HBO’s Last Week Tonight with John Oliver recently featured a segment on chicken farmers and the poultry industry. RAFI has a long history working with poultry farmers for reform in contract agriculture, and we’ve put together some research to give you a quick overview of the data behind the issues highlighted in the show. Lines from the show are given in bold, followed by citations from relevant sources.
We love eating chicken in this country, so much so that we have to produce a lot of it.
“In the last 25 years the chicken industry has doubled its production and headcount from 80 million chickens a week to now about 160 million chickens a week…”
Young chickens slaughtered under federal inspection:
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Now, obviously, all this has been great news for the poultry industry which is dominated by four gigantic companies: Pilgrims, Tyson, Perdue and Sanderson Farms.
“Broiler production and processing is carried out within tightly integrated production complexes operated by firms called integrators. Twenty integrators together accounted for 96 percent of all broilers produced in the United States in 2012, and the top 3 accounted for 50 percent (table 1).” — MacDonald 2014, USDA EIB-126.
Perdue and Koch Foods, the remaining two of the top five poultry integrators, are private companies; their financials are not publicly available.
Multiple studies have shown that many growers whose sole source of income was chicken farming live below or near the poverty line.
The 20th percentile of annual household income for contract poultry growers was $18,782 in 2011, according to data from the USDA’s ARMS survey (MacDonald 2014, USDA EIB-126). This means that the bottom 20% of poultry growers had household incomes of $18,782 or less, compared to the 2011 national poverty level of $22,350 for a family of four (2011 Dept. of Health & Human Services Poverty Guidelines).
Previous studies have shown similar findings of poultry growers earning low returns and incomes below the poverty level:
“An eight-month Sun investigation across 13 states has found: A new chicken farmer today can expect an annual net income of only $8,160 – about half the poverty level for a family of four – until he has paid off the 15-year loan he took to get into the business, and even that estimate may be overly optimistic. Fewer than half of Delmarva’s chicken farmers say they’re making enough to meet expenses.” — Fesperman & Shatzkin, The Baltimore Sun, The Plucking of the American Chicken Farmer, 1999
A 2001 Farmers’ Legal Action Group study found that in 1998, 45% of contract broiler growers earned less than $15,000 from their broiler operations, below that year’s poverty level for a family of four, which was $16,450.
“Figures from recent studies and from poultry company projections of annual net incomes from broiler contracts show that the average return is approximately $4,000 per year per poultry house. Growers can show that even this low income is based on figures that are not up-to-date and not complete.” — Mary Clouse, RAFI, Farmer Net Income from Broiler Contracts, 1995
Contract farming is basically chicken daycare. Companies bring baby chicks to an independent farm, drop them off, and pick them up a little more than a month later when they’re fully grown. I’m assuming that’s how day care works. Ninety-seven percent of chickens all raised this way.
“The broiler industry relies almost exclusively on production contracts, with 97 percent of broilers raised on contract operations in 2011.” — MacDonald 2014, USDA EIB-126.
You [the farmer] own the property and the equipment, we [the company] own the chickens. That essentially means you own everything that costs money and we own everything that makes money. Because typically farmers go into a great deal of debt just to build chicken houses and go into the business, and the moment you sign that contract, the chicken companies have a lot of leverage over you.
In the public comments on the 2010 GIPSA rule¹ (more on this rule below), one grower put it this way: “If they cut you off, what can you doing with a poultry house? Nothing. The only way to pay for that house is to put chickens in it. But there is no guarantee that you’ll have the contract or the chickens for the houses.” USDA research confirms the prevalence of debt among chicken farmers and quantifies the size of their investment:
“Grow-out operations are significant investments. […] among specialized contract broiler operations with four houses in the 2011 ARMS [the USDA’s Agricultural Resource Management Survey], the median value of the operation’s assets, including land, was $1,043,700. Most new broiler housing is debt-financed.”– MacDonald 2014, USDA EIB-126
While this debt and the company’s resulting leverage can obviously become problematic for the farmer, federal farm programs are also involved, which means that the taxpayer also stands to bear a share of the costs. From 2009 to 2013, broiler growers obtained an average of $210 million annually in Farm Service Agency guaranteed loans, amounting to 8.1% of the FSA’s total agricultural guaranteed loans (MacDonald 2014, USDA EIB-126). The guaranteed loan program gives lenders a federal guarantee on up to 95% of the capital and interest of eligible agricultural loans, encouraging them to provide credit to farmers or operations that might not normally be considered credit-worthy. While this program has its place, in the case of contract poultry, the mismatch between the large amount of debt and the lack of contract security creates a high-risk situation where FSA guarantees distort market conditions and transfer the costs of default to the government.
…the problem is, as fast as farmers try to pay down their debt, companies can pile more on, by demanding that they make expensive upgrades.
“Growers make large capital investments when entering the business, and they may also make further substantial investments for expansion, remodeling, and equipment replacement. Some of the further investment may be required by the integrator as a condition of contract renewal—an implied feature of a contract. The 2011 ARMS gathered information on recent capital investments (2009, 2010, and 2011) in the broiler enterprise. Fifty percent of contract growers reported making a capital investment in those years, and most of those (29 percent of growers) were required to do so by their integrator (table 15). While many were for relatively modest sums (less than $10,000), the average expenditure among those with capital expenditures was substantial, and average expenditures were larger when required by the integrator, with a larger gap for older facilities undergoing remodeling or equipment replacement.” — MacDonald 2014, USDA EIB-126
These upgrades may be unexpected, and don’t necessarily benefit the farmers. These concerns were often cited in comments on the 2010 GIPSA rule,¹ where, for example, one grower stated that the chicken company “never told us that when we got a 15-year bank note, that we’d have to build new structures for them. We are currently in $110,000 in debt because of forced upgrades.” According to another grower, “A lot of people upgraded thinking it would help the company and also help the grower. But the company is not compensating the grower for all the effort he put in into upgrading. They haven’t raised the base pay.”
