Poultry of the Middle in the U.S.: ‘Implications for Sustainable Producers & Scaling Up’ pdf

Growth of the chicken industry 4 Agriculture of the Middle 6 Poultry production & processing in the U.S.: Two extremes 7 Specialization by production system 11 Specialization by pr

Poultry of the Middle

in the U.S.:

‘Implications for Sustainable

Producers & Scaling Up’

Growth of the chicken industry 4

Agriculture of the Middle 6

Poultry production & processing in the U.S.:

Two extremes 7

Specialization by production system 11 Specialization by processing technology 14 Some examples of mid-sized companies 16

ISSUES IN POULTRY OF THE MIDDLE 21

A General Map of ‘Poultry of the Middle’

Introduction

Purpose of the study

Poultry meat production in the United States is dominated by a small group of companies that produce meat at very large scale In addition

to their industrial scale of production, these companies have two

dominant characteristics They are 1) Vertically-integrated; and 2) Consolidated and continuing to undergo further consolidation In

2006, the top 10 largest corporations controlled 76.6% of the chicken raised for meat in this country and the top three companies controlled 53.1% of the industry (Thornton 2007)

At the other end of the size continuum, chicken producers tend to be small and mid-sized farmers or farmer cooperatives that raise a

specialty product -often free-range or organic Their own the birds and slaughter either on-farm or in small, locally-owned processing facilities These birds are sold directly by the farmers to consumers, retail stores, restaurants and other outlets that are scales appropriately

But somewhere between these few corporate giants and the thousands

of small-scale, limited distribution, directly-marketed birds of local farmers lies a very diverse group of businesses that we refer to in this report as ‘Poultry of the Middle’

The purpose of this study is to offer a first attempt at a description and analysis of the businesses of ‘Poultry of the Middle’ in the U.S We believe that the group of businesses that comprises this sub-sector of the poultry industry has potential to teach us something about what is needed to support small-scale poultry producers as they scale up in volume of production to mid-size

Typically, as small and medium-sized poultry producers grow, there are two tasks that are essential to their set-up, operations and survival These companies must seek out a product/niche that will distinguish their company They must also create for themselves the infrastructure needed to get their product from farm to consumer The infrastructure

needed includes all of the resources that integrated companies own: access to genetics, hatcheries, feed, processing facilities, distribution, marketing, sales staff and more These smaller producers will also eventually need further development of industry infrastructure to include research and development, education and training,

publications, etc

In order to aid producers who are approaching or targeting production

at that mid-sized scale with poultry, we have taken on this study

This study examines the characteristics that distinguish this group of poultry producers and processors It seeks to better understand their business structures, the infrastructure they use and create, the

technologies employed in production and processing, the role of the farmer/growers in the business structure and the niche marketing characteristics of products from poultry businesses of the Middle The study seeks to better understand these aspects of this sector of the industry in order to better assist farmers of Wisconsin and beyond as they seek to provide alternative poultry products to the marketplace

Methods

Research for this study involved basic research using the Internet and interviewing key informants Multiple key informants were identified through contacts in the industry and on the Internet Informants were interviewed by telephone

Background

Growth of the chicken industry

Today the U.S produces more poultry than any other country in the world, valued at more than $20 billion in on-farm revenues (Economic Research Service 2007) with broiler, egg, turkey and other poultry production combined How did this industry evolve into one that is so huge?

Up into the early 20th Century, most poultry production was

concentrated on small farms Farm families managed small flocks of birds that were used for two purposes: a source of both eggs and meat

By the 1930s, both egg and chicken meat production had become

commercialized to provide for the growing urban population of the nation

In the 1940s, most business along the value chain from farm to

consumer remained independent Hatcheries, farms, feed mills and processing facilities were located primarily in the east, south and

Midwestern regions of the country where water, corn and soybeans and land made poultry production possible and profitable Feed mills extended credit to farmers for feed which was typically paid back once the bird was processed and sold

After World War II, like many agricultural sectors in the U.S., poultry production and processing took a new direction First was that the scale of production has increased to industrialization of production and processing A second important change in the poultry industry in the past 50 years has been the specialization in genetics that divided the industry into meat and egg sectors Standardization of poultry meat was achieved by breeding birds specifically for meat production

