The key economic characteristic of animal-sourced foods is that they are largely made up of commodities. Live animals along with their end products – pork, milk, eggs, chicken, beef – are generally viewed and sold as commodities.
A commodity is an item that is considered fungible, i.e., identical to and interchangeable with others of its kind. It is “a product or service that is indistinguishable from ones manufactured or provided by competing companies and that therefore sells primarily on the basis of price rather than quality or style.”[1]
A more sophisticated definition points out that commodities are “goods and services that buyers perceive as homogenous and replaceable, even though they have more or less differentiating attributes.”[2]
commodity (n.d.) The American Heritage Dictionary.
Commodity Marketing: Strategies, Concepts, and Cases (2022) Enke, M. et al. (eds) Springer, ISBN 978-3-030-90656-6, p. 5.
Yes. The large majority of animal ag products – live animals, as well as pork, beef, chicken, milk, and eggs – are viewed as commodities by purchasers all along the marketing chain, including wholesalers, processed food manufacturers, and retailers.[1] Even for consumers, most packaged meats, poultry, eggs, and dairy products are bought primarily on the basis of price, with little or no consideration of brand.
Factory farmed animals and animal-sourced foods, as well as the crops that feed animals, are regularly traded on commodity markets. The Chicago Mercantile Exchange, one of the largest commodity marketplaces in the world, actively trades lean hogs, pork cutout, fresh bacon, feeder cattle, live cattle, milk in various grades, non-fat dry milk, butter, corn, soybeans, and soybean meal.[2,3] (Other traded commodities include gold, copper, crude oil, heating oil, and natural gas.)
Commodity producers prefer that their inputs are also commodities so that they can standardize production operations. The animal ag industry has steadily adapted its main inputs to be commodities – genetically uniform animals and the massive amounts of standardized feed.[4,5]
For example, McDonalds states in a lawsuit claiming collusion by Cargill, JBS, and Tyson: “Beef is a commodity product. The USDA grades beef. For example, prime beef roasts from Tyson and Cargill are virtually indistinguishable and have nearly identical nutritional content. The USDA recognizes beef as a commodity and posts daily beef prices. Options and futures for the cattle from which beef is produced are traded as commodities on the Chicago Mercantile Exchange.” ] See, McDonald’s Corporation v. Cargill, Inc. et al. (1:24-cv-07017) Dist. Ct., E.D. New York October 4, 2024, p. 66.
CME Chicago Mercantile Exchange (2023) Livestock Futures and Options. https://www.cmegroup.com/trading/agricultural/livestock.html
Note: Chicken is not traded on commodity exchanges although most production is viewed as a commodity. See the following source for the reasons, including lower market volatility and the high levels of vertical integration: Agiboo (2021) Chicken as a commodity: the reason why exchanges don’t offer Options and Futures. [“Chickens are more like appliances because they can be produced all year around. And they can be produced quickly. Beef, on the other hand, is more seasonal and takes longer. There is much more risk producing beef than chicken.”]
https://www.agiboo.com/chicken-as-a-commodity-the-reason-why-exchanges-dont-offer-options-and-futures/]James M. MacDonald (2014). Technology, Organization, and Financial Performance in US Broiler Production, USDA Economic Research Service, No. 126, p. iv. [“Because farms operate most efficiently by specializing in broilers of a given size, and because processing plants operate most efficiently by processing uniformly sized birds during any given week, integrators must closely coordinate the weekly flow of chicks from hatcheries to farms, and of uniformly sized birds from farms to processing plants.”]
Tolosa, A. F., et al., (2021). A meta-analysis to understand the relationship between pig body weight and variation from birth to market. Animals, 11(7), 2088, p. 1. [“Packing plants require that pigs are marketed within certain weight allowances and when pigs fall outside the packer’s desired weight range, they are discounted in market value, resulting in negative economic consequences for swine production systems.”]
The guiding principle of a commodity producer is to pursue increasing volume at decreasing costs of production. Margins tend to be small in commodity production, so producers aim for big volume x small margin.[1] Indeed, the main path to lowering commodity production costs is through economies of scale, i.e., the cost savings that generally accrue from big volume. Commodity producers must fight for market share, which is dependent on maximizing cost reductions at every step of the supply chain and production line.[2-5]
Price competitiveness is the central goal of Tyson, JBS, Cargill, WH Group, Marfrig, Cal-Maine, Dairy Farmers of America, and the many other companies selling animal-sourced food commodities.
Jacob, F. & Aichner, T. (2022). Customer participation and commodity marketing. In Commodity marketing: Strategies, Concepts, and Cases. Enke, M., et al., (eds.) Springer, ISBN 978-3-030-90656-6, p. 153. [“Commodities impose specific challenges on suppliers in their marketing efforts since they hinder standard methods for market differentiation and, often, force suppliers to apply strategies which solely build on cost and price advantages. Typically, this comes along with lower margins, a lack of competitive advantage, and, finally, a lower overall firm profitability.”]
