Feasibility Research Report for Insuring 

Commercial Poultry Production

Deliverable 2. Final Feasibility Report

Contract Number: N10PC18148

Submitted to:

USDA-RMA

COTR: Karen Fekete

6501 Beacon Drive

Kansas City, Missouri 64133-4676

(816) 926-6084

Submitted by:

Watts and Associates, Inc.

4331 Hillcrest Road

Billings, Montana 59101

(406) 252-7776

watts@wattsandassociates.com

Due Date: September 3, 2010

This document includes data that shall not be disclosed outside of the Government and shall not be duplicated, used, 

or disclosed, in whole or in part, for any purpose. The Government shall have the right to duplicate, use, or disclose 

the data to the extent provided for in Contract N10PC18148. All pages of this document are subject to this 

restriction.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

i

Table of Contents

Section I. Executive Summary.........................................................................................................1

Section II. Introduction ....................................................................................................................4

II.A. Crop Insurance ..................................................................................................................9

II.B. Poultry Trade and Exports...............................................................................................10

II.C. Risk..................................................................................................................................11

II.D. Poultry Programs.............................................................................................................17

II.E. Approach..........................................................................................................................25

Section III. Broiler Sector..............................................................................................................29

III.A. The Crop ........................................................................................................................30

III.B. The Industry ...................................................................................................................31

III.C. Stakeholder Input ...........................................................................................................34

III.D. Pricing and Data Availability.........................................................................................40

III.E. Risks...............................................................................................................................41

Section IV. Turkey Sector..............................................................................................................47

IV.A. The Crop ........................................................................................................................48

IV.B. The Industry ...................................................................................................................50

IV.C. Stakeholder Input ...........................................................................................................54

IV.D. Pricing and Data Availability ........................................................................................58

IV.E. Risks...............................................................................................................................60

Section V. Layer Sector.................................................................................................................63

V.A. The Crop..........................................................................................................................64

V.B. The Industry ....................................................................................................................68

V.C. Stakeholder Input ............................................................................................................73

V.D. Pricing .............................................................................................................................75

V.E. Risks ................................................................................................................................78

Section VI. Feasibility Assessment................................................................................................82

Section VII. Summary of Findings................................................................................................87

List of Tables

Table 1. U.S. Broiler Production: 2008 ..........................................................................................5

Table 2. U.S. Turkey Production: 2008 ..........................................................................................6

Table 3. U.S. Table and Breaking Egg Production: 2008...............................................................7

Table 4. U.S. Agricultural Trade Balance: 2000-2009 .................................................................10

Table 5. Top Broiler Integrators, United States, 2008...................................................................29

Table 6. Economic Indicators–Broiler, United States ...................................................................32

Table 7. Broiler Production by States, 2008 ..................................................................................32

Table 8. Sample Broiler Vaccination Schedule .............................................................................44

Table 9. Top U.S. Turkey Processors in 2008 ...............................................................................51

Table 10. Economic Indicators–Turkeys, United States................................................................52

Table 11. Geographic Distribution of 2008 Turkey Production in the United States....................53

Table 12. Sample Turkey Vaccination Schedule...........................................................................61

Table 13. United States per Capita Egg Production and Distribution, 1984–2008 .......................65

Table 14. 2008 United States Egg Production by State .................................................................66

Table 15. Economic Indicators–Layer Segment United States .....................................................69

Table 16. Top Ten Egg Production Companies: 2008..................................................................69
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contained on this sheet is subject to the Contract No: N10PC18148

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ii

Table 17 Top Ten States Number of Farms Reporting Layers 2007 Census of Agriculture.........71

Table 18 Poultry Yearbook Egg Prices 1955 to 2004....................................................................77

Table 19 ERS Prices Paid Egg Prices 2004 to 2008......................................................................77

Table 20. Sample Layer Vaccination Schedule .............................................................................79

List of Appendices

Appendix A. Grower Contract Transparency

Appendix B. Listening Session Agenda

Appendix C. NASS Poultry Methodology
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

1

SECTION I. EXECUTIVE SUMMARY

The U.S. poultry industry includes production of more than 15 species of domesticated fowl and 

commercial game-birds and production of eggs from these species for direct consumption and 

hatching. Production of all poultry and eggs comprise approximately $37 billion of the U.S. 

agricultural economy. The three largest poultry sectors – broilers, turkeys, and layers –

accounted for a total value of over $35 billion in 2008. 

The majority of U.S. broiler production is in Southern and mid-Atlantic states. A majority of 

broilers are grown under contracts to integrators who own the birds, supply feed and medication, 

and schedule finished bird pickup and house repopulation. The broiler integrator element of the 

poultry industry has consolidated to 20 highly specialized, vertically integrated firms. Growers 

are paid for use of their houses, equipment, and labor based on pounds or, less frequently, a 

count of live birds delivered. 

The United States is the world‘s largest producer of turkeys. The 9 most productive states 

account for more than 75 percent of the annual national value and span the North American 

continent from east to west. Every state has some production of turkeys, though production in a 

number of states is for niche markets. Except for these niche market birds, almost all turkeys are 

grown under contract. 

Commercial egg production in the United States is reported in all 50 states. In 2009, 337.4 

million layers produced 90.4 billion eggs. More than 75 percent of the table eggs were produced 

by integrator-owned operations, with just 12 firms producing 20 percent of all the eggs grown in 

the United States. In 2009, 31 percent of all table eggs were broken under Federal inspection. 

Companies with at least 75,000 layers raise approximately 95 percent of all layers in the United 

States. Larger egg enterprises are aware of, and sometimes use, risk management instruments to 

manage risks associated with feed prices and energy costs.

Poultry growers, integrators, and producers face production risks, but insurable variability in 

production (yield) is much lower for poultry than for field crops. The broilers, turkeys, and 

layers have been carefully bred and selected over time to have a feed conversion efficiency that 

maximizes ―harvestable output.‖ Anecdotal data suggest with poultry that are multi-cropped, 

there may be more variability from crop to crop. The sophisticated and technologically 

advanced poultry houses manage not only most weather related risks but also help with disease 

control by limiting sources of contamination. In the listening sessions, broiler growers and 

producers expressed concern about feed quality, disease, weather events, building/operational 

environment issues, and domestic and international market outcomes. Turkey growers and 

producers were concerned with disease, weather, energy costs, withdrawal of integrators from a 

region, and market outcomes that indirectly affect their revenues. Growers and producers 

maintaining layers were concerned about disease, particularly diseases that might be transmitted

to humans (zoonotic diseases), bio-security requirements, recalls, and competition. 

Stakeholders of poultry in general are subject to substantial institutional risks from regulations 

related to husbandry, quarantine, and sanitation. Of these concerns, only uncontrollable disease 

and unmitigated weather problems are typically considered insurable production perils. There 

are private weather risk management products available to growers, integrators, and poultry 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

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2

producers fully capable of covering the weather risk. There are government programs providing 

partial indemnities to poultry producers and integrators who incur disease or natural disaster 

losses, but issue of ownership limits the ability of these programs to provide grower indemnities.

It is also important to consider the impact of the sector structures on who has an insurable 

interest in the crop. The integrator/processors are continuously monitoring sales, inventories, 

and wholesale prices, and adjusting through-put (beginning with bird placements into their own 

or growers‘ farms) and product to maximize profits. Their management of production practices 

and ownership of the birds removes all, or almost all, the insurable interest in the poultry from 

the growers. The Crop Insurance Act precludes provision of insurance for rent and labor 

payments to growers under the industry structure involving grower/integrator contracts. In 

general, if an RMA policy were to be offered, changes in the Act, handbooks, or contracts should 

identify the grower‘s insurable interest. Furthermore, processing activities of many producers 

and the integrators cloud the actual ―harvest‖ value of the ―crops.‖ The added value component 

of some poultry producer and integrator sales dwarfs the harvest value of the birds or eggs.

There are no public data to allow rating or underwriting of flock, farm-level, or county-level 

yield variability. The private data documenting yield, loss rates, feed conversions, or grower 

revenues are considered to be highly confidential, and serves as the basis for operating decisions

in the industry. The Contractor believes in the current environment there is nearly no chance of 

collecting sufficient data to support an actuarially sound development effort. Although generic 

appropriate production practices can be identified, the industry has fine tuned the conversion of 

inputs (feed and energy) into output (meat and eggs), and the management practices controlled 

by the integrator often impact a grower‘s productivity. Data on the impact of management 

practices are available to integrators and to some extent to growers, but not to the insurers. At 

the present time, these information asymmetries are not likely to change, even in a rigorous 

development effort.

Management-related variability (whether imposed by a poultry integrator, a producer, or a 

grower) would likely need to be addressed through a substantial deductible or burdensome and 

challenging underwriting constraints; poultry growers and producers have indicated a high 

deductible is not an insurance construct they would embrace. Coverage of insurable perils will 

not protect the insured from financial failure as a result of many perils of concern. Named peril 

insurance products are already available for bird mortality and loss-of-income. There was no 

evidence of broad interest among the stakeholders in poultry production (yield or yield-based 

revenue) insurance. While AGR/AGR-Lite products may seem an attractive insurance option for

poultry growers and producers, they expressed concerns that the requirements for this insurance 

are burdensome. Anecdotal evidence suggests participation in the AGR/AGR-Lite programs is 

limited within the poultry industry. Although smaller layer operations are eligible for the 

adjusted gross revenue products in some states, many poultry operations are not eligible as a 

result of their limited crop diversification, size, or location. Furthermore, for some operations, 

limited diversification of production reduces the maximum amounts of insurance and coverage

levels available to producers, creating disincentives for participation. Finally, RMA has made 

internal determinations that income from grow-out operations is not eligible under the adjusted 

gross revenue programs. 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

3

In light of the many issues identified in this study, including the failure of proposed production 

insurance for the poultry industry to meet a number of the RMA criteria of feasibility and the 

lack of transparency in the division of insurable interest between growers and integrators in 

contracted production, the Contractor has determined it is not currently feasible to develop 

production insurance for the livestock industry. Inasmuch as there has been a substantial change 

in federal policy regarding poultry industry contract secrecy, it is possible sufficient farm-level 

data to develop such insurance will become available over time. Consequently, the Contractor 

suggests RMA consider revisiting the issue of data availability in 2015.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

4

SECTION II. INTRODUCTION

The Statement of Work (SOW) for Project Number N10PS18148 identifies the objectives of the 

project as ―obtain[ing] analysis [and] determin[ing] the feasibility and issues related to insuring 

commercial poultry production in accordance with Section 522(b) (13) of the FCIA.‖ The 

Contractor is directed to ―produce a research report that determines the feasibility of developing 

an insurance program for commercial poultry production and recommends the most viable type 

of insurance program, if any [is] feasible.‖1

The U.S. commercial poultry industry includes production of more than 15 species of 

domesticated fowl and commercial game-birds, production of eggs from these species for 

hatching, and production of eggs from a limited number of these species for direct consumption 

by humans. Poultry species endemic to the United States and raised for meat include ducks, 

geese, pheasant, quail, and turkeys.2 Chicken (including pullets), emu, guinea hens, ostrich, and 

some species of duck, quail, and pheasant were introduced and are now grown commercially in 

the United States

Production of all poultry and eggs comprises approximately $37 billion of the U.S. agricultural 

economy.3 Since more data are available for the larger sectors of the poultry industry, the 

Contractor focused the research efforts on the broiler (chickens produced primarily for meat), 

turkey (produced primarily for meat), and layer (chickens raised for egg production) sectors. 

Together, these three sectors accounted for a total value of over $35 billion in 2008.4 For 

comparison, the 2008 corn crop was valued at about $49 billion and the 2008 soybean crop was 

valued at about $29 billion.5 Consequently, the financial impact of the three major commercial 

poultry sectors collectively in the U.S. agricultural economy is comparable to that of the

production of the largest field crops. There is also a large processing added-value component in 

all poultry sectors. This increases the impact of the poultry industry on the overall U.S. 

economy. Furthermore, although feed costs and costs for transporting feed have led to some 

concentration of poultry production in the states producing the feed crops, additional production 

occurs near population centers. This bifurcation of production locales has contributed to the 

geographic balance in the poultry sector and in the overall U.S. agricultural economy. Data on 

the other sectors of the poultry industry are geographically limited, sporadic, and in many cases 

anecdotal.

Much of the poultry industry is vertically integrated. A small number of very large firms have 

―integrated‖ many elements of production, marketing, and sales. Integrators for poultry meat 

production may control feed production, brood egg production, hatching, grow-out, 

transportation, slaughter, initial processing (preparation of a marketable whole bird), further 

processing to retail products such as lunch meat, and wholesale distribution. Integrators for egg 

production may control feed production, layer hatching and grow-out, transportation, processing, 

and wholesale distribution. Consequently, the major sector stakeholders have a tremendous 

 

1

 SOW. Project Number: N10PS18148, page 10.

2

Some classification systems include turkeys as members of the pheasant family.

3 USDA, NASS, 2008, 2007 Census of Agriculture, Table 2, http://www.agcensus.usda.gov/Publications/2007/Full_Report/ 

Volume_1,_Chapter_2_US_State_Level/usv1.txt, accessed March, 2010.

4 USDA, NASS. 2009, 2008 Poultry Production and Value Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.pdf, accessed February, 2010.

5 USDA, NASS, Quickstats, http://www.nass.usda.gov/QuickStats/indexbysubject.jsp, accessed February, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

5

amount of control of their products and vast market power relative to their contract growers. 

Even relatively small egg and poultry producers/integrators may own and manage many aspects 

of their businesses (e.g., rearing of birds, feeding, housing, husbandry, and marketing of their 

product) and are capable of managing many elements of the process.

In an effort to provide clarity, the Contractor defines below the terms producer, grower, and 

integrator as they are used in this report. 

Poultry Producer: A person owning and growing poultry for sale into agricultural markets.

Grower: A person retained under contract by the owner of poultry or an agent of that owner 

to manage the growth of poultry for sale into agricultural markets.

Integrator: A person who owns poultry being grown for sale into agricultural markets as well 

as associated activities providing inputs, services, or processing of the poultry. The term 

integrator/processor is used occasionally to focus attention on associated poultry processing 

activities.

The broiler sector of the poultry industry, valued at approximately $23 billion in 2008, is the 

largest of the domestic poultry sectors.6 Although the 2007 Census of Agriculture reported more 

than 300 broiler operations in each of 30 states, production is highly concentrated in relatively 

few regions.7 The top six broiler production states account for more than two thirds of the 

annual production (Table 1) and are located in the south. This regional concentration also 

supports strong poultry feed and poultry processing infrastructures in these southern states.

Table 1. U.S. Broiler Production: 2008 

State

Number of 

Birds

(millions)

Production

(million pounds)

Georgia 1,409.2 7,468.8

Arkansas 1,160.0 6,380.0

North Carolina 796.1 5,493.1

Alabama 1,062.9 5,846.0

Mississippi 840.7 4,876.1

Texas 640.8 3,460.3

Maryland 298.6 1,612.4

Delaware 242.9 1,578.9

Kentucky 306.1 1,652.9

South Carolina 236.9 1,516.2

Virginia 250.3 1,251.5

Oklahoma 237.8 1,260.3

All Other States 1,526.8 8,044.0

TOTAL 9,009.1 50,440.5

Source: USDA, NASS. 2009, 2008 Poultry Production and Value Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-

2009.pdf, Accessed February, 2010

 

6 USDA, NASS. 2008, 2007 Census of Agriculture, http://www.agcensus.usda.gov/Publications/2007/Full_Report/ 

Volume_1,_Chapter_2_US_State_Level/st99_2_013_013.pdf, Accessed February, 2010.

7 USDA, NASS. 2009, 2008 Poultry Production and Value Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.pdf, Accessed February, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

6

The turkey sector has an annual value of approximately $4.5 billion. Although a 

disproportionate share of total domestic turkey consumption occurs between November 15 and 

January 1, the sector is far less seasonal than it has been historically. The proliferation of 

processed turkey meat products has led to far less dependence in this industry sector on 

holiday/seasonal demand. Table 2 identifies the top 12 turkey production states (sorted by 

pounds of production) in 2008. The 9 most productive states account for more than 75 percent of 

the annual national value and span the North American continent from east to west.

Table 2. U.S. Turkey Production: 2008

State

Number of Birds 

(millions)

Production 

(million 

pounds)

Minnesota 48.0 1,305.6

North Carolina 40.0 1,208.0

Missouri 21.0 651.0

Arkansas 31.0 610.7

Indiana 14.5 519.1

Virginia 18.0 484.2

South Carolina 12.5 477.5

California 16.0 435.2

Iowa 9.0 360.0

Pennsylvania 11.5 216.2

Ohio 6.0 230.4

South Dakota 4.7 189.4

All Other States 40.9 1,234.8

TOTAL 273.1 7,922.1

Source: USDA, NASS. 2009, 2008 Poultry Production and Value Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-

2009.pdf, Accessed February, 2010

The layer sector, the sector of the poultry industry focused on production of chicken eggs for 

consumption, has an annual value of approximately $8 billion. The layer sector is more decentralized than the broiler and turkey sectors, with production located near both production of 

feed stuffs (inputs) and population centers (consumption). Table 3 identifies the top 12 egg 

production states (sorted by number of eggs produced) for 2008.
Use or disclosure of information or data Risk Management Agency

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7

Table 3. U.S. Table and Breaking Egg Production: 2008

State

Eggs Produced 

(millions)

Iowa 14,407

Ohio 7,168

Georgia 4,576

Indiana 6,523

Pennsylvania 6,181

Texas 4,928

California 5,272

Arkansas 3,139

North Carolina 3,063

Alabama 2,150

Minnesota 2,767

Florida 2,749

All Other States 28,228

TOTAL 91,151

Source: USDA, NASS. 2009, 2008 Poultry Production and 

Value Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/Po

ulProdVa-05-29-2009.pdf, Accessed February, 2010. 

It is important to note the self-identification of production in USDA surveys may mask 

ownership issues when identifying producers of poultry. Operations ―growing out‖ broilers and 

turkey, and some contract egg growers, may not have an insurable interest in the birds they are 

managing. Under the current federal crop insurance program, an insurable interest is defined as 

―the value of the producer‘s interest in the crop that is at risk from an insurable cause of loss 

during the insurance period. The maximum indemnity payable to the producer may not exceed 

the indemnity due on the producer‘s insurable interest at the time of loss.‖8 The loss may be 

measured in terms of lost potential revenue (e.g., loss of yield) or it may be measured in terms of 

reduced revenue. RMA has made internal determinations that income from grow-out operations 

is not eligible for coverage under the adjusted gross revenue programs. This ruling is consistent 

with the terms of the poultry production contract the Contractor was able to study specifically 

states clearly: ―Compensation herein provided for Grower shall include labor and rent on 

Grower‘s houses, equipment, and land for the time necessary to grow chicks until marketed....‖ 

The integrator, rather than the grower, generally owns the poultry on a grow-out operation9and 

bears most or all the risk associated with sporadic events. The grow-out operator (the grower) 

owns the facility and supplies the labor and often pays the utility costs associated with raising the 

poultry. In this role the grower bears some of the risk associated with differences in production 

output (i.e., live weight of the birds), but the integrator controls many of the inputs that may 

impact output and bears some elements of the production risk entirely. Grower contracts are 

generally structured to reflect this distribution of risk. The relationship between grower and 

 

8 Electronic Code of Federal Regulations, 2010, http://ecfr.gpoaccess.gov/cgi/t/text/textidx?c=ecfr&sid=059ebb30881ac860b1c2ace12b6bb127&rgn=div6&view=text&node=7:6.1.1.1.1.18&idno=7, Accessed April, 

2010.

9 An enterprise whose purpose is to increase the weight of the poultry.
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8

integrator might be construed as an unusual agricultural ―share‖ arrangement. RMA defines 

―share‖ as,

―The insured's percentage of interest in the insured crop as an owner, operator,

sharecropper, or tenant at the time insurance attaches. However, only for the 

purposes of determining the amount of indemnity, the insured‘s share will not 

exceed the insured‘s share at the earlier of the time of loss or the beginning of 

harvest. Unless the accepted application clearly indicates that insurance is 

requested for a partnership or joint venture, or is intended to cover the landlord's 

or tenant's share of the crop, insurance will cover only the share of the crop 

owned by the person completing the application. The share will not extend to 

any other person having an interest in the crop except as may otherwise be 

specifically allowed in the Basic provisions.

―Cash Lease (100 Percent Share [to the payor of the cash]). Acreage 

rented for cash is considered a cash lease. A lease containing provisions 

for either a minimum payment or a crop share will be considered a cash 

lease.

―Crop Share. Acreage rented for a percentage of the crop will be 

considered a crop share lease. A lease containing provisions for both a 

minimum payment (such as a specified amount of cash, bushels, pounds, 

etc.) and a crop share will be considered a crop share lease.‖

10

In general, contract growers (particularly in the broiler and turkey sectors) do not own the birds 

they are raising. The poultry production contract the Contractor examined indicates, ―Title of 

said birds, feed, medication, and supplies...shall at all times be vested in Integrator.‖11 As the 

grower is required to follow the integrator‘s management decisions concerning stocking, feed, 

medication, sanitation, heat, ventilation, and Hazard Analysis Critical Control Points Program, 

virtually none of the management decisions associated with ownership are retained by the 

grower. 

That the rental and labor contract payments are tied to the integrator‘s production success is an 

unusual feature for the real estate and labor markets, and may endow the grower with some 

fractional insurable interest. However, comments from the listening sessions and by insurance 

industry personnel who have examined other poultry contracts, suggest many growers 

understand their insurable interest, if it exists, may be quite limited. Several insurance industry 

personnel and poultry extension specialists have indicated that some integrators are committed 

by the contract to pay growers if there is a ―crop failure.‖12 For contracts structured with this 

condition, the rental agreement falls under the RMA category ―Cash Lease.‖ The landlord has 

no insurable interest under a cash lease. If more contracts were available for analysis, it might be 

possible to separate growers who have an insurable interest from those who do not. However, 

despite numerous requests for contracts, growers, integrators, and producers are unwilling to 

share contracts and details of the contractual arrangements.

 

10 USDA, RMA, 2006, 2007 Crop Insurance Handbook, FCIC 18010, p. 15.

11 Anonymous poultry meat production contract for 2010 production.

12 i.e., if the flock or a majority of the flock dies.
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contained on this sheet is subject to the Contract No: N10PC18148

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9

II.A. Crop Insurance

Most federally subsidized insurance for agricultural producers focuses on crop plant production

or on offering price or margin coverage for certain non-poultry crops. H.R. 2419, the 2008 

Food, Conservation, and Energy Act, Title XII - Crop Insurance and Disaster Assistance 

Programs, Subtitle A - Crop Insurance and Agricultural Disaster Assistance, Section. 12023. 

Contracts for Additional Policies and Studies, in Subsection 13, called for research activities 

addressing federally-subsidized insurance for poultry:

―POULTRY INSURANCE POLICY.—

―(A) DEFINITION OF POULTRY.—In this paragraph, the term  ̳poultry‘ has 

the meaning given the term in section 2(a) of the Packers and Stockyards Act, 

1921 (7 U.S.C. 182(a)).13

 ̳ ̳(B) AUTHORITY.—The Corporation shall offer to enter into 1 or more 

contracts with qualified entities to carry out research and development 

regarding a policy to insure commercial poultry production. 

 ̳ ̳(C) RESEARCH AND DEVELOPMENT.—Research and development 

described in subparagraph (B) shall evaluate the effectiveness of risk 

management tools for the production of poultry, including policies and plans 

of insurance that provide protection for production or revenue losses, or both, 

while the poultry is in production.‖

Knowledge regarding the potential outcomes distinguishes risk from uncertainty. In addition to 

having natural causes, insurable sources of production or revenue variation must have a known 

set of outcomes whose probabilities are also known. Risky events satisfy both criteria, as a 

probability distribution may be assigned to the known set of outcomes. With knowledge of the 

outcomes and their respective probabilities, an actuary can rate a product proposed to manage the 

risks associated with the variation.

Federally-subsidized crop insurance is intended to indemnify producers for the outputs lost or 

foregone through no fault of their own. With field-crops, the weight or volume (yield) of 

expected output is insured, not the acres of cropland, tractors, implements, or labor. Insuring 

poultry production raises challenges that do not complicate development of crop insurance for 

plants. There are federal crop insurance programs that insure some capital assets, particularly the 

tree policies that insure nut and citrus trees, and a pilot addressing banana, coffee, and papaya 

trees. Furthermore, the nursery insurance program addresses nursery inventory rather than yield 

or yield-based revenue. It is possible either of these approaches might be used to manage some 

poultry industry risk. However, they would likely focus on measures of risk other than yield. 

In a poultry enterprise; the crop (e.g., the harvested bird) resembles a capital input (e.g., the stock 

birds). In the brood and layer sectors, the distinction between capital input and crop is clear. 

The brood hens are capital inputs; their eggs and/or poults are the crop. The distinction is not so 

clear with a grow-out enterprise. It may be difficult to distinguish the poults from the weight 

gain that represents ―production.‖ The grower‘s risk is primarily associated with this weight 

gain, since the grower/integrator contract terms are generally based on live weight and feed 

conversion. Additional challenges in identifying, measuring, and tracking the poultry crop 

 

13 The term ―poultry‖ means chickens, turkeys, ducks, geese, and other domestic fowl.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

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10

emanate from the fact that animals are motile and mortal. Both these characteristics can affect 

output by reducing (or, in the case of movement, potentially increasing) head count. However, 

since population density of flocks can affect weight gain, death and motility do not necessarily 

affect the production output in terms of the overall weight gain of the flock. In addition, within 

the poultry industry there are prudent, unplanned, mid-year inventory changes (flock size 

reductions and increases) made as prices of inputs and output change. These are clearly 

management decisions, but they may be made by individuals other than grow-out producers, 

particularly managers employed by the integrators. The decisions affect revenues of more than 

one party, but the revenue losses of the party (the grower) without decision-making authority or 

ownership may not be considered insurable under the federally-subsidized crop insurance 

system.

The development of crop insurance requires identification of perils, classification of those perils 

as insurable or non-insurable, and actuarial assessment of the risks associated with those perils. 

Most crop insurance addresses either production risks, price risks, or their combined outcomes in 

the form of revenue risks. Changes in production and revenues resulting solely from

management decisions are not insurable. However, variations in production or revenue caused 

by natural events beyond the producer‘s control are potentially insurable, as are changes in 

revenues resulting from market fluctuations under some accepted approaches.

II.B. Poultry Trade and Exports

The United States is the largest exporter of agricultural products in the world. The agricultural 

sector of the U.S. economy has realized a trade surplus since 1960. While the surplus declined 

between 2001 and 2006, substantial increases were realized in 2007 and 2008. Lower prices and 

the global recession appear to have reduced the agricultural trade balance in 2009.14 When 

―reliance‖ on overseas markets is measured as exports divided by total cash receipts, U.S. 

agriculture is more reliant on these export markets than most sectors of the U.S. economy. 

Table 4. U.S. Agricultural Trade Balance: 2000-2009

Year Exports Imports

$ Billions Trade Balance

2000 50.8 38.9 11.9

2001 52.7 39.0 13.7

2002 53.3 41.0 12.4

2003 56.0 45.7 10.3

2004 62.4 52.7 9.7

2005 62.5 57.7 4.8

2006 68.6 64.0 4.6

2007 82.2 70.1 12.2

2008 115.3 79.3 36.0

2009 96.6 73.4 23.2

Source: USDA, ERS, 2010, Value of U.S. agricultural trade by fiscal year, 

http://www.ers.usda.gov/Data/FATUS/DATA/XMS1935fy.xls. Accessed April, 2010.

