The animal ag industry operates according to the economic principles of American-style capitalism. Although animal ag can be viewed from many important perspectives – social, environmental, nutritional, or through a worker or animal lens – the driving force behind industrial animal ag is basic economics.[1,2]
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. [“The primary purpose of all CAFOs is economic.”]
This section, unlike most others on the site, includes some answers that are only lightly referenced. Some of these subjects are not extensively researched or analyzed in writings about the animal ag industry. To the degree that the ideas in this section are unreferenced, they should be taken as informed opinions rather than facts. In many cases, however, the site contains a multitude of references that support the concepts on these pages, and the points made are essentially summaries of broad understandings. As always, we welcome any challenges, corrections, or suggestions for improvement.
The two major characteristics explored here are:
Commodity production: Most animal-sourced foods have been adapted to sell as commodities. A commodity is an item that is considered fungible, i.e., identical to and interchangeable with others of its kind. Commodity producers are singularly focused on minimizing production costs.[1]
Externalities: The industry’s largest cost savings come from externalizing production costs, i.e., driving costs onto non-consenting third parties. The paucity of regulatory constraints is one of many factors that allow or even encourage the industry to externalize costs.[2]
We believe these concepts can further our understanding of the structure and function of the industry and the wide-ranging damage it causes.[3]
See, Animal Ag Commodities [From Webster’s Dictionary: A commodity 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.”]
See, Externalities Overview [Negative externalities are transaction spillovers from economic activities that create uncompensated costs, negative welfare effects, or lost opportunities to third parties (individuals or groups) who were not involved with the specific market transactions.]
Note: Naturally, there are other economic topics worthy of exploration such as industry concentration, vertical and horizontal integration, market power, the impacts of foreign ownership, etc., which we aim to cover in the future.
The animal ag industry contributes a very small share of U.S. gross domestic product (GDP, or the total value of all goods and services). Including the output of animal slaughter and processing, dairy products, and eggs, the total value of shipments of the animal ag industry equals ~2% of GDP.[1,2]
US Census Bureau Tables (2022) https://data.census.gov/table [NAICS Code 3116 (Animal Slaughter & Processing) = $296.3B. Code 3115 (Dairy Product Manufacturing) = $159.9B. Code 3111 (Animal Food Manufacturing) = $70.2B. Total value of shipments = $526.4B. Plus $19.4B “Value of all egg production” per U.S. Poultry & Egg Assoc. Total = $545.8B for 2022. 545.8B/$26.14 trillion GDP (see below) = 2.09 %. A large portion of Animal Food Manufacturing is either non-meat or farmed animal feed, so the actual percentage is a little less than 2%. The value of shipments of feed crops and from factory farms is incorporated into this final figure of ~2% of GDP.]
U.S. Bureau of Economic Analysis (3/30/2023) Gross Domestic Product, Fourth Quarter and Year 2022 (Third Estimate) https://www.bea.gov/news/2023/gross-domestic-product-fourth-quarter-and-year-2022-third-estimate-gdp-industry-and [U.S. GDP = $26.14 trillion]
At the top level are the corporations that influence or control many aspects of the system – including Tyson, JBS, Cargill, WH Group, Marfrig, Cal-Maine, Dairy Farmers of America – along with many other multi-billion dollar companies.[1]
Most of the environmental damage is generated by feed crop and factory farm operations, which are generally not owned by the corporations at the top of the system.
Naturally this system has many more parts than those on the diagram. For example, there are multiple steps between feed crop harvests and the delivery of processed feed to factory farms. Live animal transport happens multiple times during most animals’ lives. Animal by-products and some animals go to rendering plants. There are administrative, marketing, legal, and lobbying functions, particularly at the top level. Finished products are transported to distributors, wholesalers, retailers, food service companies, and food manufacturers engaged in further processing.
Almost certainly. This site is devoted to accurately portraying those wide-ranging damages – most are labeled negative externalities in economic terms.
