Friday, April 17, 2009

How The Chicken Gets to Your Plate

I figured that perhaps it would be a good idea to write up an explanation of how the broiler industry works as a whole. What is amazing is that under this system, you can raise an absolutely disgusting and unsustainable amount of chickens and still not make enough to live on.

Source of info in this diary: The Economic Organization of U.S. Broiler Production by James M. MacDonald, USDA ERS

Increase in Chicken Consumption and Industry Growth
The broiler industry grew dramatically from 1960 until now. In 1960, the U.S. produced less than 10 billion pounds of chicken. That grew to over 50 billion pounds in 2007. That equals 1.53 billion birds slaughtered in 1960 and 8.84 billion birds in 2006. While the number of birds killed increased, so did the size of each bird. An average broiler weighed 3.4 lbs in 1960 and 5.5 lbs in 2006.

The periods with the highest industry growth were 1965-1970, 1980, and the first half of the 1990’s. However, growth began slowing after about 1995, particularly after the year 2000.

Some of this industry growth came from increased exports (mostly in the 1990s), some came from increases in U.S. population, and some came from increases in per capita chicken consumption. The most significant periods of increasing per capita consumption were 1960-70 and 1980-90 although per capita consumption has grown throughout the entire period of 1960-now.

In 1960, the average American ate 28 lbs of chicken, 60 lbs of pork, and 65 lbs of beef. In 2006, the average person ate 87 lbs of chicken. Chicken consumption surpassed pork consumption around 1985 (per capita pork consumption slightly declined over time). Meanwhile, beef consumption rose from 1960 until the late 1970’s, peaking around 95 lbs per person (a statistic I find totally disgusting). Beef consumption fell since then until about 1990 and stayed more or less stable since then, around 65 lbs per person in 2006 – same as it was in 1960. Chicken consumption surpassed beef consumption in the first half of the 1990’s.

The Role of the Integrator

The companies you think of as chicken producers (Tyson, Pilgrim’s Pride, Perdue) are known as integrators. Here’s what they do:

“Integrators usually own hatcheries, feed mills, slaughter plants, and further processing plants—that is, they may be vertically integrated into all stages except for broiler production, where they rely on networks of growers assembled through production contracts. Integrators also contract with, or own, primary breeder companies that develop poultry breeding stock, and they contract with other farm operations to produce broiler eggs for hatcheries.”

The Role of the Grower

The integrators do just about everything except for raise the chickens. That job falls to the growers. While the integrators do quite well financially, the growers often get screwed.

“Broiler production is organized in a distinctive manner. Most farms are linked to an integrator through a production contract, under which the integrator provides chicks, feed, veterinary services, and other inputs to the farmer, who grows the birds to market weight. Besides providing their own labor, farmers invest in specialized poultry housing (along with associated equipment), pay for any hired labor, and bear some or all of the cost of utilities. Because broiler housing is specialized and long-lived, the decision to produce broilers is a long-term commitment, and most producers have worked with their integrator for at least 10 years.”

In a survey done by the USDA, over 98% of broiler operations were set up in the way I’ve just described. And 45% of growers reported that their production contracts only spanned the length of time the current flock was in their houses (5-10 weeks). About a quarter (23%) have contracts that last 1-3 years. In other words, a new grower entering the business is taking an enormous risk to build new houses or buy existing ones when the contracts are short and they have little certainty that they will receive more contracts long enough into the future to pay off their debt.

Investing in Broiler Houses
The broiler houses built today can be over 30,000 square feet apiece and they cost $300,000. Most growers have more than one (70% have between 1 and 4 houses). However, the average house is closer to 17,000 square feet because 2/3 of all houses were built between 1986-2000 when houses were built smaller. The median farm in 2006 produced over 400,000 birds.

“Once a contract has expired, growers may have to retrofit their houses with new capital equipment in order to gain a contract extension. These expenditures can be substantial. Between 2004 and 2006, farms spent a total of $650 million on capital improvements to their broiler enterprises, an average of $38,000 per farm.”

How Growers Get Paid
Broiler contracts pays growers based on their performance compared to other growers. You are compared based on any other producer who delivers broilers to the integrator within the same week. The more meat you deliver, the more money you get. The idea is that this shields growers from factors like weather. If a lot of your chicks died, you get paid less; if your chicks are very “feed efficient” (I assume this means your chicks grew to be large, efficiently converting chicken feed into meat) you get paid more. Average price paid per bird? Twenty eight cents – about four cents per pound.

Geographic Concentration and Lack of Competition
Growers tend to locate in clusters, near to processing plants, hatcheries, feed mills, etc. It makes for reduced transportation costs. But it also makes for reduced competition – a grower is usually near only one integrator, and certainly no more than three. There’s also increased competition at disposing of chicken litter. 17 states produced 95% of all broilers in 2006.

Chicken Litter

“Litter is bedding material, such as wood shavings, sawdust, or straw, that is spread on the floors of broiler houses. When it is removed, it consists mostly of poultry manure, along with the original bedding, feathers, and spilled feed.”

So what happens to the litter after the chickens are no more? In 2006, growers spread 40% of it on their own fields. 22% was sold. About 12.5% was given away for free. To get rid of the rest (about a quarter of all chicken litter), they had to pay (cash or exchanged services) to have it removed. I assume that most of the litter was used for fertilizer, but it might also be fed to cattle (I’m not sure if that’s still legal but it certainly was at one point).

Who Are the Growers?
The growers seem to be a surprisingly homogenous bunch. Less than 10 percent are under 40. Less than 10 percent are women. Over 95 percent are white. About half say that high school is their highest level of education. Only 12% graduated college.

How Much Do Growers Make?

The USDA divided growers into 3 categories – small, medium, and large. The “medium” group represents the middle 50%. Just a note before you look at the numbers – the average net incomes are misleading because 25% of growers actually LOSE money.

A small grower has 1-3 broiler houses and produces about 850,000 lbs of chicken per year (that’s live chicken, not meat). This group is the oldest in age (average age of 60) and also has the oldest houses (average age 24). On average, they make $44,476 per year gross from their production contracts. With other farm income (crops, other livestock, subsidies, etc), they averaged $63,530 in gross farm income and $18,722 in net farm income. Not much of a living.

The middle 50% of growers have 2-5 broiler houses and produce over 2.2 million lbs of chicken each year. They average $112,693 per year from production contracts (gross), $139,900 in gross farm income and $42,260 in net farm income. It’s enough to live on but it’s certainly not luxurious.

The largest growers have 4-8 houses and produce 3.8 million lbs of chicken per year on average. They average $191,688 gross from production contracts and $220,246 in gross farm income. Net farm income is $70,862, which is actually a decent income.

Needless to say, it’s sad that farms need to get so big to make a decent living. Maybe the implication here is that chicken shouldn’t be as cheap as it is and that the integrator-grower model of producing chicken may be economical for the integrators but if we’re going to have reasonably sized chicken operations it’s not a good idea.

For a few good articles on broiler production, check out: this article and this article.

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