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Section
D: The Economics of Livestock Production
Projected
Outcomes
- Students will learn how sustainable practices
can affect farm profitabilit.
- Students will consider the effects of government
agriculture programs on the profitability of
sustainable farms.
- Students will learn about alternative marketing
strategies.
- Students will learn to think about costs and
benefits of different livestock production systems
at the community and regional level.
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Background
/ Lessons
Introduction
This section begins by looking at how sustainable
agriculture affects profitability at the farm
level. It then goes on to introduce some of the
other forces that affect the economics of agriculture,
including government payments and the handling
of external costs.
The profitability of animal production is the
product of
- The costs of production
- The amount of product, and
- Price
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How does sustainable
agriculture affect the costs of animal production?
Sustainable farmers generally seek to replace
purchased inputs with resources produced and recycled
on-farm. This approach can significantly reduce
some costs of production, but not others. Let’s
look at some typical livestock production costs.
Feed is a major production expenditure
for livestock operations. In some cases, sustainable
practices result in higher feed costs, in other
cases they can reduce feed expenditures. For example,
organic feed is almost always more costly than
conventional feed. Iowa State University research
indicates that feed costs for hoophouse swine
production may run very slightly higher than for
confinement pork production. On the other hand,
feed costs for animals on pasture are generally
lower than for animals in confinement. Note that
total feed costs for farms that raise their own
feed (whether in the form of pasture, hay, or
grain) should include the costs of raising that
feed as well as the actual price paid for purchased
feed.
Manure management costs vary
depending on the specific practice chosen. In
general, sustainable livestock systems require
lower capital expenditures for manure management
than conventional manure storage structures, but
they may demand more labor and/or management.
Well-managed grazing systems do not require separate
manure management when the animals are on pasture.
Composting systems range from passive composting,
requiring relatively little labor and equipment
to high-tech systems requiring specialized equipment
and careful management. In general, a new compost
turner costs around $15,000 to $20,000, though
a large mechanized indoor composting setup can
cost well over $100,000. A Michigan study found
that on-farm composting was comparable in cost
to daily spreading, while a review of a Minnesota
farm found that composting reduced manure handling
costs compared to daily spreading.
See the following Web Sites for additional information:
http://www.jgpress.com/BCArticles/2000/050072.html
http://www.msue.msu.edu/misanet/Composting/pg-i-toc.htm
http://www.extension.iastate.edu/Publications/PM1754G.pdf
Facility costs tend to be lower
on sustainable farms, which try to make use of
existing structures or choose facilities such
as hoops or fencing that are relatively flexible
and inexpensive. However, sustainable farms that
include processing can have higher facility costs.
http://www.extension.iastate.edu/agdm/articles/duffy/DuffyJune97.htm
Labor needs for sustainable
livestock production can be higher or lower than
for conventional or industrialized meat and dairy
production. Many farmers report that labor conditions
on sustainable farms are considerably more pleasant
than on farms using conventional animal confinement.
Animals raised in sustainable systems such as
rotational grazing or deep-bedded hoops also tend
to be easier to handle than animals that do not
have access to the outdoors and do not have regular
contact with humans. Labor needs on sustainable
livestock farms can vary substantially, depending
on the type of animal and the particulars of the
system chosen. Another confounding factor is that
on family farms labor is not always tracked accurately.
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How
does sustainable animal agriculture affect production
levels?
Comparing production levels of different animal
systems raises the question of production per
what? For example, if you look at annual milk
production per cow, rotational grazing systems
have a lower average than confinement dairies.
However, if you look at milk production per unit
of feed costs, the reverse is true. Many sustainable
livestock farmers prefer to maximize farm income
rather than total production, and find that pushing
production can disproportionately raise costs.
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How
does sustainable animal agriculture affect prices?
The impact of sustainable agriculture on price
depends on the specific production and marketing
practices of the farm.
