Sunday, March 15, 2020

Big Business Binds Poultry Producers

Over the past half century poultry farming in the US has become increasingly consolidated among a handful of companies. Tyson Foods, Pilgrim’s Pride, Sanderson Farms, Koch Foods and Perdue control about 60% of the US chicken market. The companies own and operate all the means of production, including the feed mills, slaughterhouses, trucking lines and even the hatcheries that develop the best strains of chickens. But contracts typically hand a remarkable amount of control to the parent company. 

In the 1960s, poultry companies experimented with owning and operating chicken farms, but realised it was the least profitable, highest risk part of the supply chain. Instead they moved to the current system, persuading independent contracted farmers to take on this responsibility instead, and the system has reaped rich profits for those at the top. From 1981 to 2018, farm sales of chickens increased from $4.5bn to $31.7bn.

Rudy Howell finds himself working long hours, deep in debt and earning less than $40,000 (£30,654) in 2019 – well below the average US wage. While a number of contract broiler growers are reporting incomes substantially higher than average farm incomes, the United States Department of Agriculture has said growers’ income can vary widely with some reporting earnings as low as $18,782.
 Like nearly 90% of US poultry producers Howell is not an independent farmer who can buy and sell his chickens to whoever he wants. He is contracted exclusively to Perdue Farms, one of the largest poultry companies in the US. The company, which produces a number of other agricultural products and services, generates more than $6bn a year in revenue.
Perdue maintains ownership of the birds, and the contract stipulates that farmers can only use feed, medication, vaccinations and other supplies provided by or arranged by Perdue. The contract also grants Perdue the authority to determine the breed of chickens produced, the numbers in each flock, the time allowed for processing each flock, and placement for future flocks. It’s a system that has been criticised by farm support groups, because it prevents farmers from changing poultry producer or leaving the business due to the amount of debt accrued to get started and maintain the business.
Howell and his fellow poultry farmers are so far from independent that in March 2018 the small business administration office of the Inspector General issued a report stating that most poultry farmers do not qualify as independent businesses eligible for loans from the agency because integrators exert so much control over them. “This control overcame practically all of a grower’s ability to operate their business independent of integrator mandates,” it concluded.
“They [Perdue] call themselves a family farm, but they’re a corporate farm. They have control over everything out here,” said Howell.
The average estimated debt required to build one chicken house is $300,000, with farms usually containing at least four. The bank debts immediately lock producers into depending on their contract to meet repayments. Howell says he is also mandated to take on farm upgrades as required by the company.

“It’s a combination of long-term debt through a contract and a very high cost of exit. For the company, it’s a short-term commitment. The farmers are at a huge disadvantage,” said Scott Marlow, senior policy specialist at the Rural Advancement Foundation International-USA. “By the time the farmer pays initial debt, they have to buy new equipment so they never get out of debt, never get to the point where they’re not in significant debt.”
Howell says he gets paid 52 cents per pound of chicken, with deductions or bonuses decided by a so-called tournament system covering every other farmer in the area. Farmers who produce the most amount of weight with the least amount of feed receive the bonuses on top of base pay, while less efficient farmers have money deducted. Howell claims he is charged with the responsibility and costs of incinerating unusable birds in flocks provided by Perdue, but isn’t compensated for the birds sent to him in poor condition. “They send us bad [low quality] feed out here, you get bad birds, they send us bad birds, we’re going to get bad birds. In the past year, they’ve been sending a lot of culls, little birds you can’t do anything with and have to kill them.”
Developing a niche market and trying to compete with Perdue is virtually impossible, says Craig Watts, a former contract grower with the company. “There’s a sense of hopelessness among farmers. Half a million dollars worth of debt makes a man very agreeable so they’re not going to rock the boat too much. Most people hang on and continue,” he said.
A South Carolina poultry grower also supplying Perdue, made a similar claim: “You’re penalised if you don’t perform and it’s not your fault. You listen to your flock supervisor throughout and then do poorly. Why am I at fault if I do everything they want me to do?” He added, “On average, we have to kill 6-8,000 chickens per flock because they’re not growing, but we don’t get compensated for it. We shouldn’t have to pay for birds that are given to us sick and it’s been getting worse over the past year,” 
Today, the handful of companies controlling 90% of the poultry market in the US are currently under federal investigation over allegations they coordinated to fix prices. This price fixing makes it nearly impossible for individual farmers to survive independently without a niche or speciality market.

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