 

14 USDA, ERS, 2010, Value of U.S. agricultural trade by fiscal year, 

http://www.ers.usda.gov/Data/FATUS/DATA/XMS1935fy.xls. Accessed April, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

11

The United States is the second largest exporter of broiler products (Brazil is the largest). In 

2008, U.S. exports were 7.0 billion pounds, more than 15 percent of total production. Russia, 

China, and Mexico together import more than half of U.S. broiler product exports. The United 

States is also the largest exporter of turkey products. Mexico is the largest importer of U.S. 

turkey meat, accounting for more than half of U.S. turkey exports. It is more difficult to track 

egg exports since this market has three elements: whole table eggs (fresh); dry and liquid egg 

products; and fertile, hatching eggs. Canada and Mexico are major importers of U.S. table eggs; 

Canada, Israel, Japan, Mexico, South Korea, and Spain all import substantial amounts of U.S. 

processed eggs and egg products; while Canada and Hong Kong are the major importers of U.S. 

hatching eggs.15

II.C. Risk

Generally, sources of risk in agriculture include production, price (market), financial, 

institutional, and human (personal) risk. Risks associated with the poultry operations have not 

changed substantially over the last three to four decades. However, recent changes in the 

relationship between contract growers and integrators have resulted in shifts in risk management 

responsibility. Understanding risk mitigation for growers requires an understanding of the 

contract system for poultry. Many poultry contracts have a payment structure known as 

―tournaments.‖ These contracts have a fixed base payment for each pound of live meat delivered 

to the integrator and a variable bonus payment based on the grower‘s performance relative to 

other nearby growers contracting with the same integrator. Grower performance is measured by 

a ―settlement cost‖ which is generally calculated by dividing the integrator‘s costs (feed, chicks, 

medication, etc.) by the total pounds of live birds produced. An individual grower‘s 

performance is compared to the average performance of the growers whose birds were 

―harvested‖ at approximately the same time.16

Although the vast majority of poultry production is contracted, a small number of independent 

farms sell to niche markets such as markets for fresh chicken and turkey; kosher chicken, eggs, 

and turkey; and organic poultry and poultry products. Producers for these niche markets are 

vulnerable to risk due to their size and may have a greater need for insurance than larger, 

mainstream poultry farms. Other than anecdotal information, quantitative data regarding this 

small portion of the poultry industry are generally unavailable. Furthermore, at least one of the 

smaller, top-ten broiler meat integrators grows-out broilers in company-owned facilities with 

hired managers and labor. While this eliminates the complication of contracted production, it 

introduces an alternative to that production that further solidifies the foundation of integration.

Contracts may tie base payments to management practices that impact grow-out costs. Some 

contracts assign particular input costs or revenue categories to the grower, while others assign 

the same costs to the integrator. Contract lengths range from just over a month to as long as 15 

years. However, most contracts are on a flock-to-flock or year-to-year basis. Variations in 

contracts reflect differences in location, grower size, and type of housing.

 

15 USDA, ERS, 2010, Briefing Room – Poultry and Eggs: Trade, http://www.ers.usda.gov/Briefing/Poultry/trade.htm, accessed 

April, 2010.

16 Taylor, C.R. and D. A. Domina, 2010, Restoring Economic Health to Contract Poultry Production, 

http://www.dominalaw.com/ew_library_file/Restoring%20Economic%20Health%20to%20Contract%20Poultry%20Productio

n%202010.pdf, accessed may, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

12

Meaningful analysis of contract terms nationwide is complicated by two factors. First, there are 

a wide range of contract arrangements and terms. Second, most growers and poultry integrators 

are unwilling to share contracts with researchers in the interest of protecting proprietary 

relationships. However, on ―December 3, 2009, the United States Department of Agriculture 

(USDA) issued a final rule regarding the records that live poultry dealers [integrators] must 

furnish poultry growers, including requirements for the timing and contents of poultry growing 

arrangements [contracts]‖. The USDA says the new rule, which took effect January 4, 2010, will 

―increase fairness and equity in the poultry industry by amending regulations under the Packers 

and Stockyards Act of 1921 to provide poultry growers with new information and improve 

transparency in poultry growing arrangements.‖ The terms of this ruling are contained in 

Appendix A. This rule may provide incentive for changes in the contracts between integrators 

and growers in a way that transfers some of the production risk back to the growers. However, it 

is too soon to know if this will happen.

The following general risk analysis is organized into sections representing production risk, price 

risk, financial risk, institutional risk, and human risk, respectively. Production risks specific to a 

sector are addressed in the appropriate sector‘s section of the report.

Production Risk

Poultry production risks include fire; physical injury resulting from structural failures, panic, and 

noises; weather; disease; equipment failure; and input quality. Production risk can be systemic 

or idiosyncratic. Systemic risks, such as wide temperature excursions or labor shortages, affect 

all operations in a region. Other elements of production risk for poultry operations are 

idiosyncratic, affecting individual growers. Examples of idiosyncratic production risk include 

the breakdown of an automatic feeding system, an isolated disease outbreak, or a ―stampede‖ in 

a cage-free poultry house.

Weather-related risk in poultry production is minor compared to weather risks in field or row 

crop production. Severe weather affects a small number of individual flocks every fifth or sixth 

year.17 The effects of weather on energy availability and energy costs are a much greater 

concern to poultry stakeholders than are the direct effects of weather on production, assuming 

best management practices, such as back-up generators, are followed.

Disease risk includes chronic disease losses, which slowly erode production and consequently 

affect profits and potential losses to catastrophic diseases, such as avian influenza, which are 

relatively rare.18 USDA APHIS historically provided payments for depopulations resulting from 

major (disastrous) disease outbreaks of either kind. However, these payments rarely reached the 

operators of grow-out facilities. The participants in listening sessions in the 2004 RMA 

Livestock Insurance report indicated that APHIS payments were provided only when the disease 

occurrence was a highly pathogenic (―high path‖) infection. They also noted such payments 

appeared to be somewhat ad hoc and political in nature. Most of the APHIS payments were to 

integrators (the owner of the birds), while only a very small percentage of payments were made, 

either directly or indirectly, to the grower.

 

17 Aho, P. and D. Reid, 1988, Risks and Returns, Broiler Industry, pp. 14-16.

18 Ibid.
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contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

13

Production is impacted by the competence of both the grower, who deals with day-to-day care of 

the flocks, and the integrators who control feed, stock quality, and other major management 

strategic decisions.19 Under the contract system, poultry growers give up much of the control of 

production and marketing decisions in return for what is effectively a ―price guarantee.‖ With 

payments to growers from integrators based on relative production performance, the common 

production risks are transferred from individual growers to integrators. By some estimates, more 

than 95 percent of the risk is shifted from contract growers to integrators through the typical 

contract arrangement.20 Growers can affect production through management decisions, but these 

actions are not technically risks as they are defined in the insurance context and certainly are not 

insurable. Nonetheless, growers express concern about contracts with tournament pricing, where 

their payment is influenced by their neighbors‘ performance. They believe outcomes can be 

biased through stock quality and other production inputs, all generally under the control of 

integrators. However, the grow-out contracts may provide growers some risk management 

through casualty clauses that compensate for losses arising from natural disasters such as a flood, 

excessive heat, fire, or ―losses of potential production.‖21

It is relative production outcomes, not actual outcomes, that most affect grower income. No 

grower experiences a lower per pound payment when all growers experience an unfavorable 

(systemic) production outcome. Consequently, growers do not bear the common systemic 

production risk. If, for example, unfavorable weather reduces all growers‘ settlement costs, no 

grower receives a higher or lower per pound payment. Growers bear only the idiosyncratic 

portion of production risk, which in turn is influenced primarily by management practices. 

Integrators control most of these practices, while growers control a limited portion which appears 

to vary somewhat by the terms of particular contracts.22

Price Risk

Both poultry (output) prices and feed (input) prices are subject to market forces. Together, risks 

associated with prices can result in considerable variability in the economic situation in the 

poultry industry. However, output and input price changes do not directly and immediately 

affect the poultry grower. Under the terms of most contracts, stock price, feed price, and 

veterinary cost variability do not directly enter into the grower‘s net revenue variability. These 

are either paid by the integrator or fixed in the contract. Grower payments depend on production 

outcomes (weight of output) but not generally on price of either material inputs (except energy 

costs) or output prices. Consequently, growers in general do not experience direct price risk. 

Price risk is transferred from growers to integrators under the two-part tournament contracts. 

Integrators, whose operations are almost always well-diversified, can manage much of their input 

price risk through financial instruments and long-term contracts. However, no third-party 

exchanges offer futures contracts for poultry products. As a result, output price risk is borne 

almost entirely by the integrators.

 

19 Ibid.

20 Knoeber, C. R. and W. N. Thurman, 1995, ―Don‘t Count Your Chickens...,‖ Risk and Risk Shifting in the Broiler Industry. 

American Journal of Agricultural Economics. pp. 486-496.

21 USDA, ERS, Bulletin 748, 1999, p. 13, http://www.ers.usda.gov/publications/aib748/aib748c.pdf, accessed April, 2010.

22 Taylor, C.R. and D. A. Domina, 2010, Restoring Economic Health to Contract Poultry Production, 

http://www.dominalaw.com/ew_library_file/Restoring%20Economic%20Health%20to%20Contract%20Poultry%20Productio

n%202010.pdf, accessed May, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

14

Intense competition within the poultry sector has promoted integrator consolidation, creating a 

limited number of very large firms competing for the same national and international markets.23

Although growers do not bear price risk directly, they are dependent on integrators for stock (the 

chicks). Given the small number of integrators, growers experience lower revenues over the 

long run through reduced production in the sector or industry, lack of competition among 

integrators, and/or bankruptcy or default of an integrator.

Competition also plays a role in the price structure of the outputs of poultry production. The 

poultry markets have experienced little price appreciation over time. Therefore, competitors in 

the industry are focused on producing more products of higher quality in less time at lower cost. 

While integrator contracts insulate growers from some competitive pressures, growers remain 

exposed to curtailments in production by integrators and competition to minimize cost within a 

pool of growers. Eventually, reductions in output prices are manifested at the grower level 

through changes in the number of contracts, contract prices, and/or incentive clauses. For 

example, the 2008-2009 recession had a substantial impact on grower contracts in 2008 and to 

some extent in 2009. Many growers lost contracts completely.24 Others faced revenue 

reductions due to increasing time between flocks. Contracts between growers and integrators 

result in a substantial loss of farm-level heterogeneity, both regionally and nationally.

Financial Risk

Growers‘ primary source of financial risk stems from their capital and labor investment. 

Growers invest substantial amounts of capital and time in the poultry houses. Although contracts 

are generally renewed, they can be terminated after a single flock. The substantial capital 

investments, generally highly leveraged and with no assurance of continued productivity, are a 

significant source of risk. 

Another financial risk is the potential need to borrow additional funds. The rapidly changing 

technology of poultry production may result in growers being pressured to make relatively 

frequent equipment upgrades. Older equipment may be mechanically sound, but technologically 

obsolete. The tournament contract system makes it impractical to continue operation without 

maximum efficiency, so the obsolete equipment may need to be replaced and there is a very 

limited market for sale of the older equipment, even if it is mechanically sound.

Growers in areas with a single integrator face at least two additional risks. First, the integrator 

may be in a position to leverage market power given a grower‘s lack of options. Furthermore, in 

the event of an integrator bankruptcy or withdrawal from a region, a grower can be left without a 

market.

Even with the sources of risk described previously, the conclusion from studying the return on 

investment in broiler production assets in north Georgia was, ―growers [under contract with 

integrators] were given the opportunity to earn a competitive rate of return for their capital and 

 

23 Calabotta, D. F. 2002. ―Change Factors Impacting the Poultry Industry & Resultant New Business Opportunities.‖ 

http://ag.ansc.purdue.edu/poultry/multistate/Fivestatearticle.pdf, accessed March, 2010.

24 Cunningham, D.L., 2009, Guide for Prospective Contract Broiler Producers, 

http://pubs.caes.uga.edu/caespubs/pubs/PDF/B1167.pdf, accessed April, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

15

management skills,‖ compared to others in production agriculture.25 While this observation is 

dated, the Contractor found limited evidence to suggest the pattern of financial returns has 

changed substantially. This evidence, primarily testimony from producers whose layout times 

have been extended, reflects management decisions much more than insurable production risks.

As the integrator reduces annual use of the services of a grower, the timing of the grow-out 

period and the market for the ―crop‖ can increase the variability of outcomes, especially when 

measured as annual revenue. Nonetheless, growers have been capable of substantial leveraging 

of the business costs, particularly those associated with construction of houses and purchase of 

equipment. A consequence of this ready financing is even small changes in production, resulting 

in modest revenue excursions, may create a substantial risk for the financial security of the 

operation.

Institutional Risk

Institutional risk of concern to poultry growers includes husbandry standards, environmental 

policies, and international regulations. In international trade, the greatest concern is the 

seemingly arbitrary enforcement of sanitary standards. For example, citing a perceived health 

risk from low-pathogenic avian influenza (AI), both the Japanese and Russian governments 

imposed a ban on poultry product imports from six states in the United States in 2002.26 In 

addition to outright bans, changing sanitary regulations are a source of risk or uncertainty. 

Russia imposed a ban on all U.S. poultry products in March and April of 2002. The Russian 

government claimed that poultry products from U.S. plants did not meet protocols for inspection 

and had tested positive for salmonella. The bans were lifted, but the need for certificates and 

other delays slowed the resumption of exports to Russia.

27

A major outbreak of Exotic Newcastle Disease (END) in California in 2002 and 2003 led many 

countries to restrict imports of poultry or poultry products from the United States. Poultry 

products produced in other areas, but shipped out of California ports, had to be kept in sealed 

containers. Some countries took even stricter positions. The European Union, for example, 

banned import of all poultry meat, hatching eggs, and live birds from the United Sates. The total 

cost of this outbreak to U.S. agriculture is estimated at $5 billion.28

Tariffs and quotas are sources of risk or uncertainty for the industries affected. For example, 

Mexican, ―... tariff rate quotas (TRQs) for poultry products were reduced to zero at the 

beginning of 2003, as provided for by the North American Free Trade Agreement (NAFTA). 

However, in response to fears of a large increase in the amount of broiler shipments to Mexico, 

the Mexican and United States governments are discussing possibly placing TRQs on specific 

broiler products.‖29 There were sharp declines in poultry exports to both Russia and China in the 

first quarter of 2010. While these declines do not reflect quarantines or quotas, they do represent 

 

25 Aho, P. and D. Reid, 1988, Risks and Returns, Broiler Industry, p. 16.

26 West Virginia Extension Service, Poultry Voice, 2002, http://www.wvu.edu/~agexten/poultry/PV1002.pdf, accessed May, 

2010.

27 Ibid.

28 The Center for Food Security and Public Health, Iowa State University, 2008, 

http://www.cfsph.iastate.edu/Factsheets/pdfs/newcastle_disease.pdf, accessed April, 2010.

29 ERS, Livestock, Dairy and Poultry Outlook, 2002 http://usda.mannlib.cornell.edu/usda/ers/LDP-M//2000s/2002/LDP-M-12-

17-2002_Special_Report.pdf, accessed March, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

16

a market risk faced by an industry dependent on exports to support the current levels of 

production.30

Integrators face the direct effects of these institutional risks. Broiler growers are affected 

indirectly through integrators‘ responses. Much of this risk is transferred to the growers, whose 

contracts generally do not specify the number of flocks to be raised each year. For example, the 

1998 economic crisis in eastern Europe and the Asian market collapse during the next decade 

had no substantial effect on grower contract payment per bird. Rather the effect on growers was 

a reduction in the total number of birds placed by integrators, leading to a substantial annual 

income reduction.

Other institutional risks faced by the poultry industry include changing environmental policies 

and emerging public concerns over animal rights. All poultry operations are designated as 

Animal Feeding Operations (AFO) by the Environmental Protection Agency (EPA) and are 

required to develop nutrient management plans (in this case nutrients refer to plant nutrients, 

such as phosphorus and nitrogen, which have effects on ecological systems such as rivers, lakes, 

and wetlands). As firm size increases, the designation may change from AFO to Concentrated 

Animal Feeding Operations (CAFO). Regulatory and paperwork requirements increase with a 

CAFO designation. Operations are required to apply for a National Pollution Discharge 

Elimination System (NPDES) permit, which requires control of waste disposal and land use. 

Current regulations play an important role in determining the structure of the grower enterprise. 

Generally, operations with up to 55,000 turkeys or 125,000 chickens are categorized as AFOs, 

and operations with more are categorized as CAFOs.

31

 Since these populations can generally be 

housed in four poultry houses, the dominant enterprise in the industry is a four house operation. 

If regulations change, structural change will undoubtedly follow.

Environmental regulatory issues are a concern to growers, who commonly own the facilities and 

the litter. Before a new flock is placed, clean litter is spread to absorb droppings. When the 

flock is finished and delivered, the litter is removed from the house and generally applied to crop 

land as fertilizer. Such practices may build up nitrogen and phosphorous to unacceptable levels, 

leading to run-off and leaching, which contaminates ground and surface water.

The public and governments are also imposing new animal husbandry standards on the poultry 

industry.32 Many growers are sensitive to the consumer expectations imposed on the industry 

and are taking steps to mitigate the risks. Some growers are experimenting with raising birds 

without using antibiotics while others are allowing their birds to range free or are raising layers 

in cage-free environments. Housing space per bird is a substantial issue in the layer sector, but 

less so in the broiler and turkey sectors.

 

30 USDA, ERS, 2010, Livestock, Dairy, and Poultry Outlook, http://usda.mannlib.cornell.edu/usda/ers/LDP-M//2010s/2010/LDPM-05-19-2010.pdf, accessed May, 2010.

31 Tyson, T.W, 2000, AFO/CAFO Registration Requirements, reviewed by the Alabama Cooperative Extension Service in 2010, 

http://www.aces.edu/pubs/docs/A/ANR-1175/, accessed May, 2010.

32 See for example The Humane Society of the United States, 2010, Cruel confinement, 

http://www.humanesociety.org/issues/confinement_farm/, accessed May, 2010 and linked resources.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

17

Human or Personal Risk

Poultry operations must manage human risk in compliance with the Occupational Safety and 

Health Act (OSHA) and the Fair Labor Standards Act (FLSA). Costs of complying with OSHA 

standards for protecting workers do not appear to have a substantial impact on the cost structure 

of poultry operations. In addition to concerns about regulatory rule changes, growers are also 

asked to express concern with worker health and retention. Poultry workers, including poultry 

caretakers, farm managers, flock supervisors, and poultry catchers, spend most of their time in 

buildings and are in high-risk labor categories.33 Hazards include respiratory hazards (such as 

ammonia gas, dust, molds, and airborne animal wastes), noise hazards that may lead to worker 

hearing loss, animal hazards (such as risk of tetanus infections), and mechanical hazards. As 

with all confinement operations, disease transmission from house to house, site to site, and 

operation to operation requires constant vigilance and control of access. In addition, as in most 

agricultural operations, key personnel are subject to retirement, death, and divorce. 

II.D. Poultry Programs

Producers can avail themselves of a variety of support programs from the Federal, state, and 

private sectors. Some of these programs specifically address risk. Others assist in risk 

management by providing information that allows the producer to make informed decisions. 

Programs available to poultry producers generally are described herein. Purchased risk 

management programs supporting individual poultry sectors are addressed in the individual 

sector sections of this report.

Federal Programs

Federal programs supporting poultry producers are described briefly herein. These programs are 

offered primarily by agencies and services of the Department of Agriculture.

United States Department of Agriculture

USDA programs supporting poultry producers are described as follows. Agencies and services 

within the USDA are listed alphabetically.

Agricultural Marketing Service (AMS)

Poultry growers benefit from general services of AMS including the following programs:

Grading

Standardization

International Programs

Promotion and Research

Marketing and Economic Research

Animal Protein Free Certification Program

Shell Egg Surveillance Program,

Eggs Products Inspection Act

Shell Egg Grading and Certification 

 

33 Ellington, G., 2002, Improving the Health and Safety of Poultry Facility Workers, North Carolina State University Cooperative

Extension, North Carolina State University.
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18

Animal Protein Free Certification Program (APFC): This program provides third-party 

verification that poultry have never been fed animal protein, animal fats, or animal byproducts.

Animal and Plant Health Inspection Service (APHIS)

The Animal and Plant Health inspection Service (APHIS) is responsible for protecting and 

promoting U.S. agricultural health, administering the Animal Welfare Act, and carrying out 

wildlife damage management activities. APHIS has been tasked with greater responsibility for 

enforcing the obligations of the United States under phytosanitary rules such as the Codex 

Alimentarius and responds to other countries‘ animal and plant health import requirements and 

assists in negotiating science-based trade restrictions.

APHIS programs important to the poultry industry include:

Animal Welfare

Biotechnology Regulatory Service

Import and Export Services

Animal and Animal Product Import and Export Information

International Trade

Biotechnology Import and Export Information

Sanitary and Phytosanitary Management (Trade Facilitation)

National Poultry Improvement Plan (NPIP)

Plant Protection and Quarantine

Veterinary Services

Animal Diseases by Species

Animal Health Report

Laboratory Information and Services

Monitoring and Surveillance

Professional Development Training

Veterinarian Accreditation

Veterinary Biologics

Veterinary Services Process Streamlining (VSPS)

Veterinary Services, Office of the Chief Information Officer (VS OCIO)

Wildlife Service

The National Poultry Improvement Plan (NPIP), started in the early 1930s, coordinates state 

programs aimed at eliminating Pullorum from commercial poultry. Currently, NPIP concerns 

itself with certifying that flocks are free of diseases including Pullorum, fowl typhoid, avian 

mycoplasmas, Salmonella enteritidis, and avian influenza. Participation in all plan programs is 

voluntary, but flocks, hatcheries, and dealers must qualify as ―U.S. Pullorum Typhoid Clean‖ 

before participating in any other program.

Cooperative State Research, Education, and Extension Service (CSREES)

The CSREES is the Federal administrative authority for the State Land Grant Agricultural 

Experiment Stations and the Cooperative Extension Service. Extension and education programs 

provide important educational and consultancy resources for producers in all areas, including 

poultry producers.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

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19

Economic Research Service (ERS)

ERS provides data and analysis on poultry product supply and demand, as well as information on 

industry structure, pricing, trade, farm policies, production systems, and processing. ERS reports 

of particular interest include:

Animal Production and Marketing Issues Briefing Room 

Livestock, Dairy, and Poultry Outlook: Tables 

Livestock and Meat Trade Data 

Meat Price Spreads Data 

Farm Service Agency (FSA)

The Farm Service Agency (FSA) provides financial assistance to assist producers facing losses 

from natural disaster (i.e., drought, flood, fire, freeze, tornadoes, pest infestation, and other 

―calamities‖). FSA‘s Noninsured Crop Disaster Assistance Program (NAP) provides payments 

to producers of non-insurable crops when low yields, loss of inventory, or prevented planting 

occur due to a natural disaster. Eligible producers include landowners, tenants, or sharecroppers 

who share in the risk of producing an eligible crop. The annual gross revenue of the eligible 

producer cannot exceed $2 million. The natural disaster causing the loss must occur before or 

during harvest and must directly affect the eligible crop. There is a requirement that disaster 

caused by weather, earthquake, volcano, or flood be declared or that losses result from disease or 

insect infestations arising because of such a declared disaster.

FSA‘s Supplemental Revenue Assistance Payments (SURE) Program provides benefits to 

producers for 2008 through 2011 crop year farm revenue losses due to natural disasters. It is the 

successor to earlier ad hoc crop disaster programs. For 2009 and subsequent crop years, 

producers or legal entities whose average non-farm income exceeds $500,000 are not eligible. A 

farm is eligible for a SURE payment when a portion of the farm is located in a county covered 

by a qualifying natural disaster declaration (USDA Secretarial Declarations only) or a contiguous 

county; or, the actual production is less than 50 percent of the normal production. For producers 

to be eligible for SURE payments, they must have obtained available insurance for all crops 

through either the Federal Crop Insurance Act or NAP. The farm‘s SURE guarantee cannot 

exceed 90 percent of the expected revenue for the farm (i.e., there is a 10 percent deductible). 

Producers must suffer a 10 percent production loss to at least one crop of economic significance 

on their farm in order to be eligible for a SURE payment. A qualifying loss must be caused by a 

natural disaster. A crop of economic significance contributes at least 5 percent of the expected 

revenue for a producer‘s farm. A limit of $100,000 applies to the combination of payments from 

SURE and the livestock disaster programs.

FSA‘s Livestock Indemnity Program (LIP) provides payments for livestock deaths in excess of 

normal mortality caused by adverse weather that occurs before October 1, 2011, including losses 

due to hurricanes, floods, blizzards, disease, wildfires, extreme heat, and extreme cold. The 

losses must have also occurred in the calendar year for which benefits are being requested. LIP 

provisions are similar to other livestock indemnity programs implemented by FSA in recent 

years, although the lost livestock are not required to have been in a county (or contiguous 

county) designated a natural disaster by the President or declared by the U.S. Secretary of 

Agriculture. Payments are based on individual producer losses and are available to contract 

growers. Payments are limited to 75 percent of the fair market value of the lost livestock. 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

20

Emergency Assistance for Livestock, Honey Bees, & Farm-raised Fish (ELAP) provides benefits 

for losses due to natural disasters and diseases not covered under LIP. The Secretary of 

Agriculture must have declared a disaster in a county for ELAP payments to be made to that 

county or adjacent counties.

Food Safety and Inspection Service (FSIS)

Both the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA) 

require the Secretary of Agriculture to consult with an advisory committee before issuing 

product standards, labeling changes, or statements on matters affecting Federal and state meat 

inspection programs.34 The National Advisory Committee on Meat and Poultry Inspection 

(NACMPI) was created to serve that end, and FSIS employees are responsible for scheduling 

and facilitating the work, actions, and meetings of the committee. Agency employees also 

identify, assess, and define emerging and standing issues affecting procedures, policies, 

activities, or resources for consideration by the committee.

Animal and Egg Production Food Safety staff are responsible for identifying food safety 

concerns associated with animal production, transportation, marketing, and egg production, as 

well as pre-slaughter preparation of livestock and poultry.35 These FSIS personnel are also 

responsible for outreach and liaison activities to develop and sustain risk reduction strategies in 

animal and egg production.

Foreign Agricultural Service (FAS)

Broiler growers benefit from FAS general services and programs. Due to the growing 

importance of foreign markets to the poultry sectors, FAS export development and promotion 

programs are of particular importance. The FAS poultry data includes:

Dairy, Livestock and Poultry Division (DLP)

Data series, analysis of world markets, buyer lists, etc.

Export Program Data

National Agricultural Statistics Service (NASS)

NASS is the primary data collection and publication service of the USDA. Its continuous, 

consistent data series are widely used by producers and researchers. Poultry industry data are 

collected and summarized by NASS.

Risk Management Agency

The Adjusted Gross Revenue (AGR) and Adjusted Gross Revenue-Lite (AGR-Lite) policies are 

available to some poultry producers, particularly to smaller layer operations. These insurance 

plans provide whole farm revenue insurance coverage, based on a producer‘s Schedule F from 

their IRS Form 1040 tax return. 

AGR-Lite is a whole-farm revenue plan of insurance which protects producers from revenue 

losses resulting from unavoidable natural disasters and from market fluctuations. Most farmraised crops, including broilers, eggs, turkeys, and poultry (generically) are eligible to be insured 

under this plan. AGR-Lite can be used alone or in conjunction with other Federal crop insurance 

plans, but not in conjunction with AGR insurance. Under AGR-Lite, the insured liability may 

 

34 USDA, FSIS, 2009, About FSIS, http://www.fsis.usda.gov/OPPDE/nacmpi/index.htm, accessed March, 2010.

35 USDA, FSIS, undated, http://www.fsis.usda.gov/OPPDE/animalprod/apfshome.htm, accessed March, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

21

not exceed $1 million. Consequently, the approved gross income insured must be less than 

$2,051,282, in which case the coverage level is 65 percent. Furthermore, the insured must have 

existed as the same tax entity for seven years and must have filed five consecutive years of 

Schedule F tax forms; unless a change in the tax entity is reviewed and approved by the 

insurance provider. No more than 50 percent of total revenue may have been derived from 

commodities purchased for resale and no more than 83.35 percent of total revenue can have been 

derived from potatoes. AGR-Lite is available in Alabama, Arizona, Colorado, Connecticut, 

Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, 

Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, 

Oregon, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West 

Virginia, Wisconsin, and Wyoming, and in selected counties in Alaska, New York, and 

Pennsylvania.