Certified organic livestock products typically
get a significant price premium, particularly
when conventional prices are low. For example,
in 2002 the organic marketing cooperative Organic
Valley paid farmers more than $20 per hundredweight
of milk, while the conventional price was around
$12 per hundredweight.
Most sustainably produced livestock products
that are not certified organic do not receive
a price premium, unless they are marketed directly
to consumers. However, some national marketing
programs such as Niman Ranch and local marketing
coops such as Northeast Iowa Specialty Meats provide
price premiums for livestock produced using certain
sustainable practices.
See the below Web Sites for additional information:
http://www.pmac.net/AM/Willis_free_range_pigs.html
http://www.iowa-natural-meats.com/index.htm)
Direct marketing can give farmers considerably
higher prices than traditional livestock sales
to meat packers. However, direct marketing requires
significant amounts of labor, as well as special
skills and access to processing plants (such as
dairies, cheese factories, or slaughterhouses)
that are willing to handle small quantities and
licensed to allow retail sale of products processed
there. (See section 5 Regulation and Handling
of Animal Products.)
Activity
1: What’s it worth to you?
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Government
programs
In the eight years from 1995 through 2002, the
US government spent $114,024,265,743 (about 114
billion dollars) in direct agricultural payments
to farmers. The amount paid each year can vary
significantly, from around seven billion dollars
per year in 1995-1997 to more than twenty billion
dollars per year from 1999 to 2001 (see Environmental
Working Group website http://www.ewg.org/farm/regionsummary.php?fips=00000).
This amount of money has a significant impact
on the economics of agriculture in the US and
around the world.
In most years the largest subsidies in the Midwest
are for corn and soybean production. In animal
agriculture these subsidies favor systems that
feed grain rather than relying on grazing. If
the farm buys its grain, the subsidies contribute
to artificially low prices in most years. If the
farm grows its own grain or silage corn, it gets
direct payments from the government in years when
grain prices are low.
Another type of government payment is cost-sharing
for pollution control structures. The 2002 farm
bill substantially increased the funding available
for manure management and other structures needed
for large confined animal feeding operations (also
known as CAFOs or more critically as factory farms).
These payments tend to favor industrial animal
agriculture over more integrated ecologically
based systems.
Other types of government payments, such as the
milk price support program, do not favor one farming
type or size over another.
There are a variety of USDA programs to promote
environmental protection, including the Conservation
Reserve Program (CRP), the Wildlife Habitat Improvement
Program (WHIP), and Wetlands Reserve Program (WRP).
Some of these programs work by paying land owners
to take land out of agricultural production. Thus
while they protect the environment, they do not
support sustainable agriculture. More recently,
however, programs have been developed that reward
farmers for environmentally sustainable production
practices. Examples include the Grassland Reserve
Program and Conservation Security Program. Unfortunately,
the total amount of funding for this type of program
is far lower than the resources for commodity
subsidies. As of 2005, the Conservation Security
Program is only funded to apply to 202 small watersheds
in the entire country (3 in Iowa and 2 in Wisconsin),
excluding the majority of agricultural land in
the US. For more information on conservation payments
available in Wisconsin and Iowa.
See the following Web Sites for additional information:
ftp://ftp-fc.sc.egov.usda.gov/WI/Pubs/annual%20repor04.pdf
ftp://ftp-fc.sc.egov.usda.gov/WI/Pubs/Progs2003.htm
http://www.ia.nrcs.usda.gov/programs/
Government regulation can also affect the economics
of animal agriculture. Most regulation is intended
to protect consumers, workers, and/or the environment.
For some regulations, though, it is hard to see
any public benefits. For example, the US Department
of Agriculture prohibited an exporter of high-value
beef to Japan from testing all the cattle it processes
for Bovine Spongiform Encephalitis (Mad Cow Disease).