Andrew Barkley and Paul W. Barkley (2013) Principles of Agricultural Economics. Routledge, London. ISBN 978-0-415-54-69-8, p. 310. [“Economies of Scale = when the per-unit costs of production decrease as output increases.”]
Maessen, A., et al., (2022) Commodity Pricing: Fast, Simple, Intelligent. In Commodity Marketing: Strategies, Concepts, and Cases, p. 74. [“Commodity production has high fixed costs. The higher the capacity utilization of a plant is, the easier it is for the supplier to spread those fixed costs across the volume, and thus to increase the unit contribution margin. For this reason, there is a lot of pressure to keep commodities volumes and capacity utilization high. In addition to fixed costs, the production of commodities is highly dependent on input or raw materials costs.”]
MacDonald, J. M., et al., (2023). Concentration and competition in US agribusiness, USDA Economic Research Service, No. 256, p. 26. [“Technology enabled scale economies to become a driving force at larger plants (i.e., slaughterhouses); packers found that they could realize economies by processing in larger plants if they could assure themselves of large and steady flows of livestock to those plants, so they built much larger ones.”]
Michael J. Broadway & Donald D. Stull (2010) The Wages of Food Factories, Food and Foodways, 18:1-2, 43-65. [According to these long-time analysts of the meat and poultry business, “The goal of industrial agriculture is to produce large quantities of uniform products at the cheapest price.” at p. 56]
Animal ag producers that cannot vie for cost leadership through economies of scale can leave the commodity market with some or all of their products via a route called differentiation.[1] They can look for niche qualities that buyers or consumers view as added value. Possible added values might include perceived higher nutritional quality, products with added processing for taste or convenience, a promise of higher animal welfare combined with certification or labelling claims, or marketing under a recognizable regional name brand.[2]
Turning some commodity production into branded processed foods with higher margins (de-boned, breaded, ready-to-cook) is one of the goals of most commodity producers.[3]
Sabrina C. Thornton (2022) Differentiating the Indifferent: Dealing with Commoditization Paradox Through Innovation. In Commodity Marketing: Strategies, Concepts, and Cases, Enke, M., et al. (eds.) Springer, ISBN 978-3-030-90656-6, p. 265. [“To sustain the competitiveness and profitability of a product, firms could employ either cost leadership strategy to ensure a low-cost advantage, or a differentiation strategy that focuses on creating unique value in order to warrant a price premium.”]
Bamberger, B., et al., (2022). Commodity Differentiation: A Cross-Industry Approach. In Commodity Marketing: Strategies, Concepts, and Cases, See Figure 3, p.26 and Table 1, pp. 27-28.
Tyson Foods, Inc., Form 10-K, Annual Report for fiscal year ended September 30, 2023 [“The primary raw materials used in our prepared foods operations are commodity-based raw materials, including beef, pork, chicken, turkey, flour, vegetables, cheese, eggs, seasonings and other cooking ingredients.” at p. 5. “Our total operating margin was (0.7)% in fiscal 2023. Operating margins by segment were as follows: Beef – (0.5)%, Pork – (2.4)%, Chicken – (4.5)%, Prepared Foods – 8.4%.” at p. 26. All areas except prepared foods operated at a loss.]
Large Size
Companies aim to maximize corporate size and economies of scale, i.e., “lower production costs at larger levels of output.”[1] Since the largest firms dominate commodity markets, horizontal integration, i.e., acquiring or merging with competitors, is a consistent strategy.[2]
Maximum Efficiency Continuously updated technologies and systems lead to speed, efficiency, and low cost.[3] Standardization of processes and uniform inputs and outputs increase efficiency.[4] Vertical integration (or coordination) increases control over production inputs.[5,6] Hierarchal organization allows for monitoring efficiency and centralized decision making.[7]
Andrew Barkley and Paul W. Barkley (2013) Principles of Agricultural Economics. Routledge, London. ISBN 978-0-415-54-69-8, p. 310.
Patrick Thomas (July 22, 2022) Cargill, Continental Grain Close Deal for Chicken Producer Sanderson Farms, Wall Street Journal. [The 3rd largest meat company in the U.S. forms a joint venture to combine the 3rd largest poultry producer with the 7th largest producer.]
Tyson Foods, Inc. Annual Report, Form 10-K for fiscal year ending Oct.1, 2022, p. 26. [In 2022 Tyson launched its “New Productivity Program” with 3 pillars: operational and functional excellence, new digital solutions like artificial intelligence and predictive analytics, and automation and robotics technologies. These efficiencies can be implemented at the factory farm level, e.g., manipulating diets for higher feed conversion, or at the slaughterhouse level, e.g. increasing line speeds, running at higher capacity, or replacing labor with automation.]
James M. MacDonald (2014). Technology, Organization, and Financial Performance in US Broiler Production, USDA Economic Research Service, No. 126, p. iv.[“Because farms operate most efficiently by specializing in broilers of a given size, and because processing plants operate most efficiently by processing uniformly sized birds during any given week, integrators must closely coordinate the weekly flow of chicks from hatcheries to farms, and of uniformly sized birds from farms to processing plants.”]
