ATLANTA — If the Midwest is America’s breadbasket, then the Southeast is the nation’s chicken bucket.
Through the second half of the 20th century, chicken production evolved from a sideline for small farmers into a hyperefficient, multibillion-dollar industry. Commercial poultry rearing began on the Delmarva Peninsula — encompassing parts of Delaware, Maryland and Virginia — but it became firmly rooted farther south.
Each year, the six states in the Atlanta Fed’s district produce about 40 percent of all chickens sold for food (known as broilers) in the United States. Add the district’s neighboring states of Arkansas and the Carolinas, and the region’s share of U.S. chicken production exceeds 60 percent, according to statistics from the United States Department of Agriculture.
In the six core states of the Southeast, most poultry comes from Georgia, Alabama and Mississippi. Those three states produce more than 3 billion chickens a year, about 180 birds for each person living there. Farm revenue from poultry and eggs in the six-state region averages roughly $12 billion a year, double the revenue from the region’s next biggest agricultural commodity. Georgia alone contains some 12,000 chicken houses, the long, low buildings where the birds are raised, according to the Georgia Poultry Federation. The Peach State, which might more aptly be dubbed the Poultry State, has 40 chicken houses for each Starbucks.
Poultry goes south
Several factors brought poultry south. The region’s moderate climate was critical, as chickens don’t do well in extreme temperatures, especially in harsh winters. Land and labor were also relatively affordable, USDA studies have found. Another historical factor in poultry’s rise was cotton’s decline. When commercial broiler production began to take hold in the South in the 1940s and ’50s, many small farmers were seeking an alternative to cotton. As sharecropping faded, farmers in areas such as North Georgia sought a lifeline, says Carl Weinberg, a historian at Indiana University who studied Georgia’s poultry industry when he taught at the University of North Georgia in Dahlonega.
Another reason the industry — processing plants, feed mills and the farms — became concentrated geographically is that live chickens don’t travel well. Therefore, locating processing plants near farms reduces losses in transit, according to the USDA, explaining why the Southeast is home to some 85 plants that slaughter and process poultry.
Fieldale Farms in Baldwin, Ga., near the poultry industry hub of Gainesville, exemplifies the geography of the poultry industry. A midsized player with annual revenue just above $1 billion, Fieldale supplies baby chicks, feed, veterinary care, research and other services to 1,600 chicken houses run by independent contractors, all within 60 miles of the company’s corporate headquarters and feed mill. Fieldale’s three processing plants are in the same tight radius. Keeping the business close to home minimizes losses of live chickens during shipping and makes feed deliveries — 7 million pounds a day — faster and cheaper, explains Tom Hensley, Fieldale’s president.
Indeed, a highly developed network of growing houses, processing plants, feed mills and local support services has become a competitive advantage for the Southeast, according to the USDA. It’s a dynamic similar to the forces that lead automotive and parts manufacturers and other industries to cluster in certain locales.
The modern poultry business with its clusters began to take shape around the 1940s. A few pioneering seed and feed companies — notably in Georgia and Arkansas, and including Sanderson Farms Inc. in Laurel, Miss. — began supplying chicks and feed to independent farmers and then contracting to buy back the full-grown birds. In the early years the contracts between large companies, or “integrators,” and the independent growers were short term — flock to flock, in some cases. If large numbers of the chickens died or became sick, growers were paid less and their contracts might not be renewed, so independent chicken farmers earned scant security from these short-term arrangements. “But for a lot of farmers who were seeing pretty hard times after World War II, this was a lifesaver,” Weinberg says. Also, continually switching growers didn’t serve the interests of the larger firms.
Contracts today tend to be of longer duration, often running five or 10 years. Sanderson Farms in the mid-1990s introduced 15-year agreements with its growers, who now number 800. The financial security of a long-term contract helps the growers obtain financing to operate and build chicken houses, which cost more than $300,000 each to launch, says Lampkin Butts, president and chief operating officer of Sanderson Farms and a member of the Atlanta Fed’s New Orleans Branch board of directors.