See the following Web Sites for additional information:
http://www.landinstitute.org/vnews/display.v/ART/2004/04/16/4080168475664
http://www.landinstitute.org/vnews/display.v/ART/2004/03/05/404ced7cb64b5
The bottom line
Because there are so many variations of both “sustainable”
and “conventional” animal production
systems, and because the profitability of an operation
depends in part on the strengths and skills of
the producer and on changeable government policies,
as well as the practices used and their interaction
with the soils and weather of a specific farm,
it is hard to make an overall judgment on what
animal production system is most profitable. What
is clear is that even with policies slanted towards
conventional systems, production practices such
as rotational grazing, organic production, and
deep-bedded hog production can be profitable.
Data comparing grass-based dairies with medium
and large confinement dairies over several years
show that the grass-based dairies have the highest
profit and lowest cost per unit of milk produced,
while the large confinement operations have the
highest cost per unit of milk produced, but they
also have the highest total incomes because they
are so large. See http://cdp.wisc.edu/Great%20Lakes.htm,
factsheet YR3-5.
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Economic
impacts beyond the farm: Cheap food and its hidden
costs
The combination of government subsidies, industrialized
farming, an abundance of good farmland, and a
wealthy population have resulted in cheap food
for the average American. Overall, Americans only
pay around 10% of their income for food. This
is the lowest percentage in the world. In general,
having affordable food is a good thing. But the
way our society is providing it turns out to have
some steep hidden costs. Hidden costs like these
that are not reflected in the prices consumers
pay are called external costs or externalities
by economists.
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Cost
1: Struggling farmers and exploited workers
Farm gate prices can be highly volatile, but
much of the time commodity prices barely cover
the costs of production. When prices are low,
many farmers get forced out of business. The farmers
who remain take on more land and more animals
in an effort to make a living off an extremely
narrow profit margin. In order to expand, they
typically have to take on more debt. This makes
it harder for new farmers to get started, and
makes even established farmers quite vulnerable
to downturns in the market. Many sustainable farmers
have found reducing input costs and/or improving
the price they receive (by direct marketing or
selling to specialty markets) to be better economic
strategies than increasing the volume of production.
In the Midwest, anti-corporate farming laws have
affected the progress of confined animal feeding
operations owned by large corporations. In the
South and Mid-Atlantic regions, however, corporate
controlled poultry and hog production has grown
relatively unchecked and has depressed farm incomes.
According to the National Interfaith Committee
for Worker Justice, “Poultry in the United
States is produced almost exclusively by farmers
who are under contract to large chicken processors.
Seventy-one percent of these contract growers
earn incomes that are below the poverty line.”
http://www.nicwj.org/pages/issues.Poultryfacts.html
Despite anti-corporate farming laws in many Midwestern
states, large agribusinesses are influencing animal
production throughout the country by using restrictive
long-term production contracts and affecting access
to markets.
Working conditions in CAFOs throughout the country
tend to be unhealthy and unpleasant, and wages
tend to be low. Most US citizens are not willing
to work as farm laborers at these facilities.
The legal and illegal immigrants who make up most
of the workers generally are not able to stand
up for better pay or working conditions. Because
of language and other barriers, they are often
also ignorant of environmental, labor, and safety
laws and regulations.
Much of the price consumers pay for food goes
to processing and distribution costs. The meat
processing industry has seen union-busting, corporate
consolidation, decreasing wages and benefits,
and increasing injuries and turnover during the
past ten to twenty years. These trends help keep
prices in the supermarket low, at the expense
of the people who slaughter, butcher, and package
the meat. As a result, jobs in this industry are
now also primarily held by foreign workers, who
are desperate enough to take these dangerous jobs,
at least for a little while. Like the workers
in the CAFOs, they are not in a position to urge
that worker or consumer safety regulations be
followed in the plants where they work. (See Eric
Schlosser’s Fast Food Nation for a description
of labor conditions in meatpacking plants.) http://www.harpercollins.com/catalog/book_interview_xml.asp?isbn=0060938455
has an interview with Schlosser, which contains
one question about labor conditions. Wisconsin
students can research the Tyson strike in Jefferson,
WI on the web, where Tyson bought an independently
owned meat processing plant, reduced wages and
benefits, and hired non-union replacement workers
during the strike that followed.
