The contract model powering the modern chicken industry in the United States keeps costs down, benefiting all parties involved.
In a WATT Poultry Chat interview, Dr. Thomas Elam, president of FarmEcon LLC, shared some of the results of a survey he conducted for the National Chicken Council on the benefits of the partnership between the integrated chicken industry and the contract growers that raise its birds.
Austin Alonzo: You've been working on a new survey with the National Chicken Council about contract chicken growing in the United States. Would you like to discuss some of the highlights of that survey with us?
Thomas Elam: Yes, I would very much like to discuss that study, which is actually a revision of a seven year old study that I did for the National Chicken Council back in 2015. We re-surveyed a large number of poultry integrators about their recent experience and payments to farmers, for the chickens that they raise from the baby chicks and the feed that the company gives to the growers to furnish them the farming services to raise those into the live production that goes into their plants. And I don't think it's any secret that there have been disputes between those farmers and the chicken companies about payments and condemnations and a whole range of other issues.
So we focus on the company experience. And we found a couple of things. One, the contracting system has helped promote the long-term growth of the business by helping keep costs down because the cooperation that takes place between the integrators and the farmers has resulted in some pretty astounding increases in the production efficiency for live poultry. So, it keeps costs down. It's benefited consumers. It's benefited growers because they have more chickens to grow. And it's benefited the companies because they have more product to sell.
And I looked at a rather unconventional way to to measure grower pay, growers tend to focus on -- or farmers as some people like to call them -- on how much they get per pound of chicken. And it's generally averaged in recent years, six-to-seven cents a pound. Keep in mind that they don't have any costs for feed or chicks. I looked at how many dollars do they get for the money that they have invested in the housing that they do own. They own the barns and I looked at, based on some numbers, I was able to obtain the pay rate in inflation corrected dollars for per square foot of those facilities.
That has gone up and gone up significantly over time and it's gone up because chickens are growing faster, they're turned over more often in the houses, they're growing to heavier weights. And so the housing of these growers has become more efficient over time in terms of real returns, at least in gross dollars per square foot. Also in the survey, we asked a number of questions of these chicken integrators. And among those was the pay rate per month for all of the chickens that they paid for. I computed a coefficient of variation for that it was only about 20% of the coefficient of variation for cattle and hog farmers who experienced significant price fluctuations in the marketplace that chicken growers never see because their pay rate is not based on the price of live chicken or the price feed or the cost of chicks. It's based on an entirely different formula.
Another thing that we found was a very small percentage of chicken farmers who left the business during the year of 2021. Only 0.6% of those farmers had their contracts terminated for one reason or another. We also asked the chicken integrators, how many people you have waiting for contracts and it was between one and 2000 farmers who want to get into the business and several hundred who are already in the business who want to expand. So the business is attractive to people outside of chicken farming.
We also asked things like, "How old are these people?" We found out that, amazingly enough, they're roughly the same age as the general farmer population, except there aren't nearly as many in the over 75 group. And I think the reason for that is these guys retire earlier. Chicken farming is a full-time job. And a lot of these farmers don't farm full-time, especially the crop farmers, and so they can keep going maybe a little longer.
But the bottom line is there's two sides to the story. And the growers have made a lot of press with their side of the story. But these chicken integrators have to keep these farmers pretty happy, or if they leave it leaves a hole in their production, and that costs them money. So, there's two sides. And this is just kind of the other side of the story. And I think, overall, it it paints a pretty favorable picture for grower retention. The pay rates being very stable and the improvements that we've seen in chicken production efficiency in the last 40 or 50 years.
This transcript edited for length and clarity.
