The Transformation of U.S. Livestock Agriculture: Scale, Efficiency, and Risks
by
James MacDonald and
William McBrideEconomic Information Bulletin No. (EIB-43) 46 pp, January 2009
Livestock agriculture has undergone a series of striking
transformations. Production is more specialized-farms usually
confine and feed a single species of animal, often with feed that
has been purchased rather than grown onsite, and they typically
specialize in specific stages of animal production. Today's
livestock farms tend to be tightly linked to other stages of
production and processing through formal contracts. While the farms
are usually owned and operated by a family, they rely increasingly
on hired labor. And the farms that account for most production are
much larger than they were in the past.
What Is the Issue?
Strong financial pressures have driven the industrialization of
U.S. livestock farms. Larger operations are able to realize lower
costs and higher returns, while tighter coordination among firms at
different processing stages can reduce financial risks. But growing
to a more efficient scale also concentrates livestock in a limited
area, and excess concentrations of manure-based nutrients can lead
to increased air and water pollution. Large operations are also
more prone to use antibiotics intensively in order to pre-empt the
spread of animal disease and to accelerate animal growth. Extensive
antibiotic use in livestock raises concerns about increased
pathogen resistance and related risks to human health. This report
assesses the driving forces behind structural change in fed-cattle,
dairy, hog, and broiler production, and describes the effects on
productivity, prices, and pollution/health risks. It concentrates
on changes in the size structure of farms, their organization and
production practices, and their contractual links with processors
and integrators.
What Did the Study Find?
U.S. livestock production is shifting to much larger
enterprises, in part because of scale economies. Between 1987 and
2002, the production locus (the farm size, in annual sales, at
which one half of national production comes from larger farms and
half from smaller) increased by 60 percent in broiler, 100 percent
in fed-cattle, 240 percent in dairy, and 2,000 percent in hog
production. Recent surveys indicate that production has continued
to shift to larger operations since 2002.
While most large livestock and poultry farms are family owned
and operated businesses, they are becoming more closely linked to
input providers and processors through formal contracts, joint
ownership of animals, and vertical integration. Tighter vertical
coordination can ease management of financial risks and speed the
diffusion of innovations.
Structural change has led to increased productivity and, through
that, to lower commodity costs of production. For example, the
largest dairy farms (1,000 cows or more) had average costs of
$13.59 per hundredweight in 2005, 15 percent below the average for
farms in the next largest size class (500-999 head) and 35 percent
below the costs for farms with 100-199 head (estimated $20.82 per
cwt). Lower costs of production typically lead to lower wholesale
and retail prices. However, structural change in livestock
agriculture has had less felicitous effects as well.
Livestock wastes are becoming more geographically concentrated
in the U.S., and excessive applications of the nutrients contained
in manure pose risks to air and water resources. There is a clear
association between farm size and the concentration of
manure-larger operations are more likely to ship manure to other
operations and apply manure to their own fields more intensively.
However, the cost to large farms of removing manure is still modest
in
relation to their production cost advantages, and there are a
variety of ways to mitigate the risks from the concentration of
manure. One such example is to reformulate the feed to reduce the
amount of nutrients excreted by the animals.
Many hog and broiler operations provide subtherapeutic doses of
antibiotics routinely in feed and water to promote animal growth
and to prevent disease. The commercial value of such practices
appears to be substantial in some stages of production, like
nursing in hogs, but marginal in others. Other technologies,
including expanded sanitation and testing procedures, can be
substituted for subtherapeutic antibiotics in some stages of
production.
Individual producers may have little incentive to take costly
actions to mitigate the harmful effects of livestock
industrialization. Livestock production is highly competitive, and
operations with high costs may jeopardize their own survival in
policing themselves. However, steps can be taken, at modest cost,
that preserve the benefits of industrialized livestock
production while limiting its harmful effects.
How Was the Study Conducted?
This report draws on recent ERS research, which in turn relies
on farm-level data drawn from the Census of Agriculture and from
the annual Agricultural Resource Management Survey (ARMS). The
Census provides an indepth source of information on levels and
changes in farm size, specialization, and location, while ARMS
surveys the financial conditions and production practices of farm
businesses, and the well-being of farm households. Some ARMS
versions contain detailed questions on the production and marketing
practices, expenses, and revenues associated with specific
commodities. This report draws on surveys of producers of hogs (in
1992, 1998, and 2004), dairy products (in 2000 and 2005), and
broilers (2006).