Meat company Smithfield has announced an agreement with the state of Iowa that allows Smithfield affiliates to contract directly with Iowa farmers to raise hogs for slaughter at Smithfield facilities.

The announcement ends a five-year legislative and legal battle over an Iowa statute forbidding meat packers from owning or controlling livestock in Iowa. It began when Smithfield, then the nation's largest processor of hogs, announced its intention to acquire Murphy Family Farms, one of the country's biggest hog growers.

Iowa's attorney general interpreted that statute to prohibit Smithfield from continuing Murphy's practice of contracting with Iowa farmers to grow hogs to maturity. Smithfield twice challenged the statute in court and both times it prevailed. In February 2002, a state court rejected the attorney general's interpretation. Later that year, the Iowa legislature amended the statute to make it more restrictive. Smithfield challenged the 2002 statute in US District Court in Des Moines, which declared the law unconstitutional. While that case was on appeal, the legislature acted again, and the Eighth Circuit Court of Appeals remanded the case for reconsideration under the existing statute. The parties reached an agreement to settle that case and US District Judge Robert Pratt has signed an order approving the settlement.

The settlement was announced at a news conference in Des Moines, which was attended by attorney general Tom Miller, other Iowa officials and Smithfield executives. Under the terms of the settlement, the Iowa Attorney General agrees not to enforce the statute against Smithfield and its affiliates. This permits Smithfield's affiliates to continue to enter into "grower contracts" with Iowa farmers, similar to those common in other hog producing states. Farmers entering into grower contracts with Smithfield are given expanded rights in their relationship with the company.

"We are pleased that we have been able to reach an agreement with the State of Iowa that benefits Smithfield and its shareholders and is also good for Iowa hog production at a time when global competition is at an all time high," said Richard J. M. Poulson, Smithfield executive vice president. "Among other things, this agreement helps guarantee Iowa hog farmers an open, reliable market, while giving Smithfield a guaranteed supply of premium hogs grown by some of the country's best farmers."

Smithfield also agreed to commit $200,000 a year for 10 years to fund an environmental education program at Iowa State University and grants to foster innovative swine production. The company also committed to purchase 25 percent of the hogs slaughtered at its Iowa facilities on the open market.

"The court's order removes a significant barrier to the growth of Iowa's farm economy," said Poulson. "Smithfield is committed to Iowa, as evidenced by the recent expansion of our processing facilities in Sioux Center and Denison, and we view today's agreement as yet another example of our partnership with Iowa to keep the state's hog industry growing and vibrant."

Smithfield's Farmland Foods subsidiary has a hog processing facility at Denison. In August, the company announced an $81m expansion of that facility, increasing processing capacity from 9,200 hogs per day to 10,350 and adding 219 new jobs. The company also is investing $13.5m in its Patrick Cudahy plant in Sioux Center that produces fully-cooked microwave bacon, adding 140 new jobs and doubling that facility's capacity. Today those facilities, together with plants in Sioux City and Carroll, employ almost 4,000 Iowans, with an annual payroll of more than $114m. The John Morrell plant in Sioux City processes 15,000 hogs per day.