Strategies To Secure Chicken Company Contracts

Contract chicken farming is a common practice where poultry growers enter agreements with large poultry companies or integrators. This system provides growers with resources like chicks, feed, and technical support, while growers manage the farm and raise the chickens. It offers growers a steady income and shields them from volatile commodity markets. Chicken companies benefit from controlling production quality and efficiency, and both parties gain from vertical integration. Growers must meet specific criteria, including adequate land, housing, and labour, and willingness to work within an integrated approach. Before contracting, potential buyers should understand the company's future vision and potential improvements. This introduction sets the context for exploring how to attain a contract from a chicken company, covering the benefits, requirements, and considerations for prospective growers.

Understand the financial aspects, costs and benefits

Understanding the financial aspects, costs, and benefits of contract chicken farming is crucial for prospective growers. This knowledge will enable them to make informed decisions about entering this field and assess the viability of contract poultry farming.

Income and Payments

Contract chicken farming can provide a regular and steady source of income. Earnings can vary depending on factors such as farm size, production efficiency, and local market conditions. Payments are typically made per bird or per pound of processed chicken. Higher per-pound payments are associated with smaller birds, birds raised without antibiotics, and certified organic production. The top 20% of contract chicken farmers earn an average of $142,000, significantly higher than the top 20% of all farm households and U.S. households.

Costs and Risks

The company typically provides resources such as chicks, feed, transportation, veterinary services, and technical support. The cost of feed, which is mostly corn and soybean meal, can account for about 65% of the cost of raising a chicken and is subject to market fluctuations. However, contract chicken farmers are shielded from volatile commodity market swings, and the price risks for feed are borne by the company. Growers are responsible for day-to-day care, land, housing, utilities, and maintenance, which can incur operational costs. They may also need to invest in new technology to improve productivity and face placement risks that can impact their ability to obtain credit.

Benefits

Contract chicken farming offers several benefits, including financial stability, risk mitigation, and support from larger entities. It provides a structured approach to poultry production, balancing the needs of growers and poultry companies. The partnership between chicken farmers and companies is mutually beneficial, viable, and profitable. Companies want their farmers to succeed and provide support to help raise healthy birds. Contract growers also retain a significant portion of economic risk compared to independent growers.

Research the company and its requirements

Researching the company and its requirements is an essential step when considering entering into a contract with a chicken company. This step will help prospective chicken growers make informed decisions about whether to enter this field and, if so, which company to partner with.

Firstly, it is important to understand the financial aspects of the agreement. Prospective growers should research the different payment structures offered by companies, as these can vary. For example, some companies offer per-bird payments, while others offer per-pound payments for processed chickens. Payments can also depend on performance in raising the healthiest chickens, with quality and quantity of the flock, as well as efficiency, being taken into account. Prospective growers should also consider the costs involved in chicken farming, such as the cost of feed, which can be substantial and subject to market fluctuations.

Secondly, it is crucial to understand the company's requirements for its growers. These can include facility specifications, such as appropriate housing for the chickens with temperature control, ventilation, and sanitation facilities. Prospective growers must also demonstrate financial stability to manage operational costs and maintain the farm. Additionally, compliance with local, state, and federal regulations regarding animal welfare, health standards, and environmental impact is typically mandatory.

Prospective growers should also research the company's reputation and track record. This includes looking into the company's treatment of its growers, as well as its practices in the chicken supply chain. Some companies have been known to mislead consumers and growers about the welfare of their chickens and the costs involved in their operations.

Finally, it is beneficial to understand the company's business model and its position in the industry. For example, some companies operate under a tournament system, where farmers are paid based on their performance relative to other farmers. Understanding the level of competition and the company's market share can help prospective growers assess the potential benefits and drawbacks of partnering with a particular company.

Prepare your farm and facilities

Preparing your farm and facilities is a crucial step in attaining a contract from a chicken company. Here are the key considerations and steps to take:

Housing and Facilities:

Construct or retrofit housing facilities specifically designed for raising chickens. These facilities should be single-use buildings with adequate ventilation, temperature control, and sanitation infrastructure. The size and capacity of the housing will depend on the scale of your contract and the number of chickens you plan to house. Ensure that your farm has sufficient land to accommodate the housing and any disposal of litter or manure.

Proximity to Essential Operations:

Chicken companies often require production facilities to be located within a certain radius (typically 25 to 35 miles) of essential operations such as feed mills, processing plants, or hatcheries. This proximity reduces expenses associated with feed and chick delivery, as well as live haul to the processing plant. When selecting a site for your farm, consider its distance from these critical operations to minimise costs and maximise efficiency.

