Commerical Poultry Industry

The modern poultry industry has seen remarkable growth over the past 50 years. Three major factors played a role in helping the poultry industry become the billion dollar industry it is today.

1. Scientific research

Since the early beginning of the poultry industry, scientific research has played a major role in helping the industry produce poultry eggs and meat more efficiently. Some important findings include the following:

• Nutritional discoveries like Vitamin D, B12, feeding high-energy diets and the importance of amino acids and other essential nutrients.
• Disease control like Pullorum, Marek's and the development of vaccines to help control disease.
• Genetic improvements started by the "Chicken of Tomorrow Contest" help focus attention to a better meat-type chicken. Later, the 4-way cross helped develop extremely efficient and uniform birds.
• Development of various technologies helped create automation and equipment to make incubation, production, and processing more efficient.
• Knowledge related to managing the birds for optimum growth and improving management techniques resulted in better efficiency and high quality products.

2. Integration

Integration of the various segments of the industry and adopting industrial-like methods for the production, slaughter, and marketing of poultry meat and eggs. Integration will be discussed in more detail later.

3. Innovation

The industry has also been innovative in developing new, convenient, further-processed, value added products that have replaced whole and cut-up chicken and whole egg sales. The percentage of whole and cut-up chicken sales has dropped from nearly 100% in 1960 to around 60% today. Products like breast tenders, cooked breast rolls, boneless wings, deli meats, ground turkey meat, liquid pasteurized eggs and an assortment of frozen pre-cooked meals has aided in the overall industries growth. Chicken has also become a mainstay of the fast food menus over the past 20 years.

Vertical Integration of the Poultry Industry

One of the reasons the commercial poultry industry has been able to produce meat in such an economic manner is vertical integration. This means one company owns and controls multiple stages of production like the breeder flocks, hatchery, grow-out flocks, processing plant, feed mill, transportation, and marketing. Vertical integration allows the company to control costs, to better utilize barn space, feed production capacity, gives them better control over product quality and consistency, and allows the company to use economy of scale to their advantage. The main cost advantages come from having control of the production capacity, elimination of individual profit centers, and buying feed and supplies in very large volumes.

As part of this model, the poultry industry also uses a contract production system. Under this system, an independent producer (farmer) provides the land, buildings, equipment, utilities, and daily care and management of the birds. The company supplies the birds, feed, and any necessary health or technical assistance. The company coordinates and provides delivery of chicks from the hatchery and catching crews and transportation at the time of harvest. The independent producer is then paid so much per pound of meat or per egg produced based on efficiency standards. The best producers are rewarded with bonus payments based on their relative performance. The growers that achieve better feed efficiency, lower mortality, and other cost and quality standards earn a premium. The system rewards efficiency and optimal bird care.

A common misconception

Some people refer to integrated production as factory farming due to the overall scale of production. A common misconception is that this model puts the family farm out of business. However, under the contract system the ability to build two or more poultry houses on a farm and have a guaranteed source of income has kept many family farms profitable and allows future generations to continue producing food by diversifying the farm income stream and reducing financial risk.

What follows is a more detailed discussion on how the vertical integration model works in the modern poultry meat industry. The egg industry is very similar with slight differences in who owns the breeders and feed mill or degree of integration.