Southern chicken growth
Chicken’s growth into a southern colossus happened relatively recently. Since the early 1990s, Georgia and Mississippi have doubled broiler production. In Alabama, not until the mid-1980s did poultry and egg sales — predominantly broilers — account for as much as half of the state’s ag revenues. Now that share is up to two-thirds.
In fact, poultry production has been one of the only sources of real revenue growth in modern southern agriculture. During roughly the past 50 years, inflation-adjusted poultry and egg sales at the farm level multiplied at least fivefold in each of the region’s three main chicken states. Other ag sectors hardly grew at all. In inflation-adjusted dollars, total ag products sales at the farm level didn’t even double in any of the three states over the past half century.
Which came first, supply or demand?
But poultry production soared along with consumption. It begs a chicken-or-egg question: Did more — and more efficient — production fuel consumption, or vice versa? Mike Giles, president of the Georgia Poultry Federation and a member of the Atlanta Fed Agriculture Advisory Council, says the answer depends on whom you ask.
Ask Hensley, and he says consumption has propelled production. “You don’t grow a chicken if you don’t have a buyer,” he says.
For his part, Giles thinks the industry’s success at making chicken more convenient to prepare also encouraged consumption. Until the 1980s, 80 percent of sales were of whole birds. Now entire chickens account for less than 10 percent of total sales, Giles says. As an example of the huge variety of products available, Sanderson Farms sells more than 60 different packaged chicken items. One item that’s emerged as a substantial seller the past decade or so: chicken wings. Until well into the 1990s, Sanderson Farms’ wing business consisted of selling frozen ones to Japan for 39 cents a pound. Today, Butts says, the company sells fresh wings domestically for five times as much.
Along with convenience, the low price has also spurred poultry sales. According to the USDA, through the first eight months of 2016, beef averaged more than triple the retail price per pound of chicken, and pork was more than twice as expensive. Perceived health benefits also have boosted chicken consumption. Significantly, chicken fat is concentrated in the skin and is not saturated into the actual meat, as in beef and pork.
Whatever the causal relationship, the rise of chicken as America’s preferred meat has paralleled its emergence as the Southeast’s premier cash crop. Americans’ per capita chicken consumption surpassed our intake of pork in 1985 and beef in 1992. The USDA estimates that this year, each American on average will eat nearly as much chicken as beef and pork combined. Even the avatar of burgers, McDonald’s, now sells more chicken than beef, according to numerous media reports.
Emerging markets key to exports
Chicken is hot globally as well. Worldwide per capita consumption of poultry — mainly chicken — rose 41 percent between 2000 and 2016, compared to a 9 percent increase for pork and a small decrease for beef, according to the Organization for Economic Co-Operation and Development (OECD). Poultry consumption per person remains much lower abroad than in the United States, but it is expected to continue climbing, particularly in developing countries as populations become more affluent. The OECD forecasts the average person in developing countries will eat 23 percent more chicken by 2025 than they ate in the past three years, according to its Agricultural Outlook 2016–2025.
In fact, the group predicts poultry will surpass pork as the world’s “preferred animal protein” by 2025. Producers in the United States and Brazil stand to be the biggest beneficiaries, the OECD figures. As these projections suggest, developing countries such as India and several in Africa are the most promising overseas markets for U.S. producers, says Giles.
Emerging markets keep Sanderson Farms executives optimistic about exports. “When suddenly they have disposable income, the first thing they want to do is buy protein,” Butts says. “And chicken leg quarters are the cheapest protein they can get.”
For now, export market is difficult
Despite a bright outlook, poultry exports hit a bump recently. China and Russia have stopped buying American birds. Those countries were major importers of U.S. chicken, accounting for 40 percent of Georgia’s overseas poultry sales in 2010. But in 2014, Russia banned food imports from the United States and several other countries in response to economic sanctions. Meanwhile, trade disputes and stated concerns about avian influenza led China to halt imports of U.S. poultry in January 2015. In part because of Russia and China, U.S. chicken exports declined 27 percent in value in 2015 from the prior year, according to the Agriculture Department.
