A new survey of broiler growers and integrated chicken companies demonstrates how the contract relationship between the two parties benefits both sides as well as the consumer.
In March 2022, Dr. Thomas Elam, president of FarmEcon LLC, published a report on live production trends for the National Chicken Council (NCC). It surveyed vital live production statistics – farmer numbers, experience and contract details – in the industry.
In the United States, most farmers growing broiler chickens are working on contracts with a vertically integrated chicken company. The farmers are independent. They own the land and are responsible for the facilities to house and raise the birds. The chicken company owns the chicks and provides the feed. Payment is based on a previous arranged contract between the farmer and the company.
Short-term contracts are common in the industry, granting farmers freedom to change if desired. Contract length data shows 32.3% of growers work on a flock-to-flock contract, 13.1% percent are on contract less than 1 year and 18.8% are on contracts lasting between one and five years.
There are detractors to this relationship which gain significant attention. Nevertheless, Elam’s study shows farmers are lining up to get on broiler contracts and to expand their facilities. Less than 7% of chicken farmers break off their relationship with their integrator. When they do, its most likely because they are retiring or switching to another integrator.
“Viewed in totality, live chicken production is a viable, mutually beneficial and attractive farming enterprise for the vast majority of farm families who raise chickens in partnership with the companies they work with,” Elam said in the report.
The data shows the contract relationship benefits both the integrator paying the farmer and the farmer raising the birds.
On a technical basis, U.S. Department of Agriculture data demonstrates in 2020 American farmers grew a bird 156% heavier than the one they did in 1925 in 58% fewer days using the same amount of feed. On a financial basis, he said, the average grower payment per pound increased to $0.0702 in 2020 from $0.0408 in 1990. Adjusted for inflation, annual grower pay per housing square foot rose 11.4% since 1990.
Elam said both gains are due to investments made in genetics and feeds by broiler companies to increase throughput of their facilities and therefore more production per square foot of chicken housing. At the same time, farmers are steadily improving their housing and husbandry to take advantage of increasing bird performance.
Chicken growing requires a substantial upfront investment, but most who do it are in it for the long term. The available data suggests chicken farmers are earning more than most Americans and more than other farmers, too.
Elam said there’s not much published data on farmer income for broiler growers. A USDA report from 2014, the latest available reliable data, said contract broiler growers are generally earning more ($68,000) than other farmers ($57,000) and all U.S. households ($50,000).
Although farmers take out long-term debt to finance new construction, and are sometimes required to enter into long-term contracts by their creditors, they are taking on less financial risk because feed costs, medication and baby chick costs are all borne by the integrator not the farmer. Furthermore, U.S. Small Business Administration farm loan data suggests there is a much lower rate of loan deficiency and charge-off rates for live chicken production than all agricultural loans.