See the following sites for additional information:
http://www.ufcw.org/issues_and_actions/tyson_families_stand_up/index.cfm
http://www.fightingbob.com/article.cfm?articleID=126
http://www.jsonline.com/news/state/mar04/211549.asp
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Cost
2. Environmental costs
The pollution that results from agricultural
activities has real costs, but they don’t
show up in the dollars and cents people pay for
food. Some of them show up as extra water treatment
costs that communities and their residents have
to pay for safe drinking water. Others are harder
to translate to monetary terms, such as the decline
in healthy fish populations in rivers and lakes
and even the Gulf of Mexico. Other costs can include
declining property values near large animal confinement
facilities (also known as CAFOs or Confined Animal
Feeding Operations) and chronic health problems
attributed by some people to air pollution, odors,
and pathogens generated by CAFOs.
Economists have a special name for costs that
result from the production of an item but that
are not reflected in the price of the item: external
costs or externalities.
Externalities are a social justice problem, because
someone sometime does pay their costs, just not
necessarily the person or people responsible for
them.
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Cost
3. Lost opportunities
Agricultural land can serve a single purpose,
commodity production, or it can serve several
purposes, including water management, tourism,
recreation, and aesthetics. These other purposes
also have economic value, though only some of
it will accrue directly to the farmer. In general,
sustainably managed farms do much more to support
these purposes than non-sustainable farms. In
particular, well-managed grass-based farms are
excellent for both water quality and aesthetics.
Where would you rather vacation: in a landscape
with cows or sheep grazing and a variety of crops,
or in a countryside completely covered with large
corn and soybean fields, interspersed with the
occasional set of metal animal confinement buildings
and manure lagoons? In Europe, working farmland
is also used for recreation, through centuries-old
rights of way across private lands. European agricultural
policy explicitly recognizes agricultural land
as an important recreational asset as well as
a source for food production.
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Cost
4. Public health
There are a number of questions about the health
impacts of intensive animal production systems.
All these issues are the subject of debate both
in the scientific and policy arena.
- What are healthful levels of animal
products in human diets?
Nutritionists and medical professionals don’t
know the answer. On one hand, dairy products
and meat are high in critical nutrients such
as calcium, protein, and certain vitamins and
micro-nutrients. On the other hand, they are
high in saturated fats, and some studies indicate
that consuming large amounts of protein can
reduce the body’s ability to take up calcium.
What we do know is that the food industry spends
a lot of advertising money to get people to
eat their products and also that trade groups
such as the National Dairy Council and National
Cattlemen’s Beef Association have considerable
influence on the development of USDA nutritional
recommendations:
“Since 1922, the National Cattlemen's
Beef Association and its predecessor organizations
have been committed to nutrition research
and nutrition education. America's beef
producers, through the voluntary beef checkoff
program, have funded numerous human nutrition
research projects and extended research
results through public information programs.”
Quote taken from the National Cattlemen’s
Beef Association web page.
See the following Web Sites for additional
information:
http://www.nationaldairycouncil.org/
http://www.whymilk.com/facts.htm
http://www.beef.org/dsp/dsp_locationContent.cfm?locationId=1
We also know that despite widespread familiarity
with these nutritional guidelines, more
and more people in the US and worldwide
are suffering from diet-related health problems
including obesity, high blood pressure,
high cholesterol, and certain cancers.
- Do current animal production practices
contribute to antibiotic resistance?
Antibiotics play a critical role in the treatment
of illness. However, an increasing number of
pathogens are developing resistance to antibiotics.
An estimated 70% of antibiotics used in the
US are fed to farm animals to speed their growth
and/or to prevent illness among animals weaned
very early, fed diets for which their digestive
systems are not adapted, or kept in crowded
conditions. Many researchers suspect that the
virtually uncontrolled use of antibiotics in
agriculture may be an important factor in the
development of antibiotic resistance.
