Texas Farm, a hog producer based in based in Perryton, Texas, became the latest company to sue the state over the law earlier this month. The law is designed to keep large corporate meatpackers from controlling livestock farming, a practice known as vertical integration, but the company says it unconstitutionally protects local businesses.
Iowa farmers lead the nation in pork production. Several other large agriculture states have similar laws that also have been challenged.
Iowa Attorney General Tom Miller said he signed an agreement that protects the state's farmers but also allows the company to operate and expand in Iowa. Among other things, the settlement ensures local farmers can file complaints to authorities about improper actions or violations by the company.
Texas Farm spokesman Corby Barrett confirmed the agreement, saying the company was looking forward to working with Iowa businesses.
"We at Texas Farm, like other pork producers who have entered in decrees with the state of Iowa, are pleased that we were able to come to an acceptable resolution with the state," he said in a written statement.
The agreement is similar to others Miller has signed in recent years with about half a dozen companies.
Advocates of such laws say that if corporate processors are allowed to control production, they also could control prices of the animals and the packaged meat sold in grocery stores. That, they argue, would result in higher prices to consumers and lower prices for Iowa farmers raising the animals.
But meatpackers have challenged those laws. Iowa alone has been sued by Smithfield Foods, Cargill, Hormel Foods, Tyson Fresh Meats, Christensen Farms Midwest and AgFeed Industries.
All the cases alleged that the state's law violated the commerce clause of the U.S. Constitution, which says the federal government regulates commerce and when states enact laws that conflict with that authority, federal law prevails. The clause also has been interpreted to mean states may not pass laws that discriminate against out-of-state businesses in favor of those in the state.
Miller's agreements have assured the companies that Iowa will not enforce the law against them but will allow them to contract with Iowa farmers to provide them with animals for slaughter, as long as the companies agree to certain guarantees for farmers.
Iowa's law was passed in 1987, but was struck down by a federal judge in a lawsuit by Smithfield Foods Inc. in 2003. Judge Robert Pratt concluded that the law discriminated against interstate commerce, marking only the second time that a state law of its kind had been found unconstitutional.
But lawmakers amended the law as an appeal of Pratt's ruling was pending, which prompted the appeals court to rescind Pratt's ruling and order him to consider the changes. Then before Pratt could rule again, Miller reached an agreement with Smithfield—setting the stage for the future agreements.
The year before Smithfield sued Iowa, the South Dakota Farm Bureau Inc. led a lawsuit to challenge a similar law approved by South Dakota voters. A federal judge found that state's law violated the U.S. Constitution.
A decision striking down a similar Nebraska law was upheld by the 8th Circuit Court of Appeals in 2006. Missouri and North Dakota have successfully fought back challenges to their laws. Kansas, Minnesota, Oklahoma, and Wisconsin—the only other states with such laws—haven't faced challenges.
Eric Tabor, Miller's chief of staff, said Iowa is the only state that resolved the conflict with the meatpacking industry by signing consent agreements. He said it avoids lengthy and costly litigation, gives hog producers protections, and maintains at least some competition.
It also gives meatpackers access to Iowa, which as of March 1, had more than 20 million hogs and pigs on farms—nearly a third of the nation's total inventory.
"We think that this is fair for both sides," Tabor said. "The processors can come in and take advantage of the benefits we have for pork production in Iowa—a lot of grain and a lot of talented producers—but at the same time the folks who are feeding hogs out there are treated fairly."
Contract farming in the pork industry spread rapidly over the past two decades as the major pork suppliers in the United States consolidated and sought a reliable supply of pork and price stability. The industry has increasingly turned to contract production in which farmers sign multi-year contracts to provide a specified number of animals to a buyer at a specified price.
Iowa legislative leaders agreed in writing to allow Miller to sign the consent agreement with Smithfield, Tabor said. In turn, Smithfield dropped its legal challenge and agreed to the contract provisions that offer farmer protections.
Before each of the subsequent agreement were signed with other meatpackers, Miller's staff informed legislative leaders and the governor's office and they've agreed to continue the arrangement, Tabor said.
The agreements with the meatpackers expire in 2015. Tabor said a decision on how to deal with the industry hasn't yet been made.
"We're thinking that through. We'll need to talk to legislative leaders and we'll need to talk to the industry," he said. "I can't say for certain but I think our hope would be to extend the agreements."
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