Feeding the Factory Farm: Implicit Subsidies to the Broiler Chicken Industry; GDAE Working Paper No. 06-03

Since the passage of the 1996 Farm Bill, the market prices of corn and soybeans have dropped 32% and 21%, respectively. These commodities are now sold on the U.S. market at a price below what they cost to produce. Recent congressional debates over farm policy have focused narrowly on the issue of subsidies, overlooking other policy changes that provoked this price drop and led in turn to a rise in subsidy support for farmers. Lost in the subsidy debate is a clear understanding of the winners and losers from current agricultural policies, and from the price trends these policies provoke.

In a new paper from the Global Development and Environment Institute, Elanor Starmer, Aimee Witteman, and Timothy A. Wise focus on one group of winners - industrial, corporate-owned livestock production facilities. The researchers calculate the implicit subsidy to the broiler chicken industry from policies that drive down the prices of corn and soybean meal, the main components of industrial poultry feed.  They find:

• In the post-1996 Farm Bill period of 1997 to 2005, the market price of corn averaged 23% below production cost, compared to an already high 17% between 1986 and 1996.
• For soybeans, the margin between production cost and market price tripled between the two periods, from 5% to 15%.
• If the broiler industry had paid full cost for the corn and soybean meal in its feed, industry feed costs in the post-Farm Bill period would have been 21% higher on average than they were.
• Because feed costs account for 60% of broiler production costs, the implicit subsidy kept total costs 13% lower than they would have been if corn and soybean meal had been priced at full costs of production.
• In dollar terms, the implicit subsidy to the corporate broiler industry from U.S. agricultural policy averaged $1.25 billion a year between 1997 and 2005, up nearly $1 billion from the period before the 1996 Farm Bill.
• Initial calculations suggest similar gains to industrial hog operations. With diversified family farmers still trying to compete with factory hog farms, the estimated 13% reduction in operating costs from purchased feed is an incentive to industrialization and gives factory farms the appearance of greater economic efficiency than farms that grow their own feed crops.
• While demand for ethanol may raise corn prices somewhat in coming years, reducing the implicit subsidy to factory farms, future gains to the broiler industry are still projected to exceed $400 million per year.

The policy implications of these findings are dramatic.  To the extent U.S. agricultural policies encourage overproduction and depress prices below production costs, those policies are benefiting industrial users of agricultural commodities, not family farmers.  As policymakers turn their attention to the 2007 Farm Bill, they would do well to examine the ways in which agribusiness firms in general, and industrial livestock operations in particular, benefit from policies ostensibly designed to support family farmers.

The paper can be downloaded at:
http://www.ase.tufts.edu/gdae/Pubs/wp/06-03BroilerGains.pdf

Other resources on the subject:
"Identifying the Real Winners from U.S. Agricultural Policies," by Timothy A. Wise,
http://www.ase.tufts.edu/gdae/Pubs/wp/05-07RealWinnersUSAg.pdf

"Below-Cost Feed Crops: An Indirect Subsidy for Industrial Animal Factories," a fact sheet based on the above GDAE paper from the Institute for Agriculture and Trade Policy:
http://www.agobservatory.org/library.cfm?refid=88122

For more on GDAE's Globalization and Sustainable Development Program:
http://www.ase.tufts.edu/gdae/policy_research/globalization.html