Posted: Thursday, October 13, 2011 10:00 AM
Economist outlines how packers can shift shortfalls to producers
An economist studying the poultry market said the recent price-fixing ruling against Pilgrim's Pride points to broader problems in the chicken industry.
Bob Taylor of Auburn University in Auburn, Ala., said cutbacks in poultry production by packers have a different effect than they would in a truly competitive market by saddling farmers with the main financial burden.
"The growers, when push comes to shove, are no more than serfs," he said.
The fixed cost of building and operating poultry barns is borne by farmers, while the packers -- known as "integrators" -- supply the chickens, he said. The integrator owns the birds, while the grower is paid to raise them.
Integrators often curtail production by lengthening the periods of time between supplying farmers with new flocks of chickens, he said.
Normally, farmers have five to seven days between flocks for cleaning and disease control, Taylor said.
Packers generally stretch that time to 10 to 14 days to cut production, but in 2008 some farmers had to wait as long as 45 days between flocks, he said.
Packer profits improve as the reduced amount of chicken in the market pushes up prices, but growers earn less revenue even as they pay the same fixed costs, Taylor said.
"It transfers the loss to growers," he said.
Richard Lobb, communications director for the National Chicken Council, said Taylor's characterization oversimplifies the poultry industry.
"The grower needs the company and the company needs the grower," he said.
Lobb acknowledged that chicken farming isn't a lucrative profession, but he said that was due to the inherently low profit margins in the poultry market.
High feed prices have erased profits throughout the industry so far this year, he said. "The industry as a whole has not made money in any single week in 2011."
Chicken farmers can at least expect a consistent income, unlike crop farmers and packers, who are exposed to the full volatility of market forces, Lobb said.
Lobb disputed the notion of price manipulation in the poultry industry, noting that retail prices for chicken have only risen about 3.4 percent in the past year.
"If someone is trying to manipulate prices, it really hasn't shown up so far," he said.
Conflicts over market practices are not limited to the poultry industry.
Beef packers are believed to similarly restrain production, said Bill Bullard, CEO of the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America.
In 2006, packers stopped buying cattle for two weeks straight to boost retail prices while decreasing prices to ranchers and feedlots, he said.
However, such accusations are difficult to prove in court, Bullard said.
Chicken farmers in the Pilgrim's Pride case succeeded because of an e-mail by an executive that referred to restricting supplies and increasing prices, he said.
"We didn't have the smoking gun they had in this poultry case," Bullard said.