See the following Web Sites for additional information:
http://www.ucsusa.org/food_and_environment/antibiotic_resistance/index.cfm
http://ehp.niehs.nih.gov/members/2002/110-7/focus.html
http://www.mcrel.org/standards-benchmarks/activities/output.asp?Activity=53
(links in the superbug activity are no longer
valid, have students begin with the 2 links
provided here or type the following key words
into the computer search engine: antibiotic
resistance livestock production)
- Do current animal production practices
contribute to foodborne illness or reduce the
nutritional benefits of animal products?
Foodborne diseases such as tuberculosis carried
in milk, trichinosis in pork, and salmonella
in seafood have long been associated with the
consumption of animal products. Public health
actions such as pasteurization of milk have
greatly diminished certain foodborne diseases.
Other illnesses, however, remain a problem,
and there is reason to believe that some of
these diseases may be linked to practices of
intensive, industrialized livestock production
and processing. For example, the feeding of
animal by-products to cows is recognized as
an important vector for the spread of mad cow
disease. Some research indicates that grain-finished
cattle are more likely to contain E. coli bacteria
than grass-finished cattle. And as discussed
above, antibiotic-resistant strains of pathogens
have been associated with the widespread use
of antibiotics in intensive animal production.
In addition, the nutritional profile of meat
and milk from pasture-raised animals is slightly
different from that of grain-fed animals raised
in confinement. Overall, the meat of grass-finished
animals is leaner and higher in conjugated
linoleic acid (CLA) and Omega 3 fatty acids.
Some animal feeding studies indicate that
these substances may reduce the risk of cancer,
heart disease, and obesity. However, so far
there is little or no research on the long-term
human health effects of CLA.
See the following Web Sites for for popular
discussions of possible health benefits:
http://www.womensnaturalhealth.biz/articlepage.php?id=137
http://www.eatwild.com/nutrition.html
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Cost
5. Community impacts
The impacts of cheap industrialized meat production
on labor and the environment in turn have impacts
on local communities. As the name of Wisconsin’s
professional football team shows, communities
once took pride in the meat processing industries
that gave stable, high-paying jobs to local families.
Today, communities with large meatpacking operations
often struggle to serve and police transient,
poor, and often ill workers and their families.
Residents of rural communities with large confined
animal feeding operations suffer odor problems
and declining property values. Poorly managed
livestock operations large or small can contaminate
surface and ground water supplies, raising the
cost of safe drinking water and reducing recreational
opportunities. And decreasing numbers of farm
families hurt rural schools and businesses.
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Cost
6. Animal welfare
Some people claim that animals do not experience
pain and suffering the way humans do. However,
most people are inclined to believe that at least
vertebrate animals do feel pain, discomfort, and
even non-physical suffering. It seems intuitively
obvious that animals feel discomfort and psychological
stress when they are crowded, kept in artificial
conditions such as on slatted metal floors, fed
diets to which they are not adapted, and treated
with drugs to enhance their production. Such animals
also tend to exhibit more aggressive and self-destructive
behaviors and die younger than animals raised
in less intensive systems. The cost of animal
suffering does not translate to dollars and cents,
but it is an important concern for many people.
http://www.awionline.org/farm/fai.htm,
http://www.ciwf.org.uk/livefastdieyoung/,
http://www.certifiedhumane.com/USAtoday81203.html.
For a quick summary of external costs of industrialized
livestock production for specific products see:
http://www.cias.wisc.edu/pdf/tags/natchick.pdf
(chicken)
http://www.cias.wisc.edu/pdf/tags/natdairy.pdf
(dairy products)
http://www.cias.wisc.edu/pdf/tags/nategg.pdf
(eggs)
http://www.cias.wisc.edu/pdf/tags/natburger.pdf
(hamburger).
Activity
2: You’re planning what?
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