‘Competition in broiler sector benefits whole chain’

"On the national scale, it is the overall conclusion of this study that the chicken industry is a competitive and thriving sector," wrote Dr. Thomas Elam, an agricultural economist and president of FarmEcon LLC.

 

"Intense competition among chicken companies leads to product innovation and lower prices for consumers. The vertically integrated structure of the industry has given it an advantage compared to its competitors and allowed it to respond quickly to changing consumer demand."

 

Elam’s study was commissioned by the National Chicken Council and is posted to the web site www.nationalchickencouncil.com

 

The vertically integrated system, in which a single company owns or controls virtually all phases of the operation, also benefits the independent family farmers who raise chickens under contracts with the companies, Elam wrote.

 

"Contract growers are insulated from integrator margin risk by fixed price contract terms. They receive payments that are not tied to market variations in prices of chicken and feed," the study said.

 

"These risks are largely shifted to the integrator, who absorbs the financial losses from adverse weather, general disease outbreaks, feed quality, and other factors potentially adversely affecting live chicken performance."

 

As to whether contract growers are satisfied with the system, a study by the Farmers’ Legal Action Group found that 75% of broiler growers surveyed were satisfied with their decision to go into broiler growing, Elam noted.

 

He also pointed out that many chicken companies have waiting lists of people who want to become contract growers, and lists of farmers already in the business who want to expand their operations. This shows that growers can earn a good return on their investments, Elam concludes.

 

"If, in general, growers were chronically earning less than a competitive return on their investment and labour, these waiting lists would likely not exist," he noted.

 

The broiler chicken industry is more concentrated today than it has been in the past with the top four companies having 53% of production in 2009 compared to 40% in 1992.

 

Despite this increase the chicken industry is less concentrated than meatpacking at 79% or pork processing at 65%.

 

Wholesale and retail chicken prices, adjusted for inflation, have declined relative to overall consumer prices and major competing meats.

 

"The declining real prices of retail and wholesale chicken are evidence that real cost savings are being passed on to consumers via market competition," the study said.

 

"Vertical integration has proven to be a very successful and cost competitive method to organize chicken production and marketing," the study said.