Poultry businesses found that they achieved better control of all stages

of production and processing by buying up businesses that formed the infrastructure in the value chain (hatcheries, farms, feed mills,

processing plants and trucking operations) Thus began the vertical integration of the broiler industry

The National Broiler Council was formed in 1954 (National Chicken Council 2007b) Based in Washington, D.C., its role was to represent the growing industry businesses to the federal government and to increase the demand for chicken in the marketplace and among

consumers Print and television advertising were used to stimulate demand for chicken By the 1970s, most chicken was sold under brand names, either of a corporate producer or of the grocery chain where sold

Changes in dietary preferences have had a major influence in creating increased demand for poultry in the U.S in the past 40 years In 1960, poultry was 16% of people’s overall meat, poultry and fish

consumption, but by 2003, poultry was 35% of meat and fish

consumption in the U.S (National Chicken Council 2007a)

In recent years, broiler production has increased dramatically to meet market demand For example, the value of broiler production

increased 34% from 2003 to 2004 (U.S Poultry and Egg Association 2006)

Per capita poultry consumption in US, 1960-2000,

in pounds

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

1960 1970 1980 1990 2000

Year

Data sources: National Chicken Council 2007

These numbers imply tremendous growth in the importance of chicken

in the diet and also growth in the poultry industry to supply, process, package, market and transport that volume of chicken

Agriculture of the Middle

This study’s emphasis on mid-sized poultry processors emerged from a larger, national study examining the plight of similar sized agricultural operations in the U.S., past, present and future

Since 2003, a task force of academics, agricultural extension workers and others has focused on studying a sector of agriculture in the U.S referred to as ‘Agriculture of the Middle’ This sector comprises a group of businesses owned by farmers, ranchers, processors and other entrepreneurs These businesses produce agricultural products of many types on a scale that is neither industrial or small farm in scale and can be referred to as ‘Agriculture of the Middle’ (Kirschenmann et

al 2004)

While difficult to define with exact production numbers, this sector is characterized by a set of businesses that are between the large-scale, vertically-integrated industrial sector and the small-scale direct market producers The businesses that fit this criterion have been

disappearing over time (Fred Kirschenmann et al 2004) and have been the subject of considerable research attention

Why is there concern about the disappearance of Agriculture of the Middle?

For the purposes of this report, the most important reason for concern about mid-sized poultry production operations and mid-sized

processing facilities has to do with the lack of and increasing loss of infrastructure that impedes the growth of small scale producers who wish to scale up in production and processing

Another reason has to do with the role that these companies have played in the marketplace Many innovations and much

entrepreneurial activity originates from this sector of producers In order to be a smaller company and be profitable, businesses must produce and market specialty goods or services (ie non-commodity products) that can be differentiated from generic products by

distinction in production, processing, packaging or other

characteristics Specialty goods can earn adequate margin that offers a smaller-scale producer (non-industrial-sized) the potential to be

profitable

Chicken production & processing in the U.S.: Two extremes

Typical of many agricultural sectors in the U.S today, the poultry industry is characterized by two types of systems that result in poultry for consumption: large-scale industrial, conventional production and small-scale, alternative production

Large-scale, conventional, industrial poultry production

At the high-volume end of the continuum is the conventional,

industrial poultry industry Today, the conventional,

vertically-integrated poultry industry controls and manages the production and processing of 96% of the chickens raised for meat in the U.S (Pretanik 2007)

There are 10 companies that produce more than ¾ of the chicken produced for market in the U.S (Thornton 2007) All are

characterized by extreme vertical integration and efficiency: individual corporations own multiple businesses or profit centers that control and manage every aspect of the production, processing, distribution and sale of chickens

Breeder operations enable these companies to maintain genetic stock

of birds that enables them to select and breed for characteristics that are desirable for industrial production Some of these same companies

control large volumes of corn and soybeans for chicken feed that are managed and mixed into individualized bird diets in corporate-owned feed mills Hatcheries are also a part of the corporate structure and serve to provide the day-old chicks to the growers who raise the birds Birds may be raised on corporate-owned farms or may be raised by contract farmers on their own farms Farmer involvement in the

conventional industry is by contract for production only Farmers typically have a contract with large, corporate poultry companies The company typically provides the chicks, the feed, any necessary

medication needed for the birds and oversight of the production

operation Farmers supply housing, electricity, water, labor and invest the capital to provide these services

