Poultry Your Way - Center for Integrated Agricultural Systems ...

MANAGEMENT
ALTERNATIVES
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Poultry Your Way
MANAGEMENT ALTERNATIVES
INDUSTRIAL: CONFINEMENT
In many areas of the country, manure and litter disposal (waste management) has become a contentious issue,
since contracted farms are concentrated geographically (to be close to processing and feed plants). As noted
by USDA staff, “In some parts of the country, animal wastes pose no environmental threat, but in other, more
environmentally sensitive areas, the high concentration of animal wastes has resulted in nitrogen and phosphates
leaching into groundwater or washing into streams, causing water quality problems and environmental
degradation” (Ollinger, et al., 2000). The issue has become so contentious that many integrators now require their
growers to present a plan for manure and litter disposal. In the Upper Midwest, most farmers have adequate
access to cropland for waste disposal, and because the manure is mixed with litter, it can be applied directly to
fields (Fanatico, 2002a).
Communication. Contract growers receive technical assistance from a service person who is assigned to the
farm by the integrator. This service person may visit the farm daily during start-up (especially with new growers)
and weekly once production is underway. The service person helps with flock management, proper ventilation,
litter, pest control, and disposal of dead birds (Doye, et al., 1996). He or she can visit your farm unannounced
any time in accordance with most contracts. The majority of contract broiler growers surveyed in 1999 reported
having a good relationship with their assigned service person. In fact, the majority of survey respondents said
that “the service person always or usually takes the time to help the grower understand and follow [company]
recommendations” (Schrader and Wilson, 2001). Additionally, some integrators provide “growing guides” to help
with broiler management basics. Once familiar with new equipment, most farmers find their daily tasks fairly
straightforward.
Finances. Industrial contract production has the appealing financial advantages of shared price risk and
guaranteed income. On the flip side, however, substantial capital investments are required. Farmers, lenders, and
lawyers alike have raised questions concerning the financial prudence of signing broiler production contracts.
Careful budgeting and evaluation are necessary before entering into contract production. Consider the following:
• Capital required to build and equip poultry houses • Equity and expected return on investment
• Availability of financing • Cash flow and income during debt pay-down period
• Contract payment formulas and conditions
Contract growers are usually paid a base price per pound of “useable” bird. In Minnesota, one company’s base
price recently amounted to one-fifth the retail price per pound for fresh, whole chicken. In addition to this base
price, growers may earn bonuses or incur discounts for above average or below average performance, respectively.
As a general rule, bonuses are paid for above average feed efficiency (more pounds of chicken produced per
pound of feed). Some other companies give discounts for poor feed efficiency and above average mortalities
(Doye, et al., 1996). Contract terms vary by integrator.
In a ten-state survey, some growers reported earning income that was equal to or greater than what they expected,
but the majority of growers generated less income than expected from their contracted broiler operations
(Schrader and Wilson, 2001). Many contract broiler growers reported struggling with negative cash flow while
capital loans (for housing and equipment) were being paid off. Under most contracts, growers are expected to
put up a minimum of two houses (to reduce input expenses associated with transport). It is not uncommon,
however, for a grower to construct four or five barns that each cost over $100,000. According to the University
of Georgia Cooperative Extension Service, these capital investments—if well maintained—have a physical life of
30 years or more. A long physical life, however, doesn’t necessarily translate into real equity. Some critics of the
industrial management system note that the specialized buildings and equipment require constant equipment
upgrades to remain competitive and have limited market or salvage value (Taylor, 2002).
If you are considering industrial management, make phone calls to identify local capital costs and input expenses,
in order to develop realistic enterprise budgets, projected income statements, and projected cash flows. Talk
to your prospective integrator and other growers to learn more about required capital investments and your
potential returns.