An AGR-Lite approved adjusted gross revenue is based on a producer‘s five-year historical farm 

average revenue (as reported on the IRS Schedule F) and on an annual farm revenue report. 

AGR-Lite insurance indemnity payments are based on Schedule F reported revenues and 

expenses and on a payment schedule which includes both a deductible and a co-payment. The 

minimum deductible is 20 percent. The minimum co-payment is 10 percent. Loss payments are 

triggered when the adjusted income for the insured year is less than the loss inception point. The 

loss inception point is calculated by multiplying the approved adjusted gross revenue times the 

selected coverage level. Once a revenue loss is triggered, the producer is paid based on the 

payment rate selected, at either 75 cents or 90 cents for each lost dollar.

AGR is a pilot insurance program similar to AGR-Lite. AGR insurance protects producers to 

liabilities as high as $6.5 million. However, only 35 percent of this income can come from 

animals or animal products. Higher coverage levels and lower deductibles are only available 

when the number of insured crops increases. Given the structure of the poultry sectors, these 

constraints limit the utility of AGR for major poultry grow-out facilities. AGR insurance is 

available in Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, Rhode 

Island, and Vermont, as well as in selected counties in California, Florida, Idaho, Maryland, 

Michigan, New York, Oregon, Pennsylvania, Virginia, and Washington. AGR may serve 

producers in these areas who have highly diversified operations. Poultry is listed generically in 

the 2010 AGR Standards Handbook. However, AGR as it is currently structured is unlikely to 

address risk management concerns of those who focus their production on poultry. Furthermore, 

anecdotal evidence suggests that participation in the AGR/ AGR-Lite programs is limited within 

the poultry industry. Finally, RMA has made internal determinations the income from grow-out 

operations is not eligible under the adjusted gross revenue programs. 

Rural Business–Cooperative Service (RBS) 

RBS is a small agency with limited funding and staff whose purpose is to finance and facilitate 

development of small and emerging private business enterprises, and promote sustainable 

economic development in rural communities.36 While this agency could potentially serve 

poultry growers and integrators, the industry structure will limit the impact of RBS services to 

many producers.

 

36 USDA, RD, 2010, About RD, http://www.rurdev.usda.gov/Home.html, accessed May, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

22

Environmental Protection Agency

Poultry operations are affected by EPA rules administered primarily by the Office of Water 

Management under the heading ―Animal Feeding Operations.‖ Relevant reports may be found 

through linked topics such as water, waste, and waste management and by reviewing the EPA 

Website for AFOs (http://www.epa.gov/oecaagct/anafoidx.html). The rules regulate the 

discharge of pollutants from point sources to waters of the United States. As a point source, 

some operations require a National Pollutant Discharge Elimination System (NPDES) permit. 

Application for the permit includes development of a nutrient management plan ensuring litter is 

properly managed.37

State Government Programs

State programs and regulations affect poultry production. State statutes or codes generally define 

an administrative office and/or an administrator responsible for licensing and enforcing 

minimum husbandry, sanitary, and environmental standards for poultry operations. Some states 

have poultry regulations that replace or complement Federal sanitary or environmental standards. 

The various regulations are similar to Federal standards, often referencing them as minima. The 

purpose of these regulations is to reduce risks of animal diseases and contamination of poultry 

products.

The USDA National Poultry Improvement Plan often functions as a centerpiece of most state 

efforts. Activities, responsibilities, and regulations of state agencies include inspection of 

poultry flocks and chick hatcheries, issuing inspection certificates, and overseeing rules and 

regulations for the movement, sale, labeling, and advertising of all chicks, eggs, and poultry 

produced by flocks and hatcheries. Code sections relating to the movement of birds address 

health issues, particularly disease prevention and control.

The codes are intended to prohibit movement of poultry from or through areas quarantined due 

to disease. Any vehicle or equipment permitted into any quarantined area must be cleaned and 

disinfected in accordance with state and Federal regulations. Disposal of all dead poultry is 

required, with the means of disposal generally restricted to incinerators or specific composters. 

Older composters and compost pits, common in the past, are generally no longer acceptable 

methods for poultry disposal. Code sections concerning health and sanitary conditions often cojoin state departments of health, veterinary medicine, safety, and/or other agencies.

States oversee and regulate integrators‘ slaughter, processing, and distribution activities. The 

regulatory burden on integrators is often much greater than on growers. Regulations governing 

slaughter and processing procedures generally follow the FMIA and the PPIA, which control 

operations and transactions affecting interstate commerce.38

While integrator regulation not associated with ―crop‖ production is outside the scope of this 

feasibility assessment, it contributes to institutional risks that may impact grower well being. 

These regulations ultimately affect growers. Compliant plans in Maryland must ensure proper 

 

37 EPA, 2009, National Pollutant Discharge Elimination System , http://cfpub.epa.gov/npdes/home.cfm?program_id=7, accessed 

May, 2010.

38 Poultry products are sold under provisions of the Federal Meat Inspection Act, the Federal Poultry Products Inspection Act, or 

the Federal Food, Drug and Cosmetic Act.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

23

storage, handling, and land application of excess poultry waste. Until the current regulations 

were set, manure disposal was the responsibility of the contract growers. Now it is the integrator 

who must bear this cost. As integrator costs rise, so does the probability that processing plants 

will close, leading to reduced bird placements, lower payments to growers, or abandonment of 

contracts.39

Private Insurance Inventory

Private insurance companies offer coverage to commercial poultry operations, family farm 

poultry operations, private hatchery operations, and contract growers. Policies and the coverage 

provided are described herein.

Building Coverage

Although coverage varies by company, ―All Risk Coverage‖ insurance is available for farm 

buildings. These policies indemnify losses from fire, weather, damage due to snow and ice load, 

or impact by a farm-owned vehicle. Replacement cost coverage is available for farm buildings. 

Typically, no depreciation is calculated in establishing indemnities. Building policies tend to 

cover the repair or replacement of fixed equipment. Replacement cost coverage is also available 

for all on farm dwellings including the replacement cost of contents.

Companies writing poultry insurance building coverage have various underwriting requirements 

based on the age of the poultry house. Policies are generally contingent on a favorable 

inspection of the poultry house. Although insurance companies tend to have a limited range of 

premium rates regardless of house construction materials (i.e., the premium rate on all-metal 

houses may be the same as the premium rate on wood frame houses), there is a movement 

toward differentiating the rates, with all-metal housing receiving discounts. While insurance 

companies may not fully understand the exposures presented by environmentally controlled 

housing, computer technology to manage inputs and outputs, and integrated processing 

equipment, several insurance companies have focused attention on developing coverage that 

appropriately addresses these details of the poultry industry.

Flock Insurance Coverage

Most insurers offering coverage for the poultry industry do not typically cover animal mortality 

or loss of business income resulting from loss of birds. However, several carriers and/or 

agencies are aggressively seeking customers through online sales.40 Some insurance is available 

to cover the value of lost poultry as well as the loss of business income resulting from the 

inability to complete a production cycle. Covered losses include losses to livestock due to 

contaminated feeds, smoke, failure of environmental controls, suffocation of the livestock, biosecurity issues (terrorism and quarantine), and certain defaults by integrators.41

 These product 

lines are offered in at least 19 states, including most, but not all of the major poultry production 

locations42 and are offered by carriers who underwrite insurance in the United States.

43

 The 

 

39 State of Maryland. 1998. BILL INFO-1998 Regular Session-SB 413. April 8, 2003.

40 e.g., PoultryInsurance.com http://www.poultryinsurance.com/, accessed May, 2010.

41 Thomas Gregory Associates, http://www.thomasgregory.com/property-casualty/poultry/, accessed May, 2010, Alabama Farm 

Insurance, http://alabamafarminsurance.com/, Westfield Insurance, 

http://www.westfieldinsurance.com/farm/farm_insurance.jsp/, accessed May, 2010

42 Westfield Insurance, http://www.westfieldinsurance.com/farm/farm_insurance.jsp/, accessed May, 2010
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

24

terms of the policies are considered proprietary. Agents at three agencies indicated they had not 

yet seen a policy covering feed conversion (the best measure of production). However, two 

agents indicated individual policies are negotiated with terms defined by the insured and 

underwriting and premium defined by the insurer. Most of the existing policies cover 

catastrophic losses rather than production variability. However since production variability is 

affected by death, the distinction between these two blurs as the number of deaths in a house 

increases.

Flock insurance coverage is available for heat prostration due to power interruption (both on and 

off premises) from any cause including mechanical breakdown and fuse breakage. Some 

policies require a back-up system or alarm system warranty in order to offer power interruption 

coverage. Policies may provide schedules to value types and ages of birds differently within the 

same policy or may value poultry using a simple formula based on both the age at which birds 

are typically marketed and different values for various types of birds. Coverage is available for 

full mortality and theft, specific perils and theft, major medical, loss of use, and infertility. 

Programs are available for insurance under an ―agreed value endorsement,‖ wherein the value of 

breeding stock is insured for a predetermined value regardless of market forces. There is also a 

―market value endorsement‖ option where the market value acts as an adjustment increasing the 

value of the poultry when the market value increases. Coverage available in Canada through 

mutual insurance arrangements appears to be even more extensive,44 suggesting that demand 

over time may drive the development of additional available coverage options in U.S. markets.

Loss of Income Coverage

Loss of income coverage is available to poultry operations from the private insurance industry. 

Profits insurance is also available with a 12 month loss of income agreement. Some companies 

offer policies for loss of egg income or income from meat birds. Within these policies, growers 

may be allowed to choose the limit per bird. Typically, loss of income coverage for poultry 

houses is included in the Farm Owner‘s Policy, which stipulates coverage of the entire farm (i.e., 

house, tractor, barn, and poultry houses). Loss of income coverage is generally for the broiler 

house growers and producers based on structural and/or mechanical risks. Loss of income 

insurance is available as a result of damage to the covered poultry houses, generators, freezers, 

feed equipment, etc. Coverage may not be available for older houses (12 to 15 years) or the 

premium may be prohibitive. Loss of income coverage for the poultry industry is less common 

than for some other industries due to the limited loss exposure and reduced amount of risk.

PoultryInsurance.com (a division of the Hill Agency), Thomas Gregory Associates, Alabama 

Farm Insurance, Westfield Insurance, the Livestock Department of Hartford Insurance, and 

Nationwide Agribusiness (the agricultural arm of the Nationwide Insurance) offer loss of income 

and flock insurance. According to industry representatives, Nationwide Insurance, Hartford 

Insurance, and a third unnamed major company carry most of the poultry risks. Nationwide 

Insurance and its affiliates Allied Insurance are the largest underwriter of farm owners‘ property 

and casualty insurance in the United States. They appear to be aggressively targeting poultry 

markets with policies customized through negotiations to reflect the risk borne by growers, 

 

43 Nationwide Agribusiness, the agricultural arm of the Nationwide Insurance, and its affiliates Allied Insurance offer this 

insurance and are the largest underwriter of farmowners‘ property and casualty insurance in the United States.

44 North Blenheimual Mutual Insurance, http://www.northblenheim.ca/insurance-/farm/poultry-coverage, Accessed May, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

25

producers, and integrators. While the Contractor found mortality coverage for extreme weather 

conditions is available from a variety of sources, along with corollary business interruption 

insurance, such coverage for disease is not available in ―prepackaged‖ products. Several agents 

indicated a willingness to talk about such coverages, but none had had experience negotiating 

policies for these perils. 

Coverage in Transportation

Some policies are available to provide coverage for growers, producers, and integrators requiring 

transportation of poultry or eggs from one listed location to another, if the vehicle is owned by 

the policy holder.

Basic Farm Liability

Basic Farm Liability limits start at $2,000,000, with higher limits available.

Employers Contingent Liability

Employers Contingent Liability is available with the ability to add employees as insureds.

II.E. Approach

The Contractor‘s research and analysis of the poultry sectors was guided by the language of the 

Act and a focus on the criteria for feasibility as outlined in the SOW. The Contractor sought first 

to develop an understanding of the relevant risk management literature, current economic 

conditions, available government programs, and characteristics of the poultry sectors, including 

currently available risk management tools. Subsequently, the Contractor identified perils and 

economic risks faced by the poultry industry stakeholders, paying particular attention to 

stakeholders‘ most significant risk management concerns and expressed needs. The Contractor 

then completed a risk analyses on the identified, insurable perils currently uninsured. In the 

listening sessions, the Contractor gathered information concerning stakeholders‘ potential 

interest in federally-subsidized insurance products. The Contractor also sought to understand the 

applicability of an AGR-like product for the poultry industry stakeholders. The Contractor then 

applied RMA‘s criteria for feasibility to evaluate insurability of the perils identified in the 

preceding step. Finally, after a systematic analysis, the Contractor assessed the feasibility of 

developing federally-subsidized, stakeholder-acceptable, actuarially-sound, non-market 

distorting crop insurance products for poultry production.

RMA‘s criteria for feasibility together identify the requirements to establish an appropriate 

feasibility recommendation for crop insurance development activities in the broadest terms. 

Section 2.4.1 of the SOW states: 

―The contractor when recommending a possible insurance program needs to keep 

in mind the following criteria:

Conform to RMA's enabling legislation, regulations, and procedures that 

cannot be changed;

The insured's and their agents must be will to pay the appropriate price 

for the insurance;

The insurance product must be effective, meaningful and reflects the 

actual risks of the producers;
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

26

The perils affecting production must be identified and categorized as 

insurable and non-insurable;

Be ratable and operable in an actuarially sound manner;

Contain underwriting, rating, pricing, loss measurement, and insurance 

contract terms and conditions;

There must be an appropriate geographic distribution of production to 

ensure a sound financial insurance program;

There must be enough interest for the risk to be spread over an acceptable 

pool of insureds;

Customers must not be able to select insurance only when conditions are 

adverse;

Moral hazards must be avoidable or controllable;

There must be no change of beneficial gain; and

There must be no change in market behavior or market distortions that 

change the quantity supplied or shift the supply curve.‖ 

This list by itself provides a context for the evaluation of the feasibility of a proposed insurance 

product. However, the test of feasibility requires additional context. For this evaluation the 

additional contextual information is as follows:

The proposed insurance coverage must conform to RMA’s enabling legislation, regulations, 

and procedures that cannot be changed. The enabling legislation is Title 7, Chapter 36, 

Subchapter I of the U.S. Code, as amended.45 Amendment of this code requires an Act of 

Congress. The Regulations and Procedures implementing this Act are the responsibility of the 

FCIC Board of Directors and USDA RMA. While the Crop Insurance Act, as amended by the

2008 Food, Conservation, and Energy Act, requires ―research and development regarding a 

policy to insure commercial poultry production,‖ the research and development ―shall evaluate 

the effectiveness of risk management tools for the production of poultry, including policies and 

plans of insurance that provide protection for production or revenue losses, or both, while the 

poultry is in production.‖ Production insurance and production-based revenue insurance requires 

appropriate documentation of production and production histories. 

Producers or their agents must be willing to pay the appropriate price for the insurance. 

Since the study was initiated because of industry concerns, there is a priori evidence of some 

customer interest. The willingness of producers or their agents to pay will be influenced by the 

coverage available and the costs associated with the insurance offer.

The insurance product must be effective, meaningful and reflect the actual risks of the 

producers. If the risks are identified and appropriately categorized as to their insurability (i.e., 

reflect the actual risks), an effective product will provide insurance that appropriately addresses 

the frequency and severity of potential losses. The producers‘ perception of the utility of the 

insurance and the ability of the insurance to protect the insured from financial failure affect the 

meaningfulness of the product.

 

45 See for example http://www.law.cornell.edu/uscode/7/usc_sup_01_7_10_36_20_I.html.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

27

The perils affecting production must be identified and categorized as insurable and noninsurable. The proposed insurance product must address definitive causes of loss that can be 

observed and quantified. Measurement of the outcomes of the enterprise must be such that the 

uninsurable portions of reduction in productivity or production-based revenues can be identified 

and quantified. If this is not possible, then uninsurable losses may be indemnified to the 

detriment of the taxpayer.

The insurance product must be ratable and operable in an actuarially sound manner. It 

must be possible for an actuarially-sound premium rate to be determined. This is fundamentally 

a question of data availability in terms of quantity of statistically valid observations or of the 

quality of non-quantifiable (judgmental) observations. It is secondarily a question of the nature 

of perils and the ability to associate production and/or revenue data with those perils.

The insurance product must contain underwriting, rating, pricing, loss measurement, and 

insurance contract terms and conditions. Appropriate management practices can be defined 

and required of stakeholders. Appropriate loss controls must be available. Unless controllable 

losses are managed and excluded from insurance, an insurance program will not have an 

actuarially-sound basis and will tempt the purchaser to manipulate his profits through fraud or 

deceptive practices.

There must be an appropriate geographic distribution of production to ensure a sound 

financial insurance program. An appropriate geographic distribution of insurance risk is 

required to address the need for insurance that is responsible to the taxpayer, since stakeholders 

operating in a limited geographic area could face collective catastrophic loss not protected by the 

insurance pool funds. The Contractor understands this requirement to apply to the entire FCIC 

portfolio collectively, which is distributed throughout the United States. Furthermore, the 

poultry sectors have wide geographic distribution as demonstrated in the sector descriptions 

contained within this report.

There must be enough interest for the risk to be spread over an acceptable pool of insureds. 

An appropriate pool size is also required to address the need for insurance that is responsible to 

the taxpayer, since a limited pool could face collective catastrophic loss not protected by the 

insurance pool funds. A sufficient number of stakeholders, who are not identically affected by 

perils, must be willing to buy the insurance as part of their overall farm risk management 

strategy. Without an appropriate pool of insured enterprises, the insurer faces the risk of 

catastrophic losses. Indemnities in excess of the realized premiums may occur, increasing the 

subsidy costs to the taxpayer. The Contractor understands this requirement also to apply to the 

entire FCIC portfolio collectively, which involved more than 1.1 million policies and almost $90 

billion of insured liability in 2009.

Customers must not be able to select insurance only when conditions are adverse. At the 

time of enrollment the purchaser must be unable to predict the outcome. If the purchaser can 

predict the outcome at the time of enrollment, not only will adverse selection occur, but 

unscrupulous purchasers could ―farm‖ the insurance to maximize profits. Only unpredictable 

outcomes fall into the category of appropriately insurable risks. Predictable outcomes do not 

include risks, but are characterized by certainty.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

28

Moral hazards must be avoidable or controllable. There must be a clearly defined outcome or 

phenomenon to be insured and the outcome must be subject to random variation; the variation in 

outcome must be separable into that part which can or might be manipulated, and that part which 

cannot be controlled.

There can be no chance of beneficial gain. Should an insured individual benefit unduly from 

participation in the program, that gain introduces the possibility that the insurance would change 

the status of the insured within the pool of stakeholders. Insurance should be only a vehicle to 

manage risk. There should be no possibility that indemnity payments will become a fundamental 

element of the typical income stream.

There must be no unacceptable change in market behavior or unacceptable market 

distortions in terms of either a change in quantity supplied or shift in the supply curve. 

The intent of crop insurance is not to manage the market, but to manage risks faced by 

producers. If the insurance unduly increases production, shifts production to new regions, 

creates unfair advantages for individual stakeholders or particular production regions, then the 

market distortions will invalidate the rating developed in a neutral market. This presents a 

danger to stakeholders, to the market itself, and to the insuring entity. Localized interest in 

insurance has the potential to affect markets if the local becomes significantly more productive 

because of the insurance. If the locality is a small element of the market, such market distortion 

is unlikely.

If these minimum criteria are considered appropriately, insuring a proposed crop should be 

feasible, appropriate underwriting should be possible, and development of the program will 

fulfill both the needs of the stakeholder and the requirements of being responsible to taxpayers 

and to the industry.

This report is organized into five additional elements including sections describing the broiler 

sector; the turkey sector, and the layer sector in that order. Each sector description includes 

descriptions of the general nature of the industry, the sector production, available data, 

stakeholder input regarding the specific industry sector, an analysis of risks in the sector, 

available risk management tools and strategies, and pricing methodologies if insurance is 

developed. Following the sector descriptions, there is a discussion of the feasibility of 

developing poultry production insurance. The report concludes with a summary of findings 

addressing ―the feasibility of developing an insurance program for commercial poultry 

production and [recommendations identifying] the most viable type of insurance program, if any 

[is] feasible.‖46

 

46 SOW, page 10.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

29

SECTION III. BROILER SECTOR

The term  ̳broiler‘ is the poultry industry name for a young chicken raised for meat. With the 

value of broiler production in 2008 totaling $23.1 billion,

47 broilers account for about 62 percent

of the value of production and sales of poultry products in the United States.

48

 The broiler sector 

is dominated by vertically-integrated agribusiness firms. People in the industry refer to these 

firms as either broiler companies or integrators. In the government literature they are 

occasionally called ―dealers‖ or ―contractors.‖ In 2008, 20 vertically integrated firms controlled 

almost 95 percent of U.S. broiler production (Table 5).49 Consolidation in the industry has 

resulted in ―...significant structural change in recent decades...the industry has evolved to a 

structure including vertical integrators that contract with producers to raise their animals under 

strict specifications.‖ Under this integrated structure, ―...contract growers provide housing, 

equipment, utilities, labor, and bedding to raise contractor-owned birds to contractor-specified 

weights using contractor-owned feed, services, and supplies. Contractors typically own feed 

mills, hatcheries, and processing facilities.‖50 To avoid confusion in the discussions in this 

report, the Contractor will avoid using the term ―producer,‖ except in those cases where the 

definition provided earlier in this document specifically applies, and will generally refer to either 

integrators or growers.

Table 5. Top Broiler Integrators, United States, 2008

Integrator Percent of Market

Pilgrim‘s Pride 20.3

Tyson Foods 20.0

Perdue Farms 7.6

Sanderson Farms 5.8

Wayne Farms 4.7

Mountaire Farms 4.4

House of Raeford Farms 3.3

Keystone Farms 3.3

Foster Farms 2.8

Koch Foods 2.5

O.K. Foods 2.5

Allen Family Foods 2.4

George's 2.1

Fieldale Farms 2.1

Peco Farms 2.1

Townsends 1.9

Case Foods 1.5

Simmons Foods 1.4

Gold'n Plump Poultry 1.1

Source: National Poultry Council, 2009, Top Broiler Producing Companies, 

http://www.nationalchickencouncil.com/statistics/stat_detail.cfm?id=31, accessed May, 2010

 

47 USDA, NASS. 2009, 2008 Poultry Production and Value Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.pdf, accessed February, 2010

48 Ibid.

49 National Poultry Council, 2009, Top Broiler Producing Companies, 

http://www.nationalchickencouncil.com/statistics/stat_detail.cfm?id=31, accessed May, 2010.

50 Gillespie, Schupp, Davis, and Basarir, 2001, p. 1.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

30

III.A. The Crop 

Modern commercial broilers, typically known as Cornish crosses or Cornish-Rocks, are specially 

bred for large-scale, efficient meat production and grow much faster than egg or traditional dual 

purpose breeds. Modern commercial broilers are noted for having very fast growth rates, a high 

feed conversion ratio, and low levels of activity. Broilers often reach a harvest weight of four to 

five dressed pounds in only eight weeks. Commercial broilers have white feathers and yellowish 

skin. These birds also lack the typical ―hair‖ characterizing many breeds that requires singeing 

after plucking. Both male and female broilers are slaughtered for their meat. The genetic lines 

for most broilers produced in the United States are managed by four companies: Aviagen, CobbVantress, Hubbard Farms, and Hybro.51

 These companies also have substantial international 

sales of chicks and parent stock (e.g., Aviagen reports sales in 130 countries).

Growers own the broiler houses, provide labor, and generally have the responsibility to deal with 

the manure. Broiler farms are managed under a contractual structure that dictates both how 

returns are distributed and the manner in which the enterprise is managed. The impact of these 

contracts on grower enterprises is the central focus of literature regarding risk management in the 

poultry industry.

At the outset, it is important to clarify that farm-level broiler prices, receipts, and values reported 

by various agencies, including NASS, are calculated or estimated values. They are not the 

values received by broiler growers. The ―prices received‖ values are live-weight-equivalent 

prices calculated by subtracting processing costs from ready-to-cook wholesale prices and 

multiplying that result by the dressing percentage. These values are useful only as industry-wide 

indicators of the relative price trends. While this report includes these values to a limited extent, 

the more important descriptive data are the number of broilers produced, the pounds of broiler

meat produced, and the number of broiler houses. The value growers actually receive is a 

contracted payment for capital and labor services rendered. Payment is based on pounds of bird 

delivered times the contract price, which is derived from a two-part, piece-rate tournament 

scheme, i.e., a base rate plus an incentive determined by the grower‘s relative performance. 

With one exception, growers and integrators declined to supply even redacted copies of contracts 

for this research effort. 

Enterprise Structure

An analysis of broiler operations reported by the ERS in 2008 provides the best snapshot of 

broiler production.52 Production contracts dominate the industry, with only about 0.4 percent of 

birds produced by independent poultry producers and 1 percent produced on integrator-operated 

farms. Few details about the contracts themselves are available. In spite of recent court actions 

freeing growers to share information about their contracts, and in spite of repeated requests for 

redacted copies of contracts from growers, integrators, and crop experts, the Contractor obtained 

only a single contract. Nonetheless, ERS reports that almost 93 percent of the contracts contain 

performance-based payment incentives; 87 percent have tournament or similar competitorcomparison-based payments. In contrast only 13.2 percent of contracts have payments adjusted 

 

51 WattPoultry, 2010, Who‘s Who.

52 MacDonald, J.M., USDA, ERS, 2008, The Economic Organization of U.S. Broiler Production, Economic Information Bulletin 

No. 38. http://www.ers.usda.gov/Publications/EIB38/EIB38.pdf, accessed April, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

31

to reflect wholesale broiler market price. Less than one fifth of contracts make provisions for 

catastrophic risk payments from the integrator to the grower.

The turnover in farms producing broilers is relatively low. About one third of all broiler 

operations have been in business for at least 20 years. These older operations tend to be smaller 

and to have lower levels of technology. Only 4.5 percent of farms (6.6 percent of production by 

weight) produced broilers for 5 years or less. Interestingly, these newer operations have houses 

that are 11 years old on average, suggesting turnover in the grower cohort or farm-level 

economic restructuring. Just under half of the new operations had new houses. Newer 

operations tend to incorporate a larger number of houses. New operations with new houses also 

tend to carry a higher debt load compared to new operations using older houses.53

Since newer operations tend to be larger, they also tend to have more substantial investment in 

housing and technology. These newer operations are more reliant on income from the poultry 

operations and more sensitive to changes in energy price and contract settlement terms. New 

large operations typically receive longer term contracts.54

From a production perspective, the Southeast and Mid-South offer comparative advantages of 

climate, land prices, cost of implementing required environmental policies, and lack of 

alternative uses for the land. Poultry is susceptible to extreme weather conditions and require 

access to ample supplies of water for their maintenance and growth. Consequently, they can be 

raised less expensively in warmer climates in regions where ample water is available.

Growers with no debt have a cash flow cushion to withstand market risks due to variability in the 

number of flocks in a contract for a given year. Conversely, both net incomes and cash flows of 

growers with large debt are more susceptible to problems due to flock inventory variations.

III.B. The Industry

While the agricultural segment of the U.S. economy has grown slightly on a relative percentage 

basis from 1999 to 2008, the broiler sector share of the total U.S. agricultural economy declined 

from 8 percent to 7 percent (Table 6). This decline occurred in spite of increases in production, 

consumption, and exports.

 

53 MacDonald, J.M., USDA, ERS, 2008, The Economic Organization of U.S. Broiler Production, Economic Information Bulletin 

No. 38. http://www.ers.usda.gov/Publications/EIB38/EIB38.pdf, accessed April, 2010.