Hendrickson, M., et al., (2013). Vertical integration and concentration in US agriculture. Encyclopedia of food and agricultural ethics, 1(1–9), p. 1. [“Vertical integration is the process whereby one firm merges with another firm from which it buys inputs or to which it sells output.”]
Buhr, B. L. & Ginn, B. (2011). US meatpacking: Dynamic forces of change in a mature industry. Choices, 26(1), p. 5. [“Meatpackers are increasingly aligned throughout the meat supply chain from genetics through the retailer’s meat case. These vertical linkages result in economies of size and scope beyond the traditional technical economies of size.”]
John Ikerd (2013) The Inevitable Economic, Ecological, and Social Consequences of CAFOs. Prepared as background information for various public presentations in Lower Leighton, Wales, UK, sponsored by the World Society for Animal Protection, March 4-8, 2013, p. 4. [“These are precisely the fundamental characteristics of CAFOs: They are specialized, standardized, and hierarchically-controlled, industrial organizations.”]
Low Labor Costs Production locations are partially determined by the availability and cost of labor, prioritizing a labor force with relatively low bargaining power.[1,2] Labor costs are minimized when workers perform simple, repetitive tasks, with little oversight.[3,4]
Resource Availability Production locations are partially determined by the availability, proximity, and relative cost of inputs.[5] Vertical integration (or coordination), i.e., purchasing or contracting with input suppliers, assures steady and uniform supply.[6,7]
MacDonald, J. M., et al., (2023). Concentration and competition in US agribusiness, USDA Economic Research Service, No. 256, p. 26. [“Packers sharply reduced wages at large cattle and hog plants—likely in anticipation of expanded flows of immigrant labor—thereby removing a cost disadvantage for large plants and facilitating exploitation of their technological advantages.”]
See for example, Precarious Employment
Musolin et al., (2014) U.S. Dept. of Health & Human Services, CDC, NIOSH, Evaluation of Musculoskeletal Disorders and Traumatic Injuries Among Employees at a Poultry Processing Plant, Report No. 2012-0125-3204, p. 26. [“Forty-two percent of participants at baseline had evidence of carpal tunnel syndrome … jobs included hand-intensive, repetitive tasks such as deboning and cut-up. Employees manually rehung birds on one of two lines, each running at 35 birds per minute.”]
See for example, Poultry Processing Worker Injuries & Illnesses
MacDonald, J. M., et al., (2023), pp. 28-29. [Ninety percent of broiler chickens are slaughtered within 60 miles of the factory farms on which they are raised. Most pigs travel less than 200 miles to the slaughterhouse.]
MacDonald, J. M. (2011). Why are farms getting larger? The case of the US. Proceedings, Paper prepared for annual meeting of the German Assoc. of Agricultural Economists, p. 9. [“Production and marketing contracts allow contractor/processors to obtain commodities with required specific attributes, in volumes and timing needed to run processing plants and distribution systems efficiently.”]
USDA, Economic Research Service (2022) U.S. Hog Production: Rising Output and Changing Trends in Productivity Growth, ERR-308, p. 11. [“…in 2015, 69 percent of hogs were raised on contract operations compared to only 5 percent in 1992.”]
Factory farmed animals are treated as insensate production units which greatly reduces the amount of land, resources, and labor required.
Total animal numbers per operation are based on maximizing economies of scale and minimizing labor costs per production unit.[1] Space allocations for animals are determined according to a formula of minimum living space for maximum weight production.[2] Animal body parts are amputated or mutilated as needed for ease of animal control, uniformity, identification, and flavor.[3]
A short listing can’t begin to document the abuses heaped on farmed animals in the name of cost savings. Genetically accelerated growth, unnatural diets, pharmaceuticals, reproductive abuses, intolerable temperatures, noxious air quality, housing filled with waste, inhumane euthanasia, and brutal catching, transport, and slaughterhouse procedures are all implemented or tolerated in order to reduce production costs.
See for example, Poultry Factory Farm Sizes
See for example, Pig Housing Conditions and Space Allocations
See for example, Dairy Cow Mutilations & Amputations
Government Support
Weak environmental regulations and enforcement allow producers to pollute and degrade water, air, soil and climate.[1] A lack of meaningful farmed animal welfare regulations leads to myriad savings throughout the production system.[2] Weak or unenforced labor regulations for worker health and safety reduce overall labor costs.[3] A weak regulatory system overseeing drug and chemical usage allows producers to degrade human health.[4] A wide range of subsidies for feed crop and factory farm producers reduces the costs of both inputs and production.
See for example, NPDES for CAFOs
See, Animal Treatment Laws & Regs Overview
See, Precarious Employment
See, Animal Ag Antibiotic Usage; and for example see, Neonics Use on Feed Crops
Embedded within many of these cost-saving techniques are strategies that offload production costs onto non-consenting third parties. Taken together these effects, called negative externalities, are by far the largest factor in reducing the costs of U.S. animal ag production.[1]
Non-consenting third parties include farmed and wild animals, most Americans, people living in other countries, and future generations.