Transcribed from the IATP webinar, Contracted Lives: The Experience of Farmers in the Meat Chain in Brazil, India and the U.S., held on December 3, 2015. View the entire webinar here.
Christopher Leonard, author of The Meat Racket: The Secret Takeover of America’s Food Business:
I’m glad I could maybe provide a little bit of history and context for how we got where we are today.
My book is a profile of Tyson Foods and I think talking about Tyson Foods is a great way to understand how the industrial poultry system came to operate as it does today, because Tyson Foods was one of a handful of companies back in the 1940s that pioneered this new model of industrial poultry production.
Studying the history of this company, you can see that one thing is really important to this business model, and that is this concept of vertical integration. From the earliest days, Tyson Foods and its competitors saw the key to their business success was bringing all of these aspects of poultry production under one roof.
A modern day poultry company will control and own the slaughterhouse, the hatchery, the trucking line, all of these aspects that used to be owned separately by small businesses. Bringing these parts of production into one corporate silo allowed these firms to produce chicken more cheaply than ever before.
You know, back in the Fifties chicken used to be a relatively expensive kind of specialty meat. Now it’s the cheapest meat in the United States for sure and it’s increasingly becoming industrialized and cheaper around the world. But there is another important element to the growth of this model of production, and that was mergers and acquisitions.
These companies like Tyson built a very well-orchestrated system that was vertically integrated, they could make chicken really cheap, but the profit margins were still thin and these companies were still vulnerable to this kind of boom and bust cycle of commodities. So, to deal with that these firms started to buy each other out. One competitor would buy another and we saw this sweeping wave of mergers in the poultry business during the 1980s and 1990s.
You know this was driven not just by the desires of the companies that were merging, but by a major change in U.S. antitrust law and antitrust enforcement that has allowed multiple industries to consolidate a lot.
The upshot of this history is that today we have a poultry industry that is first of all more centralized in its control than ever before.
A company like Tyson Foods determines how many chicks are raised on a network of thousands of farms throughout the United States, and they can determine the size of the birds, the kind of medicines they receive. We’ve just seen a tremendous centralization of control, and at the same time we’re seeing a greater level of consolidation than has ever existed in the United States.
Today, just two companies control over 40% of the entire poultry market in the United States. That would be Tyson Foods and Pilgrim’s Pride, which is owned by JBS out of Brazil. You know, you look back at the 1970s – 36 companies controlled that share of the market that two companies control today. We’ve just seen massive consolidation in this business.
Now for farmers this consolidation hasn’t been some neutral force. It has had real effects on the livelihood of farmers, and frankly I think it’s had effects that haven’t been studied well enough at all in the U.S. One of the few studies that I was able to find that really looked at this deeply was conducted by a University of Missouri rural sociologist named Bill Heckman. He conducted one of the very few longitudinal studies that looked at how poultry farmers did during this era of massive consolidation. He drove around rural Louisiana interviewing poultry farmers there from the 1960s all the way up through the year 2000 and created this really unparalleled body of data, looking at the changes and what business was like for poultry farmers, and the findings were really stark.
Back in the 1960s, 87% of the poultry farmers held a favorable view of the company, they were doing business with. They felt like their job was good and the company treated them well. That’s almost 90% of farmers.
By 1999 that figure had fallen to 40%. Far less than half of all poultry farmers now felt they had a good relationship with the company they were doing business with.
I think this effect is very easily explained and really almost predictable, because when you see a lack of competition it would be almost natural for a company to rewrite the contract rules in its favor, because farmers have fewer and fewer choices of who they can do business with. I think there’s ample evidence that in the United States that’s exactly what we saw happen. Over the last twenty years in particular, the terms of contract farming have been rewritten and pushed to the benefit of the company, far more than the benefit of the farmer.
You know I saw this firsthand, traveling around rural towns that had very large poultry-producing facilities and you’d have farmers that borrowed $2 million to build a very large infrastructure of poultry houses, and they were literally living paycheck to paycheck, flock to flock. Again that’s largely because of the consolidation and lack of choice they have of to whom they could do business with.
Just to give one small example, one of the characteristics of contracts for poultry farming in the U.S. is that farmers are paid under a tournament system. So they’re not paid like other farmers on a price per pound basis for the meat they raise. Instead, what these poultry firms will do is rank farmers in a given area based on how much weight the birds gained compared to how much feed the birds ate. It’s called the feed conversion ratio.
Now that could sound like a really good system you know, because it would incentivize hard work and good production and that’s certainly how this system is billed to farmers, but you have to remember that the main terms of success under this tournament are the quality of the birds and the quality of the feed, and farmers have no control over that. The company owns the birds. The company owns and delivers the feed. So for many farmers this tournament can end up being more like a lottery. They hope they are delivered good birds. They hope they are delivered good feed, and the final results of the tournament are absolutely opaque to the farmer. The farmer only sees where they rank in the tournament. They can’t see who they even competed against, and that’s really to the disadvantage of the farmer.
Furthermore, we can see that the terms of the tournament have become increasingly harsh for the farmers. The payment difference between the top performers and the bottom performers are vast. Farmers told me that if you rank at the bottom of the tournament or the top, it can really mean the difference between making money for six weeks’ work or losing money for that six weeks’ worth of work. So the punishment can be really dramatic for farmers.
So in the United States overall we’ve really seen a deterioration in the health of this business for poultry farmers over the last twenty, thirty years as the industry has consolidated, and I will say that having covered this industry, the firms like Tyson Foods are very determined to export this model overseas. They see countries like Brazil, India, China as being an area where they can replicate the growth that they saw in the United States in the 1990s. As more consumers in these nations start eating meat, as we see the rise of franchise fast food operations in these countries, firms like Tyson are working very hard to export this model to those nations and support this new diet that is heavier in meat and new fast food restaurants.