54 Ibid.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

32

Table 6. Economic Indicators–Broiler, United States

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

billion dollars

Gross Domestic Product 1/ 9,354 9,952 10,286 10,642 11,142 11,868 12,638 13,399 14,078 14,441

Agricultural Cash Receipts 2/ 187.5 193.7 202.8 192.9 215.5 237.9 241.0 240.8 288.5 324.2

Value of Broilers 3/ 15.1 14.0 16.7 13.4 15.2 20.4 20.9 17.7 21.5 23.1

Source: 1/ Bureau of Economic Analysis, 2010, National Income and Product Accounts Table , Gross Domestic Product, 

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=

YES&Freq=Year&FirstYear=1999&LastYear=2009&3Place=N&Update=Update&JavaBox=no, accessed March, 2010

2/ USDA, ERS, 2010, Agricultural Cash Receipts, http://www.ers.usda.gov/Publications/AgOutlook/AOTables/, accessed March, 2010.

3/ USDA, NASS, 2010, http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1130, accessed March, 2010.

The southern and mid-Atlantic states form the major broiler producing areas of the United States 

(Table 7). Although number of head, pounds produced, and value all track relatively closely, 

larger birds in North Carolina and Texas, and higher per pound prices in North Carolina disrupt 

that pattern.

Table 7. Broiler Production by States, 20081,2

State

Number 

Produced 

(1,000 

Head)

Percent of 

U.S. 

Number 

Produced

Pounds 

Produced 

(1,000 

Pounds)

Percent of 

U.S. 

Pounds 

Produced

Price per 

Pound 3/

Value of 

Production 

(1,000 

Dollars)

Percent of 

U.S. Value 

of 

Production

Georgia 1,409,200 15.64 7,468,800 14.81 0.45 3,360,960 14.54

Arkansas 1,160,000 12.88 6,380,000 12.65 0.44 2,807,200 12.15

Alabama 1,062,900 11.80 5,846,000 11.59 0.45 2,630,700 11.38

Mississippi 840,700 9.33 1,876,100 3.72 0.45 844,245 3.65

North Carolina 796,100 8.84 5,493,100 10.89 0.49 2,691,619 11.65

Texas 640,800 7.11 3,460,300 6.86 0.45 1,557,135 6.74

Kentucky 306,100 3.40 1,652,900 3.28 0.45 743,805 3.22

Maryland 298,600 3.31 1,612,400 3.20 0.49 790,076 3.42

Virginia 250,300 2.78 1,251,500 2.48 0.45 563,175 2.44

Delaware 242,900 2.70 1,578,900 3.13 0.49 773,661 3.35

Oklahoma 237,800 2.64 1,260,300 2.50 0.44 554,532 2.40

South Carolina 236,900 2.63 1,516,200 3.01 0.47 712,614 3.08

Tennessee 199,700 2.22 1,018,500 2.02 0.45 458,325 1.98

Pennsylvania 160,900 1.79 933,200 1.85 0.47 438,604 1.90

Subtotal 7,842,900 87.06 41,348,200 81.97 18,926,651 81.89

U.S. Total 4/ 9,009,100 50,440,500 0.458 23,112,184

1 December 1, 2007, through November 30, 2008.

2 Broiler production including other domestic meat-type strains.

3/ Live weight equivalent price, derived from ready-to-cook prices minus processing costs, then multiplied by a dressing percentage.

4/ Excludes States producing less than 500,000 broilers.

Nationally, broiler production increased 10.6 percent from 1999 to 2008, from 8.15 billion birds 

in 1999 to 9.01 billion birds in 2008. Over the same time, weight per bird increased by 8.4

percent, from 5.007 pounds to 5.594 pounds. The combined increases in bird numbers and bird 

weights resulted in a 24 percent increase in total weight produced, from 40.8 billion pounds in 

1999 to 50.4 billion pounds in 2008. The average weight per bird by geographic area masks a bimodal distribution resulting from two genetic body weight groupings, light birds for the whole 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

33

bird and parts markets and heavy birds for the breast market (with the remaining meat going into 

processed products). Some of the state differences in price per pound are explained by the 

different prices obtained for these two ―types.‖

The recent pattern of broiler production is consistent with the trend of increased production. 

Alabama, Arkansas, and Georgia accounted for 42 percent of U.S. production in 1995 and more 

than 40 percent in 2008 when each of these states produced over 1 billion birds. Mississippi, 

North Carolina, and Texas each produced between 600 and 850 million birds in 2008 to 

comprise a second production tier. Some states, primarily in the northeast and mountain states, 

reported little or no commercial broiler production in 2008.55

Despite substantial research, the Contractor was unable to identify national data at the county or 

farm level for broilers other than the USDA NASS Census of Agriculture. NASS annual 

statistics do not include number of growers or county level statistics in its annual surveys. There 

are fragmented data available from a few state and county agencies and industry associations.

The 2007 Census of Agriculture reported 27,091 farms with ―Broiler and other meat-type 

chickens sold.‖ NASS reported that 16,107 growers sold more than 100,000 birds in 2007, and 

40 percent of those growers sold more than 500,000 birds. A total of 6,841 farms were located 

in the three states ranked highest in broiler production, and just over 41 percent of farms with 

reported sales over 100,000 birds were located in the same three states. Commercial broiler 

production is organized and operated around broiler houses, the major farm-level capital 

investment. No consistent national dataset was identified that reported the number of houses or 

houses per farm. However, ERS reported there were more than 70,000 broiler houses in the 

United States in 2006.56

In 2004, there were approximately 50 broiler companies in operation, with the top 10 integrators 

accounting for over 60 percent of broiler production. In 2008, 20 vertically integrated firms 

controlled almost 95 percent of U.S. broiler production, with the top 10 integrators controlling 

almost 75 percent of the market.57

Under the integrator/grower contract structure, the broiler enterprise might seem a safe haven for 

the grower. However, this is not the case; growers must be concerned about performance of the 

contracted birds. Broiler production is influenced by disease, weather, equipment, building 

environment, and the quality of feed provided by the integrator. Also, growers are not free from 

domestic and international market outcomes, even with a contracted payment. An offer of 

subsequent contracts, and, to a lesser extent, the payment and incentive provisions depend upon 

the integrator‘s inventory of processed meat and short- and intermediate-run market forecasts.

 

55 USDA, NASS, 2009, http://www.nass.usda.gov/Charts_and_Maps/Poultry/brlmap.asp, accessed 4/22/10.

56 MacDonald, J.M., USDA, ERS, 2008, The Economic Organization of U.S. Broiler Production, Economic Information Bulletin 

No. 38. http://www.ers.usda.gov/Publications/EIB38/EIB38.pdf, accessed March, 2010.

57 National Poultry Council, 2009, Top Broiler Producing Companies, 

http://www.nationalchickencouncil.com/statistics/stat_detail.cfm?id=31, accessed May, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

34

III.C. Stakeholder Input

The Contractor gathered stakeholder input during discussions with producers, insurance industry 

representatives, extension agents, producer organization representatives, and USDA staff (see 

Appendix B for Listening Session Agenda). The Contractor collected this input during four

listening sessions focused primarily on the broiler sector and numerous personal and telephonic 

conversations outside these more structured stakeholder input gathering exercises. The listening 

sessions were held in Fayetteville, Arkansas, on April 27, 2010 (2 sessions); in Winnfield, 

Louisiana, on April 29, 2010; and in Athens, Georgia on May 4, 2010. Most of the 

conversations outside these venues were held in conjunction with the listening sessions or in 

follow up as a result of a lead provided at a listening session.

Fayetteville, Arkansas

The session in Fayetteville was scheduled to coincide with the Northwest Arkansas Poultry 

Conference on the campus of the University of Arkansas. This annual conference includes a 

gathering of over 150 producers, integrators, extension personnel, lenders, and allied industry 

representatives and is based around a series of extension and education workshops. The 

Contractor‘s presence in Fayetteville at the conference was well advertised through a series of 

extension program mailings, schedules of the conference distributed prior to the meeting, 

producer group email messages, and individual phone calls inviting local growers whose contact 

information was provided by the local integrator. The Contractor was stationed in a ―break-out 

room‖ and workshop attendees had a choice of which listening session to attend. Unlike the 

other sessions at the conference, the listening session was intended to collect feedback rather 

than to provide current extension information. The Contractor facilitated two one-hour sessions, 

with attendance at the second easily exceeding the first. Those who participated in the listening 

session were provided a very brief summary of the crop insurance development process and 

encouraged to express their opinions concerning the feasibility of insuring poultry production, a 

discussion that ran between 20 and 40 minutes.

Listening Session

The Contractor conducted two listening sessions at the Extension Poultry facility in Fayetteville, 

Arkansas at 4:00 PM and 5:00 PM CDT on April 27, 2010. Fifty-one individuals attended the 

two sessions, but only 21 provided any demographic information. Of these, there were 18 

growers, 1 represented the broiler integrators, 1 was an extension poultry specialist, and 1 was a 

lender affiliated with the Farm Credit system. At least 7 of the attendees were from Oklahoma, 

11 identified themselves as being from Arkansas, with the balance not indicating their state of 

residence. The attendees were all involved in either the broiler industry or the layer industry, 

with two individuals specifying that they were involved in production of pullets. The Contractor 

understood most of the individuals who did not provide demographic information were broiler 

growers from Arkansas. 

Following the overview of crop insurance and the discussion of initial findings of the research 

project, there was an extensive discussion of the perils that were of greatest concern to 

stakeholders. Primary concerns included the cost of energy inputs, with extensive discussion 

about the credit risk, and the unusual debt situation poultry growers face.
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contained on this sheet is subject to the Contract No: N10PC18148

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35

As discussed earlier, poultry growers face substantially different equity positions than most 

agricultural producers. In most agricultural sectors the ratio of debt (outstanding land, operating, 

and equipment loans primarily) to assets (the net value of owned land primarily) is very low. As

most other agricultural producers have relatively less debt, they are in a stronger position to 

negotiate with lenders or self-finance their operations. In the poultry industry in Arkansas, 

growers face a very different situation. A typical new poultry barn (chicken house) costs 

between $230,000 and $275,000, and a typical operation consists of between 3 and 5 houses. 

Most poultry growers are small land owners and thus cannot cash finance the construction of the 

poultry houses, or even provide a substantial down payment on their cost. As a result, local 

lenders have provided mortgage loans for values as high as 95 percent of the cash cost of 

constructing the houses. Although the loans are designed to work within a grower‘s cash flow, a 

poor flock performance or excessively high costs can make it very difficult for a grower to meet 

debt requirements.

Growers offered some discussion about concerns related to longer ―layout‖ periods58 in their 

area. Historically, this period could range from two to four weeks, but in recent years there have 

been instances of layouts as long as ten weeks. The layout period is one of the few tools by 

which the integrator can limit the supply of broilers without taking growers out of production 

completely. There was also a brief discussion of zoonotic diseases (e.g., AI) and the risk 

introduced by bio-security issues.

Follow up Interviews

Following the listening session, the Contractor arranged for a private interview with the regional 

vice president of Farm Credit Services. In the listening session itself, there was extensive 

discussion of financing issues and the Contractor felt it was important to obtain the perspective 

of more than one lender. Given the dramatic ―tightening‖ of lending standards that have resulted 

from the recent financial and property value crises, there is increasing pressure on lenders to 

assure their underwriting is particularly sound, including requirements for greater collateral 

(above and beyond the poultry houses themselves), and potentially greater use of FSA loan 

guarantees where applicable. The vice president of Farm Credit Services noted dependence on 

credit in the poultry industry is uniquely high and that the high asset specificity of poultry houses 

did indeed have the potential to lead to a credit-based ―stressful period‖ if integrators reduced 

through-put. He suggested most poultry house construction loans assume a cash flow based on a 

specific number of flocks per house per year (or put differently, a specific layout period). If 

layout periods are increased, then the basis of the loan begins to unravel, putting the performance 

of the loan under stress.

Winnfield, Louisiana

The session in Winfield was scheduled as a result of a contact provided by Dr. Ron Harrell, 

poultry expert and commodity director for the Louisiana Farm Bureau. Dr. Harrell became 

aware the Contractor was scheduling sessions in Arkansas and asked if the Contractor would be 

willing to conduct an additional session in Louisiana. The Contractor‘s presence in Winnfield 

was advertised through individual phone calls, provided by Dr. Harrell, inviting local growers 

and integrators. Those who participated in the listening session were provided a very brief 

 

58 The period is the time between the pick-up of the previous finished flock and the placement of the new flock.
Use or disclosure of information or data Risk Management Agency

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36

summary of the crop insurance development process and encouraged to express their opinions 

concerning the feasibility of insuring poultry production.

Listening Session

The Contractor conducted a listening session in a meeting room at the ―Mama D‘s Country 

Kitchen‖ restaurant in Winnfield, Louisiana at 10:00 am CDT on April 29, 2010. Ten 

individuals (five producers, two producer group representatives, one lender, one extension 

educator, and one representative of integrators) attended the session. All the attendees were from 

the state of Louisiana. The attendees were primarily involved in the broiler industry and 

therefore all their comments were tied closely to the specific issues and concerns faced by the 

broiler and pullet industry.

Following the overview of crop insurance and the discussion of initial findings of the research 

project, there was an extensive discussion of the perils that were of greatest concern to 

stakeholders. Primary concerns included the risk or integrator pull-out or default, weather 

(hurricane) related perils, and (to a much lesser extent) major disease outbreak.

Grower concern with integrator pull-out and/or default was based on a recent experience in the 

region. In the 2008 production year, a major integrator (who requested anonymity) ceased

operations in central Louisiana, including both hatcheries and processing facilities. The poultry 

industry is uniquely dependent on local integrators, who not only provide all the most important 

inputs (chicks, feed, etc.), but also serve as the market for production. When the integrator 

closed its local operations, all the growers in the region were suddenly unable to obtain a 

contract to grow-out broilers. In 2009, a competing integrator came into the region and ―picked 

up‖ many of the growers, essentially saving the industry. As a result of the first integrator 

withdrawal, hundreds of poultry houses sat empty, and many growers were unable to meet their 

debt commitments for a period of nearly a year. Local lenders, in general, worked to restructure 

debt and now that many of the houses are operational again, debt payments have resumed. The 

crisis the integrator‘s action caused was raised repeatedly as the single biggest risk faced by 

growers. The integrator representative who attended the meeting was not affiliated with the 

integrator that had withdrawn from Louisiana, but defended the action by noting the demand for 

poultry was weak, margins have been poor, and simply closing a regional production facility is 

perceived as one of the few supply control measures available to the industry.

As a result of their geography (proximity to the gulf coast), Louisiana growers expressed far 

greater concern for weather related perils than any other listening session group. Although 

private coverage for facilities and ongoing production is generally available and widely 

purchased, there is a perception that the coverage is costly and that the federal government could 

play an important role in subsidizing the coverage, particularly in hurricane prone regions.

Athens, Georgia

The session in Athens was scheduled as a result of a contact provided by Dr. John McKissik, 

economics professor and Extension poultry expert at the University of Georgia. The 

Contractor‘s presence in Athens was advertised through individual phone calls inviting local 

growers and integrators, provided by Dr. McKissik and Jim Collins, the Director of Industry 

Relations for the Southeastern Livestock Network. Those who participated in the listening 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

37

session were provided a very brief summary of the crop insurance development process and 

encouraged to express their opinions concerning the feasibility of insuring poultry production.

Listening Session

The Contractor conducted a listening session in a meeting room at the University of Georgia 

main campus in Athens, Georgia at 10:00 AM on May 4, 2010. Ten individuals (six producers, 

one producer group representatives, one lender, one extension educator and one representative of 

a small broiler integrator) attended the session. All the attendees were from of Georgia. The 

attendees were primarily involved in the broiler industry and therefore all their comments were 

tied closely to the specific issues and concerns faced by the broiler and pullet industry.

Following the overview of crop insurance and the discussion of initial findings of the research 

project, there was an extensive discussion of the perils of greatest concern to stakeholders. 

Primary concerns included loss of revenue as a result of both low production and low price, the 

risk of integrator pull-out or default (an integrator pulled out of Southeast Georgia in 2009), and 

catastrophic disease outbreak.

There was some discussion of whether growers have an insurable interest in the crop. As 

growers typically do not own the birds themselves or pay for the most important production costs 

(feed is provided by the integrators), there was extensive discussion about what asset the grower

actually owns and therefore what, if anything, may be insurable under the Act. After an 

extensive discussion, there was a consensus that under the local contracting structure, the grower

did not have an insurable product, but there was interest in the potential for insuring the expected 

grower net revenue paid for each flock. The Contractor requested copies of settlement sheets 

from each of the attendees to further assess the potential for this concept, but the integrator in the 

room commented that these are confidential and that growers are specifically prohibited by most 

contracts from sharing this information. As an alternative, the Contractor provided a brief 

discussion of the AGR program available in Georgia which may offer coverage in a multipleenterprise environment. Several of the growers were aware of the AGR program but found it 

unsuitable as a result of its complexity and diversification requirements.

There was some additional discussion of the risk growers face in light of an integrator pulling out 

of a region, but in the Northern Georgia region where the session was held only two attendees 

were aware of the concerns in the Southeastern corner of the state. There was also some 

discussion of concerns tied to diseases, particularly END. There was an outbreak of END in

Georgia in the mid 2000‘s and several of the participants had direct knowledge of the event. 

Growers noted that disease outbreaks were exceedingly rare. Many were aware of previous 

payments from APHIS programs, but seemed unaware of the most recent changes to USDA 

programs providing compensation for disease outbreaks. 

Follow up Interviews

Following the session, the Contractor arranged an interview with Dr. McKissik. He explained 

that integrators are very sensitive about their settlement sheets and their contracts, because they 

feel the information contained in each is proprietary and contains trade secrets. As noted 

previously, the Contractor formally requested copies of generic grower contracts from many 
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38

integrators and with one exception59 each politely, but firmly denied the request. The Contractor 

was informed that several grower contracts specifically prohibit growers from sharing their 

contracts or the contents of any contract with anyone except their attorney. Dr. McKissik had 

reviewed several grower settlement sheets and explained the calculation of grower revenue. In 

most broiler arrangements, growers are placed in a pool with all the other growers in the region 

that deliver finished birds in the same week. They are then paid based on the weight of their 

birds, the number of live birds delivered, the price stipulated in the contract, and a number of 

incentives or penalties based on their relative performance in the pool. In an exceptional pool, a 

typical grower may receive substantially greater or lesser income than another producer with 

exactly the same flock performance in a pool with more typical performance. Given the 

reluctance of integrators to provide settlement data, the variability of incentives and discounts 

between integrators, and the complexity of determining revenues received, it became clear that 

insuring grower revenue would require a dauntingly complex and detailed loss adjustment 

process and would not insure the risks the integrator faces.

Georgia Farm Bureau 

The contractor conducted a teleconference with Jon Huffmaster, Legislative Director, and 

Donald C. McGough, Commodities/Marketing Director, of the Georgia Farm Bureau to discuss 

poultry risk and risk management issues in the state of Georgia. The Farm Bureau is the largest 

agricultural organization in Georgia, representing all major agricultural commodities. They have

offices in each of Georgia's 159 counties, and provide a variety of service to almost 400,000 

members and to the general agricultural community. Broilers provide almost 45 percent of 

Georgia‘s gross agricultural receipts (more than four times greater than cotton, the crop with the 

next largest receipts), while the layer industry in Georgia generates more than 6.5 percent of the 

state‘s agricultural receipts. 

The Farm Bureau has been involved in efforts to increase risk management options for poultry 

producers for several years. While all poultry production sectors are represented in Georgia, 

with major production of both broilers and eggs, broiler growers have been particularly 

concerned about risk management associated with extended lay-outs and integrator actions. 

Mr. McGough indicated the greatest concern of growers was the impact on cash flow and annual 

revenue of a long lay-out period. Poor ventilation, extreme heat, extreme cold, and electrical 

supply or equipment failure are also risks of concern to growers. The substantial leveraging of 

the poultry operations means the effects of these events can make thin profit margins disappear 

overnight. Another risk of concern is the contract pool structures. If excellent growers are 

grouped into a single contract pool, half will be performing below the ―pool average‖ and 

consequently will be compensated at a lower rate. This concern about contract structure 

highlights what appears to be a particularly contentious relationship between growers and 

integrators. The integrators often manage their business to maximize short term cash flow. The 

grower‘s debt level requires a much longer term perspective. The tension between the integrator 

and grower is evident when market factors like changes in export, price fluctuation, and seasonal 

preferences for particular parts of the broilers affect integrator choices about lay-out length, 

 

59 A small independent integrator who attended one of the listening sessions provided a blanked-out copy of his grower contract 

under the condition that it may not be published in a report and may only be used for background information on the structure

of the industry. This integrator requested that the firm not be identified.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

39

chick characteristics, house population density, and feed characteristics. With integrator 

ownership of the broilers and other major inputs, and integrator control of many management 

decisions for this crop, it is likely growers will continue to be exposed to many of the risks about 

which concerns were expressed, both in the Farm Bureau discussions and in the Georgia 

listening session. 

Mr. McGough spoke of grower concerns about risks associated with catastrophic diseases. 

While the losses due to mortality and depopulation under order from appropriate Federal or state 

authority are devastating, the effects of idle houses during quarantine, cleaning, disinfecting, and 

integrator-imposed lay-outs can destroy a business after a single incident. Compensation for 

some losses due to disease is available under state and/or APHIS programs. However, the 

greater risk is not mortality, but business interruption.

Delaware, Maryland, Virginia Production Area

The Contractor conducted a telephone interview with Mr. William Satterfield, Executive 

Director of Delmarva Poultry Industry (DPI). DPI is a nonprofit trade association working to 

support the broiler chicken industry in Delaware, the Eastern Shore of Maryland, and the Eastern 

Shore of Virginia. Founded in 1948, DPI's membership include nearly 1,400 growers raising 

chickens and five broiler integrators (up from four in 2004), as well as numerous poultry 

company employees and allied industry suppliers)

Mr. Satterfield was first interviewed by the Contractor during a research study exploring the 

potential for production-based livestock insurance for poultry producers (under contract to 

RMA) resulting in a 2004 report. During that study Mr. Satterfield provided detailed input into 

the specific risk management needs of the poultry industry in his region. He was forewarned of 

the purpose of the 2010 interview, to allow him to obtain any necessary input from integrators

and growers. Mr. Satterfield began his remarks by noting he had ―heard very little interest 

expressed by producers in Delmarva since the previous feasibility study wrapped up.‖ He then 

proceeded to provide a number of useful insights from a feasibility perspective, detailing his 

sense of the risks and concerns poultry producers in his region shared with him.

In 2009-2010, the Mid-Atlantic States endured one of the most severe winters on record, 

including several major blizzard events and extraordinary extended periods of freezing 

temperatures. Unlike the mid-south and Midwestern production areas, Delmarva 

producers are not responsible for purchasing natural gas to heat their barns and therefore 

were spared from the worst of the unexpected cost overruns that other areas endured. 

There were as many as 78 collapsed poultry houses due to snow loads. Losses to 

production were small because of the short cycle time and the total number of houses. 

Lost future income for the growers is a greater concern than the loss of the birds 

themselves. 

The Environmental Protection Agency and state environmental enforcement entities have 

substantially increased both their monitoring and enforcement of standards in the 

Delmarva region. This enforcement has, in some cases, increased the cost of maintaining 

facilities, managing waste, and overall operations of poultry facilities. While these 

enforcement activities appear to be more aggressive in Delmarva than other areas 

(particularly the mid-south), Mr. Satterfield indicated he felt enforcement in Delmarva 

would be matched by future activities in other regions.
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40

In past years, concerns tied to the potential for low quality chicks caused strong concerns 

among producers. Because the chicks that are placed at the initiation of any production 

cycle are provided and owned by the integrator, the individual producer has no influence 

upon the quality of chicks that may be delivered, but their overall quality can have very 

important impacts on the potential production of the given cycle. Mr. Satterfield 

indicated that he had heard fewer complaint or concerns related to these issues in more 

recent years.

At the beginning of the current economic downturn, layout periods for poultry barns were 

increased substantially in a measure to control the supply of poultry in the market and 

therefore help in maintaining prices. The result of these extended layouts, as was detailed 

in discussions in other regions, was fewer production cycles per barn per year and 

therefore reduced income for producers.

III.D. Pricing and Data Availability

The best way to describe the ―price‖ received by contract growers would be to show contract 

prices over time. However, reliable longitudinal datasets recording contract payments are not 

publicly available. In fact, no report of prices actually received by the growers by state is 

available. Despite efforts by the Contractor to obtain these data from growers or integrators, 

these data were considered proprietary. An alternative is the ―Poultry Yearbook‖ live-weight 

equivalent broiler prices, calculated by the USDA ERS. While this can serve as a proxy for 

prices received by growers, it includes payments for feed and chicks, costs not paid by growers. 

The 2006 update of these values included estimated live-weight prices received through 2004. 

Nonetheless, it is interesting to note, real prices for broilers appear to have remained relatively

constant since the early 1980s, in contrast to prices for many other agricultural commodities. It 

may be possible to replicate the live-weight equivalent broiler price calculations if relevant data 

were available. However, ERS has not reported the component data for the years after 2004. 

Consequently, the price discovery process is likely to be a time consuming and expensive annual 

effort. The following data concerning broiler production and pricing are available:

Urner Barry Price Current, wholesale broiler prices, daily and regionally, by subscription.

Broiler Sector Profiles: WattAgNet.com, 2008, Self-reported industry statistics, 

http://www.wattagnet.com/ViewArticle.aspx?id=2884&terms=broiler+profiles, (accessed 

April, 2010) 

Broiler production data by Year: USDA, NASS, Quickstats, annual data on calculated 

price, number raised, pounds produced, and values at the national and state level, some 

very limited and sporadic county level data, http://www.nass.usda.gov/, (accessed April, 

2010).

U.S. Poultry Production by Year: USDA, NASS, Broiler: Pounds Produced by Year, US, 

1969-2009, http://www.nass.usda.gov/Charts_and_Maps/Poultry/brlprd.asp, (accessed 

April 2010).

U.S. Broiler Production in 2009: USDA, NASS, Broilers: Numbers Raised by State, US, 

http://www.nass.usda.gov/Charts_and_Maps/Poultry/brlmap.asp, (accessed April 2010).

U.S. Broiler Production and Value by Year: USDA, NASS, 1999-2009, 

http://www.nass.usda.gov/Charts_and_Maps/Poultry/brprvl.asp, (accessed April 2010).

Poultry industry characteristics: USDA, NASS, Poultry and Egg Production, every 5 

years, 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

41

http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Fact_Sheets/poultry

_and_eggs.pdf, (accessed April 2010).

Poultry Slaughter Reports: USDA, NASS, Poultry Slaughter, monthly and annual reports 

on head, live weights and condemnations (some limited state-level data), 

http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1131, 

(accessed April, 2010).

Retail to consumer spreads for whole chickens: USDA, ERS Meat Price Spreads, 

monthly 1970-2009, http://www.ers.usda.gov/Data/MeatPriceSpreads/Data/history.xls 

(accessed April 2010).

Retail equivalent value of U.S. broiler industry (2004-2008), USDA, ERS, U.S. Broiler 

Industry: Background Statistics and Information (domestic retail weight consumption 

multiplied by the retail composite price), 

http://www.ers.usda.gov/News/broilercoverage.htm (accessed May, 2010).

Farm cash receipts, broiler production (2003-2007), USDA, ERS, U.S. Broiler Industry: 

Background Statistics and Information (domestic retail weight consumption multiplied by 

the retail composite price), http://www.ers.usda.gov/News/broilercoverage.htm (accessed 

May, 2010).

Wholesale broiler composite prices: USDA, ERS Meat Price Spreads, monthly 1990-

2009, http://www.ers.usda.gov/Data/MeatPriceSpreads/Data/history.xls (accessed April 

2010).

No organized exchanges offer futures contracts for broilers or other poultry products. The recent 

ERS focus on retail and wholesale prices provides an opportunity for RMA to develop a variety 

of models for broiler prices. However, long-term data series, particularly those collected by the 

government, are limited by changing foci in the data collection.

III.E. Risks

Growers are sensitive to the difference between common risk and idiosyncratic risk due to their 

contractual relationship with integrators. Both broiler price and feed price are subject to market 

forces. Together, these risks may lead to considerable income variability in the broiler sector 

over time. Output and input price changes do not immediately affect the broiler grower directly, 

but over time they are manifested through changes in the number of contracts, contract prices, 

and/or incentive clauses.

