SMITHFIELD, Va. – Smithfield Foods, Inc., will cease all pork harvest and processing operations at its parent company Farmer John’s Vernon, Calif., plant in early 2023, citing “the escalating cost of doing business in California” as the reason for exiting the state, company officials announced June 10.

“We are grateful to our team members in the western region for their dedication and invaluable contributions to our mission,” said Brady Stewart, CEO of Smithfield, which harvests only company-owned hogs in Vernon.

In the interim, Smithfield, the nation’s largest pork processor by volume, will focus on reducing hog production in the western region.

Headquartered in Smithfield, Va., Smithfield will start decreasing its sow herd in Utah, and is now exploring strategic options to exit its farms in Arizona and California, company officials said.

However, Smithfield will still service customers in California with its Farmer John brand, and other brands and products from existing facilities in the Midwest.

“The cost there (in California) is a lot higher, and labor is a big part of that,” said Lee Schulz, Iowa State University professor of economics. “It costs a lot more to do business today, especially with (rising) energy costs, which are higher in California than in the Midwest.”

As a result, he said the company will assume that production from somewhere in the Midwest.

“We have excess capacity in hog processing, which is a big change from what we’ve had a couple years ago (with COVID-19),” he said. “(But) we’ve seen inventory start to decline.

“Expanded production is a moving target,” he added. “(Smithfield) won’t have a market impact (with the California plant closing) because (Smithfield) will be able to absorb their mass production. They can do that processing more effectively somewhere else.”

Company officials said Smithfield’s Vernon plant employees will be provided transition assistance to those impacted by the plant closing, including relocation options to other company facilities and farms, as well as retention incentives to ensure business continuity until early next year.

To date, 1,800-2,500 Vernon plant employees are set to be laid off. “We are committed to providing financial and other transition assistance to employees impacted by this difficult decision,” Stewart added.

The company reached an agreement with the United Food and Commercial Workers International Union, the International Brotherhood of Teamsters, and the International Union of Operating Engineers as part of its plan to close the Vernon facility.

“Despite a strong, mutually beneficial relationship with Farmer John employees and their union, Smithfield has decided to exit operations in California,” said John Grant, president of the local chapter of the United Food and Commercial Workers International Union, in a June 10 statement. The group represents the union meatpackers at the Vernon plant.

“A fair agreement that compensates their workers until next year has been reached, and we hope that another operator will take advantage of the highly-trained and stable workforce that makes the Farmer John plant a productive and profitable part of Vernon’s packing infrastructure,” he added.

Currently, Smithfield provides more than 40,000 American jobs at 46 facilities, and nearly 500 company-owned farms, including 17 in California.

The decision to close the plant comes nearly six months after California’s Proposition 12, which became effective Jan. 1.

Adopted in 2018, the mandate prohibits the sale of pork from hogs born to sows – anywhere in the world – not raised by the state’s arbitrary housing standards, which also applies to any uncooked pork sold in the state, whether produced there, or outside its borders.

Steve Meyer, lead swine economist for Partners for Production Agriculture in Ames, Iowa, said, “I’m sure it is more so in a post-pandemic world, but the vagueness and timing of Smithfield’s statement leads me to believe that the last straw is Proposition 12.

“Smithfield has been in a pickle over what to do about the Vernon plant and Proposition 12 since the measure was adopted in 2018,” he said. “The plant sends products to both export and domestic (primarily California) markets. Earlier company statements indicated a willingness to just export product from the Vernon plant, thereby foregoing the need to convert the western operations to Proposition 12-compliant housing.

But exporting everything produced in that plant is unlikely, and the question always was whether shipping non-compliant pork out of a California plant to other states really made much economic sense.”

On June 13, the American Farm Bureau Federation (AFBF) and the National Pork Producers Council filed a brief with the U.S. Supreme Court, challenging the constitutionality of California’s Proposition 12.

In the brief, the two national farm groups argued Proposition 12 violates the U.S. Constitution’s Commerce Clause, which restricts states from regulating commerce outside their borders.

According to their joint brief, “Proposition 12 will require massive and costly changes across the entire $26-billion-a-year industry. And it inescapably projects California’s policy choices into every other state, a number of which expressly permit their farmers to house sows in ways inconsistent with Proposition 12.”

Zippy Duvall, AFBF president, said, “California is attempting to set the rules for the entire country. Farmers are dedicated to caring for their animals, but this misguided law inhibits efforts to provide them a safe environment.

“Almost all of the pork consumed in California is produced outside of its borders,” he added. “This law has the potential to devastate small family farms across the nation through unnecessary and expensive renovations, and every family will ultimately pay for the law through higher food prices.”

Ultimately, Meyer said Smithfield’s Vernon plant closing will impact the U.S. pork sector four ways.

“First, it means nothing very quickly,” he said. “Smithfield’s announcement said it would cease all operations at the plant in early 2023. That implies that no processing operations will continue, and puts the impacts into next year.

“The challenge in closing a slaughter plant is keeping workers and hog supplies right up to the end,” he added. “Smithfield will face a worker retention challenge, but since it supplies the hogs itself, the hog supply issue will not likely be problematic.”

He said, “Second, reports are that the company will reduce the Utah operations by about two-thirds, meaning that some animal flow currently going to Vernon will survive the reductions and, presumably, move to the Western Cornbelt, most likely as weaned pigs for feeding nearer corn and other Smithfield plants.

“Reducing packing capacity by 1.5 percent and pig production by 0.5 to 0.8 percent obviously leaves some increase in the number of hogs available in the rest of the country,” he added. “Those hogs will eventually move to Smithfield plants, and they will likely displace some hogs currently purchased through marketing contracts. Smithfield buys very few pigs in the open, negotiated market.”

He said, “Third, the reduction in total slaughter capacity will not amount to 1.5 percent from last year’s level due to some capacity increases driven by chain speed waivers.

“The Vernon closing would put that number at 481,940 (head per day), but chain speed waivers at four plants (Hatfield, Pa; Coldwater, Mich.; Fremont, Neb., and Austin, Minn.) will add about 4,130 head per day, making the net loss to the fall of 2022 only 3,170 per day,” he said.

“That makes projected daily capacity for the fall of 2022, 486,070 head, and weekly capacity based on 5.4 workdays, 2.625 million head,” he added. “Those forecasts, of course, could change when the USDA’s Quarterly Hogs and Pigs Report is released on June 29. But, at present, I don’t think we will be in a significant bind for capacity this fall.”

He said, “Fourth, it puts California in even more of a pickle regarding Proposition 12-compliant pork. Most had assumed that the 70,000 Circle 4 sows (from Circle Four Farm in Milford, Utah) would definitely be part of the 650,000 or so sows needed to supply pork to California consumers under the new law.”

He added this move means “someone else will have to convert those sows if Californians are to get all the pork they have consumed in the past. I don’t think there is any guarantee at all that that will happen, especially if packers continue what appears to me to be low-ball price offers to producers considering sow farm conversions.”

Finally, he said, the Vernon plant closing further limits future expansion possibilities.

“‘Where will the pigs be harvested and processed?’ remains a major question facing any expansion of the U.S. pork sector. There are a number of others, of course, but that one is sort of the ultimate roadblock at present.”