What Are Some Recent Changes In The Broiler Industry

Vertical Coordination in the Pork and Broiler Industries: Implications for Pork and Chicken Products. By Steve W. Martinez. Food and Rural Economics Division, Economic Research Service, U.S. Department of Agriculture. Agricultural Economic Report No. 777

Abstract
Recent changes in structure of the U.S. pork industry reflect, in many ways, past changes in the broiler industry. Production contracts and vertical integration in the broiler industry facilitated rapid adoption of new technology, improved quality control, assured market outlets for broilers, and provided a steady flow of broilers for processing. Affordable, high-quality chicken products have contributed to continual increases in U.S. chicken consumption, which has surpassed pork
pork industry reflect, in many ways, past changes in the broiler industry. Production contracts and vertical integration in the broiler industry facilitated rapid adoption of new technology, improved quality control, assured market outlets for broilers, and provided a steady flow of broilers for processing. Affordable, high-quality chicken products have contributed to continual increases in U.S. chicken consumption, which has surpassed pork and beef on a per capita basis. Incentives for contracting and vertical integration in the pork industry may yield comparable results. If so, these arrangements might lead to larger supplies of higher quality pork products at economical prices. Continual reductions in inflation-adjusted (real) chicken prices and response to changing consumer preferences played an important role in the growth of per capita chicken consumption since the 1940’s. An increase in the value of households’ time, reduction in household size, and information linking diet and health have led to consumer preferences for convenient and nutritious food products; and the broiler industry has responded. Broiler products have become more convenient; from New York dressed birds (head, feet, and entrails intact), to eviscerated whole birds, to cut-up birds and parts. After World War II, supermarkets replaced specialty meat markets. Broilers were appealing to both the supermarkets and consumers because of their relative ease of
1). Nearly all broilers are grown under contract or in integratorowned facilities.5 With the decline of the cotton industry in the South, the broiler industry’s shift to the use of contracts encouraged an expansion of broiler production there (Roy). In 1950, Georgia, North Carolina, Arkansas, Alabama, and Mississippi accounted for 27 percent of U.S. broiler production; by 1965, they had become the top five broiler-producing States in the Nation, accounting for 60 percent of U.S. production (National Commission on Food Marketing). Through vertical contracting arrangements, the use of excess labor at lower wage rates reduced production costs in the new production regions.6 Hatchery efficiency gains also contributed to lower chick prices. In 1961, the cost of producing broilers in the Southeast was about 15 percent lower than on the Delmarva Peninsula (Delaware, Maryland, Virginia) (Roy). Developments in Vertical Integration As broiler production and consumption expanded at a rapid pace in the 1950’s, supplies and prices became more unstable (Tobin and Arthur). Shortrun profitability considerations led to production decisions that did not account for longer range considerations affecting the industry.7 Feed companies often did not communicate with buyers of dressed broilers, who provided