2023-09-05 14:26:00
These were supposed to be boom times for Pederson’s Natural Farms.
In the days this spring following the Supreme Court upheld a California law banning the sale of certain pork products made from pigs raised in small gestation pens, the phones were ringing off the hook at Pederson’s headquarters in Hamilton, Texas.
California grocery stores and restaurants were desperate to line up supplies of bacon and pork chops that met the new state standards by a July 1 deadline. Pederson’s products filled the bill, and the company was happy to help send them to California, which consumes regarding 15 percent of the nation’s pork.
“We were going to have a good year,” said Neil Dudley, the vice president at Pederson’s. “We were putting it in the budget. We were going to put pressure on us to grow, but the extra income would help fund that growth.”
But a couple of weeks later, some of those new orders were canceled as California regulators pushed back the full force of the law, known as Proposition 12, to early next year, allowing grocery stores and restaurants to use up pork they had already bought
The normally orderly pork industry has been thrown into upheaval as pig farmers in the Midwest, major pork processors and California businesses have reacted to the changing legal and regulatory landscape in recent months. Further confusion might come if Congress passes pending legislation that would effectively nullify the California act.
“There is so much murky water here,” said Todd Davis, the meat and seafood coordinator for Oliver’s Markets, which operates four grocery stores in Sonoma County, Calif., and has lined up pork products that meet the new state requirements.
“You are supposed to be compliant as of July 1, but I don’t think the state has any teeth on the enforcement side of things,” Mr. Davis continued. “Companies aren’t taking it as seriously as they should, and at some point the state will make an example out of one of them,” which he said might include costly fines.
Already, farmers are facing hog prices that have been depressed since fall while feed costs have remained high, leading to average losses of $30 to $50 a hog for much of this year in Iowa, according to estimated livestock returns from Iowa State University. A pound of bacon costs an average of $6.20 at grocery stores across the country, down from $7.60 last fall, according to data from the Federal Reserve Bank at St. Louis.
Nationally, pork prices are influenced by everything from feed cost to demand from China to the shifting mood in commodities markets, but some retailers are already raising prices in California, to pass on the higher cost to hog farmers of meeting the state’s more stringent standards. With other farmers opting not sell in the state, short supply might also push the prices of bacon and pork chops higher.
Pig farmers say making changes for California is costly. Along with his partners, Dwight Mogler, a fourth-generation farmer in Iowa who sells regarding 200,000 hogs each year, spent $8.7 million in 2022 building a new facility and modifying an existing one to meet the new standards. A packing company pays him a small premium over market price for his pigs — he declined to provide details of the deal — but Mr. Mogler estimates that it will take 10 years to recoup his outlay.
Other farmers say they’re simply not going to modify how they raise pigs.
“We’re losing money in the pig industry,” said Trish Cook, the president of the Iowa Pork Producers Association, who, along with her family, raises pigs near Winthrop in eastern Iowa. “The idea of having a large capital expenditure with no clear payback on it doesn’t make business sense to us. We don’t know what sort of premium those pigs will get.”
For California, questions regarding whether consumers will have enough bacon and pork chops and how much they will cost also remain unclear.
Ronald Fong, the chief executive of the California Grocers Association, which pushed for an extension of the deadline, said stores were able to make it through Labor Day with the product that they had already bought. However, Mr. Fong said that soon “we’ll be faced with some shortages and price hikes.”
Mr. Davis of Oliver’s Markets said he already bought pork from Niman Ranch, a producer that exceeds the California criteria, but had also always offered customers less-expensive pork options. Now, the cheaper pork that meets the new state criteria, from Open Prairie Natural Meats, a brand owned by Tyson, costs Oliver’s $1 to $1.50 a pound more, which Mr. Davis is passing along to customers, he said.
“Chicken and pork are still very affordable options, especially when compared to beef prices,” Mr. Davis said. “So we’ve seen very little pushback from consumers.”
When voters passed Proposition 12 five years ago, it was a blow to the industrial meat producers, requiring that any veal calves, breeding pigs and egg-laying hens sold in California be housed in systems that allow freedom of movement. Under the rule, pigs must be born to sows housed in spaces that provide at least 24 square feet per sow. California produces very few of its own pigs, but the new rule also applies to pigs raised in other states.
The law was supposed to go into effect in 2022, but the new pork standards were put on pause following the National Pork Producers Council and American Farm Bureau Federation filed a lawsuit challenging California’s ability to dictate pig operations in other states. They argued that if other states adopted different restrictions, the result would be a patchwork of rules and regulations. Massachusetts, for instance, passed its own gestation pen rule, called Question 3, in 2016, but it has been on hold, awaiting various court proceedings.
In May, the Supreme Court ruled 5 to 4 that Proposition 12 was legal. It said the pork industry had not proved that the law imposed a substantial burden on interstate commerce. California officials began working through how to regulate and enforce the rule, but a state court delayed enforcement until the end of the year.
And the pork industry isn’t done fighting. In June, senators from largely agricultural Midwestern states introduced the Ending Agricultural Trade Suppression Act, which would limit the ability of states to regulate agriculture in other states.
In early August, attorneys general from several states, including Texas, New Hampshire and Utah, signed a letter urging Congress to pass the EATS Act.
“The industry lost in the court of public opinion in terms of California voters adopting this law, they lost in the courts, and now they’re trying to get something through with this legislative act,” said Chris Oliviero, the general manager of Niman Ranch, which pays its network of 600 farmers in 20 states premium prices to raise the beef, pork and lamb used in its products in conditions that exceed the California standards.
“The ultimate goal is to prevent Prop. 12 from going into effect,” Mr. Oliviero added.
As for Pederson’s, much of the pork it produces is already committed to a handful of longtime customers, including Whole Foods. The company did, however, have excess bacon that met the new standards.
That is, until one of the farmers who supplied half of the pigs used by Pederson’s received a better offer from a larger company. Suddenly, Pederson’s pig supply was at risk.
“Farmers, who are struggling to make money, are getting calls from the big guys, saying they want to contract with them,” Mr. Dudley said. “The big players can’t lose market share, not in a market as big as California. Instead of a boom year, we’re now looking at diminishing sales.”
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