RAFI Responds to National Chicken Council (NCC) Study

The National Chicken Council has released a study that was prepared for them by Dr. Elam, an economist with FarmEcon LLC. The National Chicken Council provided the data, which they gathered by surveying 20 poultry companies in September 2015. The survey did not include responses from actual farmers. The following are our concerns with this study explained in detail.

The real role of debt in farmer choice

A critical piece of information that is missing from the FarmEcon LLC study is the amount of debt that poultry farmers are in. According to a USDA report on debt use in US agricultural businesses, poultry is the most debt-leveraged sector in all of agricultural production. The only farms likely to have a higher debt burden are large-scale dairies. But even a small poultry operation typically has a higher ratio of debt to assets to manage than large-scale hog, cattle, or crop farms.[1]

The investment that poultry farmers make, and the pressure of the mortgage they feel, should not be taken for granted. Based on data from researchers from the University of Georgia’s Poultry Science Department, in 2011 the average 4-house poultry operation cost just under $1 million dollars to construct, not including the price of land[2]. A farmer’s flexibility is severely limited by this debt burden. And yet the National Chicken Council study draws several conclusions about a farmer’s satisfaction without considering the impact of this debt.

For example, the study openly states that over 50% of contract poultry farmers have been offered a flock-to-flock or less than 1-year contract by their company. For years, farmers have been calling out the industry on the imbalance between their long-term debt load (often federally backed loans with long payback periods) and the effective short-term commitment the companies make.

In the study, Elam admits that even multi-year contracts lack enforceability for farmers: “In reality, a multi-year contract offers little additional assurance over a flock-to-flock contract” he states. But he goes on to justify this lack of commitment, by saying it allows both parties the “opportunity to agree to the contract” as it continues.

The reality is: farmers who are facing $1 million in debt often do not have the option of choosing to cancel a contract without facing bankruptcy and losing their personal assets – their farm or family land.

Watch the trailer to our film about the poultry industry and our “Farmers Under Contract” video series.

If farmers stay with the same company, does that mean they’re happy?

The study goes on to show that over 95% of growers who do not retire remain with the same company. Like Rep. Harris (R-MD) in the House hearing, they cite this statistic as a sign of grower “satisfaction” with the way things are in their contract relationship.

In response to this study Mike Weaver, a grower from West Virginia, wrote in: “95% of growers stay with their company because they don’t have another choice, or because other [companies] in their area are just as bad.”

Elam and the National Chicken Council also fail to mention the impact of monopsony (lack of buyers) and concentration on farmers’ ability to choose between contracts. According to researchers MacDonald and Key; In 2011, 21.7% of growers reported that there was only a single integrator in their area that they could contract with. Another 30.2% reported that there were only two integrators in their area[3].

This means that over half of America’s poultry growers do not have more than 2 integrators to “choose” from.

MacDonald and Key further note that in this industry, having multiple integrators in an area does not necessarily mean farmers have options. The ability to shift from one contract to another depends on whether the other companies are recruiting new growers, and what the cost of changing could mean for the farm. Often changing companies means taking on more debt to purchase the latest chicken house equipment and technology, which can be prohibitively expensive.

The fact that the National Chicken Council study neglects to consider this monopsony (lack of buyers) power is unfortunate, because it has been shown to have a significant impact on grower pay as well.

Using data from the 2006 broiler producer survey, Macdonald and Key (2012) also found that contract growers in market areas with a single integrator received 8% less than growers in markets with four or more integrators. Even growers in market areas with two or three integrators received a recognizable 4% less than in competitive areas with four or more.

The assertion in the National Chicken Council study that number of contracts maintained year to year can be used to demonstrate grower satisfaction is simply untrue.

Furthermore, the fact that 85% of growers are 40 years of age or older is touted in this study as a sign that these farmers are in it “for the long term,” and that these growers must be financially stable. This is a liberal interpretation of this data.

Another way to look at this statistic comes from Weaver, who says that “grower age indicates that growers are not encouraging their kids to grow chickens and their kids don’t want to be growers.” The study admits that only 22% of the current farmers in the industry have a family background in poultry farming. If these investments are such attractive and profitable long-term commitments, why aren’t more families passing down the tradition?

What about that 2000 farmer waiting list?

