SALTER: SBA poultry loan review shines bright light on industry’s role in Mississippi economy

By: Sid Salter

The ancient creation dilemma is based on determining which came first, the chicken or the egg? But in 2018 agri-business government lending, the current dilemma is more accurately based on which comes first, the independent poultry grower or the corporate poultry integrator? 

The answer is complex and that complexity is based in great measure on how important the industry is to Mississippi’s economy. Are the growers truly independent or agents of the companies? That political and business debate has raged for years and is still volatile.

Becoming a contract grower for a poultry company is expensive. Building a broiler house to get into the business of raising chickens is at best about a $300,000 to $350,000 proposition. Small Business Administration loans have become an integral financing options.

But an SBA Office of the Inspector General (OIG) report earlier this year threatened that financing option and thereby the viability of the state’s poultry industry. The proposed rule stirred Mississippi GOP Sens. Roger Wicker and Cindy Hyde-Smith to directly challenge the Trump Administration’s SBA leadership in a Nov. 19, 2018 letter.

According to the agricultural newsletter Feedstuffs, the Mississippi senators in their letter “were sharply critical of a March 6, 2018, SBA Office of the Inspector General (OIG) report, titled “Evaluation of SBA 7(a) Loans Made to Poultry Farmers,” which inaccurately found that large producers, or integrators, maintain control over independent operators and should, therefore, be considered “affiliates” of the larger companies that buy their chickens. 

“As affiliates, small farmers, who are actually independent registered businesses, would be deemed too big to participate in the SBA loan program. The proposed rule is based on the flawed OIG report.”

So why would Wicker and Hyde-Smith challenge the SBA report?

The Mississippi State University Extension Service reported earlier this month that for the 24^thconsecutive year, poultry remains Mississippi’s leading agricultural commodity with production values estimated at over $3 billion – including $2.7 billion in broiler production and $304 million in egg production. The chickens that produce table eggs account for $8 million in value.

A 2016 economic impact report commissioned conducted by John Dunham & Associates found that in Mississippi alone, the poultry industry generated as much as $18.36 billion in total economic activity that created or supported an estimated 72,153 total direct or indirect jobs paying an average of $54,143 in wages and benefits.

Mississippi is the fifth largest poultry producing state in the nation at over 738 million birds on what the Mississippi Poultry Association lists as about 1,900 poultry farms in the state. Of the world’s top 10 poultry companies, three – Tyson Foods, Koch Foods, and Sanderson Farms – operate in Mississippi. The state trails only Georgia, Alabama, Arkansas and North Carolina.

The 2016 NCC report cited Mississippi poultry industry generated $914 million in federal taxes and $481 million in state and local taxes.

In their letter to SBA administrator Linda McMahon, Wicker and Hyde-Smith urged that a proposed rule to the SBA 7(a) Loan Program be changed to more accurately reflect the relationship between small contract growers and large producers, commonly referred to as integrators. Wicker and Hyde-Smith told McMahon that the SBA is a vital source of financing for many Mississippi poultry farmers.

“These independent poultry farmers are solely responsible for obtaining financing, supervising, managing day-to-day business and paying taxes. In no way are they partners, agents or employees of the integrator. The SBA 7(a) loan program provides essential access to financing for small family farmers,” the senators wrote.

“Access to capital is essential to the continued success of poultry production in Mississippi, and we respectfully request that you revise the SBA proposed rule so growers are not arbitrarily excluded from the SBA 7(a) loan program,” they said.

The SBA was receiving public comment on the proposed changes through Dec. 18. Expect the issue to continue to gain the attention of Mississippi’s congressional delegation during the 116^thCongress.