Monday, November 23, 2015

Tournament payment system among poultry farmers creating controversy

A tournament payment system that rewards, or penalizes, poultry farmers based on their current crop of chickens, has created a landscape that makes some farmers rich and leaves others closing up shop, Nathanael Johnson and Donald Carr report for Grist. "But chicken industry leaders and some academics maintain that the payment system does more good than harm."

"The modern chicken business works like this: A vertically integrated company like Tyson owns every step of the process from top to bottom, except for one: the farming," Johnson and Carr write. "The company provides all the chicks and the feed to farmers, who have a contract to house and feed them. The farmer grows the birds to market size and then, after the poultry company picks them up, gets a check. The size of that check depends on how efficiently the farmer converted feed to meat. And here’s where the tournament comes in: The companies grade on a curve. That is, their definition of efficiency is set by the best—or luckiest—farmer in the group. If you are growing the biggest chickens in your group you get a bonus, but if your flock is relatively scrawny, you get penalized."

Scott Marlow, executive director of the Rural Advancement Foundation International-USA, told Grist, “No matter what happens, some of the farmers are always going to win and lose, but the company always wins. Farmers have to consistently compete, but the company’s average payment is always the same. Most poultry farmers take out very expensive loans for their facilities. A million plus is an average loan. In most cases, the farmer’s home, land and assets are tied to those big loans."

Tom Vukina, who studies poultry industry organization and economics at North Carolina State University, disagrees that farmers are being exploited by the big poultry to spend their the life-savings of farmers to continuously upgrade chicken houses, Johnson and Carr write. Vukina told Grist, “Ask yourself a question. How come that this scam has not became public knowledge, and how is Tyson able to sign up new growers every year and has been doing so for almost 50 years?” Johnson and Carr write, "In other words, if the game is rigged and most farmers go bankrupt, why do these poultry farmers have waiting lists of farmers looking to sign up?"

Vukina argues that more farmers win than lose, Johnson and Carr write. He says the tournaments are “a rather elaborate scheme with tremendous positive features built over 70 years. There’s no way for a company to monitor a contract grower 24-7 with company-owned feed and company-owned chicks. The grower needs to be motivated to do the right thing for the [company]. Effort is not observable. So a tournament allows me to observe an unobservable action. Tournaments are just a payment mechanism—and, I think, the best thing since sliced bread.”

But Christopher Leonard, whose book "The Meat Racket" describes the plight of farmers who lose out under this system, said his investigations led him to believe most chicken farmers live in poverty, Johnson and Carr write. He told Grist, “You talk to someone trying to make a living off chicken houses, and you are going to talk to someone living paycheck to paycheck.”

The debate over the merits of the tournament system continue, but the main problem is that most of the concrete data on who wins and loses from such a system is in the hands of the chicken industry, which is under no transparency laws to share the information, Johnson and Carr write. "If there’s a genuine problem here, transparency would give farmers and corporations the information to fix it. And if the chicken-farmer crisis is all smoke and no fire, transparency would reveal that, too."

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