To hear Elizabeth Warren tell it, Agribusiness is ruining the family farm and Big Chicken is making life miserable for US chicken farmers:
“[W]e must address consolidation in the agriculture sector, which is leaving family farmers with fewer choices, thinner margins, and less independence…Mergers mean that farmers have fewer and fewer choices for buying and selling, while vertical integration has meant that big agribusinesses face less competition throughout the chain and thus capture more and more of the profits.
Tyson, for example, controls just about every aspect of bringing chicken to market — feed, slaughter, trucking — everything except owning the farms themselves. Chicken farmers have gotten locked into a “contract farming” system in which they take on huge risks — loading up on debts to build and upgrade facilities — while remaining wholly dependent on Tyson for everything from receiving chicks to buying feed to selling the grown broilers.” Leveling the Playing Field for America’s Family Farmers
Agricultural economists have a different take:
“[T]he standard economic theories of buyer power and its treatment for antitrust purposes…may in many cases be fundamentally incorrect. Moreover, under certain conditions that we make explicit, buyer concentration and close vertical coordination between buyers and sellers can unambiguously be in farmers’ best interests and improve overall economic welfare….[preventing mergers] preserves the “tragedy of the commons” effect and may well be detrimental to farmer welfare.” Saitone and Sexton, 2017
“The analysis on the effects of a vertical integration showed that supply chain integration increases farms' competitiveness and profitability.” Carillo, Caracciolo, and Cembalo, 2016
The broiler industry improved its productivity greatly as its vertically integrated system of production was introduced in the 1950s and then refined through improvements in breeding, feed formulations, housing, and management practices. …mergers among processors have played a role in increased concentration…[and] allowed processing plants to realize scale economies and lower costs. If those lower costs reduced retail prices and led to increased quantities demanded, growers could benefit from increased processor concentration. MacDonald and McBride, 2009
“By signing a contract with a large firm, farmers can also reap the benefits of a firm’s enormous wealth. The firm can help the farmer reduce costs of veterinary services, provide free technical assistance, encourage the adoption of state-of-the-art technologies allowing the farmer to increase output and also maintain good stewardship to the environment. Historically, ‘production contracts between poultry growers and feed suppliers has encouraged rapid adoption of new technology that creates economies of size and lower production costs,’ said Lee Schultz, an agricultural economist at Iowa State University.” John Liesveld “Vertical Integration: pros and cons to farmers” Fremont Tribune May 6, 2016
And here’s what chicken farmers have to say:
“The current system is beneficial to both the companies and the farmers, who like partnering with a company that can absorb most of the risk (chicken farmers get a “guaranteed market,” which means they avoid the risk of being unable to sell their products or having to sell at a loss).” Chicken Check-In: The National Chicken Council
Bottom line: Big is not always bad. Sometimes the benefits of consolidation and concentration exceed the costs. Of course, companies must be regulated to minimize those costs, but Elizabeth Warren’s approach to agribusiness could very well leave farmers, consumers, and the environment* worse off.
* For example, Tyson Foods is partnering with the Environmental Defense Fund to address over-fertilizing crops used as chicken feed.
Carillo F., Caracciolo F., and Cembalo, L. (2016) “Vertical integration in agribusiness. Is it a bargain?” Italian Review of Agricultural Economics
Chicken Check-In: The National Chicken Council https://www.chickencheck.in/faq/chicken-contract-growers/ Accessed on 9/22/2019
John Liesveld “Vertical Integration: pros and cons to farmers” Fremont Tribune May 6, 2016
MacDonald, J. M. and McBride, WD. (2009) The Transformation of U.S. Livestock Agriculture: Scale, Efficiency, and Risks United States Department of Agriculture Economic Research Service Economic Information Bulletin Number 43.
Saitone, T.L. and R.J. Sexton “Concentration and Consolidation in the U.S. Food Supply Chain: The Latest Evidence and Implications for Consumers, Farmers, and Policymakers” Federal Reserve Bank of Kansas City Economic Review 2017, 25-59.
Elizabeth Warren/Leveling the Playing Field for America’s Family Farmers