The U.S. pork industry lost 2.5% of its packing capacity overnight when a federal court ruling to slow line speeds at six packing plants took effect June 30.
Now, the industry finds itself in the midst of a number of unintended consequences of the ruling that are detrimental to both hog farmers and workers at pork packing plants, according to Dermot Hayes, Pioneer chair of agribusiness at Iowa State University.
Ag groups, as a result, continue to urge the Biden administration to appeal the damaging court ruling before the Aug. 31 deadline for such a measure.
Hayes consulted with managers of the six packing plants affected by the decision – located in Illinois, Michigan, Minnesota, Nebraska, Oklahoma and Pennsylvania – and noted three plants’ contingency plans include the addition of an extra Saturday shift or adding two hours to regular shifts for plant workers, pushing each shift from eight to 10 hours.
“There’s a thing called the law of unintended consequences in economics,” Hayes told the RFD Radio Network. “I don’t think the judge understood that. It (the decision to slow line speeds) is not good for worker safety” as many now face mandatory overtime or extra shifts.
The plants targeted by the ruling operated at faster harvest facility inspection speeds under a pilot program of the New Swine Inspection System (NSIS), dating back to the Clinton administration. NSIS was approved for industry-wide adoption in 2019. But a legal technicality put NSIS on hold this year.
Processing capacity is critical for the pork industry as it deals with growing demand, particularly from the export market.
“Nationwide, we have an issue in the beef industry and something similar is happening here,” Hayes said.
“Taking away 2.5% of (pork processing) capacity takes market power away from independent producers and gives it to packers as their resource, packing plant capacity, becomes scarce.”
The three plants affected by the ruling outside the Midwest lost up to 25-30% of capacity.
“It means there will be a surplus of market-ready hogs in those areas,” Hayes said. “Those hogs will have to move to the Midwest. It costs a lot to move hogs hundreds of miles and it’s not great for (animal) welfare, either.”
Hayes, who released a study on the market impacts of the ruling this spring, also believes some plants will now cancel contracts due to the capacity crunch.
Farmers with the highest risk of losing contracts are independent producers with less than 1,000 sows.
“I’m watching the number of pigs we need to (process) each week relative to the new, reduced capacity.
“The scary time might happen if we have weeks we exceed capacity,” Hayes said. “At that point, the whole industry suffers and the spot price of hogs will fall.
“We had that happen in 1998 and during COVID,” he noted. “Now, it’s not nearly as big of deal as those two periods, but the issue is the spot price of all hogs will fall if we exceed capacity.”
Hayes believes this fall could look similar to the fall of 2019 for hog farmers if an appeal doesn’t overturn the ruling before Aug. 31. Hog prices that year stalled, due to capacity issues, despite an influx of purchase orders from China and other destinations.