Financial Planning:

Constructing and equipping chicken housing can be financially demanding. Prepare a detailed financial plan outlining the costs of building construction and equipment purchase, and any necessary collateral. Remember that cash flows from poultry operations may not cover the purchase of non-production-related assets, so ensure you have adequate financial resources or access to loans to cover these expenses.

Contractual Responsibilities:

Familiarise yourself with the contractual responsibilities you will undertake as a contract grower. Typically, you will be responsible for financing and constructing the facilities, managing manure and litter disposal, and providing day-to-day care for the chickens. Understand the expectations and requirements set by the chicken company to ensure you can meet their standards and deliver healthy birds.

Integrated Approach to Production:

Chicken companies often favour an integrated approach to production, where growers work within their specified systems. Be open to adopting technological advancements and integrated production methods. This may include using specific equipment, following their guidelines for chicken care, and adhering to their quality and efficiency standards.

Apply and engage with the selection process

To apply for a contract with a chicken company, you must first meet the specific criteria set by the poultry company. These criteria include:

• A desire to raise chickens
• The financial capability to build housing
• Adequate land for placing the house and disposing of litter
• Adequate and dependable labour
• A willingness to meet contractual responsibilities
• A mind for business
• An open mind to accept technological changes
• A willingness to work within an integrated approach to production

Once you have decided to engage in contract chicken farming, you should contact companies within your area to determine if they are interested in adding new producers. You can also tour poultry farms in your area, such as those in Maryland, to see how it's done, ask questions, and find a mentor.

When applying to companies that offer contract farming opportunities, you will typically need to undergo a selection process. This process may include an evaluation of your farm's facilities, as companies will often require new production facilities to be in close proximity (25 to 35 miles) of complex operations such as feed mills, processing plants, or hatcheries. Your farm must also have appropriate housing for the chickens, including temperature control, ventilation, and sanitation facilities.

It is important to note that while experience with growing chickens is not always necessary for obtaining a contract, certain producer characteristics may be essential. Additionally, potential buyers should consider the contracting company's thoughts on the future productive potential of the farm and any improvements that may be necessary.

Understand the risks and contractual obligations

Understanding the risks and contractual obligations is a crucial aspect of attaining a contract with a chicken company. Here are some key points to consider:

Risks for Growers

• Information Asymmetry and Deception: Growers may face challenges in accessing critical information needed to assess farm revenue streams and make informed decisions. Live poultry dealers possess this information, and growers depend on them for critical details. This information asymmetry can lead to risks of deception and unfair practices.
• Limited Bargaining Power: When growers have few alternatives, they may lack the negotiating power to secure better terms or address information asymmetry. This imbalance can further expose them to the risk of deception and unfair practices.
• Performance-based Contracts: Contracts often incentivize growers to take risks and work hard by tying payments to the health, quality, and quantity of their flocks, as well as the efficiency of chicken raising. While this structure can motivate growers, it also places the risk of lower earnings on them if their performance does not meet the set standards.
• Fluctuating Costs and Investments: Growers are responsible for the day-to-day care of birds, land, housing, and maintenance. The cost of feed, which constitutes a significant portion of chicken-raising expenses, can fluctuate. Additionally, growers may be required to invest in additional equipment or upgrades, as dictated by the contracting company, incurring unexpected costs.
• Contract Termination: Abuse of any kind is generally not tolerated, and if found, it can lead to the termination of the grower's contract. Additionally, speaking up against the company's mistreatment, as in the case of Terry, who sued Tyson, may result in legal battles and potential bankruptcy.

Contractual Obligations

• Chicken Care and Housing: Contract poultry farmers are responsible for the day-to-day care of the birds, providing appropriate housing with temperature control, ventilation, and sanitation facilities. They also manage the land and utilities/maintenance of the housing.
• Performance Standards: Growers are expected to raise healthy birds and meet specific performance standards outlined in their contracts. These standards may include weight gain, quality, and efficiency metrics.
• Animal Welfare Compliance: Growers must adhere to animal welfare standards and ensure sound animal husbandry practices. Any form of abuse is typically grounds for contract termination.
• Long-term Commitment: Most companies retain a high percentage of contract farmers year over year, and many farmers have long-standing relationships with their contracting companies. This indicates a level of long-term commitment and stability in the relationship.
• Beneficial Partnership: The partnership between growers and companies is often mutually beneficial, supporting the economic viability and independence of family farms while ensuring efficiency and consistency in poultry production. Companies provide resources such as chicks, feed, and technical support, while growers contribute to vertical integration and consistent chicken supply.

Frequently asked questions