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May 13, 2006
Hog Manure Fertilizes Improvements in Environmental Management at Smithfield Foods
    by Bill Baue

Fines for Clean Water Act violations and a lawsuit settlement spur Smithfield to clean up its act and move toward environmental leadership, but it still has a way to go to complete a turnaround.


Hog manure stinks something fierce, but it makes great fertilizer. The environmental management of hog manure before the early 2000s by Smithfield Foods (ticker: SFD), the largest producer of hogs and processor of pork in the US, quite literally stunk, but the company's improvements since then have been fertile.

Smithfield has faced environmental problems for over a decade. In 1997, the US Department of Justice levied a $12.6 million fine (the largest civil fine in a Clean Water Act violation at that point) against Smithfield for discharging illegal levels of fecal coliform and other pollutants into the Pagan and James Rivers leading to the Chesapeake Bay. Last month, the Smithfield facility that received the fine entered the Environmental Protection Agency (EPA) Performance Track program, which recognizes facilities for significantly improving environmental performance. And last year, the facility was amongst others at Smithfield to receive Governor’s Environmental Excellence Awards in Virginia.

Earlier this year, Smithfield settled two lawsuits filed in 2001 by the Waterkeeper Alliance alleging Clean Water Act violations involving manure from hog farms run by subsidiary Murphy-Brown. Waterkeeper believed waste was escaping from storage lagoons and polluting the Neuse River in North Carolina.

"We are pleased that Smithfield and Murphy-Brown are taking positive steps to make Murphy-Brown operations more protective of the environment," said Robert Kennedy, Jr., president of Waterkeeper Alliance and son of the slain senator.

Do such developments as this settlement and the reforming of specific facilities represent a true turnaround for Smithfield?

"I would say Smithfield is attempting a turnaround, but the company is far from 'there' yet," said Andrew Brengle, senior analyst at KLD Research & Analytics, which provides socially responsible investing (SRI) indexes and corporate social responsibility (CSR) ratings. Smithfield has never qualified for the KLD Domini 400 Social Index, according to Mr. Brengle. "Smithfield's rating at KLD won't change strictly because of the settlement, but rather will depend on sustained and genuine changes in the way it conducts its business--this could take some years."

"Smithfield hired the former head of Virginia's Department of Environmental Quality to clean up their environmental performance, which is positive, and the company's recent activities are starting to show some results--water conservation, power generation from animal waste methane, ISO 14001 certification, and decreases in certain emissions," Mr. Brengle told SocialFunds.com. "But the issues that come with factory farming--large waste lagoons, antibiotics, humane treatment of livestock, and impacts on small-scale farming communities--continue to play out."

Dennis Treacy, the vice president for environmental, community, and government affairs at Smithfield who Mr. Brengle was referring to, frames Smithfield's progress differently.

"When Smithfield brought me in about four years ago for environmental reasons, they indicated to me they not only wanted to turn things around, but to become an environmental leader, and that's exactly what they've done," Mr. Treacy told SocialFunds.com. "And we just got listed on the FTSE4Good Index--quite a change for a company that was much maligned in the '90s."

Mr. Treacy also points to many of the environmental leadership practices contained in the Waterkeeper settlement, which calls for comprehensive groundwater risk assessment, monitoring of surface water runoff, and a $1.2 million upgrade to pollution control measures. The settlement also calls for improvements to how the company sprays liquid manure for irrigating and fertilizing fields.

"We're deploying a Doppler weather radar like they use on the evening news to let us know when rain events are coming toward particular farms," he explained. "In the southeast, we get a lot of thunderstorms in the summer--it might be raining hard, but a mile away it might be sunny, so instead of shutting down our entire operations any time there's a hint of rain within a hundred miles, we've deployed this new system that actually forecasts where the most likely rain showers will occur, we spot that by computer, and then call the farm manager to shut down the irrigation system before the rain even arrives."

"People were concerned about wind drift, so we agreed to have a meter that would actually shut down the irrigation system if the wind is gusting at more than 15 miles per hour," Mr. Treacy added. "No one's ever done that, to my knowledge."

Smithfield also voluntarily extended the scope of the settlement to the four farms covered in the lawsuits to all 275 hog farms the company operates in North Carolina.

"We could have settled with them on just four farms, but we wanted to go ahead and extend it across the board," Mr. Treacy said.

Mr. Treacy feels confident that Smithfield is pushing best practice on environmental management by playing a leadership role in its industry.

"We're trying to run our own programs beyond compliance--we've essentially become our own environmental police," he said. "We have many projects under way that both make environmental improvements and save our company money."

"The thing that leadership gives you is certainty," he added. "We know where we're going, and we don't fear what's under the next rock anymore."

This is not to say that there are no longer potential problems lingering under the rocks.

"The company is experiencing opposition in Europe, mainly Poland and Romania, from small-scale farmers and host governments reacting to the way industrial farming changes local farm economics--primarily for the worse," said Mr. Brengle of KLD. "Also, the company continues to exert influence on government, especially in North Carolina, to resist stronger environmental laws and regulations as well as antitrust enforcement."

 

 
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