Production risks have not changed substantively over the past several decades. However, the 

relationship between contract growers and integrators has resulted in many shifts in risk 

management responsibility. Understanding risk mitigation for growers requires an 

understanding of the contract system. The majority of broiler contracts have a payment structure 

commonly known as two-part, piece-rate tournaments. The first part is a fixed base payment for 

each pound of live bird delivered to the integrator. The second part is a variable bonus payment 

based on the grower‘s performance relative to other nearby growers contracting with the same 

integrator. Grower performance is measured by a  ̳settlement cost,‘ which incorporates the 

integrator‘s costs (feed, chicks, medication, etc.) and the total pounds of live birds produced. An 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

42

individual grower‘s performance is compared to average performance of all growers whose 

flocks were harvested during a defined interval.60

Although the majority of broiler production is contracted, there are a small number of 

independent farms. Some of these poultry producers focus on niche markets, including organic 

and kosher chicken meat. These niche poultry producers are vulnerable to risk due to their size 

and may have a greater need for insurance than larger, mainstream poultry farms. However, 

beyond the existence of these operations, the Contractor obtained little information regarding this 

portion of the broiler sector.

Production Risk

Production risks facing broiler growers include weather, disease, feed quality, and chick quality. 

Weather-related risk in broiler production is minor compared to similar risks in crop production 

with severe weather affecting a small portion of one flock out of five or six each year.61 Disease 

risk includes both catastrophic losses, such as losses to avian influenza, and chronic disease 

losses, which more slowly erode profits. Growers are also impacted by the competence of 

integrators who control feed and chick quality.62

Under the current contract system, growers give up control of marketing and production 

management decisions in return for a guaranteed price floor. With payments based on relative 

production performance, price risk and the common portion of production risk are transferred 

from individual growers, who may be risk averse, to integrators. By some estimates, as much as 

97 percent of the risk borne by broiler producers is shifted from contract growers to integrators 

through the typical contract arrangement.63 As described previously, price risk is transferred 

from growers to integrators under the two-part, piece-rate tournament contracts. Therefore, any 

responsibility for hedging risk lies with integrators who, ―...may hold well-diversified portfolios 

resulting in little [net] risk-bearing cost.‖64 ―The risk-bearing cost [to the integrator] is similarly 

reduced in multi-product, private companies because these firms produce diversified portfolios 

and products.‖65

Growers perceive some of the production-related risks they face as disadvantages of the contract 

system. Growers are concerned with a system where their payment is based on their neighbors‘ 

performance. Some growers claim tournament outcomes can be biased through chick quality 

and other production inputs, all of which may be under the exclusive control of integrators.66 A 

small portion of grower contracts provide additional grower security through casualty clauses. 

These clauses indemnify losses arising from natural disaster such as a flood, excessive heat, fire, 

 

60 Tsoulouhas, T. and T. Vukina, 2001, ―Regulating Broiler Contracts: Tournaments versus Fixed Performance Standards,‖ 

American Agricultural Economics Association: 1063-1072; MacDonald, J.M., USDA, ERS, 2008, The Economic 

Organization of U.S. Broiler Production, Economic Information Bulletin No. 38. 

http://www.ers.usda.gov/Publications/EIB38/EIB38.pdf, accessed April, 2.

61 Aho, P. and D. Reid, 1988, ―Risks and Returns,‖ Broiler Industry, May, 14-16.

62 Ibid; Taylor, C.R. and D. A. Domina, 2010, Restoring Economic Health to Contract Poultry Production, 

http://www.dominalaw.com/ew_library_file/Restoring%20Economic%20Health%20to%20Contract%20Poultry%20Productio

n%202010.pdf, accessed may, 2010.

63 Knoeber, C.R., and W.N. Thurman. 1995. ―Don‘t Count Your Chickens...‖: Risk and Risk Shifting in the Broiler Industry. 

American Journal of Agricultural Economics, 486-496.

64 Ibid.

65 Ibid.

66 Tsoulouhas, T. and T. Vukina, 2001, ―Regulating Broiler Contracts: Tournaments versus Fixed Performance Standards,‖ 

American Agricultural Economics Association: 1063-1072.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

43

or losses of potential production. The casualty clauses in contracts vary by integrator and 

region.67

One argument against contracts between growers and integrators is the loss of grower/producer

heterogeneity and the resulting control by integrators, leading to potentially negative influences 

on supply. Intense competition within the broiler sector has promoted consolidation, creating 

several major firms competing for the same national and international markets. Competition also 

plays a role in the price structure of the industry. While integrator contracts insulate growers 

from the intense competition in the processing industry, growers remain exposed to curtailments 

in production by integrators. For example, WATT PoultryUSA reported in January 2002, ―Over 

the course of 2001, enough broiler firms either reduced production or moderated any increases as 

to boost industry operating margins a bit after several dismal quarters.‖68 These reductions occur 

at the farm level, usually by increasing time between flocks. While poultry producers would 

have had to make similar adjustments, the growers had no role in the decision making process.

It is useful to keep a sense of the broiler growers‘ perspectives on loss severity. A ―catastrophic 

loss‖ meant the loss (mortality) of an entire house or flock of birds. With a normal rotation of 4 

to 6 flocks per year, 100 percent mortality in 1 flock would reduce annual gross revenue 16 to 25

percent. The timing of such a loss is critical in gauging the overall severity of such an event; the 

later in the grow-out cycle such an event occurs, the greater the financial impact. A catastrophic 

loss at the end of a grow-out cycle would reduce annual gross revenue by 16 to 20 percent, but 

expenses would not be reduced. Consequently, the impact on net revenue would be more severe. 

Specifically,  ̳Income Above Variable Cost‘ and  ̳Net Returns Above All Specified Expenses‘ 

would drop by the same amount, but  ̳Net Returns Above All Specified Expenses‘ would be 

decreased by a substantially larger volume. Conversely, if the event occurred early in a grow-out 

cycle, expenses would be reduced substantially. If the integrator repopulated the house relatively 

soon, the reduction in annual gross revenue could be significantly less and the reduction in net 

return would decrease even more quickly. Nonetheless, since disease is a potential cause of

catastrophic loss, disease clean-up procedures generally require an extended layout period.

Further reduction in the ―impact‖ of a total flock loss is possible, given the ―typical‖ broiler 

operation, which includes multiple houses. If a loss occurs in one house, there is a ―dilution‖ of 

economic effects. Conversely, an event that requires closing all houses for an extended period 

―magnifies‖ the impact of the event.

Input quality, including the quality of chicks supplied by the integrator, is considered as a peril 

by some growers. Chick quality refers to the flock-to-flock variation in the growth rate and 

performance of company owned chicks being fed company supplied feedstuffs and medication 

while in a grower-owned house, under the grower‘s daily care. No quantifiable estimates of 

variation are available. One of the criteria for feasibility requires ―Losses covered under the 

proposed insurance product must be adjustable.‖ Separately identifying or disentangling the 

effects of chick quality, feedstuff quality, the effect of medication, or a slight change in the 

functioning of grower equipment or daily care as the source(s) of production variation is, at least,

problematic. Consequently, input quality cannot be an insurable peril and will not be discussed 

 

67 MacDonald, J.M., USDA, ERS, 2008, The Economic Organization of U.S. Broiler Production, Economic Information Bulletin 

No. 38. http://www.ers.usda.gov/Publications/EIB38/EIB38.pdf, accessed April, 2010.

68 Thorton, G., 2002, ―Acquisitions, Restraint Key Factors in 2001,‖ WATT PoultryUSA, January. 26A-26F.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

44

further. Similarly, risks arising from EPA regulations, litter and dead bird disposal, energy cost, 

cost of operation, and banned antibiotics are elements of management that would not be 

insurable under conventional production (yield) insurance.

Disease

Disease prevention and control are given continual management attention. Most diseases are 

controlled by vaccination (Table 8) and/or sanitation practices. Broilers are maintained on litter 

in a controlled-environment facility where the birds roam freely. The environment (temperature, 

humidity, and soiled litter) is conducive to both broiler growth and to fostering certain poultry 

diseases. Thus, an important part of broiler management is implementation and monitoring of 

strict medication and disease prevention procedures and a tight bio-security regimen. With those 

practices in place, diseases of particular concern are catastrophic diseases such as AI, particularly 

the high pathogenic form, and END. An infection from these diseases results in mortality or 

depopulation of an entire house, usually followed by quarantine and costly cleanup and 

disinfection. Quarantine and cleanup add a business interruption dimension to incurred losses as 

delayed house repopulation (layout) further interrupts the normal annual cycle.

Table 8. Sample Broiler Vaccination Schedule

Age in Days Disease Method

1 Marek's Disease Subcutaneous back of neck

1 Bronchitis Beak-o-vac, intraocular, or spray cabinet

1 Newcastle Beak-o-vac, intraocular, or spray cabinet

1 Inf. Bursal Disease Subcutaneous or in drinking water 

8-12 Inf. Bursal Disease Drinking water 

9-14 Bronchitis Drinking water, eye drop, intranasal, or spray

9-14 Newcastle Drinking water, eye drop, intranasal, or spray

14-21 Laryngotracheitis Drinking water in endemic areas

21 Bronchitis In place of 9-14 vaccination

21 Newcastle In place of 9-14 vaccination

Source: University of Pennsylvania School of Veterinary Medicine, 1999, A General Overview of 

Poultry Science, Typical Vaccination Schedule for Broilers, 

http://cal.vet.upenn.edu/projects/poultry/Syllabus/page14.htm, accessed May, 2010.

Frequency and Severity 

Growers and experts offered very general qualitative statements regarding frequency and 

severity of disease perils. The only statements made regarding the frequency of disease perils 

were generic statements such as ―rare.‖ Income losses resulting from catastrophic disease 

outbreaks are generally excluded from indemnification under the loss-of-income coverage 

products available. APHIS disease monitoring programs are generally available for livestock 

and the National Poultry Improvement Plan (NPIP) is specific to the poultry industry. Federal 

programs indemnifying the value of birds lost to disaster declarations have generally not 

benefited broiler growers because they do not own the birds. The presence of a disease and 

associated mortality are certainly identifiable. Underwriting related to vaccination schedules, 

sanitation, and management practices should be possible. Data are limited. Most chronic 

diseases are controllable or manageable. The risks associated with lost production are of less 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

45

concern to growers than are the risks to the business and production cycles, including the number 

and length of layouts.

Weather

During the listening sessions, growers identified two distinct events – severe storms and 

extended periods of extreme weather – as the ―weather‖ perils of greatest concern. In the South, 

hurricanes and tornados are most likely to damage or destroy houses. In Mid-Atlantic states, 

snow storms resulting in accumulations that exceed roof load limits and cause building collapse 

are the most damaging. A storm event results in lost revenue from the flock in grow-out, 

incurred expenses that will not generate any return, unplanned building repair or replacement 

costs, and, possibly, additional lost revenue from interruption of the annual production cycle 

during repairs or reconstruction.

Extended periods of severe heat are not considered catastrophic events by growers with modern 

houses. Rather, energy costs increase when maintaining proper house temperature and humidity. 

Some claim there may be reduced bird grow-out performance and delivery of fewer pounds of 

bird leads to reduced base payment revenue. If a grower‘s tournament ranking drops, incentive 

payment reductions further reduce revenue. However, because severe heat impacts all growers 

in a region, changes in tournament ranking more likely result from inferior or outdated house 

construction. Indemnifying lost incentive payments attributable to obsolete facilities would 

create a disincentive to technological innovation. Such production losses would rarely occur in 

more than two of the annual flock rotations. The expressed concern was for the loss of future 

income coverage. No quantitative estimates regarding frequency and severity of losses from 

weather events were offered by growers or experts.

Growers and lenders generally considered available property and casualty coverage for house 

damage adequate though costly. Participation is this coverage is highly variable, but is distinctly 

higher in highly leveraged/low equity operations

With the data currently available, questions concerning identification and measurement of losses 

tied to specific weather events seem problematic. The insurability of electric power loss from 

the RMA perspective revolves primarily around the availability of equipment failure insurance 

on the public market. Furthermore, any product would need to be carefully crafted to preclude 

disincentives for innovation in house design and construction, thus avoiding market distortion. It 

is important to note such innovation has substantially reduced risk in recent years. New 

controlled environment (closed) houses have greater, more consistent power requirements than 

do the older, open-design houses. Substantial added power demands arise from year-round 

operation of ventilation systems to remove moisture and heating and cooling systems to maintain 

consistent interior temperatures. The primary benefit of higher power consumption is reduced 

variation (more precise predictability) in chick grow-out performance than can be achieved with 

older technology. With existing technology and building design, heat and moisture build-up 

following the loss of ventilating and cooling systems measurably affects flock well being and 

consequently production. Power loss as a peril in broiler grow-out is, in fact, tied to a specific 

sequence of events. First, the delivery of commercial power has to be interrupted. Then, one or 

two automatically-switched, emergency generating systems must have failed. 
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

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46

Many growers considered power loss a peril to production. For some, power loss is the peril of 

greatest concern. It is still an area event, whose frequency is influenced primarily by the delivery 

system for commercial power and secondarily by weather affecting that system. It should be 

noted, if a power outage event were to be covered by a government-subsidized product, the loss 

adjustment would need to verify the event was the result of a natural rather than a man-made, 

cause.

Weather related property losses would be indemnified under the grower‘s usual coverage, and 

some loss of income coverage is available. Even under a property loss policy, growers would 

not generally be compensated for the value of birds lost as the integrator retains ownership of the 

flock. Few growers report purchasing the commercially available income protection coverage, 

except in Louisiana. Details of the available policies are not known as Contractor requests for 

information were refused.

Equipment Failure 

Equipment failure is very similar to power loss. The difference is a matter of degree. If a piece 

of bird watering or feeding equipment breaks down there may not be the same urgency to 

complete repairs as with a loss of power, or for that matter, a controller malfunction. However, 

given the inventory of replacement equipment and parts that growers keep as a means of selfinsuring, the Contractor would conclude the events are not trivial, as lack of attention would 

transform them into catastrophic events. Conversely, if the failed piece of equipment were an 

integral part of the environmental control system, then failure could be catastrophic in a very 

short time. Discussion of insurability would echo the preceding discussions of weather related 

power loss.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

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47

SECTION IV. TURKEY SECTOR

The United States is the world‘s largest producer of turkeys. U.S. turkey production reached 7.9 

billion pounds (live weight) in 2008, with a total estimated farm-gate value of almost $4.5 

billion.69 While most U.S. produced turkey is consumed domestically, the U.S. exports more 

turkeys and turkey products than any other country. Brazil, with the second largest production, 

harvested 1.1 billion pounds of turkey and Canada harvested 378 million pounds in 2008, while 

the European Union-27 collectively produced 6.6 billion pounds.70 The average estimated price 

received by U.S. producers during 2008 was almost 57 cents per live-weight pound.71

U.S. per capita consumption of turkey has increased from 0.8 pounds in 1910 to 13.6 pounds in 

2007. This reflects the evolution from a seasonal market (between Thanksgiving and New Years 

Day) for a single-turkey product (whole birds), to a year-round, diversified, value-added product 

line. Nonetheless, the whole turkey continues to be the most popular turkey product, although its 

sale is no longer associated solely with the holiday season. The structure of the turkey sector, 

with a wide variety of processed products, has changed turkey production into a year round 

activity.

The average retail price for whole frozen turkeys in the United States in 2008 was $1.25 per 

pound.72 Many processed turkey products have a substantial value added component. A review 

of internet grocery store prices shows some of these products retail at prices in excess of $9.00 

per pound. Smoked and roasted turkey lunchmeats; ground breast meat; pre-roasted and ready to 

roast turkey rolls; heat-and-eat turkey dinners; and turkey sausage, hot dogs, ―bacon,‖ 

―pastrami,‖ and ―ham‖ illustrate the breadth of turkey products currently available.

In 2008, the United States exported almost 675 million pounds of turkey and turkey products (up 

24 percent from 2007), valued at $481.9 million (up 21percent). The majority of exported turkey 

products are lower value parts (drumsticks, feet, wings, gizzards, livers, and hearts) and ground, 

mechanically-de-boned meat. In 2008, Mexico was the biggest market for U.S. turkey, 

accounting for over half of U.S. exports. The same year China imported almost $40 million 

worth of turkey meat, Canada $25.2 million, and Russia $23.4 million (a slight decrease over the 

previous year).73 Imports to Mexico were up 36 percent from a year earlier; Chinese imports 

were up 82 percent; and Canadian imports were up 2 percent. Many importers of U.S production 

use turkey meat with other meats to produce sausage. Competition from exporters of turkeys and 

turkey products, particularly from Brazil, is likely to slow the growth of U.S. turkey exports.

 

69 USDA, RMA, 2009, Poultry - Production and Value, 2008 Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.txt, accessed April, 2010.

70 Marsh Laux, Agriculture Marketing Resource Center, 2009, Turkey Profile, 

http://www.agmrc.org/commodities__products/livestock/poultry/turkey_profile.cfm, accessed April, 2010.

71 USDA, RMA, 2009, Poultry - Production and Value, 2008 Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.txt, accessed April, 2010.

72 National Turkey Federation, 2009, Turkey Industry Structure, http://www.eatturkey.com/consumer/industry/industry.html, 

accessed April 2009.

73 Marsh Laux, Agriculture Marketing Resource Center, 2009, Turkey Profile, 

http://www.agmrc.org/commodities__products/livestock/poultry/turkey_profile.cfm, accessed April, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

48

IV.A. The Crop

Turkeys are large birds in the order Galliformes, genus Meleagris. In the United States, turkeys 

are raised only for meat (i.e., not for table eggs). Turkey meat is relatively lean when compared 

to the meat of other domestic poultry species. The domesticated turkey is a descendant of the 

Wild Turkey, Meleagris gallopavo. The dominant commercial breed of turkeys in the United 

States is the Broad-breasted White (similar to ―White Holland‖, but a distinct breed). Most 

commercial breeds have been selected for size as well as meat types and distribution. U.S. 

producers raise over 250 million turkeys annually,74 generally with live weights of between 25 

and 30 pounds.

Heritage breeds more closely resemble their wild ancestors and can breed naturally. Heritage 

turkey breeds include Beltsville Small White, Black Spanish, Bourbon Red, Chocolate, Jersey 

Buff, Lavender/Lilac, Narragansett, Royal Palm, Slate, Standard Bronze, White Holland, and 

White Midget.75 These niche market birds command less than one percent of the U.S. market.76 

While these breeds were originally selected for flavor and productivity (i.e., conversion of feed 

to meat), they require more time to reach maturity than does the Broad-breasted White and are 

less amenable to production in houses.

As with many Galliform species, the turkey hen (female) is smaller than the tom (male). Both 

hens and toms are raised commercially. Hens are more likely to be marketed after slaughter and 

processed as whole birds. Toms are more likely to be processed into turkey products, such as 

lunchmeats, or sold to restaurants and food services. Parts from both hens and toms may be 

diverted to export markets. Mature Broad-breasted White toms are so large they are not able to 

fertilize hens naturally. Consequently, semen is collected from toms and hens are inseminated 

artificially. Many hens can be inseminated from each collection, so fewer breeding toms than 

hens are required. The meat from culled breeders is used primarily in processed meat products.

In commercial production, turkey brood farms supply eggs to hatcheries, which may hatch eggs 

from other species as well. After approximately 28 days, the hatched turkey poults are sexed, 

boxed, and shipped to the grow-out facilities (a collection of turkey ―houses‖). At these 

facilities, hens are raised separately from toms due to their different growth rates. Rations for 

both sexes and all age cohorts generally include corn meal and soybean meal with added 

vitamins and minerals. The feed mix is amended to achieve protein, carbohydrate, and fat levels 

appropriate for the age cohort.

Most turkey grow-out facilities raise 50,000 to 75,000 birds 3.5 times per year (175,000 to more 

than 260,000 birds a year). Many of the larger facilities have a single structure (the brood house) 

with the capacity to house as many as 100 thousand poults. Poults are raised with an average 

density of one square foot per bird. Each of these brood houses generally serves two grow-out 

houses. Consequently, seven broods can be raised in a year to produce the livestock for 3.5 

 

74 USDA, NASS, 2010, US Turkeys Raised 1959-2009, http://www.nass.usda.gov/Charts_and_Maps/Poultry/tkyprd.asp, 

accessed March, 2010.

75 Heritage Turkey Foundation, 2008, What is a Heritage Turkey, http://heritageturkeyfoundation.org/, accessed April, 2010, and 

American Livestock Breeds Conservancy, 2009, Breed Information – ALBC Conservation Priority List, http://www.albcusa.org/cpl/wtchlist.html#turkeys, accessed April, 2010.

76 Biozine, 2008, Raising Turkeys from Thanksgivings Past, 

http://biologybiozine.com/articles/feature/raising_turkeys_from_thanksgiv_1.php, accessed March, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

49

grow-out production cycles per year in each of the grow-out houses. On larger farms, multiple 

houses may be stocked, although normally all the birds on the farm are of the same age. This 

stocking approach helps to prevent diseases being passed among birds in different age cohorts.

The majority of U.S. turkeys are grown in controlled-environment confinement houses or in pole 

barns. The windowless confinement houses use modern systems of environmental control 

(heating, ventilation, and lighting). Ventilation systems provide sufficient oxygen for the normal 

growth and development and remove ammonia, carbon dioxide, dust, moisture, and heat. 

Confinement houses may contain as many as 50,000 birds. Depending on the degree of 

automation of the environmental control, feeding, and drinking systems, a single employee may 

provide all the necessary labor for a confinement house.

Environmental control within pole barns is more rudimentary. Consequently, labor requirements 

are greater and stocking densities are lower. Turkey poults reared in pole barns are generally 

raised in environmentally-controlled houses to 5 or 6 weeks of age. In the pole barns, the birds 

are raised in natural light, supplemented during the winter months with electric light. In the 

North, there is often limited control of temperature or ventilation in pole barns. The floor area of 

turkey pole barns ranges from 10,000 to more than 20,000 square feet. Automated feeders and 

watering systems maximize production, although the cost of such systems may limit their use. 

Turkeys in the pole barns are raised on litter (wood shavings) and allowed to move freely within 

the barn.

After slaughter, a two- to four-week period is allowed before a new flock is placed in turkey 

brood and grow-out houses. During this time, the house is cleaned and disinfected. Old litter is 

generally replaced after each flock is removed from turkey brooder houses; however, wastes may 

be removed from turkey grow-out houses only once each year.

In most commercial operations, stocking densities are set initially to maximize production, and 

only change as a result of ―normal‖ mortality until harvest. Hens in their grow-out houses are 

raised at a density of 2.5 square feet. Turkey hens consume about 40 pounds of feed in their 

lifetime with a feed conversion rate (pounds of feed per pound of gain) of about 2.5. Ten percent 

mortality during brooding and grow-out is assumed for planning the size of the houses and their 

initial population. The hens are collected in ―modules‖ or small cages, which are generally 

loaded onto flatbed trailers. Some additional mortality occurs during transportation. Slaughter 

and processing are mechanized to minimize processing time.

Toms, in their grow-out houses, are raised at a density of 3 to 4 square feet per bird, depending 

on the recommendations of the integrator. Toms consume about 90 pounds of feed with a feed 

conversion rate of about 2.9. Commercial toms, which are more aggressive, have a higher 

mortality than hens. Injurious pecking behavior can be a problem in enclosed confinement 

houses. This behavior is usually controlled by reducing the light levels or by beak-trimming. 

Some growers provide vegetable material or small objects for the turkeys to maneuver to distract 

the birds from their aggressive behaviors. Toms are harvested at about 18 weeks. Some 

producers reduce the density of older toms by moving a portion of the birds into houses vacated 

by the hens when they are harvested. This may reduce mortality marginally as the large birds 

compete for space and feed. The harvest process for toms is essentially the same as that for hens.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

50

Free-range birds represent a small niche market in the turkey sector. The only requirement for 

labeling with the term  ̳free-range‘ is the birds have access to the outdoors.77 Housing for freerange birds is usually of the pole barn type. Natural daylight and green food may be available on 

the range, but some source of food is generally provided in the barn. Slower growing strains, 

low nutrient density feed, low stocking density, and longer production cycles characterize this 

minor sector of the crop.

A typical turkey facility (a group of brood and grow-out houses with supporting storage) costs 

well over $1 million. A typical facility will have one or two brooder houses and four to six 

grow-out houses. Most individual houses are larger than 25,000 square feet. Depending on the 

location, the house may have supplemental lighting, heat, ventilation, and automated feed and 

watering systems. Most new turkey operations are funded with borrowed money. Loans from 

an integrator are often based on a six or seven year payback. Typically, bank loans for a facility 

have a longer term. In either case, the loan structures assume year round production.

Growers furnish the land, facilities, and labor under contract. They are paid based on the grade, 

weight, and feed conversion ratios of the birds delivered to the processing plant. Each integrator 

contract is reported to be unique; and contracts between an integrator and individual growers 

may also be quite different, taking into consideration such things as the physical services 

available at a facility, mortality experience, and historic and current feed conversion ratios. If 

the grower realizes a return of $7 to $8 per bird, the facility may generate a cash flow of $1.25 

million to $2.5 million per year. Cost of production is more difficult to assess under the current 

integrator/grower industry structure. The integrator owns the turkeys, supplies feed, medicine, 

vaccines, and pays a grow-out supervisor. The grow-out supervisor monitors the turkeys‘ health 

and growth and decides when medications or vaccinations are required.

IV.B. The Industry

The U.S. turkey sector is dominated by vertically integrated agribusiness firms. In the second 

half of the 20th Century, after a period of decline in the sector, turkey hatcheries began providing 

financing for the purchase of poults, while feed companies provided financing for both feed and 

poults as a means to stimulate feed sales. These financial arrangements eventually evolved into 

production contracts that shifted risk from grower to integrator. Under contract, the grower 

provides the buildings, equipment, and labor; the integrator, who is usually involved in a variety 

of post-harvest processing activities, provides poults, feed, veterinary services, and managerial 

assistance. Most growers receive a fee per bird or per pound and many contracts appear to 

provide performance incentives for feed conversion and reduced mortality rates. Most, but not 

all, integrators produce both whole bodied and further processed turkey products. There are 

currently 21 major turkey integrators in the United States (Table 9). Approximately 15 percent 

of turkeys grown in the United States are sold as fresh or frozen whole birds. A similar quantity 

is processed for parts.78 Some of these parts and the remainder of the whole birds are used in the 

production of ground turkey and a large variety of further processed products.

 

77 USDA, Food Safety and Inspection Service, 2006, Food Labeling: Meat and poultry Labeling Terms, 

http://www.fsis.usda.gov/FactSheets/Meat_&_Poultry_Labeling_Terms/index.asp, accessed April, 2010.

78 University of California, Cooperative Extension, 1997, California Turkey Production, 

http://animalscience.ucdavis.edu/Avian/pfs16C.htm, accessed April, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

51

Table 9. Top U.S. Turkey Processors in 2008

Processor

Live Weight 

Processed 

(million pounds)

Butterball, LLC 

Jennie-O Turkey Store 

Cargill Value Added Meats 

Farbest Foods, Inc. 

Foster Farms 

House of Raeford Farms, Inc. Perdue 

Farms, Inc. 

Kraft Foods, Inc. (Oscar Mayer) 

Virginia Poultry Growers Coop. 

Prestage Foods 

West Liberty Foods 

Sara Lee 

Cooper Farms 

Hain Pure Protein Corp. 

Michigan Turkey Producers Norbest, 

Inc. (Western Sales LLC) Dakota 

Provisions 

Zacky Farms, LLC 

Turkey Valley Farms 

Whitewater Processing 

Northern Pride Inc.

1450.0

1342.0

1047.0

302.0

273.5

265.0

274.6

252.0

236.5

220.0

220.6

263.0

185.0

182.0

178.7

162.0

144.0

131.3

120.0

42.4

40.0

Source: Watt Poultry USA, 2009

Turkey production is scattered throughout the United States. The top five turkey-producing 

states in 2008 (in order) were Minnesota, North Carolina, Arkansas, Virginia, and Missouri. 

