Case Study: Smithfield Foods
An example of environmental risk is the case of Smithfield Foods (SFD), which has threatened the profitability of the company, and the relative value of the firm’s Ba1, BBB- and BBB rated bonds.
On April 26, 2018, a North Carolina jury awarded 10 plaintiffs $50 million in damages in a nuisance suit against a hog-producing subsidiary of Smithfield. However, North Carolina laws passed in 2017 will significantly limit amounts plaintiffs can collect in agricultural nuisance lawsuits. The plaintiffs had argued that the smell, open waste lagoons, and truck traffic associated with hog farms had limited their access to the outdoors (New Food Economy “North Carolina Jury Fines Smithfield Foods $50 Million Nuisance Lawsuit Hog Farm Manure” Volume 60, no. 2, June 2017, pp. 293–317).
This was the first of 26 nuisance suits against Smithfield that has been decided. After a similar civil judgement of $11 million in Missouri in 2010, laws were passed to limit nuisance damages. In addition, potential lawsuits may evolve to trespassing lawsuits after recent air samples from farms neighboring manure lagoons in North Carolina found significant evidence of hog fecal bacteria (Environmental Working Group “Study: Fecal Bacteria from N.C. Hog Farms Infects Nearby Homes” May 11, 2017).
According to Moody’s “…the company would need to maintain overall earnings stability and a conservative financial policy before an upgrade would be considered.” (Moody’s Investors Service “Rating Action: Moody's upgrades Smithfield Foods' CFR to Ba1, March 6, 2018)