Many reports have concluded that the externalized costs of the entire food system are almost as large, or in some assessments larger, than the total value of the food produced. This has been asserted by researchers studying both U.S. and global food systems.[1-3]
What is less commonly identified is the degree to which agriculture’s externalized costs accrue to the animal ag industry specifically. Factory farms, concentrated manure, feed crops, and grazing animals are responsible for the great majority of agriculture’s impacts, as highlighted throughout this site.[4]
Very few reports attempt to put a monetary value on the pain and suffering of animals, which is naturally a challenging exercise.[5,6] A consideration of the costs to the animals themselves could make the total damages from animal ag astonishingly large in comparison to the benefits to society.[7,8]
The Rockefeller Foundation (2021) True Cost of Food: Measuring What Matters to Transform the U.S. Food System, p. 15. [Estimating GHG emissions, water use, and soil erosion at $350 billion, biodiversity loss due to land use and pollution at $455 billion, and impact of pollution on human health at $36 billion = $841 billion. This is ~76% of the size of the estimated $1.1 trillion “total food expenditures.” Note: This and following reports include some externalities and exclude many others.]
Hendriks, S., et al., (2021). The true cost and true price of food. United Nations Food Systems Summit 2021, p. 3. [“The current externalities were estimated to be almost double (19.8 trillion USD) the current total global food consumption (9 trillion USD). These externalities accrue from seven trillion USD (range 4-11) in environmental costs, 11 trillion USD (range 3-39) in costs to human life and one trillion USD (range 0.2-1.7) in economic costs.”]
Ruggeri Laderchi, et al., (2024). The Economics of the Food System Transformation. Food System Economics Commission (FSEC), Global Policy Report, p. 8. [Estimates the environmental costs at about $3 trillion including biodiversity loss, land use, and nitrogen surplus.]
Note: Most U.S. cropland is devoted to growing crops for animal feed. See, Total Feed Crops Share. Adding the impacts of factory farms, manure management systems, and grazing brings animal ag’s share of agricultural externalities well over half and in some categories upwards of three-quarters of total impacts. Adding the costs of farmed animal suffering brings those figures even higher.
Lusk, J. L., & Norwood, F. B. (2011). Animal welfare economics. Applied Economic Perspectives and Policy, 33(4), 463-483, p. 16. [“One of the thorniest issues arising in the study of consumer preferences for animal welfare is that people simply do not know much about how farm animals are raised.”]
McInerney, J. (2004). Animal welfare, economics and policy. Report on a study undertaken for the Farm & Animal Health Economics Division of Defra, 68, p. 21.[“All this makes clear that animal welfare is in reality a subset of human welfare, the animals’ preferences and wellbeing having relevance only to the extent that they are important to us.”]
Rusman, A., et al., (2023) External Costs of Animal Sourced Food in the EU, Impact Institute. [Report attempts to assign costs to animal suffering, the largest component of their estimates of total animal-sourced food costs. “The external cost of EU animal sourced production (animal sourced food produced in the EU, including exports) in 2022 is €1,568 billion, or approximately 7.6 times higher than the economic costs of producing animal sourced food.” at p. 5]
Budolfson, M., et al., (2024). Monetizing Animal Welfare Impacts for Benefit–Cost Analysis. Journal of Benefit-Cost Analysis, 1-18. [“…there are powerful theoretical arguments that favor accounting for the intrinsic value of animal welfare and not just its value to humans.” at p. 4. “Ultimately, an inclusion of the intrinsic value of animal welfare is likely to depend on the altruistic concerns for animals.” at p. 16]
Among the many reasons for the leniency granted to animal ag is the long-standing regulatory exception for U.S. farming, generally referred to as agricultural exceptionalism.[1] This traditional lack of regulation has allowed industrial agriculture to pollute with relative impunity.[2] The animal ag industry is a primary beneficiary of a system that protects both factory farms and feed crop producers.[3]
Today, multi-national corporations take advantage of laws and traditions that were originally designed to protect small farmers from burdensome regulations.[4,5]
There are a host of additional reasons for animal ag’s ability to externalize its production costs, including the geographically dispersed and often untraceable sources of pollution and the relative powerlessness of the disenfranchised individuals, both human and animal, who are forced to bear the costs.[6,7]
Schneider, S. A. (2009). A reconsideration of agricultural law: a call for the law of food, farming, and sustainability. Wm. & Mary Envtl. & Pol’y Rev., 34, 935. [Agricultural exceptionalism, “i.e., the use of legal exceptions to protect the agricultural industry, is pervasive.” at p. 935. “…the concept is evident throughout the law.” at p. 936]
Ruhl, J.B. (2000) Farms, Their Environmental Harms, and Environmental Law. Ecology Law Quarterly, 27(2), 263, p. 269. https://doi.org/10.15779/Z38C55S [“One would be hard pressed to identify another industry with as poor an environmental record and as light a regulatory burden.”]
