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glatt · 03-19-2014, 08:54 AM

I heard a really interesting story on NPR a couple weeks ago. It was all about the financial picture of one of these chicken farms. The entire industry uses a contract system. Perdue supplies the chicks and the feed to the farmer and then pays the farmer to raise the chickens. The farmer has to provide the farm and barn and labor and can expect to earn $200K per year for 4 big chicken houses. Except the barns have to meet a standard spec, and cost about $1 million. So the farmer takes out a loan. After making payments on the loan, and operational costs, the farmer can expect to clear about $60k per year in profits on average. Except the "on average" part is key, because Perdue pays some farmers a bonus and gives some farmers a penalty, based on how efficient they are compared to the other farmers. Perdue is turning it into a competition to get economic efficiency to constantly improve. Sounds good from Perdue's viewpoint, but for the farmer, it means that you can be doing everything right, and even improving your efficiency from year to year, but since you are compared to other farmers, they might be doing even better, and you will be assessed a penalty while they get a bonus paid for with your penalty.

So you get some farmers who end up not making any profit at all, but they are stuck because they took out a loan to build the barn, and the bank will take their land if they don't keep making payments. So they can't get out of the business.

Anyway, all these financial pressures are directly responsible for the conditions of the CAFO places. They are going to cut costs any way they can.

03-19-2014, 08:54 AM	#22
glatt ™ Join Date: Jul 2003 Location: Arlington, VA Posts: 27,717	I heard a really interesting story on NPR a couple weeks ago. It was all about the financial picture of one of these chicken farms. The entire industry uses a contract system. Perdue supplies the chicks and the feed to the farmer and then pays the farmer to raise the chickens. The farmer has to provide the farm and barn and labor and can expect to earn $200K per year for 4 big chicken houses. Except the barns have to meet a standard spec, and cost about $1 million. So the farmer takes out a loan. After making payments on the loan, and operational costs, the farmer can expect to clear about $60k per year in profits on average. Except the "on average" part is key, because Perdue pays some farmers a bonus and gives some farmers a penalty, based on how efficient they are compared to the other farmers. Perdue is turning it into a competition to get economic efficiency to constantly improve. Sounds good from Perdue's viewpoint, but for the farmer, it means that you can be doing everything right, and even improving your efficiency from year to year, but since you are compared to other farmers, they might be doing even better, and you will be assessed a penalty while they get a bonus paid for with your penalty. So you get some farmers who end up not making any profit at all, but they are stuck because they took out a loan to build the barn, and the bank will take their land if they don't keep making payments. So they can't get out of the business. Anyway, all these financial pressures are directly responsible for the conditions of the CAFO places. They are going to cut costs any way they can.