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Premium Standard Farms

Regrouping after bankruptcy manure spills and now new owners.Less than two years ago, the future of one of the nation's 10 largest hog operations looked dim. Plagued by rumors, the worst was realized when the company sought protection under Chapter 11 of the Federal Bankruptcy Code on July 2, 1996.Premium Standard Farms (PSF) of Princeton, MO, emerged from bankruptcy just 77 days later. And, as promised

Regrouping after bankruptcy manure spills and now new owners.

Less than two years ago, the future of one of the nation's 10 largest hog operations looked dim. Plagued by rumors, the worst was realized when the company sought protection under Chapter 11 of the Federal Bankruptcy Code on July 2, 1996.

Premium Standard Farms (PSF) of Princeton, MO, emerged from bankruptcy just 77 days later. And, as promised during the protection period, PSF paid all vendors and employees on time. Production from their 105,000 sows did not change.

What did change was a conversion of about $400 million in debt to equity. Under the restructuring, Putnam Investments, a high-yield fund, became the largest shareholder in the company and Morgan Stanley, a New York investment bank, emerged the second largest shareholder.

Today, PSF continues its business as usual. Only now, it enters a new era. In mid-April, majority ownership changed hands. Continental Grain Company purchased a 51% majority interest in PSF and took over the reins.

What's happened at PSF since the bankruptcy and until the new ownership took over shows a determined effort to shore up operations and run a clean environmental act.

The media spotlight has shone on PSF many times throughout its 10-year history. Founders of the company, Dennis Harms and Theodore Gordon, Jr., hit the spotlight even before breaking ground. Their efforts to locate the hog operation in Iowa drew controversy. This spurred the owners to settle in northern Missouri.

In 1988, Premium Standard Farms began construction on the farms that grew to 83,000 sows in Missouri. They later purchased an existing hog operation in Texas. Today, that hog farm houses 22,000 sows. PSF owns everything on their farms, farrow-to-finish.

Most of PSF was built prior to the advent of segregated early weaning. Pigs are weaned from farrowing-nursery sites and moved to grower-finisher sites.

All sows are bred by artificial insemination. PSF built the largest boar stud in North America with 650 boars and an expansive, high-tech laboratory.

PSF also constructed a pork processing operation in Milan, MO. It processes 7,000 PSF-produced hogs daily. The plant is one of three pork facilities in the U.S. certified to provide pork to the European Union. Every carcass is trichina-tested; all tests have been negative.

PSF has 2,200 employees - 1,100 at Missouri farm sites, 900 at the processing plant and 200 at the Texas farm site.

Changing Leadership The original dream of Harms and Gordon was to produce pork from hoof to plate. Today, the company is doing that, but under different management. Gordon left PSF after the bankruptcy. Harms is no longer CEO after the change in ownership. His plans are unknown.

Instead, John Meyer, vice president and general manager of Continental Grain's Pork Division, is the new chief executive officer. Continental Grain owns about 20,000 sows on other farrowing sites in northern Missouri. The company also has hog operations in Iowa, North Carolina and Kansas but these are separate from the Continental/PSF arrangement.

Robert "Bo" Manly, who moved from Smithfield Foods in Virginia to PSF a year ago, will continue as PSF president.

"By and large, it should be a pretty seamless transition," reports Charlie Arnot, vice president of communications and public affairs. He expects additional changes will occur, probably in administration, as duplication is eliminated.

"But both companies will continue to look for good production and processing people all the time," he adds.

Public relations at PSF has changed, too, since their early days of production. The company used to decline all media interviews, fearing poor publicity. Today, Arnot says they handle every request. Last year, he responded to 320 different media contacts.

A more open stance with the media and the community leads to better understanding, he adds. While they occasionally take their hits in the media, most treat them fairly, he says.

Manure Spills Before and after bankruptcy, environmental issues kept PSF in the headlines. Two ill-timed manure spills in late 1995 garnered considerable attention. Both spills involved manure entering streams with fish kills. Fines paid by PSF totaled $220,000 in '95.

In response, PSF developed a highly structured environmental program. They diligently pursue environmental security.

PSF's environmental load is monumental. They will handle 600 million gallons of effluent from 132 different lagoons this year.

The procedure for operating their environmental management system requires a staff of 54 employees.

All the manure from PSF's hog facilities are flushed from buildings into single-stage lagoons. The liquid is recycled through the buildings as flush water.

In turn, lagoon effluent is irrigated onto crop and forage land through a system of underground pipes. PSF applies the effluent to 30,000 acres of its own land and another 10,000 acres owned by neighboring farmers. The effluent is considered a $50/acre fertilizer value.

PSF has experienced other manure spills, from 1,000 gal. to 30,000 gal. in size. They continue to make improvement to prevent potential spills.

"We have never had any problems with the lagoons or the banks," reports Brian Paulsen, PSF director of environmental regulatory compliance. "Instead, in the past, it's been blockages in the lines. Just like sewer pipes, we have cleanouts on those lines. When we've had a blockage, it continues to flush, backs up, and comes out running down a hill."

The area's hilly topography helped isolate PSF's hog units. But it added to environmental concerns.

Here is a look at PSF's program to prevent or quickly contain manure problems:

* Inspections - Every 12 hours, every day of the week, trained PSF personnel walk and inspect all the lagoons and related equipment. Each inspection is documented on a log. PSF has conducted these continuous inspections since the second major spill in 1995.