While U.S. consumers eat more turkey per capita and as a population than any other national 

consumer population, the U.S. turkey industry is also more reliant on exports than most U.S. 

agricultural sectors. According to NASS, turkey production in 2008 reached 7.9 billion pounds 

with a total farm-level value of almost $4.5 billion. The average estimated price received by 

producers during 2008 was 56.5 cents per pound.79

By 1961, feed company contracts for production accounted for almost two-thirds of all turkey 

production. Subsequently, processors became increasingly involved in production decisions and 

began raising their own turkeys to better ensure supplies. With the involvement of large feed 

and processing firms, the share of turkeys sold on the U.S. spot market decreased substantially. 

In 2007, turkey production contracts accounted for more than two thirds of U.S. production.80 

Vertically integrated operations, in which the processor owns the production facilities and hires 

labor to care for the birds, accounted for almost one-third of turkey production. With 2008 farm-

 

79 Iowa State University, 2010, AgMRC, Turkey Profile, 

http://www.agmrc.org/commodities__products/livestock/poultry/turkey_profile.cfm, accessed May, 2010.

80 USDA, NASS, 2008, Census of Agriculture, Volume 1, Tables 27 and 41, 

http://www.agcensus.usda.gov/Publications/2007/Full_Report/usv1.pdf, accessed May, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

52

level cash receipts of almost $4.5 billion,81 turkeys accounted for approximately 12 percent of 

cash receipts for poultry in the United States.82

Most turkey farms are either owned by the integrators or managed under a contractual structure 

that dictates most elements of the enterprise management. The integrator generally provides the 

stock, feed, veterinary services, production technical support, and transportation. The grower

provides the growing facilities and day-to-day care and management of the animals. The impact 

of production contracts on turkey enterprises are not as well documented as are the impacts of 

production contracts on the broiler sector.

The relative importance of direct production in the turkey sector to the U.S. agricultural and 

overall economies is approximately one-fifth that of the broiler sector (Table 10). However, it 

should be noted there are considerably more value-added processing activities in the turkey 

sector than in the broiler sector. These will amplify the financial effects of turkey production in 

the general economy.

Table 10. Economic Indicators–Turkeys, United States

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

billion dollars

Gross Domestic Product 1/ 9,354 9,952 10,286 10,642 11,142 11,868 12,638 13,399 14,078 14,441

Agricultural Cash Receipts 2/ 187.5 193.7 202.8 192.9 215.5 237.9 241.0 240.8 288.5 324.2

Value of Turkeys 3/ 2.8 2.8 2.8 2.8 2.8 3.0 3.2 3.6 3.7 4.5

Source: 1/ Bureau of Economic Analysis, 2010, National Income and Product Accounts Table , Gross Domestic Product, 

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=

YES&Freq=Year&FirstYear=1999&LastYear=2009&3Place=N&Update=Update&JavaBox=no, accessed March, 2010

2/ USDA, ERS, 2010, Agricultural Cash Receipts, http://www.ers.usda.gov/Publications/AgOutlook/AOTables/, accessed March, 2010.

3/ USDA, NASS, 2010, http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1130, accessed March, 2010.

U.S. turkey production is geographically dispersed. The top five turkey-producing states in 2008 

(by head, pounds produced, and value) were Minnesota, North Carolina, Missouri, Arkansas, and 

Virginia, in that order. Together these five states accounted for the production of almost 58 

percent of the head and 54 percent of the live weight of all U.S. turkeys (Table 11).

 

81 USDA, NASS, 2009, Poultry - Production and Value 2008 Summary 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.pdf, accessed March, 2010.

82 Based on the estimated $37 billion total U.S. poultry sales from USDA, NASS, 2008, 2007 Census of Agriculture: Poultry and 

Egg Production, http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Fact_Sheets/poultry_and_eggs.pdf, 

accessed March, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

53

Table 11. Geographic Distribution of 2008 Turkey Production in the United States

State

Number 

Raised

(1000 head)

Pounds 

Produced

(1000 lbs)

Price per lb

($)

Value of 

production 

($1000)

Minnesota 48,000 1,305,600 0.57 744,192

North Carolina 40,000 1,208,000 0.54 652,320

Arkansas 31,000 610,700 0.57 348,099

Missouri 21,000 651,000 0.57 371,070

Virginia 18,000 484,200 0.56 271,152

California 16,000 435,200 0.58 252,416

Indiana 14,500 519,100 0.59 306,269

South Carolina 12,500 477,500 0.56 267,400

Pennsylvania 11,500 216,200 0.64 138,368

Iowa 9,000 360,000 0.56 201,600

Ohio 6,000 230,400 0.58 133,632

South Dakota 4,700 189,410 0.47 89,023

Utah 4,100 104,960 0.58 60,877

West Virginia 3,800 102,220 0.56 57,243

Other States 32,988 1,027,597 0.57 583,393

United States 273,088 7,922,087 0.565 4,477,054

Source: USDA, RMA, 2009, Poultry - Production and Value, 2008 Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.txt, accessed March, 2010.

Nationally, turkey production by number of head increased less than 1 percent from 2000 to 

2008, from 270.5 million head to 273 million head. Over the same time, weight per bird 

increased by 12 percent, from 25.9 pounds to 29 pounds. The combined increases in bird 

numbers and bird weights resulted in a 13 percent increase in total weight produced, from just 

under 7 billion pounds in 2000 to 7.9 billion pounds in 2008.83

The recent pattern of turkey production reflects some geographic consolidation of the sector. 

Although Minnesota, North Carolina, Arkansas, Missouri, Virginia, and California (each of these 

states had over $250 million in production sales in 2008) accounted for a larger proportion of 

head in 1990 than in 2008 (68 percent versus 63 percent), production in those states by weight 

increased from 49 percent to 59 percent and by value increased from 33 percent to 59 percent 

over the same period. Pennsylvania, Iowa, and Ohio comprise a second tier of production 

concentration.84

Substantial research by the Contractor identified the NASS Census of Agriculture as the only 

source of national turkey data at the county level. The 2007 Census of Agriculture documents 

some limited commercial turkey production in every state.85 NASS annual statistics do not 

 

83 USDA, RMA, 2009, Poultry - Production and Value, 2008 Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.txt, accessed April, 2010, and USDA, 

RMA, 2001, Poultry - Production and Value, 2000 Summary, 

http://usda.mannlib.cornell.edu/usda/nass/PoulProdVa//2000s/2001/PoulProdVa-04-25-2001.txt, accessed April, 2010.

84 USDA, RMA, 1991, Poultry - Production and Value, 1990 Summary, 

http://usda.mannlib.cornell.edu/usda/nass/PoulProdVa//1990s/1991/PoulProdVa-04-00-1991.pdf, accessed April, 2010.

85 USDA, RMA, 2008, Census of Agriculture, 

http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_2_US_State_Level/st99_2_013_013.pdf, 

accessed April, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

54

include number of growers or county-level statistics in its annual surveys because there are 

insufficient numbers of growers in most counties to support statistically reliable estimates. There 

are fragmentary data available from a few state and county agencies and industry associations. 

These data do not provide the comprehensive and consistent descriptions available for other 

enterprises.

Commercial turkey production is organized and operated around turkey houses, the major farmlevel capital investment. No consistent national dataset was identified reporting the total number 

of houses by region or houses per farm. The 2007 Census of Agriculture reported 17,226 farms 

growing turkeys, a 5.6 percent increase over the 16,586 farms reported in the 2002 Census of 

Agriculture. NASS reported 827 growers sold more than 100,000 birds in 2007. Just under 

2,200 of these operations grew turkeys under contract, producing slightly more than two-thirds 

of the turkeys reported to have been grown.

The turkey sector has evolved to fewer than 25 highly specialized, vertically integrated 

agribusiness firms. Under the integrator/contract grower structure, the turkey growers must be 

concerned about performance of the contracted birds. Turkey production is influenced by 

disease, weather, equipment, building environment, and the quality of feed. Also, growers are 

not free from domestic and international market outcomes, even with a contracted payment. An 

offer of subsequent contracts, and to a lesser extent the payment and incentive provisions, 

depend upon the integrator‘s inventory of processed meat and short- and intermediate-run market 

forecasts. Current inventories are higher than historically.

Both turkey growers and integrators have benefited from economies of scale associated with the 

industry‘s horizontal and vertical structure, but, projected gains in efficiency over the next 

decade are anticipated to be less than recent historical gains. Trade restrictions have slowed 

growth in many U.S. animal product exports. Concerns in the poultry industry with AI and END 

have affected poultry trade. Emerging markets, demographic changes in the U.S. population, 

and continued growth of two-income households which buy more prepared foods will drive 

expansion of U.S. turkey production.86

IV.C. Stakeholder Input

The Contractor gathered stakeholder input during discussions with producers, insurance industry 

representatives, extension agents, producer organization representatives, and USDA staff. The 

Contractor collected this input during listening sessions and numerous personal and telephonic 

conversations outside these more structured stakeholder input gathering exercises. The listening 

sessions including turkey stakeholders were held in Carthage, Missouri, on April 27; in 

Clarksville, Arkansas, on April 28; and in Ames, Iowa, on May 20. Most of the conversations 

outside these venues were held in conjunction with the listening sessions or in follow up as a 

result of a lead provided at a listening session.

 

86 Iowa State University, 2010, AgMRC, Turkey Profile, 

http://www.agmrc.org/commodities__products/livestock/poultry/turkey_profile.cfm, accessed May, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

55

Carthage, Missouri 

The session in Carthage was scheduled as a result of a contact provided by Dr. Susan Watkins, 

poultry expert and extension poultry specialist from the University of Arkansas. Dr. Watkins put 

the Contractor in touch with two individuals who coordinate grower relationships for regional 

operations of major national turkey integrators. The Contractor‘s presence in Carthage was well 

advertised through a grower group email message and individual phone calls inviting local 

growers provided by the local integrator contacts. The Contractor was prepared to supply 

information about crop insurance and to receive comments and suggestions concerning the 

poultry insurance from any stakeholders who wished to supply such information. Those who 

participated in the listening session were provided a very brief summary of the crop insurance 

development process and encouraged to express their opinions concerning the feasibility of 

insuring poultry production.

Listening Session

The Contractor conducted a listening session at the Butterball integrator facility in Carthage, 

Missouri, at 10:00 am CDT on April 27, 2010. Fifteen individuals (eight growers, two 

representatives of the turkey integrators, one extension agent, one local insurance agent, and 

three individuals who did not identify themselves) attended the session. At least eight of the 

attendees were from the state of Missouri, with four from Kansas, one from Arkansas, and three 

whose state of origin was not provided. The attendees were all involved specifically in the 

turkey sector and therefore all their comments were tied closely to the specific issues and 

concerns faced by the sector.

Following the overview of crop insurance and the discussion of initial findings of the research 

project, there was an extensive discussion of the perils that were of greatest concern to 

stakeholders. Primary concerns included the cost of energy inputs, the potential that an 

integrator would pull out of the area, and a catastrophic disease outbreak.

Growers noted the winter of 2009/2010 was unusually cold in southern Missouri and Arkansas (a 

theme repeated in Fayetteville, Arkansas, and Clarksville, Arkansas) and the energy costs 

incurred by growers, particularly for propane, were an important peril. In the region, turkey 

integrators provide all chicks and all feed stuffs, but the grower is responsible for providing all 

housing, heat/cooling, electricity, water, and labor to maintain the growing flock. This speaks 

directly to the grower economics of the turkey industry in the region. For a typical-sized house, 

the value of the flock at the time of pick-up for slaughter might exceed $250,000 per house. The 

value of the grower‘s expected gross income, however, is in the $10,000 to $15,000 range. In a 

typical winter, the grower might spend $4,000 to $5,000 per house per flock on propane for heat. 

In the winter of 2009/2010, many growers reported spending over $10,000 for propane alone. 

This was attributed partially to the higher unit cost of propane, but primarily to the fact that many 

growers burned nearly twice as much heating gas as they would during a typical year. 

Growers also expressed concern about the potential an integrator might pull out of an area, 

leaving the growers without chick placements. Consequently the growers would own poultry 

houses with large mortgage payments but with minimal alternative uses. Growers expressed 

little concern about pricing, which is stipulated in their contracts.
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contained on this sheet is subject to the Contract No: N10PC18148

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56

Follow up Interviews

Following the listening session, the Contractor arranged for private interviews with the two 

representatives of major regional turkey integrators. In the listening session itself, the discussion 

was dominated by the growers. Each of these individuals offered similar insights. They 

conceded that growers in their region have ―felt the squeeze‖ as a result of higher energy inputs, 

but also noted there were many other risk factors from which the growers had been insulated by 

the integrator relationship. Each integrator emphasized the stress the industry had faced in recent 

years as a result of record feed costs and softened demand for poultry products. These factors 

did not generally impact the price received by growers, but could have important impacts on the 

layout periods between flocks. The closure of regional integrator and processing facilities 

reflected the financial stress the industry has faced.

Clarksville, Arkansas

The session in Clarksville was scheduled as a result of a contact provided by Dr. Susan Watkins. 

She put the Contractor in touch with an individual who supports grower relationships for the 

local operations of a major national turkey integrator. The Contractor‘s presence in Clarksville 

was well advertised through a grower group email message and individual phone calls inviting 

local growers. The Contractor was prepared to supply information about crop insurance and to 

receive comments and suggestions concerning the poultry insurance from any stakeholders who 

wished to supply such information. Those who participated in the listening session were 

provided a very brief summary of the crop insurance development process and encouraged to 

express their opinions concerning the feasibility of insuring poultry production.

Listening Session

The Contractor conducted a listening session in a meeting room at the Hampton Inn in 

Clarksville, Arkansas, at 10:00 am CDT on April 28, 2010. Nine individuals (eight producers, 

one of whom was a retired extension educator, and one representative of the turkey integrators) 

attended the session. All the attendees were from the state of Arkansas. The attendees were all 

involved specifically in the turkey sector and therefore all their comments were tied closely to 

the specific issues and concerns faced by the turkey sector.

Following the overview of crop insurance and the discussion of initial findings of the research 

project, there was an extensive discussion of the perils that were of greatest concern to 

stakeholders. Primary concerns included the cost of energy inputs, increased layouts/fewer flock 

placements per year, and a catastrophic disease outbreak.

Growers noted the importance of increased energy costs as a major peril for production in the 

region. It was suggested by one attendee that the great concern was simply a result of the bad 

winter and high energy prices having occurred so recently so it was foremost on their minds. 

Another grower refuted this, saying, ―I‘ve gone through my budget and if I pencil in the amount 

I spent on heat for every winter, I should just get out of the business. This is a big deal and I 

don‘t see it changing.‖ Growers were encouraged to discuss alternatives already available to 

them to manage energy costs. There was some discussion that one of the gas utilities provided a 

forward contract from time to time, but the contract price was generally higher than the current 

price and locking in a price did nothing for years like this when they used a lot more gas than 
Use or disclosure of information or data Risk Management Agency

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57

normal. There was also some discussion of the futures markets, but there was general agreement 

these contracts were too big for growers to consider individually.

Growers also discussed the increased layouts issue as something that was a growing concern, but 

noted that in their area, a number of low performing growers had been dropped, which had 

helped to maintain ―reasonable‖ layouts for the other growers. There was some discussion of 

disease, specifically END and AI, both of which growers referred to as ―totally random‖ and 

beyond the capacity of standard bio-security to control.

Follow up Interviews

Following the listening session, the Contractor arranged for a private interview with a

representative of the major regional turkey integrator. In the listening session itself, the 

discussion was dominated by the growers and the integrators‘ views were under-represented. 

The integrator stakeholder confirmed that turkey integrators provide growers with all their chicks 

and all their feedstuffs, and based on this, there had been some discussion of providing gas or 

energy (or offering a contract price for these inputs) as well. As a potential large buyer, there 

may be opportunities to lock in attractive prices for energy inputs which could in turn be passed 

along to growers. However, this aspect of production and risk will likely continue to be borne by 

the growers.

Ames, Iowa

The session in Ames was scheduled as a result of a contact provided by Dr. Darrell Trampel, 

extension poultry veterinarian and professor at Iowa State University. Iowa and Minnesota 

collectively form the largest turkey production region in the United States. The Contractor‘s 

presence in Ames was advertised in conjunction with the annual meeting of the Iowa Turkey 

Federation. Those who participated in the listening session were provided a very brief summary 

of the crop insurance development process and encouraged to express their opinions concerning 

the feasibility of insuring poultry production.

Listening Session

The Contractor conducted a listening session in a meeting room at the offices of the Iowa Turkey 

Federation in Ames, Iowa, at 9:30 am CDT on May 20, 2010. Eighteen individuals (11 growers, 

2 grower group representatives, 1 insurance agent, 1 educator, 2 integrator staff members, and 1

state government representative) attended the session. All but two of the attendees were from 

Iowa (the other attendees were from Minnesota). The attendees were exclusively involved in the 

turkey sector and therefore all their comments addressed specific issues and concerns faced by 

the sector.

Following the overview of crop insurance and the discussion of initial findings of the research 

project, there was an extensive discussion of the perils that were of greatest concern to 

stakeholders. The turkey sector in Iowa offers an important structural difference relative to other 

turkey production regions and therefore perspectives were somewhat different than those shared 

by turkey stakeholders in other regions.87

 

87 Unlike other turkey production regions, where all production is ―controlled‖ by large integrators who own all birds and 

therefore control most insurable interest, a grower cooperative ―West Liberty Foods‖ controls a substantial portion of 
Use or disclosure of information or data Risk Management Agency

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58

The attendees expressed concern related to catastrophic disease and the potentially damaging 

financial effects on whole regions if a large quarantine were put into place. There was a 

perception that this sort of event was unlikely, but the potential repercussions were very severe. 

Several attendees expressed distrust for the way USDA administered quarantine programs and 

felt the compensation offered to affected growers was inadequate.

The session yielded very little additional useful information. Shortly after the discussion of 

catastrophic diseases was complete, one of the growers in attendance noted he had ―no intention 

of talking about what my risks are so that it can go into some government report.‖ Many of the 

other attendees appeared to agree with this view and did not participate in the discussion. The 

other important comment was provided by the insurance agent who commented that coverage for 

production and for buildings was already widely available and they felt federally-subsidized 

insurance would only make these current private offerings uncompetitive.

Follow up Interviews

Following the session, from which little information was gleaned, the Contractor was approached 

by the Executive Director of the Iowa Turkey Federation. She spent several minutes explaining 

there was widespread discontent with the implementation of a number of environmental and food 

safety rules in Iowa, including a protest filed by two board members of the Federation (it was not 

clear if these individuals were in attendance for the session). Consequently, government 

programs and studies are currently viewed suspiciously. This may have contributed to the lack 

of feedback provided in the session.

IV.D. Pricing and Data Availability

For a majority of production, turkey growers generally receive a contracted price per pound of

live bird and frequently have contracts that include incentive payments for feed conversion rates 

and survival to harvest. The best way to establish ―prices‖ received by contract growers would 

be to document contract prices over time. Reliable datasets recording contract payments over 

time are not publicly available; the integrators consider these data proprietary. They have 

instilled a sense in the grower population that these data should not be revealed. Payment is 

based on numbers and pounds of birds delivered times the contract price. Turkey integrators 

provide the poults to the grower, feed, veterinary services, production technical support, and 

transportation. The grower provides the growing facilities and day-to-day care and management 

of the animals. Under this arrangement, the integrator assumes risks associated with the variable 

costs of inputs and market fluctuations in the price of turkeys in the marketplace. The benefit to 

the integrator is the ability to grow animals in facilities owned and financed by others. The 

grower‘s risk is limited to investment in the houses and risks associated with management of the 

operation.

The next best data are retail turkey prices published by ERS. There is a substantial history of 

price spreads between retail and wholesale prices. Using retail prices as a proxy for farm-level 

prices is fraught with difficulty. Each of the elements of the retail price, costs paid by both 

growers (management and labor) and integrators (stock, feed, and transportation), payments to 

 

production in Iowa. This cooperative functions on an operational and payment system that is much more like the beef industry 

structure. The grower owns the birds, provides the ration, and is paid for production delivered.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

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59

growers, processing costs, shipping costs, profit margins, etc. is subject to frequent and 

somewhat unpredictable changes. Nevertheless, sufficient data exist to develop a reasonable 

model to establish estimated farm-level payments for live-weight turkeys by pound.

Farm-level turkey prices, receipts, and values, including NASS and ERS data, are generally 

calculated or estimated values; they are not values received by growers. Due to the level of 

industry integration, farm-gate prices are not generally available for purchase of ready to 

slaughter birds. The live-weight equivalent price per pound is calculated by subtracting 

processing cost per pound from ready-to-cook, whole-bird, wholesale price per pound and 

multiplying the result by the dressing percentage. These values are useful to examine the relative 

net effects of changes in supply and demand.

There are a variety of resources available to assist with pricing. However, since the prices 

received at the farm level incorporate additional ―settlement‖ elements, the price discovery 

process is likely to be a time consuming and expensive annual effort. The following data 

concerning turkey production and pricing are available:

Urner Barry Price Current, wholesale turkey prices, daily and regionally, by subscription.

Turkey Sector Profiles: WattAgNet.com, Self-reported industry statistics, 

http://www.wattagnet.com/Poultry_USA/13905.html, (accessed April, 2010) 

Turkeys production data by Year: USDA, NASS, Quickstats, annual data on price, 

number raised, pounds produced, and values at the national and state level, some very 

limited and sporadic county level data, http://www.nass.usda.gov/, (accessed April, 

2010).

U.S. Turkey Production by Year: USDA, NASS, Turkeys: Inventory by Year, US, 1959-

2009, http://www.nass.usda.gov/Charts_and_Maps/Poultry/tkyprd.asp, (accessed April 

2010).

U.S. Turkey Production in 2009: USDA, NASS, Turkeys: Numbers Raised by State, US, 

1959-2009, http://www.nass.usda.gov/Charts_and_Maps/Poultry/tkymap.asp, (accessed 

April 2010).

U.S. Turkey Production and Value by Year: USDA, NASS, Turkeys: Inventory by Year, 

US, 1998-2008, http://www.nass.usda.gov/Charts_and_Maps/Poultry/tkprvl.asp, 

(accessed April 2010).

Poultry industry characteristics: USDA, NASS, Poultry and Egg Production, every 5 

years, 

http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Fact_Sheets/poultry

_and_eggs.pdf, (accessed April 2010).

Poultry industry characteristics: USDA, NASS, Poultry and Egg Production, every 5 

years, 

http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Fact_Sheets/poultry

_and_eggs.pdf, (accessed April 2010).

Poultry Slaughter Reports: USDA, NASS, Poultry Slaughter, monthly and annual reports 

on head, live weights and condemnations (some limited state-level data), 

http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1131, 

(accessed April, 2010).
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60

Retail to consumer spreads for turkeys: USDA, ERS Meat Price Spreads, monthly 1970-

2009, http://www.ers.usda.gov/Data/MeatPriceSpreads/Data/history.xls (accessed April 

2010).

IV.E. Risks

Turkey growers are subject to similar risks faced by the growers of broilers. Growers are 

sensitive to the difference between common risk and idiosyncratic risk as a result of their 

contractual relationship with integrators. Part of the production risk is idiosyncratic and affects 

only a single grower (as when an automatic feeder breaks down), but part is common and affects 

many growers (as when the ambient air temperature becomes very high). There is also a price 

risk. Both turkey price and feed price are subject to market forces. Together, these risks may 

lead to considerable income variability in the turkey sector over time. Output and input price 

changes do not directly and immediately affect the turkey grower, but over time they are 

manifested through changes in the number of contracts, contract prices, and/or incentive clauses.

Grower risks have not changed substantively over the past several decades. However, the 

relationship between contract growers and integrators has resulted in many shifts in risk 

management responsibility.

Although the majority of turkey production is contracted, there are a number of independent 

farms and cooperatives. Some of the poultry producers focus on niche markets, including 

organic and kosher turkey meat. These niche poultry producers are vulnerable to risk as a result

of their size and may have a greater need for insurance than larger, mainstream poultry farms. 

However, beyond the existence of these operations, the Contractor obtained little information 

regarding this portion of the turkey sector.

Production Risk

Production risks facing turkey growers include weather, disease, feed quality, and chick quality. 

Weather-related risk in turkey production is minor compared to similar risks in crop production 

with severe weather affecting a small portion of one flock out of five or six each year.88 Disease 

risk includes both catastrophic losses, such as losses to END and AI, and chronic disease losses, 

which more slowly erode profits. Growers are also impacted by the competence of integrators 

who control feed and chick quality.

Under the current contract system, growers give up control of marketing and production 

management decisions in return for a guaranteed price. With payments based on relative 

production performance, price risk and the common portion of production risk are transferred 

from individual growers, who may be risk averse, to integrators. Growers perceive some riskrelated disadvantages in the contract system, as evidenced by the concern over energy costs 

discussed in the listening sessions. Production contracts may provide additional grower security 

through casualty clauses. These clauses would indemnify losses arising from natural disaster 

such as a flood, excessive heat, fire, or losses of potential production.

 

88 Aho, P. and D. Reid, 1988, ―Risks and Returns,‖ Broiler Industry, May, 14-16.
Use or disclosure of information or data Risk Management Agency

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61

Although growers do not bear price risk directly, they are dependent on integrators for stock to 

grow-out. Given the competitive nature of the turkey processing industry, growers can 

experience lower revenues through reduced production industry-wide, lack of competition 

among integrators, and integrator failure or default. Like the broiler market, the turkey market 

has experienced less price appreciation over time than some other agricultural sectors. 

Consequently, competitors in the turkey production sector are focused on increasing the weight 

gain rate and weight gain efficiency of the turkeys being raised.

Disease

Disease prevention and control are given continual management attention in the turkey sector. 

Most diseases are controlled by vaccination (Table 12) and/or sanitation practices. While a 

limited number of turkeys are pastured (raised primarily outdoors with free access to natural food 

and conditions), most turkeys are maintained on litter in pole barns or controlled-environment 

facilities where the birds roam freely. The environment (temperature, humidity, and soiled litter) 

is conducive to both turkey growth and to fostering certain poultry diseases. Thus, an important 

part of management is implementation and monitoring of strict medication and disease 

prevention procedures and a tight bio-security regimen. With those practices in place, diseases 

of particular concern are catastrophic diseases such as AI, particularly the high pathogenic form, 

and END. An infection from these diseases results in mortality or depopulation of an entire 

house, usually followed by quarantine and costly cleanup and disinfection. Quarantine and 

cleanup add a business interruption dimension to incurred losses as delayed house repopulation 

interrupts the normal annual cycle. However, it is important to note that such events are 

extremely rare.

Table 12. Sample Turkey Vaccination Schedule

Age in Days Disease Method

1 Antibiotics subcutaneously in the neck

10 Coryza If endemic: drinking water

10 Newcastle Drinking water

14 Coryza If endemic: drinking water

23-24 Hemorrhagic enteritis Drinking water 

36-41 Newcastle Drinking water

42-47 Cholera (M9) Drinking water

56-62 Cholera (other serotypes) Drinking water

91-97 Cholera (other serotypes) Drinking water

Source: University of Pennsylvania School of Veterinary Medicine, 1999, A General Overview of 

Poultry Science, Typical Vaccination Schedule for Commercial Turkeys, 

http://cal.vet.upenn.edu/projects/poultry/Syllabus/page18.htm, accessed May, 2010.

Growers and experts offered very general qualitative statements regarding frequency and 

severity of disease perils. The only statement made regarding the frequency of disease perils is 

that these events are rare. Income losses resulting from catastrophic disease outbreaks are 

generally excluded from indemnification under the loss-of-income coverage products identified. 

There are APHIS disease monitoring programs and, specific to the poultry industry, the National 
Use or disclosure of information or data Risk Management Agency

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62

Poultry Improvement Plan (NPIP). Federal programs indemnifying the value of birds lost to 

disaster declarations provide no benefit to contract growers who do not own the birds.