Nevertheless, export challenges don’t appear to be crippling America’s poultry industry. Lower sales abroad mostly mean poultry producers must sell more meat at home, Butts says, which lowered prices in 2015 and 2016. For example, boneless breast market prices were down nearly 20 percent during the first half of 2016, compared to the year before, according to one industry benchmark. Amid these forces, Sanderson Farms’ net sales and profits dipped through the first nine months of its 2016 fiscal year.
Like any agricultural commodity business, the poultry industry moves in cycles. But industry leaders seem generally upbeat about the long term. “People are going to eat more chicken,” Hensley says.
He means it. Fieldale plans to add 120 growing houses to its stable in the next year and a half. Sanderson Farms is also expanding. The company opened a processing and feed mill complex in Texas in 2015, and is building another $150 million facility in North Carolina. Such an expansion, Butts says, entails numerous steps, including lining up growers, securing land and labor, and building a well to supply a million gallons of water a day.
Chickens are efficient to grow
Though starting an operation is expensive and complex, the favorable economics of the chicken business flow from the efficiency of production. By most measures, chicken is the most inexpensive meat to produce. Importantly, a pound of chicken meat requires much less feed to produce than does a pound of beef or pork. And on average, it takes as little as six weeks to hatch a chicken and get it to the marketplace, compared to at least eight months for a pig and a year for a cow.
Of course, chickens are much smaller than cows or pigs. But the birds are produced in staggering numbers. Producers in Georgia alone process some 4 million chickens a day. When Hensley joined Fieldale in 1976, the company’s plants ran a single daily shift, and it took farmers 50 days to grow a 3.5-pound bird. Now, Fieldale’s plants hum with two daily shifts, and the growers deliver 6-pound chickens in 50 days. Meanwhile, Sanderson Farms’ 11 plants combined can process nearly 10 million chickens a week.
“There are so many moving parts,” Butts says of the hatching, growing, processing and marketing chain in poultry. Operating successfully, he says, is “a combination of us taking care of business every step of the way, and also having reports that measure everything we do.”
Birds of a feather
One of the real keys to large-scale poultry production, poultry scientists say, is growing birds that are all close to the same size. That’s critical, as efficient processing “is largely dependent on the uniformity of the birds, so that each machine can do a repeated movement with little or no adjustment between birds,” the poultry scientists Alan Sams of Texas A&M University and Shelly McKee of the USA Poultry & Egg Export Council write in the book Poultry Meat Processing.
Uniformity helps in other ways, too. Compared to “mammalian meat,” Sams and McKee write, “Poultry meat is more homogenous in composition, texture and color, making poultry easier to consistently formulate into products.”
That formulating is done with water. Today’s processing plants employ powerful jets of water to slice chickens into various configurations. Fieldale invests $30 million a year to keep plants and chicken houses up to date. Technological innovations allow the company to employ 600 fewer people in its plants than it did a dozen years ago, Hensley says. Fieldale still employs 3,000 plant workers. That group accounts for 63 percent of the company’s workforce, a ratio common in the poultry industry.
Though a comparatively small player — Fieldale is about a tenth the size of Tyson’s chicken business — the company in many ways exemplifies the South’s large but relatively inconspicuous, rural-centered poultry industry. Fieldale is based in a town whose population is smaller than the company’s workforce. Its sleek headquarters would fit in any suburban office park, but there are grain bins out back, and a 5-foot-tall metal chicken out front.
Clustered in the Southeast, Fieldale and other chicken producers face challenges, yes. However, more appetites at home and abroad likely mean more demand for the birds that once roamed barnyards.
This article is drawn from the Economy Matters publication of the Federal Reserve Bank of Atlanta.