Birds raised for meat (broilers) are raised indoors, in confinement It

is not uncommon for operations to have up to 20,000 birds (Fanatico 2002) in one facility When the birds have grown to the desired size, they are picked up by corporate trucks, delivered to the processing plant (a government-inspected plant), are slaughtered, packaged and distributed

This industry aims to produce a meat product that is both standardized and inexpensive A standardized product is essential in the

mainstream marketplace The corporation assures this standardization

of product by providing chicks with the same genetics, feed with the same nutrition, by requiring standardized production techniques and processing procedures

Control of operations along the value chain in chicken production assures not only standardization of product but allows for corporate control of expenses, labor and equipment The system assures a cost-efficient operation at all levels of the value chain

Small-scale, alternative poultry production Small-scale poultry

production tends to be managed by farmers that raise the birds on their own small-to-medium-sized farms These birds are typically raised to be direct marketed by the farmer to consumers, restaurants or small retail stores In this model, the farmer typically buys chicks from

a hatchery or feed mill and provides all the feed, lighting, housing, expertise and other requirements for raising the birds Farmers

maintain control over the bird and its production For processing, farmers can either conduct their own slaughter or work with a facility that is willing to provide processing (Fanatico et al 2006.) Several regions of the U.S have developed directories of the processing

facilities that are willing to do custom slaughter.) States vary in the

type of facilities they permit and oversee There are also restrictions on inter-state sales unless animals are slaughtered at a USDA facility Small-scale producers seek to meet the financial needs of their

households and businesses while simultaneously addressing the

demands from the marketplace Many small-scale poultry producers have been successful at direct marketing Many have sought to grow their businesses to fill a larger market niche by offering their chickens

to restaurants or retail stores Most find that they are excluded from mainstream poultry processing facilities, distributors and marketing operations because they tend to be controlled by large-scale, industrial corporations The highly integrated nature of the poultry industry in the U.S means that growth for small, independent producers is very challenging

In part, this small-scale sub-sector of poultry production has grown in response to a market demand for poultry that is raised using

production systems outside of the conventional, confinement,

industrial model

Free-range poultry, heritage poultry varieties, organic certification and other characteristics are used by farmers to distinguish their products and to help earn a margin that enables them to be profitable despite their small volume of production

In this small-scale, alternative model, farmers typically raise poultry in

an effort to diversify and complement other income sources This model is termed ‘alternative’ because these producers do not fit into any vertically integrated scheme and therefore must seek out and often create the infrastructure they need -along the value chain -in order to raise their birds, and get them processed and to market

‘Poultry of the Middle’: A diverse group of businesses

Who’s in the middle?

Between these two extreme -large, industrial poultry processing and the small scale farmer-owned and managed production and processing -exists another sub-sector that is comprised of companies that are highly variable in size, products and functioning, but relative to the two extremes, are intermediary in scale For the most part, this mid-sized poultry production and processing industry has remained difficult to define or identify and is poorly described This study aims to start filling that void

In an attempt to define the businesses that comprise ‘Poultry of the Middle’, we’ll look at a table showing the names and average weekly production of select companies ranked in the top 38 businesses in volume of chicken meat production in the U.S (Watt Poultry USA 2007)

Table 1 Selection of top 38 chicken meat producing companies in the U.S

Source: Watt Poultry USA, http://www.wattpoultry.com/PoultryUSA/Article.aspx?id=10096

From the Watt Poultry list (above), those ranked 1-10 (in volume of production) produce 76.6% of the chicken meat produced in the U.S Even within this group of the top 10, there is wide variation in the volume produced by each company—with Pilgrim’s Pride producing more than 180 million pounds of chicken from 38 different plants and Tyson producing over 150 million pounds per week at 39 plants At the

lower end of the top 10 is Foster Farms, #10, with five plants producing considerably less at 17 million pounds a week At the lower end of this group of top 38 chicken producers, by volume, is Hain Pure Protein Corp that processes 800,000 pounds of chicken in a week

