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Feeding the Factory Farm

Who benefits the most from current U.S. farm policy? “Farmers” is an obvious answer—but it may not be entirely correct.

Since the passage of the 1996 Farm Bill, the prices that U.S. farmers received in 2005 for the corn and soybeans they sell dropped 32% and 21%, respectively. Returns from the sale of these crops have not covered the costs of producing them. Recent congressional debates over farm policy focus narrowly on farm subsidies as the culprit behind low prices, overlooking other policy changes that provoked the price drop and led in turn to a need for larger subsidy payments. To fix farm policy, legislators must first have a clear understanding of who wins and who loses under the current system and why.

GDAE’s Feeding the Factory Farm project identifies and analyzes one group of winners: industrial, corporate-owned livestock production facilities. Like corn syrup processors and ethanol blenders, livestock companies use agricultural commodities as an input. When the price of the input drops, they receive a discount on their production costs.  While the cost advantages of industrial livestock operations are routinely attributed to efficiency gains from economies of scale, our research suggests that federal farm policy has actually played a major role in “subsidizing” this kind of operation by ensuring low market prices for feed. It does so at the expense of smaller scale, diversified, locally-owned crop and livestock farms.

Among our findings:

  • In the post-1996 Farm Bill period of 1997 to 2005, the market price of corn averaged 23% below production cost. The market price of soybeans was an average of 15% lower than what it cost to produce.
  • For the same period, chicken and hog feed, which are mostly made up of corn and soybean meal, were 21% and 26% below the costs of production for the feed.
  • Feed costs account for 60% of broiler production costs, so this ‘discount’ 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 discount to the corporate broiler industry from U.S. agricultural policy averaged $1.25 billion a yearbetween 1997 and 2005.
  • For the hog industry, industrial operations’ feed costs were 26% lower than what farm families were paying to produce their own feed, which lowered total production costs for factory farms by 15%. The discount to large and industrial hog operations housing over 2,000 hogs each totaled almost $1 billion per year between 1997 and 2005.
  • The discount to industrial hog producers is particularly interesting because there are still some mid-sized, diversified family farms trying to compete with industrial hog operations in the United States.  The cost advantages of industrial producers are significantly or entirely eliminated if they have to pay full costs for their feed.
  • Savings to other industrial livestock sectors were significant as well: $733 million per year to industrial dairies; $501 million/year to industrial beef cattle; and $433 million/year to egg producers.  Over the nine-year period, the estimated savings to these three sectors plus hogs and broilers was nearly $35 billion.

Farm policies designed to keep feed prices low have serious economic, social, structural, and environmental effects. Smaller scale diversified family farms that grow crops and raise livestock have a difficult time competing with specialized operations that can purchase feed on the market at a price below what it costs to produce. The United States is losing family livestock producers at a rapid rate. Evidence also suggests that many industrial animal operations produce more waste than they can dispose of, leading to pollution and health problems in rural communities and beyond from air and water contamination.

Resources from GDAE's Feeding the Factory Farm project:

"Buyer Power in U.S. Hog Markets: A Critical Review of the Literature," by Timothy A. Wise and Sarah E. Trist. GDAE Working Paper No. 10-04 (August 2010).

"Agribusiness and the Food Crisis: A new thrust at anti-trust," by Timothy Wise, GDAE Globalization Commentary, from Triple Crisis Blog, March 22, 2010.

"Hogging the Gains from Trade: The Real Winners from U.S. Trade and Agricultural Policies," by Timothy A. Wise and Betsy Rakocy. GDAE Policy Brief (January 2010).

“Sweetening the Pot: Implicit Subsidies to Corn Sweeteners and the U.S. Obesity Epidemic,” by Alicia Harvie and Timothy A. Wise, GDAE Policy Brief 09-01, February 2009.

Feeding at the Trough: Industrial Livestock Firms Saved $35 Billion from Low Feed Prices,” Elanor Starmer, and Timothy A. Wise. GDAE Policy Brief No. 07-03 (December 2007).

Living High on the Hog: Factory Farms, Federal Policy, and the Structural Transformation of Swine Production,” Elanor Starmer, and Timothy A. Wise. GDAE Working Paper No. 07-04 (December 2007).

"Identifying the Real Winners from U.S. Agricultural Policies," by Timothy A. Wise (December 2005).

Feeding the Factory Farm: Implicit Subsidies to the Broiler Chicken Industry,” by Elanor Starmer, Aimee Witteman, and Timothy A. Wise (June 2006).

"Industrial Livestock Companies' Gains from Low Feed Prices, 1997-2005," by Timothy A. Wise and Elanor Starmer. GDAE Policy Brief (February 2007).

Other work related to GDAE’s Feeding the Factory Farm project:

"Below-Cost Feed Crops: An Indirect Subsidy for Industrial Animal Factories," a fact sheet based on GDAE’s work from the Institute for Agriculture and Trade Policy (June 2006).

Feeding the Factory Farm: How U.S. Farm Policy Benefits Industrial Livestock Operations and Hurts Family Farmers,” an article by Elanor Starmer in In Motion Magazine, February 11, 2007.

Broiler, Hog Industries Save Billions from Corn,” a cover article in the industry magazine Feedstuffs by Jacqui Fatka (Issue 13, Volume 79; March 26, 2007).

Leveling the Field:
Issue Brief Series by Elanor Starmer, for the Agribusiness Accountability Initiative

For more on GDAE’s Globalization and Sustainable Development Program:

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