The presence of a disease and associated mortality are certainly identifiable. Underwriting 

related to vaccination schedules, sanitation, and management practices should be possible. Data 

are limited. Most chronic diseases are controllable or manageable. The risks associated with 

lost production are of less concern to growers than are the risks to the business and production 

cycles.

Weather

During the listening sessions, growers identified cold as the ―weather‖ peril of greatest concern. 

The cold did not directly affect the birds, but instead had a major impact on energy costs, and 

consequently on total production costs. Extended periods of severe heat or cold are not 

considered catastrophic events by growers with modern houses. Rather, energy costs increase 

when maintaining proper house temperature and humidity. No quantitative estimates regarding 

frequency and severity of losses from weather events were offered or obtained.

As in the broiler sector, new controlled environment (closed) houses for turkeys have greater, 

more consistent power requirements than do the older, open-design houses. These added power 

demands arise from year-round operation of ventilation systems to remove moisture and heating 

and cooling systems to maintain consistent interior temperatures. The primary benefit of higher 

power consumption is reduced variation (more precise predictability) in chick grow-out 

performance than can be achieved with older technology. With existing technology and building 

design, heat and moisture build-up following the loss of ventilating and cooling systems 

measurably affects flock well being and consequently production.

Property losses would be indemnified under the grower‘s usual coverage, and some loss of 

income coverage is available. Growers generally consider available property and casualty 

coverage for house damage due to severe weather adequate. No growers reported purchasing 

available income-protection coverage. They noted they had difficulty hedging risk associated 

with temperature.

Morbidity and Mortality

Turkeys develop over a substantially longer period of time than broilers and (particularly among 

toms) have a higher mortality rate. While the production practices are fundamentally similar, the 

longer timeline means that any risks or challenges with any aspect of production can have a more 

pronounced impact on final outcomes. As a result, anecdotal testimony suggests that mortalitybased variability in production is much greater from flock to flock in turkeys than in broilers.
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63

SECTION V. LAYER SECTOR

The term  ̳layer‘ is the poultry industry name for a light hen maintained for egg production. 

Hens from all varieties (breeds) of chickens lay eggs, but only hens from a few breeds 

consistently lay eggs of appropriate size. Hens of laying breeds produce as many as 300 eggs a 

year. The laying breeds are further divided into birds that produce white shelled eggs (breeds 

generally developed from Leghorn stock) or brown shelled eggs (breeds developed from Rhode 

Island Red and other stock).

The egg laying breeds of chickens have been genetically selected for high egg productivity. 

They usually have small bodies that make them undesirable as meat producers. The small bodies 

benefit laying breeds because the hens use fewer nutrients to produce and support body mass. 

Instead, layers direct much of their energy into the egg production. After approximately 12 

months, the hen‘s egg-laying declines. Hormonal changes resulting from changes in diet and 

photoperiod can be used to stimulate further egg production. Eventually, after two to two and a 

half years, commercial laying hens are slaughtered. Meat from culled layers is used in pet foods, 

soup, pies, and other processed foods.

Commercial chicken eggs include two categories of ―table‖ eggs for human consumption, as well 

as hatching eggs. ―Shell‖ eggs are eggs sold at retail, generally by the dozen. ―Breaking‖ or 

processed eggs are broken to produce liquid or dry egg products. Specialized in-line breaking 

plants transform breaking eggs into liquid eggs or further process the liquid eggs into products, 

such as powdered eggs, that have a longer shelf life. Production of processing eggs is a 

conscious output decision, rather than a salvage activity. Operators (grower/integrator) of table 

egg production facilities do not generally raise breeders to produce hatching eggs.89 Instead 

hatching eggs are raised by niche market poultry producers.

Table eggs are produced by single-site independent poultry producers, contract operators, and 

multiple-site, vertically integrated companies. The vertically integrated companies generally 

operate on multiple-sites, which are distributed either regionally or nationally. Recent trends of 

decreasing per capita shell egg consumption and increasing per capita processed egg product 

consumption reflect both consumer lifestyle and industry changes. The increase in production of 

less-perishable, processed egg products has generally reduced transportation costs for table eggs. 

Modern in-line production, technologically advanced processing complexes, and lower feed cost 

has led to increased egg production in the Midwest. In 2008, Iowa, Ohio, Indiana, Pennsylvania, 

and California (in their order of dominance in the sector) accounted for 44 percent of all table 

eggs produced. Between 2001 and 2008, Iowa‘s table egg production increased from 8.7 billion 

eggs90 to 14.4 billion eggs.91

Substantial consolidation occurred in the layer sector during the last 25 years. The layer sector 

has exhibited substantial changes toward a vertically integrated system. There are 205 egg-

 

89 Perdue University maintains a Website devoted to avian sciences, including a PowerPoint presentation 

(http://ag.ansc.purdue.edu/poultry/publication/commegg/) documenting most on-farm aspects of shell and breaker egg 

production.

90 USDA, RMA, 2004, Final Research Report Livestock Insurance Program Volume V: Layer Segment.

91 USDA, NASS, 2009, 2008 NASS Poultry - Production and Value 2008 Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.pdf, accessed March, 2010.
Use or disclosure of information or data Risk Management Agency

contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

64

producing companies with flocks of 75,000 hens or more, 62 companies with more than 1 

million layers and 12 companies with more than 5 million layers. Companies with at least 

75,000 layers are responsible for approximately 95 percent of all egg production in the United 

States. In contrast, in 1987, there were approximately 2,500 operations comprising the top 95 

percent of egg production.92 Integrated production sites often have up to one million birds, a 

feed mill, and an in-line processing plant. While economies of size are likely to be gained at 

relatively low levels of output (as low as 30,000 hens), diseconomies of size are apparently not 

realized until output exceeds that of the largest production sites, with more than six houses and 

more than one million hens.

V.A. The Crop

Shell eggs are usually sold by the carton at retail, while breaking eggs are subjected to a variety 

of value-added processing. There is an irony in the value-added economics of breaking eggs, 

since historically these eggs were salvaged, under grade, deformed, or checked. Paul Aho, a 

national expert on the layer sector noted, ―The breaker market was of last resort when a suitable 

shell egg market could not be found.‖ As the market for processed egg products expanded, 

processors/breakers began purchasing sound, problem free, shell eggs at a discount to retail 

prices. ―The big difference... compared to the processed egg market of just [20] years ago is that 

egg products (liquid, dried and frozen) have replaced shell eggs in most industrial food 

applications.‖93 In addition to improvements in in-line breaking plant technology and lifestyle 

changes among those who used to purchase substantial quantities of breaking eggs, Salmonella

outbreaks in the 1990s94 resulted in less use of wholesale shell eggs and increased use of 

pasteurized liquid eggs and other processed egg products (Table 13). A change from table egg

production to breaking egg production resulted from the recent Salmonella outbreak (July, 2010). 

Epidemiologic investigations in 10 states identified 29 event clusters; data from these 

investigations suggest shell eggs from two Iowa producers were the source of many of the

infections. The production from these operations, both of which are quite large, have been 

diverted to breaking facilities. It should be noted, this recent disease incident suggests grower 

concerns about the risks of recall are warranted. 

 

92 American Egg Board, 2010, Egg Industry Fact Sheet, http://www.aeb.org/egg-industry/industry-facts/egg-industry-facts-sheet, 

Accessed May, 2010.

93 Watts and Associates, 2004, Final Research Report, Livestock Insurance Program, Volume V: Layer Segment, delivered to 

USDA, RMA.

94 Aho, P. Updated 2000. ―Regional Egg Production Trends, Poultry Science and Technology Facts.‖ Cornell University, 

Department of Poultry and Avian Sciences.
Use or disclosure of information or data Risk Management Agency

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restrictions on the title page of this report.

65

Table 13. United States per Capita Egg Production and Distribution, 1984–2008

Year

Cases 

Produced 

(millions)

Retail 

(millions)

Breaker 

(millions)

Institution 

(millions)

Export 

(millions)

1988 169.1 98.1 32.5 37.1 1.4

1989 162.5 92.6 31.6 37.4 0.9

1990 163.1 91.3 35 35.9 0.9

1991 165.8 91.2 38.2 34.7 1.7

1992 168.6 91 41.3 34.4 1.9

1993 170.4 90.3 42.4 35.3 2.4

1994 175.5 91.3 46.8 34.6 2.8

1995 174.4 90.7 47.5 33.5 2.7

1996 179.8 95.3 50.4 31.2 2.9

1997 182.5 98.6 53 28.9 0.2

1998 187.1 102 54.7 28.8 1.6

1999 194.4 107.4 58.6 27 1.4

2000 198.8 112.3 60.4 24 1.7

2001 202.6 118.6 61.2 20.9 1.7

2002 206.3 122 62.7 19.8 1.6

2003 206.9 126.6 60.9 18 1.4

2004 209.9 126.3 64.4 18 1.9

2005 213.9 125.5 68.2 18.2 2

2006 214.1 126.6 67.1 19 1.4

2007 211.1 124.6 66 19 1.5

2008 212.6 124.7 67.5 19 1.4

Source: After American Egg Board, 2010, Shell Egg Distribution, http://www.aeb.org/eggindustry/industry-facts/shell-egg-distribution, accessed April, 2010.

In 2001, 334.9 million layers produced 85.7 billion eggs, an average of 256 eggs per hen, with 85 

percent of the eggs used for the table (i.e., breaking or shell eggs). By 2009, 337.4 million layers 

produced 90.4 billion eggs, an average of 268 eggs per hen, with 86 percent of the eggs used for 

the table.95

Egg production in the United States is widely dispersed (Table 14). Commercial egg production 

is reported in all 50 states; production in minor production areas is combined to avoid disclosure 

of data concerning individual operations. The perishable nature of shell eggs explains the 

historical dispersal of production. Changes in technology and demand are driving regional 

concentration of production.

 

95 USDA, NASS, 2010, Chicken and Egg Summary, February, 2009, 

http://usda.mannlib.cornell.edu/usda/current/ChickEgg/ChickEgg-02-25-2010.pdf, accessed April, 2010.
Use or disclosure of information or data Risk Management Agency

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66

Table 14. 2008 United States Egg Production by State

State Eggs Produced 

(Millions)

Price

($/dozen)

Value

($1000) State Eggs Produced (Millions)

Price

($/dozen)

Value

($1000)

AL 2,150 1.67 $298,550 NC 3,063 1.47 $373,944

AR 3,139 1.60 $418,062 NE 2,777 0.97 $225,242

CA 5,272 1.00 $440,730 NH 65 1.35 $7,321

CO 1,090 1.07 $96,842 NJ 421 1.19 $41,590

CT 780 0.93 $60,116 NY 1,167 1.00 $96,871

FL 2,749 1.02 $234,515 OH 7,168 0.98 $585,477

GA 4,576 1.48 $564,244 OK 774 1.25 $80,888

HI 73 1.42 $8,678 OR 769 1.01 $64,775

IA 14,407 0.93 $1,117,850 PA 6,181 0.95 $487,467

ID 150 1.09 $13,630 SC 1,143 1.09 $104,178

IL 1,453 1.00 $120,770 SD 691 0.97 $55,752

IN 6,523 0.99 $535,571 TN 351 1.46 $42,815

KY 1,140 1.37 $130,387 TX 4,928 1.12 $460,307

LA 479 1.19 $47,694 UT 914 0.95 $72,422

MA 36 1.24 $3,718 VA 726 1.27 $77,103

MD 666 1.13 $62,682 VT 55 1.15 $5,252

ME 1,028 1.22 $104,433 WA 1,533 1.07 $136,448

MI 2,653 0.96 $211,524 WI 1,220 1.01 $102,910

MN 2,767 1.03 $237,237 WV 247 1.48 $30,390

MO 1,885 1.05 $165,703 WY 2 0.97 $193

MS 1,511 1.42 $179,075 Other 

States 1,315 1.03 $112,563

MT 115 1.00 $9,567

TOTALS 90,151 0.89 $8,225,486

Source: USDA, NASS, 2009, 2008 NASS Poultry - Production and Value 2008 Summary, 

http://usda.mannlib.cornell.edu/usda/current/PoulProdVa/PoulProdVa-05-29-2009.pdf, accessed March, 2010.

Production Profile

Upon arrival at the operator‘s facilities, chicks are placed in either a pullet house or layer pens. 

Chicks in pullet houses are raised on open floors covered with wood shavings or similar bedding 

material. During the first week, pullet chicks are usually beak trimmed. They remain in the 

pullet house for 10 to 15 weeks. After attaining an appropriate size, they are moved into layer 

cages. Alternatively, for chicks placed immediately into layer cages, a biodegradable mat is 

placed on the floor of the pen. The mat allows chicks to locate feed and adjust to the wire mesh 

floor. Within a week, the mat is removed or degrades. A layer cage may initially be occupied by 

as many as fifty chicks, but as the chicks mature, the population density is decreased.

The chicks‘ daily light exposure is increased at 16 to 23 weeks of age. An appropriate lighting 

program provides adequate light intensity to stimulate a hormonal reaction, but if the light period 

is constant, electrical costs are high. Chickens perceive dawn as the first light following the 

longest dark period in the 24 hour cycle. Consequently, photo-schedules often contain a longer 

dark period to establish a photo-sensitivity phase (perception of dawn) and the timing of 

oviposition (when the egg is laid). Continuous light triggers laying, but short repeated cycles of 

light (e.g., an hour light followed by two hours of darkness) can reduce costs of lighting by more 

than 66 percent. Different operators use different lighting schedules to stimulate egg production 
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67

while minimizing electrical costs. If the hen has not reached an adequate body weight by 18 

weeks of age, egg production declines. The lighter layers are culled to limit feed consumption.

The layers‘ diet is also altered to support egg production. Layer pullets are fed according to 

body weight and/or age. Mature layers are generally fed ad libitum. The feed is generally 

offered to the layers by automated systems (e.g., chain feeding systems). In general, 2 inches of 

feeder space are allotted for each pullet and 2.5 inches or more are allocated for each adult layer. 

Dietary protein and energy composition are adjusted based on age of the hens. Young layers are 

fed a high protein diet (e.g., 20 percent protein) during the first few weeks of life. This level is 

gradually decreased to12 to 15 percent protein during egg production. Feed lysine, methionine, 

calcium, and phosphorus are also adjusted to support maximum egg production.

At 18 to 22 weeks of age, 10 to 20 percent of the hens are laying eggs each day when the flock 

begins to produce eggs. At about 30 to 32 weeks of age, 90 percent of the hens are laying each 

day. By the time the hens are 70 weeks old, laying decreases to approximately 50 percent, where 

variable costs are approximately equal to the income from production. Induced molting can 

increase production for another 20 to 30 weeks. Whether a second molt is induced is influenced 

by egg prices and the availability of replacement birds. Layers may be molted a second time to 

maintain production through 120 to 130 weeks of age or sent directly to slaughter after a single 

molt when they reach 100 to 110 weeks of age.

Hens lay their eggs onto an angled cage floor (sloping 8 to 10 degrees toward the collection belt). 

The eggs roll toward the front of the cage onto a slowly moving belt. The belt transports eggs 

out of the house to either the egg processing facility or refrigerated storage. Eggs are removed 

from the belt based on demand. Most are removed from the belt within a few hours, but they 

may not be removed for up to 14 hours.

In an in-line shell facility, eggs move directly from the layer house to the egg processing facility. 

Once the eggs enter the egg processing center, they are washed, inspected manually, graded for 

packaging, and moved into cold storage. Operators generally deliver eggs to retailers 

approximately a week after being laid. In an on-line breaking facility, the eggs are washed, 

inspected manually, and broken. The raw liquid eggs are moved to storage silos, then to 

pasteurization units, and finally to processing units to make dry, liquid, or frozen products. 

Since the facility is highly mechanized, there are relatively few employees and the facility can be 

operated 24 hours a day. In off-line production facilities the eggs are moved from the house 

directly into refrigerated storage. The eggs are stored two to three days, and then they are 

transported to a packing or processing facility by refrigerated trucks.

After the flock is removed from the layer house, the house is stripped of all organic matter. It is 

then sanitized with liquid disinfectants. Drying is required before another flock enters the house. 

The total down time lasts one to several weeks.

As noted earlier, most operators in the layer sector are concerned with table egg production. A 

second, smaller category of layer production is hatching eggs. These are produced on breeder

farms. These breeder farms produce fertile eggs that hatch into chicks for production of both 
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68

heavy broiler and lighter layer stock.96 Breeder farms are particularly concerned about genetic 

characteristics of their stock. Due to the unique niche market and research orientation of breeder 

farms, the assessment of the feasibility of insuring egg production will focus primarily on the 

production of table eggs.

V.B. The Industry

The two primary types of operating arrangements within the layer sector are contract farms and 

company-owned farms. Contract operators own or control the land, buildings, and labor inputs 

used to produce eggs under contract to processors. In company-owned farms, there are 

independent operators who own farm assets, own and manage the flock, and sell eggs and 

enterprises within large, vertically integrated, regional and national egg producing, processing, 

and marketing firms.97 The large integrated firms (both company-owned and integrator firms) 

are the result of a turbulent period of consolidation and bankruptcies during the late 1970s and 

early 1980s; consolidation has continued as some poultry producers integrated vertically into 

processing, and some processing firms acquire ownership of layer operations. Maximum 

integration is realized when the producer/processors also own feed mills. The company owned 

category, with its vertical integration, includes some smaller independent operations. However, 

independent farms are the most likely candidates for consolidation. Compared to large, 

integrated companies with a national presence, independent poultry producers are at a bargaining 

disadvantage when dealing with the rapidly consolidating wholesale-food industry.

The Census of Agriculture reported 3,331 farms produced eggs under contract in 2007 (a 2.25 

percent decrease from 2002). Almost 22 billion eggs were produced under contract in 2007;98

more than 97 percent of the table eggs were produced by integrator-owned operations. In 2009, 

66.5 million cases of eggs (approximately 31 percent of all table eggs) were broken under 

Federal inspection, a 2.6 percent decrease from 2008.99

The layer segment accounts for approximately 2 percent of the U.S. agriculture economy (Table 

15). The distribution of this economic impact by state is evident in the production value in Table 

14. In 1995, egg production in California, Georgia, Indiana, Ohio, and Pennsylvania, the top five 

egg producing states, accounted for 37 percent of U.S. table egg production. By 2001, the top 

five egg producing states accounted for 41 percent of table egg production and Georgia had 

dropped out of the top five egg producing states. By 2001, egg production in Iowa had doubled, 

increasing from 4.3 billion eggs in 1995 to 8.7 billion eggs. By 2008, the top five states 

accounted for 43 percent of egg production, and included (in order of size of production) Iowa, 

Ohio, Indiana, Pennsylvania, and California.

 

96 Aho, P. Updated 2000. ―Regional Egg Production Trends, Poultry Science and Technology Facts.‖ Cornell University, 

Department of Poultry and Avian Sciences.

97 Paul Aho, personal communication.

98 USDA, NASS, 2008, Census of Agriculture, Table 41, http://www.agcensus.usda.gov/Publications/2007/Full_Report/usv1.pdf, 

accessed March, 2010.

99 Egg Industry, 2010, Egg production increased 1% in 2009, http://www.wattagnet.com/Egg_Industry/14881.html, accessed 

March, 2010.
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69

Table 15. Economic Indicators–Layer Segment United States

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

billions of dollars

Gross Domestic Product 1/ 9,354 9,952 10,286 10,642 11,142 11,868 12,638 13,399 14,078 14,441

Ag Cash Receipts 2/ 187.5 193.7 202.8 192.9 215.5 237.9 241.0 240.8 288.5 324.2

Value of Egg Production 3/ 4.29 4.35 4.45 4.28 5.33 5.3 4.05 4.43 6.72 8.23

Source: 1/ Bureau of Economic Analysis, 2010, National Income and Product Accounts Table , Gross Domestic Product, 

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=

YES&Freq=Year&FirstYear=1999&LastYear=2009&3Place=N&Update=Update&JavaBox=no, accessed March, 2010

2/ USDA, ERS, 2010, Agricultural Cash Receipts, http://www.ers.usda.gov/Publications/AgOutlook/AOTables/, accessed March, 2010.

3/ USDA, NASS, 2010, http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1130, accessed March, 2010.

The 2007 Census of Agriculture reported 145,615 farms with an inventory of layers.100 

However, 125,195 (86 percent) of the reported farms had fewer than 50 hens, and only 4,771 

(3.3 percent) had more than 400 hens. Only 434 of those farms with more than 400 hens had 

more than 100,000 hens. As noted earlier, the American Egg Board reported 205 egg producing 

companies had flocks of 75,000 hens or more. These companies owned approximately 95 

percent of all U.S. layers in 2008.101

Cal-Maine Foods of Mississippi is the largest shell egg producer (Table 13). Cal-Maine is a 

―pure‖ shell egg producer without any egg processing facilities. National and regional 

supermarket chains buy directly from this company, with sales made daily on open account 

terms ranging from 7 to 30 days. A majority of the firm‘s sales are in 26 states scattered across 

the Southwest, Southeast, and Midwest. The second-largest producer, Rose Acre, is a privately 

owned company with both shell egg and processed egg production. Michael Foods, the thirdranked producer, produces eggs for processing and sells egg products and other food items. 

Depending on demand, Michael Foods does purchase some eggs from other companies.

Table 16. Top Ten Egg Production Companies: 2008

Company State

Layers in 

Production 

(million)

Cal-Maine Foods Mississippi 22.8

Rose Acre Farms Indiana 22.6

Michael Foods Egg Products Minnesota 14

Moark LLC Missouri 12

Sparboe Companies Minnesota 12

Decoster Egg Farms Iowa 10.5

Daybreak Foods Wisconsin 7.9

Ohio Fresh Eggs Ohio 7

Golden Oval Eggs Alabama 6.8

Fort Recovery Ohio 6.2

Source: U.S. Poultry and Egg Association. http://www.poultryegg.org/economic_data/, 

Accessed April, 2010.

 

100 USDA, NASS, 2008, Census of Agriculture 2007, http://www.nass.usda.gov/census/census97/volume1/us-51/us2_16.pdf, 

accessed March, 2010.

101 American Egg Board, 2009, Egg Industry Fact Sheet, http://www.aeb.org/egg-industry/industry-facts/egg-industry-facts-sheet, 

accessed March, 2010.
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70

The integrated firms are attempting to differentiate their shell egg product. For example, CalMaine‘s ―Eggland‘s Best‖ specialty line includes products that do not increase serum cholesterol 

when eaten as part of a low fat diet. Eggland‘s Best are marketed at a premium of approximately 

$1 per dozen over ordinary shell eggs. Cal-Maine has another specialty egg product, 

―Farmhouse Eggs,‖ produced by uncaged hens that are fed a ―natural‖ diet. Between 1999 and 

2006, sales of these premium branded eggs more than doubled.102

Price, consumer lifestyle changes, and industry integration are key factors reducing per capita 

shell egg consumption while increasing per capita consumption of broken (processing) eggs. 

Breaking eggs are an output product of specialized, in-line breaking technologies. Processed 

eggs reduce volume and consequently transportation costs for the now less-perishable product 

are reduced.

Given the current industry structure, feed transportation costs, and weather, the north central 

United States currently has an advantage in the production of shell eggs. This is evident when 

the number of large farms is considered (Table 17). The north central United States also 

currently dominates in the production of eggs to be broken. Although dominant in egg 

production following World War II, the North Central region lost its technological and 

organizational lead to the South and West as its facilities aged, and its production systems 

became outmoded. However, in-line production and processing complexes with on-site feed 

preparation facilities were constructed in the region during the 1980s. These complexes are now 

operated by low cost producers with large markets for processed egg products. Since feed costs 

account for about 66 percent of the total farm cost of egg production, the lowest feed cost area in 

the United States is likely to have the lowest total cost of egg production.

 

102 Eggland‘s Best, 2010, Healthy Eggs Hatch Success for Eggland's, http://www.egglandsbest.com/news/eb-news/in-thenews/story/06-04-04/healthy-eggs-hatch-success-for-eggland-s.asp, accessed March, 2010.
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71

Table 17 Top Ten States Number of Farms Reporting Layers 2007 Census of Agriculture

Number of Layers Iowa Ohio Indiana Pennsylvania California Georgia Texas Arkansas

North 

Carolina Florida Total U.S.

Percent 

of U.S.

1 to 49 2,403 4,257 3,053 6,244 4,553 2,094 12,965 2,260 2,891 3,038 43,758 125,195 34.95

50 to 99 286 543 271 643 265 166 1,043 181 267 198 3,863 10,648 36.28

100 to 399 143 299 150 379 159 82 328 58 118 86 1,802 5,001 36.03

400 to 3,199 30 30 18 71 48 22 44 6 25 16 310 785 39.49

3,200 to 9,999 40 5 4 78 4 80 6 74 111 1 403 626 64.38

10,000 to 19,999 9 13 19 57 9 153 37 252 139 8 696 1,373 50.69

20,000 to 49,999 6 17 21 41 15 216 99 201 159 6 781 1,292 60.45

50,000 to 99,999 8 39 11 50 8 22 22 10 18 1 189 261 72.41

100,000 or more 41 52 36 41 37 35 18 5 8 7 280 434 64.52

Total 2,966 5,255 3,583 7,604 5,098 2,870 14,562 3,047 3,736 3,361 52,082 145,615 35.77

Source: (After) http://www.nass.usda.gov/census/census97/volume1/us-51/us2_16.pdf. Accessed 4/2/03.
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72

Although the feed cost differences between the Midwest and other parts of the country are well 

understood, production cost differences from west to east within the Midwest are often 

overlooked.103 These have influenced the concentration of production among the Midwestern 

states and within individual states. The North Atlantic region, with high grain, labor, and land 

costs, has imported a large percentage of its eggs over the last 50 years. More recently, 

compliance with environmental guidelines, urban encroachment into rural areas, and food safety 

issues have further increased the region‘s relative costs. However, as a result of its proximity to 

large population centers, the North Atlantic region will continue to produce a substantial quantity 

of shell eggs. However, in the North Atlantic states, only under-grade eggs are likely to be 

broken.104

Market Structure

Both shell eggs and liquid eggs can be transported long distances using refrigerated trucks. 

Producers typically sell to a variety of markets, including both local and national prepared food 

industry buyers (e.g., McDonald‘s and Burger King), national supermarket chains, smaller 

regional grocery buyers (e.g., IGA), independent egg product processors, and institutional buyers 

(e.g., prisons, colleges, etc.). Given the vertical integration of large firms and contract egg 

production, egg buyers at the ―farm gate‖ are frequently the integrators themselves. The 

estimated 209.1 million cases of eggs produced in 2008 were distributed as follows:

68 million cases (32.2 percent) were further processed;

121.7 million cases (58.2 percent) were sold at retail;

18 million cases (9.0 percent) were used in food services; and

1.4 million cases (.7 percent) were exported.105

Independent poultry producers have incentive to increase in size or to act jointly to achieve a 

more equal bargaining position with the large, national firms which are potential buyers of their 

products. Consequently, bargaining associations and marketing cooperatives are active in the 

industry. Urner Barry‘s Price Current Index

(http://www.urnerbarry.com/pdf_files/pceg0414.pdf) serves as a basis for establishing the price 

for most contract sales. Contract length and settlement terms are extremely varied. While 

contracts are common, spot market transactions for some egg output are a matter of routine for 

nearly all firms as a way to deal with inventory fluctuations.

Egg producing operations are successful over a considerable range of potential output. It appears 

the long-run average cost curve is relatively constant over an extended range of targeted 

production. While there are economies of size to be gained moving up from the very low levels 

of output, diseconomies of size are not realized until output levels reach or exceed those of the 

largest firms. With such large integrated firms, the layer enterprises tend to be focused on egg 

production. Few layer sites include other agricultural activities.

 

103 Aho, P. Updated 2000. ―Regional Egg Production Trends, Poultry Science and Technology Facts.‖ Cornell University, 

Department of Poultry and Avian Sciences.