Using the table, it becomes obvious that defining large versus sized poultry producers is far from easy The table also illustrates the great variation within categories based on volume of production

medium-Specialization by production system

As in any industry, the survival of mid-sized companies producing meat chickens depends largely on the company’s ability to identify a niche market, define that niche in the marketplace and keep their prices competitive A niche or specialty product enables producers to earn a higher margin that with conventional (commodity) products This higher margin per unit is essential to the survival of smaller-scale producers since they can not compete effectively on price (Higher volume manufacturers can always undercut them on price and thus close them out of the market.) But a specialty product is perceived as a premium product and thus demands a higher price

This need for a well-defined niche is made even more critical in the poultry industry because of the increasing concentration and vertical integration within the conventional broiler industry in the U.S These changes have resulted in extremely low-cost meat chickens in the

conventional market and have forced alternative producers (small and medium-sized) to identify a clear niche in order to maintain a place in the market

Several different types of marketing niches characterize the group of companies that are mid-sized in the U.S Most of these distinctions deal with methods of production or processing, though other issues are also used to convey unique and higher value products

Organic, free-range and natural

The most common production distinctions in meat chicken production deal with methods that diminish or eliminate antibiotic use in finished birds

The largest and most successful set of niches that has opened in poultry markets is for organic chicken and natural chicken While these two niches are very different in production method, they (and free-range)

tend to be poorly understood by many consumers and may be assumed

to be interchangeable terms

Free-range refers to birds that are given outdoor access where they are allowed to forage and feed on grass and insects The amount of time outside or specific conditions of the outdoor area are not regulated or defined for the purposes of marketing or labeling birds as ‘free-range’

in the U.S

Organic poultry production systems must adhere to the set of

requirements defined by the USDA’s National Organic Program

(http://www.ams.usda.gov/nop/indexNet.htm) Organic production systems operate without chemical pesticides or fertilizers and animals are not fed antibiotics or growth promotants The farm where

production occurs must adhere to these and other practices as defined

by the USDA, cannot have been treated with synthetic pesticides in the previous three years and must undergo organic certification by a third party certifying agent

Organic poultry production has increased dramatically in the past decade in the U.S with expanding and growing markets From 2000

to 2005, production of certified organic poultry quadrupled in the U.S (Greene and Oberholtzer 2007)

Premiums paid for organic poultry have remained high in recent years The high cost and shortages of organic feed, limited processing

capacity and distribution networks account for the gap between

demand and production, and are likely to keep premiums high for organically-raised broilers

Demand for organic broilers continues to be higher than the supply Concerns about human health, the natural environment and about animal welfare appear to be influencing consumers in their pursuit of organic chicken

The term ‘natural’ on a chicken label is confusing and can be

misleading ‘Natural’ on the label refers to the manner in which the birds were processed, thus implying that no chemicals were used in processing the bird (This is likely misleading to consumers.) ‘Natural’

on the label does not refer to or provide any information on how the bird was raised That is to say that a bird can be raised on antibiotics and hormones and still be labeled ‘Natural’ since no chemicals were added during processing.) The level of consumer awareness of this practice and the meaning of such labels is unclear

In June 2007, Tyson took a major step in the direction of specialty production practices for one brand of chicken that they produce

Tyson announced that they have created a premium brand under their own label of birds will be raised with no antibiotics These ‘natural’ chickens will be sold fresh in stores The Tyson chicken label for this natural brand will read: “100% All Natural Chicken Raised Without Antibiotics–No Hormones Administered and No Artificial

Ingredients.”

