Contract Farming
There is possibly no more con
troversial issue facing production
agriculture today than the debate
over contract animal production.
The purpose of this article is to
attempt to provide some facts as
sociated with contract farming and
modem agriculture.
Contract farming began in the
1950 s in the broiler industry and
was implemented in the hog in
dustry in the 19705. A farmer is
the contract grower in the part of a
system called vertical integration.
Vertical integration, in its most
simple definition, combines pro
duction, processing, and distribu
tion of a commodity into one en
tity. Most companies in Penn
sylvania, integrators for lack of a
better word, 'are not fully inte
grated.
Separate companies rely on
their relationships with other
segments of the industry to pro
vide all the pieces to the "farm to
fork" puzzle. For example, in
most situations the farmer is only
asked to provide the land, build
ings, equipment, and labor to ful
fill his obligations in the contract.
The integrator then supplies the
animals, feed, medications and
technical support to the operation.
By working together both owners
are able to gain advantages and re
duce their exposure.
Some advantages to contract
growers include:
1) Reduced capital investment
(does not have to buy animals,
feed, or medication)
2) Protection from price vola-
tility
3) Guaranteed income
4) Technical assistance pro
vided
5) Ability to diversify opera
tion on limited number of acres
Some advantages to the inte
grator include:
1) Reduced capital investment
(does not need to buy land or
buildings)
2) Efficiency usually improved
3) A known quantity can be
produced on a schedule
4) Reduction in labor require
ments
There are some down sides to
the contracts as well. For the
farmer it means they may not be
able to take advantage of unusu
ally high market prices and do not
actually own the animals. For in
tegrators, the main disadvantage is
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that they must absorb the losses
in a low market price period.
One of the primary criticisms
of contract farming and intensive
livestock production in general,
relates to the environment. A con
tract's ability to provide a stable
and predictable income to a farmer
is often overshadowed by a percep
tion of increased environmental
risk. The fact is a contract can in
crease environmental conscious
ness in an operation that prior to
any construction must meet strict
natural resource criteria. Most
loans won't even be considered for
approval without a Nutrient Man
agement Plan, whether it is re
quired or not. Granted, anything
stored in one location can concen
trate a potential hazard but it also
Lancaster Farming, Saturday, September 5, IWI-A39
allows for increased protections
- and cautionary measures to be
properly installed and imple
mented. It's easier to catch fish in
a pond than in Lake Erie.
Many people assert that farm
ers who construct buildings for
the puipose of becoming a con
tract grower have forfeited their
status as a "family farm." Well,
the truth of the matter is the con
tract a farmer signs, which guaran
tees a steady source of income,
may be the one thing that helps
keep their family on the farm.
Sustainability today means farm
ing tomorrow.
Feel free to send your com
ments and ideas to Jim Shirk at
The Lancaster Chamber of Com
merce & Industry, PO Box 1558,
Lancaster, PA 17608-1558. by
email at jshirk@lcci.com or call
him at (717) 397-3531.
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