The study claims that these companies between them have 1,858 applications for new chicken operations and 610 applications from existing farmers to expand their business. This is the data that Harris used to claim that farmers are “vote with what they decide to do.” This convenient claim sweeps the farmers’ perspective on their recruitment under the rug.

It is not the first time that the National Chicken Council has tried to assert that if farmers sign up in the first place, it must be a good business, and if it doesn’t work out they must be bad farmers. At a hearing in December of 2010 on the impacts of corporate concentration in agriculture held by the Department of Justice and the USDA in Alabama, a National Chicken Council representative, after hearing hours of farmer testimony, responded by asking one farmer in particular: “Knowing what you know, why would you get into a business you feel is not a very good business?” At that moment, Eric Hedrick, a chicken farmer from West Virginia, was in the audience. He took the mic to respond, in defense of the other farmer: “I bought the largest poultry farm in West Virginia five years ago too,” he said. “And I can tell you the reason she got in to it, is the company lied.” (Watch the video of this testimony here: https://www.youtube.com/watch?v=YvobZLdFVNk)

The reason farmers like Hedrick may feel so strongly that the company had “lied” to them in the recruitment phase is because many farmers say they do not get full information about the contract before signing it. In Hedrick’s case, he explained to RAFI in an interview for an upcoming documentary on poultry production called Under Contract: “I could sit down, and my wife really could, and just right off the top of her head, and write you the bills down that take up the most of your check. And it wasn’t on that daggon cash-flow sheet that Pilgrim’s Pride hands you.”

The study assumes that farmers have complete upfront information to make the decision to sign the contract. This assumption does not take into consideration the various perspectives of the farmers themselves.

The Big Squeeze: A Real Decline in Farmer Pay

The National Chicken Council study argues that steadily decreasing farmer pay per-pound shouldn’t be a concern, basically because the amount of chickens packed into a chicken house has increased over the past decades. In 1990 farmers on average produced 33.12 pounds of chicken per square foot of housing. Today they average 40.03 pounds per square foot. So in their justification, even if the amount that companies pay farmers per pound to raise chickens has decreased over time, the added poundage they are producing should make up for it.

But this assertion is problematic in several ways.

First and foremost, it relies on overall averages and does not examine actual farmer experience. To understand trends in farmer pay over time, the amounts paid per-pound to a farmer need to be adjusted for inflation. In the study, Elam adjusts the farmers’ pay per-pound amounts from different years for inflation so that all amounts appear as a standard 2009 dollar value. This allows for a comparison. Based on their study, farmer pay per-pound has decreased 6.4% since 1988. However, the total amount that companies have paid all growers has increased. They conclude that the amount growers are receiving per square footage of chicken house space has increased by 13.1% over the same time period, as a result of increased efficiency.

But what the study completely fails to mention, is that broiler houses and equipment have increased at a rate far greater than general inflation in the economy. The point is: this study fails to consider whether the overall average of a 13.1% increase in pay per square foot has actually kept up with the increase in farmers’ costs, including upgrades, utilities, waste management, fuel and other expenses. What we hear most often from farmers is that their pay is outpaced by variable and increasing costs. They feel squeezed at a tighter margin overtime, exposing their business to greater risks and variability.

Opaque Data Sources

The study uses data from AgriStats, private data and research service. This is data that integrators share with each other, but that outsiders – including the farmers themselves – do not have access to. The lack of transparent information in this industry is a major drawback for farmers. USDA does not report grower pay on a regular basis, and there is no way to track what a “market price” for a wholesale chicken is.

Compare this to the situation in hogs and cattle: USDA reports morning and afternoon prices for these sectors. Farmers have free access to this information, and can gauge their experience against the market trends. In poultry, farmers are completely reliant on the little amount of information that the industry leaks out – such as the data in this study.

The study actually alludes to this lack of transparency. One of the main obstacles to understanding how poultry farmers are really doing financially is finding actual data about the returns on poultry operations. USDA conducts an agricultural census every 5 years that is broadly used by researchers in other sectors to gauge farmers’ financial standing.

But in this census process, the USDA typically does not separate out poultry operations. When the revenue of poultry farms is compiled, the farmers’ revenue from other agricultural ventures such as cattle or crops is included. Looking at the census data on poultry farms is thus not a reliable reading of the returns to actual poultry operations. This is another obstacle for farmers that obscures their ability to understand the industry.

Chicken Farmers Incomes higher than U.S. Median?