* Line Inspections - After the first two manure spills caused by blockages in lines, PSF focused on avoiding them. They purchased three sewer trucks. Two conduct preventative maintenance by cleaning all the lines every six months. This means cleaning all the manure lines from the buildings to lagoons to the irrigation systems. The third truck is available for emergency situations.

PSF also purchased a sewer camera to inspect inside every sewer line. Every inch of the lines has been video taped and viewed. David Curtis, director of land resources, has watched all the tapes. PSF continues video taping the lines to check for blockages. All blockages are immediately cleaned out.

Paulsen says they were surprised to find a high amount of mineral deposits from hard water in the lines. The sewer camera also shows how well thesewer trucks clean the lines.

Pressure-sensitive emergency shut-off valves also were installed on all recycle pumps to prevent spills if a leak or break in the line occurs.

* Secondary Containment Structures - Wanting to prevent any further manure spills in the hilly terrain, PSF took another drastic step. In 1996, Paulsen says they built 200 secondary containment structures around lagoons and farm sites.

The containment structures are berms or earthen dams built to hold any effluent that may leak from a possible break or blockage in a line. The berms will hold 24 hours of continuous flush water from the buildings. So the 12-hour inspections combined with the size of the berms should prevent any spills leaking into streams.

PSF inspected topography maps to correctly place the containment structures. Each structure also has a drainage line to remove rain water.

Unfortunately, even the best laid plans have kinks in them. Ice in one of the containment structures knocked off the cap on the drainage valve and 1,000 gal. of effluent ran down the hill.

PSF cleaned up the spill and notified the Missouri Department of Natural Resources. Enforcement action is pending.

PSF is now replacing all the valves in the containment structures with screw valves to prevent any future problems.

* Training - Two years ago, PSF started formal training for all employees who handle effluent. All PSF waste applicators working in the environmental department are required to complete a class D technician training within one year. This training is a state certification required for individuals working in municipal waste water plants.

Now, PSF applicators must also have a CAFO (confined animal feeding operation) certification from the Missouri DNR. A recent state law requires this. PSF has sent 24 employees through the training and will eventually have all involved employees certified.

* Testing - All soil, manure, water and crop testing conducted by PSF currently requires a separate computer system.

"We have a computer data base that keeps track of every gallon of effluent on the farm, what concentration it is, what's in it, and where and when it is applied on a field," reports Scott Hamilton, PSF environmental systems manager.

The computer system marries all the information, telling PSF employees when, where and how much effluent must be applied to cropland for optimum nutrient usage.

The testing to feed this computer system is exhaustive. Every PSF lagoon is tested four times a year. Soil tests on the 1,500-2,000 fields are taken twice a year. Every crop harvested is tested to see what nutrients were used from the soil. About 95% of the crop is forage.

In addition, PSF tests all the fresh water lakes on their property twice a year. "Large portions of the watershed on our property runs into our own lakes," Hamilton says. "We water all our animals out of fresh water lakes and we're land applying manure in that watershed. So we monitor the water quality in the lakes and it has to be very good."

The permanent flowing streams on PSF property also are tested monthly for water quality. Twice a year, tests checking microscopic animal life that indicate the health of the stream are conducted.

* DNR Reviews - PSF is heavily reviewed by the regional DNR office. DNR generally sends in up to three people for a two-day review of records each year. Then each PSF farm is spot-checked for environmental compliance four times a year. Up to three inspectors come in each time for the spot checks.

Environmental Improvements Like all pork producers, PSF is looking for other ways to improve manure handling and reduce odors. Paulsen says they have tested a wide range of products available to reduce odors.

"You can spend all your time testing products," Paulsen adds. "But we have not found there is a magic bullet."

Instead, they are switching to application methods to reduce odor. PSF has depended mainly on gun irrigation systems for application. Now they are switching to center pivots with multiple points on one field, so one pivot can be utilized better in small and hilly fields. Low-pressure nozzles on the pivot reduce the spread of effluent and odor.

PSF also uses Aer-Way drag line systems to incorporate effluent into forage ground. This, too, cuts odors from manure application.

Curtis says they also look at alternative crops. This summer, they will plant kenaf, a woody plant with stalks as tall as corn. They plan to harvest it with a forage chopper and bag it to use as bedding instead of wood chips in hog trucks.

Curtis admits it is an unusual crop. But kenaf is a big user of nutrients and more biodegradable than wood. They will try it out to see if it is feasible.

Clean Air Problems PSF is among the first hog producers in the U.S. to face potential lawsuits based on violations of the Clean Air Act. Last summer, Arnot says they were served a notice of intent to sue from an environmental group. The group intends to sue PSF for a violation of the federal Clean Air Act.

"We reviewed our operations and do not believe we have ongoing violations of either the Clean Air or Clean Water Act," Arnot says. "So we are in the process of defending that. That is not likely to be over any time soon. My guess is, if it goes to trial, it will be the year 2000.

"Unfortunately, I think we're moving into a period where it is no longer good enough to be a good neighbor," Arnot continues. "A lot of these folks don't want resolution. They want a continued escalation of conflict because they rely on that to generate memberships and revenue. I think we have become the target of professional activists."