller, Okla., and includes portions of southwest Washington County - had about 1,700 operating poultry houses in 2006. The chicken litter from these farms is used to fertilize hayfields and cow pastures, but rainfall runoff carries some of it into streams and creeks.

Price, the spokesman for the Oklahoma attorney general, said water districts in eastern Oklahoma have suffered from the contamination of the Illinois River, as arsenic, zinc, hormones and microbial pathogens have entered the river through "negligent waste management practices."

The poultry companies argue that they aren't solely responsible for the pollution.

Phosphorus - a chemical found in both the litter and municipal waste - causes large plumes of algae in the rivers, which results in fewer tourism dollars, Price said. Poultry litter generally consists of manure, rice hulls and wood chips.

Price said that marinas, canoe renters, convenience stores and hotels have suffered financially because of the excess algae.

After 3 1 /2 years of negotiations with the poultry companies, Edmondson hired a South Carolina law firm to sue poultry processors in the watershed and force a reduction in releases of phosphorus.

Because of the secrecy of negotiations, it isn't clear exactly what Edmondson is seeking. But the suit's financial scale was partially revealed in August 2006, when Janet Wilkerson, then-spokesman for the poultry companies, said Edmondson demanded $45 million just to continue talks, which had broken down at that time.

ECONOMIC INTERDEPENDENCE

Until recently, Bev Saunders, a poultry farmer just west of the Oklahoma-Arkansas state line, was contracting with Simmons Foods. But in light of the lawsuit, she decided to link with the bigger Tyson, which she believes will weather any major settlement.

Though no Oklahoma businesses are named in the lawsuit, hundreds of farmers like Saunders stand to lose if the Arkansas-based poultry companies curtail production in the region following a court ruling.

"I probably love Oklahoma more than Oklahoma loves me right now," Saunders said. "We feel very betrayed."

Mark Simmons, current chairman of Simmons Foods and son of the founder who died in 1974, agreed that the Oklahoma lawsuit could adversely affect the business. In 2006 the company slaughtered 2.9 million chickens a week and had total sales of $515 million, according to industry publication Watt Poultry USA.

"Relatively, we have a whole lot more to lose, because we are much smaller as a total company" compared with a giant like Tyson, Simmons said.

"[Edmondson] says that he doesn't want to hurt some old companies, but what he has done is threaten my entire livelihood, as well as [that of] the 4,300 people who work for Simmons Foods, and over 300 growers that work with us."

Simmons Foods is big enough to have a major economic effect on Siloam Springs, where it is the largest consumer of water and electricity.

David Cameron, the city's administrator, said 60 to 65 percent of the city's utility revenue - $11 million a year - comes from industry, "a large part of which is the Simmons plant located there."

About 14 miles north of Siloam Springs, Peterson Farms employs about 1,300 workers at its headquarters and plants in Decatur. It contracts with 171 farms with 624 chicken houses.

In 2006, Peterson registered $128 million in sales and produced5.42 million pounds of ready-to-eat chicken weekly. Eight percent of the growers in the Illinois River watershed contract with Peterson, company officials said.

"The fate of the farmers is directly tied to the fate of the companies," said Scott McDaniel, a Tulsa lawyer who has represented Peterson Farms since 2001. "And if it is no longer economically feasible for the companies to operate, then they don't need the production and the farmers won't have the contracts."

Tyson officials declined to speculate about the impact of the lawsuit on their business, and George's Inc. officials did not return two phone calls to their headquarters in Springdale. In 2005, Tyson contracted with 54.5 percent of the poultry houses in the watershed, and George's had 14.4 percent.

High energy and feed costs have already stressed many contract farmers' finances. Since many are deep in debt, they have no choice but to continue raising chickens.

One way farmers defray costs is by using poultry litter to fertilize their fields, a cheap way to raise grass-fed cattle. But that practice is being hampered by state laws requiring nutrient management plans in Oklahoma and Arkansas, and lawsuits designed to prohibit the practice.

"One of the key issues that's being ignored in the lawsuit is that poultry litter plays an integral part in the agronomic economy in this region," McDaniel said. "So the effect of eliminating the utilization of poultry litter will have far-reaching results."

COLLATERAL IMPACT

When farms fail - either because their contracts are reduced or the processors close down production - many other businesses suffer.

Mike Moss owns independent insurance agency Moss Insurance and Financial Group in Siloam Springs. He's concerned about the outcome of the suit, since 10 percent of the insurance policies he writes are aimed at protecting poultry houses.

"If poultry processors had to curtail their production, obviously that would reduce the number of poultry farmers that could make a sustainable living, [and affect] businesses that sell to the industry," Moss said.

While the poultry lawsuit hasn't had any noticeable effects so far in the financial field, it's a topic that comes up in meetings, one banker said.

"It's a risk. It's been a risk for a long time. It's a risk that we take into consideration when we are assessing our lending to the poultry industry," said Roger Holroyd, executive vice president and senior loan manager at Arvest Bank in Siloam Springs.

Other sectors of the poultry economy also have a lot to lose in the event of a major settlement.

Kendall Proctor, sales manager of 4-State Poultry Supply Inc. in Springdale, said he already has noticed a slowdown in building activity. The company adds water and ventilation systems to new poultry houses, and Proctor confirmed that 100 percent of its business comes from the poultry industry.

"The chicken companies are all taking a wait-and-see attitude, to see what happens over there," he said.

'GOOD FAITH' EFFORTS

Like many people in the region who were interviewed, Mark Simmons believes that the poultry companies, municipalities and growers have made good-faith efforts to reduce their release of phosphorus.

BMP's Inc., a poultry brokerestablished by the poultry companies, has taken more than 120,000 tons of litter out of the watershed in its first two years of business.

Siloam Springs and Decatur have new wastewater facilities in the works - each costing millions of dollars - and farmers across the region have applied for nutrient surplus plans to regulate how much litter can be spread.

Earl Hunton, Jerry Hunton's son, spoke about their efforts to reduce phosphorous releases. According to the Huntons' nutrient plan, they can spread up to 2 tons per acre of litter on their pastures. Each ton is worth between $2 and $5 sold to BMP's. But that doesn't put enough nitrogen in the ground and the Huntons have to supplement with commercial nitrogen fertilizer, at $300 a ton.

Brian Haggard, an associate professor in biological and agricultural engineering at the University of Arkansas at Fayetteville, said efforts by Rogers, Fayetteville and Springdale to reduce phosphorous levels in the effluent of their water treatment plants have shown results. Testing from 2002 to 2006, Haggard concluded there has been a substantial decrease in phosphorous concentrations.

According to Haggard's research, between August 2003 and August 2004, phosphorus concentrations at points in the Illinois River south of Siloam Springs decreased by 44 percent, and in Spring Creek, upstream of the Illinois, some concentrations declined by more than 60 percent.

Despite the decreases, phosphorous concentrations downstream of Springdale remained above Oklahoma's requirements, he wrote. Haggard says that he has no data on whether new farming measures and restrictions in the watershed are curbing phosphorous pollution.

Business, Pages 79, 88 on 10/07/2007

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