Tyson also announced that they are simultaneously launch a $70

million campaign to publicize this change in their production practices (for the new brand) Tyson acknowledges that this change in practice resulted from consumer preference The company indicates they will charge more for fresh chicken produced without antibiotics than for birds raised with antibiotic

High Animal Welfare

An increasing concern among some consumers and producers

regarding the conditions under which animals are raised and

slaughtered has opened up opportunity for producers to distinguish their operations by their treatment of animals

The poultry industry has established welfare guidelines that assure a minimum standard of animal welfare for birds raised in the U.S

(National Chicken Council 2007) However, the companies falling into this niche of specialization have developed a more involved set of

production characteristics in support of animal welfare and humane treatment of animals

As with organic, third party certification organizations have emerged to lend credibility and an objective assessment of production operations with regard to treatment of animals

MBA Poultry, producing the Smart Chicken brand, announced in

January 2007 that they had been awarded the ‘Certified Humane

Raised and Handled’ label for use on their organic chickens This designation is awarded by a non-profit organization, Humane Farm Animal Care (HFAC), based in Herndon, Virginia HFAC has a set of standards for producers of meat, dairy products and eggs that offers inspection of production establishments and certification if businesses comply with their standards If awarded certification, business may use the ‘Certified Humane Raised and Handled’ label on products and may advertise using this designation

Specialization by processing technology

Stunning, killing and plucking

Birds are stunned to render them unconscious before killing in most processing plants While required by law in Europe and used in

slaughterhouses for other livestock in the U.S stunning is not a

requirement in poultry processing in the U.S

Stunning renders the birds insensible to pain It is also helpful to immobilize the bird to make the kill more efficient and makes animals insensitive to pain Stunning may also have an effect on the birds’ feather follicles making removal of feathers easier (Fanatico 2002) The predominant method of stunning used in the U.S is low voltage electrical stunning In electrical stunning, birds are shackled live to immobilize them The heads are then immersed into a water bath with

an electrical current Once unconscious from the stun, birds are killed with a cut to the neck Placing the bird’s neck at a particular angle and being cut from the side diminishes damage and optimizes bleeding Specifications of equipment that facilitate this optimal angle and type

of cut vary by manufacturer and equipment

A newer technology, used in Europe and elsewhere (though minimally

in the U.S.) is controlled atmosphere stunning Controlled

atmospheric stunning (CAS) involves the use of gases that stun the birds into unconsciousness

Multiple companies sell equipment and necessary supplies for

electrical bird stunning There is some reported controversy related to different stunning methods and humane treatment of birds There is also discussion in the literature regarding the efficiency, cost and other characteristics of different gas combinations in CAS systems

QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.

Source: Yara MACS TM

http://www.yara.com/en/products/gas_chemicals/applications/stunning_hydromac.h tml

As with other specialized practices, consumer demand is beginning to have some influence on industry practices in stunning methods used in the U.S One example comes from a major fast food chain in the U.S

In March 2007, Burger King announced that it would give preference for chicken meat purchases to companies that use controlled

atmosphere stunning for slaughtering chickens (Martin 2007) In the same article, Burger King, the second largest fast food hamburger chain in the U.S., cited a desire to move ahead of consumer food trends

as their reasoning in making this shift

Chilling systems

Once birds are slaughtered in a processing facility, the carcass

temperatures must be brought down to a temperature low enough to inhibit growth of microorganisms There are two general types of chilling systems used after slaughter to accomplish this task: 1)

immersion (water) chilling and 2) air chilling

Immersion cooling Immersion chilling is by far the more commonly used chilling technology in the U.S It is used to lower the temperature

of slaughtered birds Carcasses are soaked in cold water tanks This system also incorporates a treated bath of either chlorine or other chemicals for elimination of microorganisms

Air Chilling Air chilling in poultry processing has been used since the 1970s in Europe In this system, bird carcasses hang individually from

a track that advances through two separate rooms where chilled air circulates Tracks are arranged water cleaning of carcasses occurs down low where the wastewater cannot contaminate other birds In the Smart Chicken system, 75% of the bird’s body heat is eliminated in the first chill room In the second room, the carcass temperature is

lowered to the intended 32-34oF

A major advantage of air chilling is that there is less possibility of

cross-contamination of birds because the birds have less contact with one another If water chilling is used, that contaminated matter can be spread to any carcass that shares the bath While water is continuously circulated, this does not eliminate cross-contamination Cross-

contamination is far less likely with air chilled systems than with water cooling With air chilling, contaminated material (feces and other sources of bacteria) remain segregated with the bird or birds that are contaminated