“The company takes, you know, could be as many as one hundred farmers in an area, and then it ranks them against one another – those in the top half will get a bonus payment, extra money; those in the bottom half will get a deduction, will get financially punished.”
What that means is that you are competing against your neighbors: if they produce fatter chickens with less feed, your pay gets cut, and not by a little – you can be paid nearly half as much as other growers per pound for reasons not entirely within your control.
The table below shows the prices per live-weight pound farmers were paid for chickens raised under production contracts: the average (mean), median, 10th percentile, and 90th percentile. The 4.32¢/pound paid to the 10th percentile growers (those near the bottom of the tournament rankings) amounts to 62% of the 7.02¢/pound paid to those in the 90th percentile (near the top of the rankings).
And the thing is, chicken farmers can’t even complain because one of the reasons that you’ve not heard about this story is that to hear farmers tell it, companies take a hard line with complainers.
In a 2010 USDA/Department of Justice workshop on the poultry industry, growers and others cited concerns about retaliation by the poultry companies, and noted that many other growers declined to attend out of fear that they would face negative consequences from their company (USDA/DOJ Poultry Workshop Transcript, May 2010). Growers also spoke about retaliation in their GIPSA comments¹: “They control the chickens, the feed, the timeframe, and the ranking system. There’s no checks and balances on these people. If you don’t like it, there’s no place to go. If you tell them you don’t like it, they can put you on the blacklist. And if you complain too much they can cut you loose if they want.” — “Yes, I want something done about retaliation and these other issues, but I’ve got to think about myself. I don’t want a target on my back right now. In five years when my part of the debt is done I could care less. Right now, I’ve still got financial requirements that I must fulfill and I need this farm in order to fulfill those requirements. I’m hesitant to speak out against them.”
In a 1998 survey of growers in the Delmarva Peninsula, 57.4% of the 1,344 respondents agreed that “my company will retaliate if I raise concerns.” — Tom Ilvento & Angela Watson 1998, Poultry Growers Speak Out! An Executive Summary of the Delmarva Poultry Growers Survey Results.
Growers’ fear of retaliation is exacerbated by the fact that many live in areas with only one or two companies. According to a recent USDA report, “In 2011, 21.7 percent of growers, accounting for 24.5 percent of broiler production, reported that there was only a single integrator in their area, and another 30.2 percent, accounting for nearly a third of production, reported two integrators in their area” (MacDonald 2014, USDA EIB-126). A grower dropped by one integrator may have no other options, and often may be unable to obtain a contract from another company even when one is present.
The good news is protective rules for poultry farmers did actually get written, the bad news is they are not currently being enforced, because every year since the rules were written, a rider has been inserted into the agricultural appropriations bill that explicitly forbids the USDA from enforcing them.
These protective rules were written by the USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) in 2010 and are commonly referred to as the GIPSA rule. They originally addressed a host of issues and unfair practices facing poultry and livestock producers, including forced investments, misinformation, and retaliation. The rider that prevents the implementation and enforcement of these rules is called the GIPSA rider – read more on this year’s rider in this blog post by RAFI’s James Robinson.
Just last year, Representative Marcy Kaptur attempted to pass an amendment simply giving farmers protection to speak out without retaliation – that was it – and she made a convincing case.
Since efforts to stop the GIPSA rider and allow enforcement of the full set of rules have failed, Rep. Marcy Kaptur’s amendment aimed to offer one key rule on its own, protecting farmers from retaliation by their companies. See Rep. Kaptur’s full presentation of her amendment and the ensuing debate, including comments by Rep. Womack against the amendment, in the webcast of the appropriations hearing, starting at 2:51:40. Then check which way your representatives voted in the voting record on page 5 here.
That same committee is set to meet again next month and Marcy Kaptur might again try to pass a provision protecting farmers from retaliation… There are 51 voting members on the committee. These are their names, and their states.
You can find the list of the current 51 voting members on the Appropriations Committee’s website. Note that some of the representatives listed there were not members of the committee when Rep. Marcy Kaptur’s amendment was proposed last year, so they don’t appear in the voting record above.
¹ The quotes from farmers included here were researched and organized by Avery Siciliano, and come from public comments on the Grain Inspection, Packers and Stockyards Administration’s 2010 proposed rule. Thousands of farmers submitted comments supporting the 2010 GIPSA rule. These comments unveil stories of forced debt, false promises, and fear of retaliation among poultry farmers. The selected quotes represent only a few of the many individuals who shared similar stories. Many additional comments can be viewed through regulations.gov’s docket browser here.
Avery Siciliano recently graduated with her Master’s degree in Environmental Management from Duke University’s Nicholas School of the Environment. She is interested in sustainable food systems, from poultry to shrimp, and currently resides in Washington, DC.
Annie Segal is RAFI’s research assistant VISTA. She will be researching farming practices and developing systems to catalog existing research and track the impacts of programs at RAFI. She previously worked as a teaching assistant in France and has also worked with non-profits and volunteered with farms and community gardens. Annie attended UNC-Chapel Hill and graduated in 2013 with a BA in French and a Sustainability minor.