Elam draws on one of the few studies conducted at USDA to address the claim that “Sixty percent of chicken farmers earned household incomes that exceeded the U.S.-wide median.”

This data comes from a USDA study that assessed data from a broiler production specific survey conducted in 2011 to get a better reading on the financial standing of poultry growers.

They illustrate their claim in the following graph, from the original McDonald report:


On the surface, the median of $68,445 looks pretty good. But McDonald himself cautions against this kind of generalization in his report: “averages don’t tell the whole story; the range of household incomes earned by broiler growers is also wider than other groups, reflecting the financial risks associated with contract production.”

The most favored farmers make a lot, but many make very little.

One important thing to consider is that in comparing poultry operations to all farm households, will include a wide variety of farms including very small farms, where off farm income may generate a significant amount of the total income. In general even a small a poultry farms scale will be significantly higher than a small vegetable farm. The fact that 20% of poultry operations have a median income smaller than even the lowest 20% of all farm households is thus a real concern. Precisely because of the original point we mentioned: the poultry farmers have more debt.

More on Contract Grower Debt

Debt is a significant reason to question a comparison between contract broiler growers and all general US households. Contract growers have made an investment on average of over $1 million. Average US households are not carrying this kind of capital investment.

McDonald himself explains why comparing the variability between poultry farmers’ pay to the variability between all household incomes in the US can generate a misleading statistic:

“Researchers expected to see a wide range of incomes among all U.S. households because the U.S. population encompasses a wide range of ages, occupations, regions, and levels of education—all things that affect earnings. In contrast, contract broiler growers comprise a much more uniform group. They have a common occupation—growing broilers under contract—and 85 percent of their farms are small, with sales of less than $350,000. The farms tend to be rather specialized, with a focus on growing broilers. They are geographically concentrated, in that most are located in rural areas in the South. Few contract growers are young, especially compared to the population of household heads in the United States: their average age is 55, and only 4 percent are younger than 35. Most (93 percent) are men, although most list their wives as secondary operators. Eight-five percent are white males, and while 89 percent have a high school degree, only 16 percent have completed college. Contract growers are a much more homogeneous group than either the U.S. population or the overall farm population, yet their incomes vary more widely.”

He goes on to explain that the reason for this wide range is the tournament system. Farmers are paid a per-pound amount which is determined by their ranking against other growers. From one paycheck to the next, a farmer may be paid a radically different amount per-pound for the chickens they produce. The following graph demonstrates the variability in pay per-pound that one farmer received over 7 consecutive flocks, compared to the base pay.


Source: Lee, Sally. (2015) Farmer Risk in Broiler Production Contracts in the US. Unpublished masters thesis. Humboldt University of Berlin, Germany.

This kind of variability can have a significant effect on the farm’s financial health. The following graph tracks the same farmer for the same flocks, but shows how the variability in pay per-pound caused a range of more than $7,000 between paychecks.


Source: Lee, Sally. (2015) Farmer Risk in Broiler Production Contracts in the US. Unpublished masters thesis. Humboldt University of Berlin, Germany.

Farmers we work with have reported varying ranges between paychecks and some have had more success than others. But the one thing that remains consistent is the way they describe their paychecks: unpredictable. The tournament system, in combination with the very tight margin, exposes farmers to significant and practical risks each flock – like short-term cash flow crises, debt delinquency, and the inability to cover everyday family needs.


The bottom line is that the claims of Representative Harris and this “study” by FarmEcon LCC, a long time appendage fo the National Chicken Council and the poultry integrators selectivly uses opaque statistics to make conclusions without even talking with poultry farmers.

[1] Ifft, J., A. Novini, K. Patrick. Debt use by US farm business, 1992 – 2011. (2014). Economic Research Service, Economic Information Bulletin No. 122. https://www.ers.usda.gov/media/1358634/eib122.pdf

[2] Cunningham, D. and B. Fairchild. (2011). Broiler Production Systems in Georgia Costs and Returns Analysis. University of Georgia Cooperative Extension. https://www.agecon.uga.edu/extension/pubs/documents/B1240_3.PDF

[3] MacDonald, J. and N. Key. Market Power in Poultry Production Contracting? Evidence from a Farm Survey. Journal of Agricultural and Applied Economics, 44,4(November 2012):477–490. https://ageconsearch.umn.edu/bitstream/137136/2/jaae562.pdf

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