April 24, 2006

 

Consolidation dominates future of animal agriculture in North America
 

 

Consolidation is the rule of the day as economies of scale and other cost advantages bring about larger scale operations in the US, according to a report by Farm Foundation, a non-profit  group focused on policy issues on agriculture. 

 

The report, entitled "The Future of Animal Agriculture in North America" notes future trends for the animal agriculture industry in the US, Canada and Mexico.
  

Its report noted that consolidation appears to be accelerating for dairy, slowing for swine, and stable for beef and poultry industry. 

 

Production is now dominated by large firms tightly aligned across the production and distribution chain with contracts and other types of marketing arrangements in nearly every market level, the report said.

 

It also noted that large firms enjoy many benefits besides economies of scale that small firms do not, including profits that attract external capital and advances in genetics, health and nutrition. 

 

While large firms hold sway over the industry, it does not necessarily mean small operations would be crowded out altogether.

 

While consolidation in the US processing industry has generated larger slaughter capacity, resulting in more efficient plant operation and lower procurement costs, it has also attracted stricter regulatory controls which smaller farms are exempted from, the report noted.

 

It is important for small farms to form alliances or partnerships to gain economies of scale. They can also contract for the large firms, the report suggests.

 

Many smaller operations have been able to remain in hog production by contracting with horizontal and vertical integrators. Integrators provide production services, capital and risk management options that encourage smaller operations to continue to participate in livestock production.

 

Another alternative is to go into niche operations. Some types of specialty production¡ªsuch as specialty pork, grass-fed beef and free-range chickens favour small operations, the report said. 

 

The report further highlights that contracts are an indispensable tool for the future as processors seek to ensure supply, detail specification and consistent quality.

 

The report also noted the role new technology such as antibiotics, feed additives, dietary modifiers and specialized feed ingredients has played in increasing animal productivity.

 

An online version of the report is available at The Future of Animal Agriculture in North America