John Ikerd (2022) Failure to Regulate CAFOs: Abuse of Agricultural Exceptionalism, Univ. of Missouri. https://ikerdj.mufaculty.umsystem.edu/presentation-papers/factory-farms-cafos/failure-to-regulate-cafos-abuse-of-agricultural-exceptionalism
Blattner, C. E., & Ammann, O. (2019). Agricultural exceptionalism and industrial animal food production: Exploring the human rights nexus. J. Food L. & Pol’y, 15, 92. [“Laws originally designed to govern small family farms—so-called “farmers’ rights” laws, including right-to-farm laws and exemptions from environmental and animal law—now protect corporate giants, many of which are multinationals.”]
Diamond, D., et al., (2022). Agricultural Exceptionalism, Environmental Injustice, and US Right-to-Farm Laws. Env’t L. Rep., 52, 10727, p. 10747. [“RTFLs (right-to-farm-laws) have become state-sanctioned mechanisms enabling industrial agribusiness entities to pollute and escape accountability at the expense of rural people and the environment.”]
Pretty, J. et al., (2001) Policy Challenges and Priorities for Internalizing the Externalities of Modern Agriculture, Journal of Environmental Planning and Management, 44(2), 263-283, p. 265. [“The types of externalities encountered in the agricultural sector have four features: (1) their costs are often neglected; (2) they often occur with a time lag; (3) they often damage groups whose interests are not represented; and (4) the identity of the producer of the externality is not always known.”]
U.S. EPA (May 2022) EPA Legal Tools to Advance Environmental Justice, Office of General Counsel, p. 75. [“EPA is aware of a growing body of literature suggesting that the communities disproportionately impacted by CAFOs are communities of color and economically disadvantaged communities.”]
The U.S. animal ag industry is a mature industry, i.e., relatively stable with low growth potential.[1] Major producers operate in a commodity market with strong competition both domestically and internationally. These conditions point to relatively small selling margins and low, but steady, long-term profitability.[2,3]
The off-loading of production costs through negative externalities mostly benefits consumers in the form of lower retail prices.[4] As a share of income most foods, including animal-sourced foods, continue to be relatively inexpensive by historic standards (despite the increasing share eaten away from home).[5]
Buhr, B. L., & Ginn, B. (2011). US meatpacking: Dynamic forces of change in a mature industry. Choices, 26(1), p. 1. [“Meatpacking in the United States is a mature industry. Overall domestic per capita meat consumption levels have been stable for the past 25 years.” And consumption levels continue to be stable through 2024.]
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.”]
Note: Although profitability among companies varies widely, the two largest U.S. publicly traded animal-sourced food producers reflect the industry’s challenges: over the last 5 years, while the S&P 500 increased about 80%, both Tyson’s and Hormel’s stock prices have decreased by double digits (as of January, 2025).
Note: In general, off-loading animal ag production costs through negative externalities benefits consumers through low retail prices, while benefitting producers through the high volume that follows from low retail prices. Commodity product profitability in a competitive market = high volume x low margin.
USDA (November 18, 2024) Food Prices and Spending.https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/food-prices-and-spending/?topicId=2b168260-a717-4708-a264-cb354e815c67 [“U.S. consumers spent an average of 11.2 percent of their disposable personal incomes on food in 2023, unchanged from 2022.”]
