Speak Your Piece: The Corporation Next Door

Major “farrow-to-feeder” hog corporations hide their identity in a shell game of limited liability corporations. The practice protects the assets of large corporations at the expense of rural communities.

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EDITOR’S NOTE: This article first appeared in Food & Power, an online publication that covers economic concentration and monopolies. Publication manager Claire Kelloway is a policy analyst for Open Markets Institute, which publishes Food & Power.

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Many rural residents – including many farmers – do not want large concentrated animal feeding operations (CAFOs) in their communities, as evidenced by a growing number of efforts to halt new CAFOs or sue them for environmental damage. But a newly popular corporate structure for hog production makes it increasingly difficult for residents to even determine who owns a CAFO let alone seek justice through civil suits.

The new model leverages the legal privileges of limited-liability corporations (LLCs) to shield CAFO owners from lawsuits and other forms of public action. Large hog corporations, particularly “farrow-to-feeder” operations that raise sows and breed piglets, will set up multiple CAFO LLCs under different names to disperse assets, minimize the impact of litigation, and hide the identity of each individual CAFO’s connection behind a byzantine corporate network.

“Rural communities are facing LLCs with innocuous names like Shamrock Acres or South Morgan LLC … it’s a great way to stifle community knowledge about who is behind the facility,” says Loka Ashwood, co-author of  a 2014 paper in Rural Sociology that outlines this “folding corporate” model of hog production. “If that individual LLC goes bankrupt [due to a lawsuit] the investors keep their money, and the rural communities don’t get the dollars that they need.”

In the Midwest, large complex “folding corporate” conglomerates, not vertically integrated meatpackers, run much of the piglet breeding business. Hog farmers either invest in or contract with a hog breeding corporation that raises feeder piglets for farmers and works with large processors, like Smithfield and Tyson, to help farmers’ sell their fattened hogs. These relationships can look very similar to contract farming, though some models allow farmers to own their hogs.

In a “folding corporate” structure, private hog corporations layer multiple LLCs to disperse assets and therefore risks, and shield their owners’ identity. They may set up one LLC to run their veterinary research, another to hold their capital, and several individual LLCs to run their various farms and manure spreading businesses. LLC owners are not personally liable for company debts or legal judgments. If someone sues an LLC for say, spilling manure into a nearby stream, the resulting damages or even bankruptcy typically will not affect its owners’ personal finances.

As a result, if any one CAFO LLC or manure applicator triggers a public nuisance lawsuit, the individuals or entities that own these operations have liability protection. In some cases, CAFO LLCs lease their buildings from a separate asset-holding LLC, meaning the CAFO technically does not own major assets to forfeit in a suit, limiting plaintiffs’ ability to obtain compensation.

Ashwood – and her co-authors Danielle Diamond and Kendall Thu – use the case study of Carthage Management System to demonstrate how these legal protections let polluters off easy and harm rural communities. The Illinois Attorney General and Illinois residents have sued several of Carthage’s LLCs in separate pollution violation and civil nuisance cases. The civil suit, in particular, targets one of Carthage’s central overarching LLC’s, Professional Swine Management (PSM) and could result in a multi-million dollar fine for foul odor and improper manure spreading. According to an affidavit signed by PSM’s vice president, losing this suit would “likely force PSM out of business.”

Despite this threat, PSM and Carthage’s business actions show no sign of concern. That same year, PSM applied to open four new $10-million CAFO LLCs. Even if PSM does declare bankruptcy, PSM investors and owners will not lose profits because their assets are protected under limited liability. Further, the article suggests “it is probable that PSM as a management company does not hold any assets.” Thus, Carthage and its owners have little incentive to improve their management and reduce legal risk because they can preserve their capital and simply build new facilities elsewhere when one thinly-capitalized LLC goes bankrupt.

By contrast, two landowners are also implicated in the civil suit because they gave Carthage rights to spread manure on their land. But unless these landowners also incorporate as an LLC, they can be personally liable for any pollution resulting from the CAFOs manure management, putting neighbors who cut manure application deals with CAFOs at great financial risk.

Further, LLCs often do not have to identify their owners. An LLC could be made up of anything from two business partners to hundreds of individuals, foreign investors, corporations, and other LLCs. In their articles of incorporation, most states don’t require an LLC to list all owners and investors.

For instance, Carthage Management Systems’ 26 CAFOs provide feeder pigs for over 300 farms in six Midwestern states. The entities are financed, in part, by farmers, but they are run entirely by hired laborers (employed through yet another LLC). Ashwood argues that this challenges notions of what constitutes a “family farm,” because the farm families funding these operations have little stake in the communities where the CAFOs operate.

“The whole privileging of the farmer in America has often been because of their capacity to bring back money locally and sustain economies in rural communities,” says Ashwood. “This [system] doesn’t do that.” Ashwood acknowledges that incorporation does have the potential to protect independent farmers, but as it stands, these legal structures largely serve to create “advantages for people who want to extract from rural America and make money, and that’s a huge problem,” she says.

Reprinted with permission.

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