Feud erupts among pork industry’s family friends

 In January 2021

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A Wayne County lawsuit provides an unusual look inside the multibillion-dollar global pork trade and exposes a rift among old eastern North Carolina farming powerhouses.

For more than 25 years, Goldsboro-based Maxwell Foods provided as many as 155,000 hogs a month to Smithfield, Va.-based Smithfield Foods, the world’s largest pork producer. But in a lawsuit filed this summer, family-owned Maxwell says Smithfield took advantage of the partnership through a series of deceptive acts, including paying less than agreed-upon prices.

The broken relationship played a role in Maxwell’s August decision to exit the hog industry in which it once was among the nation’s largest producers. The company has about 120 contract farmers and expects to shut down its hog production in mid-2021, citing financial losses.

Maxwell Foods attorney Reid Phillips says the company, which is a subsidiary of Goldsboro Milling, had no comment beyond the legal filings. They paint a scenario in which Smithfield, Maxwell and a handful of other major Tar Heel pork producers quietly cooperated to sway hog production and prices for 25 years.

The state ranks second to Iowa in pork with more than $2 billion in sales of hogs in 2019, according to the U.S. Department of Agriculture. The Maxwells have been influential N.C. farmers since at least 1916, when Hugh Gillespie Maxwell Jr. started selling livestock feed, later branching into turkeys and hogs. Goldsboro Milling’s holdings include a 50% stake in the Garner-based Butterball turkey brand, which posts annual sales of more than $1.8 billion. Merriam, Kan.-based Seaboard Foods owns the other half.

Keira Lombardo, a Smithfield executive vice president, denies Maxwell’s allegations, noting that all facets of the pork industry have been hurt by the coronavirus pandemic with ensuing restrictions, plant closings and other consequences. Smithfield and companies like Maxwell have been affected by nuisance lawsuits filed by neighbors of hog farms and international trade disputes, she notes.

In a mid-November ruling, a federal appeals court in Richmond upheld a jury verdict against a Smithfield affiliate’s hog operation in Bladen County that neighbors contended made their homes and property unusable because of the odor. However, the judges also said multimillion-dollar awards aimed at penalizing the business for wrongdoing needed to be reconsidered.

Smithfield had lost five such cases, including one in which jurors awarded neighbors $94 million in damages, mainly because of the intense smells coming from hog-waste lagoons. The U.S. Court of Appeals for the 4th Circuit ruled that the punitive damages were excessive. Then Smithfield settled the cases out of court after years of litigation. Financial terms are secret.

Smithfield, which is owned by Hong Kong-based WH Group, had succeeded in getting the Maxwell Foods lawsuit moved from Wayne County to a federal court. That decision is now being reviewed. “The contract says any dispute should be litigated in state court,” Phillips says.

That contract and the current dispute shed rare light on the usually closed workings of a major N.C. industry. The lawsuit describes how, in 1994, Smithfield, Murphy Family Farms, Prestage Farms, Carroll’s Foods and Maxwell Foods formed what they called “The Circle” to discuss trends affecting the pork industry, prices and other issues.

Within five years, Smithfield clearly occupied the head of the table, having bought out the state’s second- and third-largest producers, Murphy and Carroll’s, the latter for $500 million in 1999, the lawsuit says. Maxwell and Prestage remained but were much smaller operators. In 2013, WH Group bought Smithfield’s shares for nearly $5 billion and now controls about a quarter of the U.S. pork-processing market.

Maintaining a stable of contract growers is common in the pig business, but most North Carolina hogs ultimately go through Smithfield sites in Clinton, Smithfield or Tarheel (home to the largest pork-processing plant in the world). Clinton-based Prestage, which also is family-owned, has sidestepped Smithfield recently by shipping some hogs to a new plant in Iowa. That has left Maxwell in a weaker competitive position.

In the early years of The Circle, Smithfield agreed to pay producers a price determined by a formula based on auction bids for hogs in the Midwest, according to the lawsuit. Over the years, a new formula based on prices available for cuts of a hog — pork chops, tenderloin and so forth — took hold.

Maxwell contends Smithfield continued paying the old rate until the N.C. company asked to renegotiate the deal in 2016, when it was rebuffed. Maxwell claims Smithfield also cut the number of hogs it was buying by half, and it learned in mid-2019 that Smithfield was paying other suppliers more, despite a contract agreement that it would be paid the same.

Smithfield’s Lombardo calls the dispute “regrettable” and says the essence of Maxwell’s complaints boil down to low livestock prices “from which we have also suffered.” ■

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