Large animal ag producers mostly sell commodity products in a mature, competitive, low-growth market. Their selling prices are determined by an array of market forces which are difficult for any single company to influence. In their core commodity businesses, the primary route to increasing profitability is through reducing costs of production.[1]
Major animal ag producers operating in a commodity market can increase profits by:
Reducing production costs by increasing volume, thereby gaining additional economies of scale.[1] Using a variety of other methods to reduce production costs, either in absolute terms or relative to competitors.[2] Entering foreign markets that have growth potential, either through exports or by using expertise to start new business entities abroad.[3,4] Manipulating the market by legal means, using market power gained through company size or industry concentration.[5] Illegally engaging in collusion with other firms.[6,7] Increasing selling price through differentiation, thereby exiting the commodity market, with all or a portion of production. This can be accomplished through branding, advertising, labeling, food processing, or adjusting production techniques to meet the needs of specific retailers or some portion of the consumer market.[8,9]
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. Enke, M. et al., (eds.) Springer, ISBN 978-3-030-90656-6, 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.” High capacity utilization is one of many methods to bring down costs.] See, Animal Ag Commodities for a review of cost reduction strategies.
Carl Gaigne & Christophe Gouel (2022) Trade in agricultural and food products, Ch. 88, Handbook of Agricultural Economics, Volume 6, ISSN 1574-0072, Barrett & Just (eds.). [Globally, “…agri-food goods are traded much less intensively than other goods… In 2014, trade intensity of agri-food goods was 13% compared to 30% for other goods…” at p. 4849. “In addition to the above mentioned tariff and NTMs (nontariff measures including regulations), possible explanations for these higher trade costs for agri-food products are the perishability of these products and their bulkiness which is likely to increase shipping cost relative to price.” at p. 4852]
Buhr, B. L., & Ginn, B. (2011). US meatpacking: Dynamic forces of change in a mature industry. Choices, 26(1), p. 1. [“As typical of mature industries, meatpackers compete by reducing costs through technical change, increasing in size and scope through acquisition or vertical coordination and by expanding into developing international markets.”]
Andrew Barkley and Paul W. Barkley (2013), p. 293. [“Market power is the ability of a firm to set the price of a good higher than the cost of production. A firm with market power can influence the price of its product, or the competitive market price.” “When there are only a few firms in an industry, individual firms may be able to charge a price higher than the competitive price, forcing consumers to pay more than the product’s cost of production.”]
Andrew Barkley and Paul W. Barkley (2013), p. 306. [“Firms are said to Collude when they agree to make decisions as a group.” The line between the legal use of market power and illegal collusion is often adjudicated.]
McDonald’s Corporation v. Cargill, Inc. et al. (1:24-cv-07017) Dist. Ct., E.D. New York October 4, 2024. [Note: McDonald’s filed suit in October, 2024 against its largest suppliers, Tyson, JBS, and Cargill for colluding over a 9 year period. “The goal of their conspiracy was to fix, raise, stabilize and/or maintain the price of beef sold to Plaintiff and others at supra-competitive levels – that is, prices artificially higher than beef prices would have been in the absence of their conspiracy.”]
Masters, W. A., & Finaret, A. B. (2024). Food Economics: Agriculture, Nutrition, and Health. Springer Nature, p. 428. [“In some cases the exact same product can move as both a commodity and a differentiated item, for example when identical butter from the same dairy processor is sold in both generic and premium packaging.”]
For example, Perdue Farms has pursued (with the encouragement of animal advocacy groups) a differentiation strategy. With ~6-7% broiler market share (well behind the industry leaders Tyson, Pilgrim’s Pride, and Wayne-Sanderson) and owning a recognized name brand, they are staking out a position that includes “no antibiotics” along with somewhat higher animal welfare standards for a portion of production. See for example, their efforts to differentiate based on animal treatment and labeling [Perdue Farms, Inc., (March 16, 2023) Re: Petition to USDA Regarding FSIS’s “Pasture Raised” claims.]
The intense pressure on production costs has helped set the moral bar low for the industry leaders. Institutionalized animal cruelty, the abuse of the environment, and a lack of attention to worker health and safety are built into the business model. In the absence of enforceable regulations and without an extensive consumer base willing to pay for higher standards, major producers that act more ethically will lose market share to companies that are willing to compete on any terms.