Neighbours of mine have chicken coops. They each have half a dozen hens who scuttle between the wooden shelter and a few square meters of grass constantly pecked.
These suburban coops of wood and wire cost way more to build than the value of the produce they house. My neighbours undoubtedly make delicious quiche, but I make delicious lunches much more cheaply from store-bought eggs. And they can’t eat their hens if they want to eat tasty eggs.
Chickens generate superfoods and are themselves edible. Food and Agriculture Organization (FAO) statistics show a global chicken population of 34.4 billion chickens alive on earth on any given day, four for every person.
When I was a kid, roast chicken was a Sunday treat. As an adult, chicken has become a staple. It is delicious, cheap and readily available in every form imaginable.
I was born in 1961, a fine George Clooney-level vintage. Growth in demand for chicken since the days my Mom would bundle the bird into the oven before galloping off to church has seen production grow from 6.58 billion chickens slaughtered in 1961 to 68.8 billion in 2018.
Comparisons in the number of animals produced for meat show the global desire for chicken. Source: Our World in Data
People like to eat chicken. And why not?
Along with many tasty ways to prepare the meat, chicken is a lean, nutrient-dense protein. Nutritionists tell us that it should be on the menu.
As more people can afford a healthy diet, demand will be there for the production curve to keep its upward trajectory. If the farmers can produce chickens at affordable prices, then there are people to buy them.
Before getting carried to the nearest KFC, let’s see whether production can continue to grow.
Market for chickens from chicken coops
In a perfect market, processing should converge on the most efficient way to get a commodity to customers at affordable prices. Efficiency equates to profitability and modern markets are a paragon of this powerful force.
What happens is that technology and smart people with ideas come together to improve efficiency. Investors facilitate this interaction, and ideas become production systems.
When the market is food, technology has automated and homogenised production, processing and distribution to reduce the cost of each unit of production.
For chicken, the best returns have come by applying technology at scale with large chicken coops.
The executive officer of the Australian Chicken Growers Council, Michael Moore, explains that over the last 20 years, smaller processors have been absorbed by larger ones, leading to decreasing levels of competition at the processing level and eventually, monopsony conditions (a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services).
In 2020, Inghams Enterprises and Baiada Poultry supplied 70% of Australia’s chicken meat. And then 90% of the products from this raw material are supplied by just six processors.
Such consolidation is the market rationalising efficiency.
Economies of scale also bring risk.
Here is how one farmer sees the market for chicken in Australia…
“The biggest problem with the industry is the only way they can save money in growing chicken is by putting 100 sheds in one row – makes it a lot cheaper to transport out of that spot. “But what will happen is if we get avian influenza or Newcastle disease? It’s going to wipe out not just three farms that are separated by kilometres like it usually does, it’s going to take the whole operation out.”
Intensive farming is described as a high-input system. And it is.
Fossil fuel energy in engines, fertilisers and infrastructure is added to the food ecology to supercharge production. But efficiency is also about economies of scale that drive consolidation and simplifying of the market.
Obviously, as the number of players in the market decline, so does the level of competition. At the extreme, there is no competition and a single entity sets and takes the price.
In the case of chicken coops, this single entity is not the grower.
And this is a massive risk to the resilience of supply.
What sustainably FED suggests
High demand is always a business opportunity that ignites powerful market forces. In theory it brings competition to drive efficiency that captures consumers with low prices for the commodities they want.
The problem is the logical endpoint of super efficiency.
One or a few highly effective players corner the market by absorbing the less efficient competition, as in Australia with chicken production. This is good for the consumer until the efficiency confronts the risk of failure. Should the single producer with a handful of large chicken coops fail, there is no cheap chicken.
We already know that efficiency gains have downsides when they do not cover the total production costs. It is always tempting to gain efficiency by accepting externalities through the supply chain and squeezing suppliers on price. Growers are forced into production decisions that are not in the animals’ best interest or the environment.
We also know that exponential growth in producing anything is impossible when the resource it relies on is finite. Chickens can breed indefinitely only with sufficient food, water, space and lack of disease.
Efficiency is the reason chicken coups have to be large.
Humanity is locked into a dependency on efficient food production. Intensification has created efficient food production and continues to feed everyone well, especially those in urban areas without the means to grow their food.
But this powerful market force for efficient food production also increases production risk and reduces the resilience of the food supply.
To be clear, the green line on the graph cannot rise forever.