104 Ibid.

105 American Egg Board, 2009, Egg Industry Fact Sheet, http://www.aeb.org/egg-industry/industry-facts/egg-industry-facts-sheet,

accessed March, 2010.
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73

To the layperson, eggs are produced in chicken houses. However, ―chicken houses‖ are 

extremely sophisticated, controlled-environment facilities. If there is a mechanical failure in the 

climate control system, growers and producers have a 15-minute window before egg production 

is measurably affected and a 30-minute window before hen mortality begins. The environment 

is further regulated with thorough and strict sanitary practices and disease prevention and 

security regimens. Thus, competent managers of very large firms are confident in their 

perception of the ―things that could go wrong,‖ analysis of alternatives to prevent occurrence of 

those events (or at least mitigate the effects), and ability to implement the ―best‖ strategy. Under 

such tightly managed conditions, there are few risks for which contingency plans do not exist.

As large consolidated firms have grown to increasingly dominate the market, the fraction of total 

production under less intensive management schemes has grown very small.

Commercial egg growers and producers are subject to state regulations regarding flock 

management, egg grading, egg handling and transport, and the environment. Some state 

regulations specify aspects of building design and construction, husbandry practices, and bird 

space requirements. In November, 2008, California voters approved Proposition 2, effective in 

2015, which will require egg-laying hens be housed with sufficient room to lie down, stand, turn 

around, and fully extend their limbs. State regulations regarding egg handling generally parallel 

USDA Egg Grading Standards106 and Shell Egg Surveillance Inspections.107 Egg quality 

assurance is a part of state code. Environmental standards address manure and dead bird 

disposal and parallel AFO and CAFO designation standards. However, some exceptional state 

regulations are in place. Thirteen states prohibit repacking shell eggs to limit the spread of 

Salmonella.

108

 Pennsylvania requires all eggs be refrigerated throughout the distribution chain. 

Brand names must be registered by California egg handlers. Ohio poultry farms that discharge 

waste water into waterways are required to have a National Pollutant Discharge Elimination 

System (NPDES) permit, regardless of federal requirements for such a permit. These changes in 

the regulatory environment have been perceived by producers to add substantially to production 

costs.

V.C. Stakeholder Input

The Contractor gathered stakeholder input during discussions with poultry producers, growers, 

and integrators), insurance industry representatives, extension agents, producer organization 

representatives, and USDA staff. The Contractor collected this input during listening sessions 

and numerous personal and telephonic conversations outside these more structured stakeholder 

input gathering exercises. The listening sessions were held in Fayetteville, Arkansas, on April 

27, 2010, and in Urbandale, Iowa, on May 18, 2010. Most of the conversations outside these 

venues were held in conjunction with the listening sessions or in follow up as a result of a lead 

provided at a listening session.

 

106 USDA, AMS, 2000, United States Standards, Grades, and Weight Classes for Shell Eggs, 

http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELDEV3004376, accessed May, 2010.

107 USDA, AMS, 2006, Regulations Governing the Inspection of Eggs, 

http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELDEV3004691, accessed May, 2010.

108 Eskin, S.B., 2004, ―Putting All Your Eggs in One Basket: Egg Safety and the Case for a Single Food-Safety Agency,‖ Food 

and Drug Law Journal, 59: 441-452.
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74

Fayetteville, Arkansas

The session in Fayetteville was scheduled to coincide with the Northwest Arkansas Poultry 

Conference on the campus of the University of Arkansas. This annual conference includes a 

gathering of over 150 poultry producers, operators, integrators, extension personnel, lenders, and 

allied industry representatives and is based around a series of extension and education 

workshops. The Contractor‘s presence at the conference was well advertised through a series of 

extension mailings; conference programs distributed prior to the meeting; grower group email 

messages; and individual phone calls by the local integrator contacts inviting local growers. The 

Contractor was stationed in a ―break-out room.‖ Workshop attendees had a number of choices of 

which break-outs to attend, including the two poultry listening sessions. Unlike the other 

sessions at the conference, the listening session was intended to collect feedback rather than to 

provide current extension information. The Contractor facilitated two one-hour sessions, with 

attendance at the second easily exceeding the first. Those who participated in the listening 

sessions were provided a very brief summary of the crop insurance development process and 

encouraged to express their opinions concerning the feasibility of insuring poultry production, a 

discussion that ran between 20 and 40 minutes.

Listening Session

Fifty-one individuals attended the two sessions, but only 21 provided any demographic 

information. Of these, there were 18 growers, 1 represented the broiler integrators, 1 was an 

extension poultry specialist, and 1 was a lender affiliated with the Farm Credit system. At least 7 

of the attendees were from Oklahoma, 11 identified themselves as being from Arkansas, with the 

balance not indicating their state of residence. The attendees were all involved in either the 

broiler sector or the layer sector, with two individuals specifying they were involved in 

production of pullets, which most likely meant raising birds for the layer growers. The 

Contractor understood most of the individuals who did not provide demographic information 

were broiler producers from Arkansas. Please see the description of this listening session under 

the broiler sector stakeholder input documentation. A brief discussion of zoonotic diseases (e.g., 

AI) and the risk introduced by bio-security issues (including elements of institutional risk 

discussed later) were the two issues discussed that impacted the layer sector.

Urbandale, Iowa

The session in Urbandale, a suburb of Des Moines, was scheduled as a result of a contact 

provided by Dr. Darrell Trampel, extension poultry veterinarian and professor at Iowa State 

University. Iowa is the leading egg producing state in the United States, accounting for roughly 

one in five eggs produced domestically. The Contractor‘s presence in Urbandale was advertised 

in conjunction with the annual meeting of the Iowa Poultry Association. Those who participated 

in the listening session were provided a very brief summary of the crop insurance development 

process and encouraged to express their opinions concerning the feasibility of insuring poultry 

production.

Listening Session

The Contractor conducted a listening session in a meeting room at the offices of the Iowa Poultry 

Association in Urbandale, Iowa at 9:30 am CDT on May 18, 2010. Six individuals (five 

operators and one producer group representative) attended the session. Five attendees were from 

Iowa and one was from Minnesota. The attendees were primarily involved in the layer sector 
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75

and therefore their comments were tied closely to the specific issues and concerns faced by this 

sector.

Following the overview of crop insurance and the discussion of initial findings of the research 

project, there was an extensive discussion of the perils that were of greatest concern to 

stakeholders.

Egg production is unlike the other poultry sectors. In the layer sector in the upper Midwest, most 

laying operations are entirely self-contained. The grower is a vertically-integrated producer in 

the more traditional sense, controlling the genetics, the rations, the maintenance and welfare of 

the birds, and the cleaning, sorting, packaging, storing, and sometimes marketing of the eggs. As 

a result, the risk considerations involving grower revenue pools, the integrator to grower 

relationship, and many other factors are irrelevant. This structural factor provides important 

insight into the risk perception of egg operators.

Egg operators noted their biggest concerns, from a risk management perspective, are tied to 

catastrophic diseases (as a result of some sort of bio-security breakdown or bio-terrorism event), 

liability as a result of a food-borne disease or recall, and market forces for the sale of their 

production. The operators noted most egg operations are already actively involved in the 

hedging of key feed ingredients (primarily corn) and sometimes even forward contract for 

planned consumption of electricity and/or heating. The sheer large scale of egg operators allows 

self-insurance for most production issues. Due to the proprietary nature of much of the 

information relevant to risk and the structure of the industry, participants were very reluctant to 

elaborate on their concerns in the meeting setting.109

V.D. Pricing

The only federally funded, nationally coordinated collection and publication of county- and 

farm-level egg production data is the NASS Census of Agriculture. NASS does not include the 

number of egg producers or county-level statistics in its annual surveys. However, NASS 

publishes Monthly Chickens and Eggs Reports. The Chickens and Eggs Reports include 

information on the current supplies of eggs and on future supplies based on the size of the laying 

flock, number of replacement pullets, and placements in breeding flocks. In December, a full 

survey targets all flocks in the United States. Many state Agriculture Statistics Service offices 

report prices received by farmers for eggs. These are translated by NASS into prices received by 

farmers by state. ERS gathers information regarding egg production and prices through a variety 

of survey instruments.

It is important to note farm-level egg prices and values reported by various agencies, including 

NASS, include actual, calculated, and estimated values. The prices contract growers receive are 

primarily payments for capital and labor services rendered. Since the contracts vary by region, 

and by grower, the prices may include the costs of other inputs as well. The value integrator 

farms receive for the eggs are extrapolated from their overall income associated with production 

 

109 In a brief follow up meeting, Iowa Poultry Association CEO Kevin Vinchattle noted he was surprised growers had been 

willing to visit at all. He offered to provide follow up questions related to risk issues to his full membership and at the time of 

this report was collecting information. This information will be provided in the final draft of this report if Iowa Poultry 

Association shares them with the Contractor.
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76

and processing. The USDA ERS Poultry Yearbooks include national price data through 2004. 

The USDA ERS Livestock, Dairy, and Poultry Outlook reports include more recent data for 

relative egg prices. The USDA AMS publishes weekly Egg Demand Indicator reports. There is 

seasonality in egg prices, with operator costs sometimes exceeding income during summer 

months. The seasonal pattern in prices results from the interaction between the seasonal supply 

and demand for eggs and egg products.

In 1995 and 2001, the nominal price for table eggs was $0.52 per dozen and $0.47 per dozen, 

respectively.110 The ERS Poultry Yearbook reported prices of $0.63 per dozen in 1995 and 

$0.62 per dozen those same years and 2004 prices of $0.71 per dozen (Table 18). USDA ERS 

reported average 2004 and 2008 first receiver egg prices of $0.74 and $1.21, respectively (Table 

19)

 

110 USDA, NASS, 2002, Prices Received by Farmers: Historic Prices and Indexes 1908–2001.
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77

Table 18 Poultry Yearbook Egg Prices 1955 to 2004

Year

Price 

per 

dozen 

($/100)

Year

Price 

per 

dozen 

($/100)

1955 39.5 1980 56.3

1956 39.3 1981 63.1

1957 35.9 1982 59.5

1958 38.5 1983 61.1

1959 31.4 1984 72.3

1960 36.1 1985 57.2

1961 35.6 1986 61.5

1962 33.8 1987 54.7

1963 34.5 1988 52.8

1964 33.8 1989 68.9

1965 33.7 1990 70.8

1966 39.1 1991 67.6

1967 31.3 1992 57.6

1968 34.0 1993 63.4

1969 40.0 1994 61.5

1970 39.1 1995 62.5

1971 31.4 1996 75.0

1972 30.9 1997 74.9

1973 52.5 1998 66.8

1974 53.2 1999 62.1

1975 52.4 2000 61.7

1976 58.3 2001 62.2

1977 55.6 2002 58.9

1978 52.2 2003 73.2

1979 58.3 2004 71.4

Source: USDA, ERS, 2006, Poultry Yearbook (89007), 

http://usda.mannlib.cornell.edu/usda/ers/89007/table0002.xls, 

accessed April, 2010.

Table 19 ERS Prices Paid Egg Prices 2004 to 2008

Year Price

2004 0.74

2005 0.59

2006 0.63

2007 1.05

2008 1.21

Source: USDA, ERS, 2009, Prices paid by first 

receiver for organic and conventional eggs 2004-08, 

http://www.ers.usda.gov/data/organicprices/data/Egg

sFirstReceiver2004-08.xls, accessed May, 2010.

Many wholesale egg sales are priced based on contracts tied to the Urner Barry Price-Current. A 

range of price data, regionally, by grade, use, and by size (including nest run) are available by 
Use or disclosure of information or data Risk Management Agency

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78

subscription. While none of these sources reflect farm-gate prices, the datasets have been 

constructed using consistent processes and algorithms. While historical data is available, the 

Contractor was unable to determine the length and cost of any long-term egg price series.

There are no egg futures contracts traded on organized exchanges. With increased consolidation 

and vertical integration, the proportion of eggs exchanged on the spot market is decreasing. 

However, the Egg Clearinghouse (a nationally recognized marketplace for both buyers and 

sellers of eggs) seems to function reasonably well and continues to have producer confidence as 

a price discovery mechanism. Regardless of the data source, it is important to remember there 

are regional price differences, as well as price differences based on the market (shell or breaking) 

into which the eggs are sold. Furthermore, for many of the largest operations, and consequently 

for the majority of eggs produced, the first receiver is part of the same integrated enterprise that 

produced the eggs.

V.E. Risks

Like other agricultural enterprises, layer growers and producers are exposed to production risks 

such as disease and weather. Producers also face price or market risks for outputs and 

production inputs. The risks faced by egg producers and growers are similar to those faced by 

broiler growers, except in many cases the egg producers and growers are also the processors. 

Furthermore, many egg producers and growers buy their feed on the open market. However, as 

noted in the stakeholder input section for this sector, these operators are aware of futures markets 

for feed and energy and hedge some or most of their input price risk.

Production Risk

Contract egg growers and producers face similar risks to those faced by the contract growers in 

the broiler and turkey sectors. The unique element of the layer sector is the greatly vertically 

integrated operator (i.e., grower/integrator). Growers and producers may own or control feed 

milling, grading, breaking and processing facilities, and distribution resources. By owning assets 

in the value chain, these producers and growers better control cost structures. While becoming 

vertically integrated has helped layer enterprises manage cost structures, they are now 

responsible for managing all risks at many levels in the value chain. In addition, this high level 

of integration results in far less interaction between individual operations, and thus greatly 

reduces the potential for inadvertent exposure to disease vectors from neighboring operations.

Disease

Although many ailments can impact flock production, two viral disease risks are of particular 

concern: END and AI. END is dispersed as an aerosol in feces and from the respiratory tract of 

infected birds. Consequently, the virus is easily spread, contaminating feed, water, footwear, 

clothing, tools, equipment, and the environment. Most END-infected chickens eventually die. 

Recommended practices for preventing the spread of END include the following:

Vaccination

Isolating the facility;

Reducing introduction of potential carriers such as birds, people, and vegetation;

Controlling farm traffic and employee travel; and 
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79

Maintaining sanitation standards for buildings, organic matter, equipment, and 

vehicles.111

At the hatchery, chicks are typically vaccinated against Marek‘s Disease, while six or more 

additional vaccinations may be required before or during production (Table 20). 

Table 20. Sample Layer Vaccination Schedule

Age in Days Disease Method

1 Marek's Disease Subcutaneous back of neck

9-14 Bronchitis Drinking water or spray

9-14 Newcastle Drinking water or spray

14 Inf. Bursal Disease Drinking water or spray

28 Inf. Bursal Disease Drinking water or spray

28-34 Bronchitis Drinking water or spray

28-34 Newcastle Drinking water or spray

56-62 Laryngotracheitis Eyedrop 

56-62 Fowl Pox Wing web stab

56-62 AE Wing web stab

Every 3 months Newcastle-Bronchitis Drinking water or spray

112 Laryngotracheitis Eyedrop

112 Bronchitis Inject IM

112 Newcastle Inject IM

Source: University of Pennsylvania School of Veterinary Medicine, 1999, A 

General Overview of Poultry Science, Typical Vaccination Schedule for (Pullets 

(Layers), http://cal.vet.upenn.edu/projects/poultry/Syllabus/page16.htm, accessed 

May, 2010.

Standards for preventing the introduction and/or spread of AI are the same as those 

recommended for END, except vaccines are not available. Furthermore, more stringent 

protocols for manure handling are recommended for AI prevention.112

Historically, federal indemnification for catastrophic disease has been through APHIS or state 

sponsored ad hoc disaster programs. When infestations result in disaster declarations and 

quarantine areas, owners of birds may be eligible for payments reflecting the value of birds 

destroyed. To the extent those values represent the current value of future production, there was 

indemnification for lost production. However, such payments do not compensate for clean-up 

costs, costs associated with unplanned depopulation and repopulation, or any part of discounted 

future production not captured in the declared value of birds destroyed.

 

111 Ibid.

112 Cardona, 2003, p. 4.
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80

Weather

Heat stress is no longer reported as a common weather-related cause of loss in the layer sector. 

While mortality due to overheating resulted in substantial losses to production, production 

efficiency losses also occurred, including reduced growth rates, lower egg production, reduced 

shell quality, and smaller egg size. Producers and growers minimize losses from heat stress by 

utilizing heat-reducing building features promoting radiant heat management and proper 

ventilation, providing additional calcium and phosphorus in feed rations, and allowing access to 

feed during cooler times of the day.

With the exception of major disease outbreaks, egg growers and producers have relatively 

predictable revenue streams, and are therefore able to leverage the business and hedge risks. 

Many egg producers have geographically diverse enterprises both within counties and between 

states.

Power/Equipment Failure

Power failure and equipment failure are not identical. The difference is in the time between a 

failure and when losses in production are measurable. Given the controlled environment 

technology of modern facilities in which layers are housed, power failure is a term used to 

describe a sequence of very specific events. Nearly all systems within the house have redundant 

back-up systems in place. Consequently, power failure means both that the delivery of 

commercial power has been interrupted and at least one of the automatically switched standby 

generating systems has failed. Privately offered loss of income coverage is available that 

indemnifies the estimated value of the lost production. Available named peril insurance 

coverage for the value of the hens and to some extent loss of income generally requires two 

automatically switched, rather than manually activated, back-up generating systems.

Much of the operating equipment has alarms triggered by any malfunction. There is often either 

a back-up piece of equipment in place or in inventory. The sense of urgency in repair depends 

on the specific piece of equipment. If the equipment is part of the climate control system, then 

the event is no different in consequence than power loss. If the equipment is part of the hen 

watering or feeding systems, then the urgency for repair is reduced, but cannot be delayed for 

long without some production loss. In terms of severity, an extended power failure would nearly 

always be catastrophic, resulting in mortality of the entire flock of hens in the affected house(s). 

Equipment failure is likely to be catastrophic only if the piece of equipment were part of the 

climate control system and repair or replacement were not possible.

Price or Market Risk

Feed costs amount to as much as two-thirds of the total production cost of eggs. In layer 

production, a rise in corn and soybean-meal prices can be financially devastating. Egg producers 

and growers are always ―short‖ grain by definition. Large layer enterprises can manage their 

feed costs through hedging on the Chicago Board of Trade. Long futures hedges and long call 

options hedges can help to manage some of the feed cost risks.

Shell egg transactions at all levels are typically priced by formulae using the wholesale-level 

price quotations published in Urner Barry‘s Price-Current. Urner Barry reports prices from daily 

Egg Clearinghouse, Inc. (ECI) trading and pricing information involving farms with more than 
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81

one million birds. Producers utilize the Urner Barry pricing indexes and trading volumes to 

assess and manage price and market risk in both the short and long term.

Market period risk is price and/or quantity change during the marketing process. With industry 

consolidation, the market period has been shortened and the number of actual transactions has 

been reduced as most eggs pass from the farm to the processor (both of which are likely elements 

of the same enterprise). Historically, the volume of all sales into the retail markets is more 

variable than the volume moving off farms.

Institutional Risk

Animal welfare husbandry standards influence the layer sector more than the broiler or turkey 

sectors, as most layers are housed in cages. United Egg Producers (UEP) developed husbandry 

standards in 2002 following efforts begun in 1999 with the formation of an independent 

scientific advisory committee charged with reviewing all scientific literature on animal wellbeing for egg-laying hens. UEP then prepared industry guidelines (i.e., ―Animal Husbandry 

Guidelines for U.S. Egg Laying Flocks‖). These guidelines are used in a program called ―United 

Egg Producers Certified.‖ Growers who participate in the UEP certification program are 

inspected annually by independent auditors. California‘s Proposition 2 has the potential to 

substantially distort the market as much more stringent animal welfare requirements are imposed 

in that state but not in others.

Large institutional buyers also negotiate separate animal welfare policies as elements of their 

purchase contracts. The Federal government issued final rules for the ―Egg Safety Action Plan‖ 

in 2009.113 Regulations are political or market outcomes that are clearly not insurable perils even 

though they commonly require management attention, resource expenditures, and some level of 

compliance.

 

113 FDA, Department of Health and Human Services, 2009, Prevention of Salmonella enteritidis in Shell Eggs During 

Production, Storage, and Transportation; Final Rule, http://edocket.access.gpo.gov/2009/pdf/E9-16119.pdf, accessed May, 

2010.
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82

SECTION VI. FEASIBILITY ASSESSMENT

Poultry producers, growers, and integrators face production risks. The causes of many changes 

in productivity are similar to those affecting field and row crops. However, the variability in 

production (yield) grown under best management practices appears to be much lower for poultry 

than for plant crops. The broilers, turkeys, and layers have been carefully bred and selected over 

time to have a feed conversion efficiency that maximizes ―harvestable output.‖ Anecdotal data 

suggests with poultry that are multi-cropped, there may be more variability from crop to crop. 

This may reflect input (stock and feed quality) and seasonal weather. However, when production 

inputs are optimized, the annual productivity is relatively constant. One hypothesis to explain 

this pattern is that regardless of inputs, seasonal factors will affect output. This hypothesis is 

supported by substantial literature addressing the effects of light and, to a lesser extent, 

temperature cycles on egg production.

Due to the unique nature of poultry production, the feasibility analysis of a poultry production 

insurance product must be addressed not only by the literature on agricultural risk, but also by 

stakeholders‘ perceptions about the perils that concern them. Many risks in the poultry industry 

are managed using non-insurance approaches. The sophisticated and technologically advanced 

poultry houses manage not only weather related risks, but also maximize throughput (e.g., by 

control of light cycles), and help with disease control by limiting sources of contamination. 

Hedging can be used by some participants to manage some input risks.

Nonetheless, in the listening sessions and poultry production literature, growers of broilers 

express concern about feed quality, disease, weather events, and building/operational 

environment issues (i.e., sanitation, regulation, ventilation). They are also concerned with 

domestic and international market outcomes that indirectly affected their revenues because these 

market forces may cause their integrators to change/reduce the number of flocks maintained in a 

year. Growers maintaining turkeys are also concerned about disease and weather events, as well 

as energy costs and withdrawal of integrators from a region. Turkey growers, like broiler 

growers, are concerned with market outcomes that indirectly affect their revenues through 

changes in the number of flocks maintained in a year. Producers and growers maintaining layers 

are concerned about disease, particularly diseases that might be transmitted to humans (zoonotic 

diseases). They also express concern about bio-security requirements, recalls, and competition. 

Stakeholders of poultry in general are subject to substantial institutional risks from regulations 

related to husbandry, quarantine, and sanitation (e.g., disposal of dead birds and litter).

Of these concerns, only uncontrollable disease and unmitigated weather problems are typically 

considered insurable production perils. Feed quality, ventilation, and sanitation reflect 

management decisions that are a priori uninsurable. Energy costs and market outcomes, while 

affecting stakeholder‘s net revenue, are outside the purview of production (yield-based) 

insurance as it is typically defined and not normally tied to the price X yield basis of federallysubsidized crop insurance. Price coverage, like that offered for other livestock species through 

the Livestock Risk Protection (LRP) and Livestock Gross Margin (LGM) products, are 

dependent on the availability of futures markets, or, in the case of sheep/lambs, a price 

forecasting model based on readily available and relatively transparent data series. These 

products insure a component of risk (price) to which contract growers are not directly exposed. 

The focus of this report, as directed by the SOW, is on production insurance rather than price 
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83

insurance. However, even if the scope of the study were expanded to include poultry price 

insurance structured along the lines of LRP and/or LGM, there would be no basis for developing 

the product as futures markets and/or easily discovered and transparent price data are not 

available for poultry.

Withdrawal of integrators from a region, though disastrous to growers in the region, is an 

institutionalized ―failure to find a market for the product,‖ and along with competition has never 

been an insurable cause of loss for production insurance. Finally, recalls; quarantine; and 

regulations concerning bio-security, husbandry, and sanitation are all institutional or 

management perils rather than production perils.

To appropriately address insurance feasibility, it is also important to consider the impact of the 

sector structures on who has an insurable interest in the crop. As noted in the introduction, under 

the federal crop insurance program, an insurable interest is ―the value of the producer‘s interest 

in the crop that is at risk from an insurable cause of loss during the insurance period.‖ The 

nature of the insurable interest of poultry stakeholders varies by sector, within a sector, and by 

contract terms. In general, contract growers do not own the birds they are raising. The one 

poultry production contract the Contractor was able to study specifically states: ―Compensation 

herein provided for Grower shall include labor and rent on Grower‘s houses, equipment, and 

land for the time necessary to grow chicks until marketed...‖ ―Title of said birds, feed, 

medication, and supplies...shall at all times be vested in Integrator.‖114 As the grower is 

required to follow the integrator‘s management decisions concerning stocking, feed, medication, 

sanitation, heat, ventilation, and Hazard Analysis Critical Control Points Program, virtually none 

of the management decisions associated with ownership are retained by the grower. That the 

rental and labor contract payments are tied to the integrator‘s production success is an unusual 

feature for the real estate and labor markets, but does not endow the grower with an insurable 

interest. This conclusion is supported by testimony from the listening sessions.

A different situation exists when the poultry producer also processes the production. In this case, 

the poultry producer clearly has an insurable interest. However, there is a challenge in 

establishing harvest yield and the value of the harvested product in order to not provide 

insurance past the harvest as is required by the Act. NASS reports value of production. While 

the NASS methodology is statistically sound (Appendix C), the price discovery process is 

challenged by the level of industry secrecy. Furthermore, the poultry meat sectors and, to a 

lesser extent, the layer sector have a wide variety of products that can be developed from their 

harvested production. The down-stream product balance impact processing costs and market 

factors impact the value of the product. Consequently, the processors are continuously 

monitoring sales, inventories, and wholesale prices, and adjusting through-put and product to 

maximize profits.

It is in this environment that NASS must work to deduce the value of harvested poultry and 

consequently the price. NASS works with AMS data for poultry products. These data are based 

on wholesale market prices in 12 markets, adjusted to reflect the ―composite price‖ of a whole 

broiler or turkey or of the balance of breaking and shell eggs. NASS adjusts the AMS data using 

 

114 Anonymous poultry meat production contract for 2010 production.
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a fixed processing charge by sector.115 Since the adjustment is fixed, it may not adequately 

address regional and temporal differences in product outputs, processing costs, differences in 

value for contract and integrator owned production, or differences between integrators within 

and between markets. While the data provide an appropriate snapshot of changes in value over 

time, they are not prices actually received ―at harvest.‖

A final challenge in considering the feasibility of poultry insurance is in the nature of the crop. 

The short production time for turkeys and particularly for broilers allows the growers and 

producers of these birds to pursue a unique form of serial multi-cropping. In the case of poultry 

for meat, the same crop is raised multiple times in a year on the same ―land‖ (i.e., the poultry 

house). In fact, the financial leveraging of the meat poultry operations is based on the almost 

continuous use of the houses. If the real estate stands empty, there is no rent and consequently 

no income (nor cash flow) for the growers. While the growers expressed concern with annual 

income and cash flow, the production crop insurance construct is structured around a ―planting‖ 

(stocking the house with chicks) and ―harvest‖ (loading the birds on trucks). The number of 

crops per year and their size and harvest weight per bird, often responsive to market factors, 

cannot be insured under the traditional production (yield or yield-based revenue) approach. It 

may be possible to insure some of the risks to broilers and/or turkeys under either an inventory 

(per head) or dollar plan approach. Developing an adjusted gross revenue approach for the 

growers, producers, and/or integrators is also possible; although the nature of such a product 

acceptable to this group would be very differ from the existing AGR and AGR-Lite products. 

The revenue limits, available coverage levels, and diversity requirements would all need to be 

substantively modified. Furthermore, none of the stakeholders indicated either of these 

approaches would be desirable. 

Eggs are likewise a unique crop. In this case, the hen is in some ways comparable to the 

―acreage‖ of most production insurance. Once a productive age is reached, the crop is harvested 

regularly and continuously for 10 to 30 months (depending on management practices). The most 

similar crop in terms of frequency of harvest is the mushroom. As with mushrooms, egg 

producers are not particularly concerned with variability of harvest from day to day or week to 

week. Most of that variability results from management practices. The house provides 

substantial environmental control. Weather is at worst a minor concern. Furthermore, most

diseases are manageable. The concern is a catastrophic event (e.g., a house collapse or a highly 

pathogenic, uncontrollable infection) that shuts down production completely and perhaps 

indefinitely. Commercial insurance for mortality and loss of income is available. However, 

catastrophic disease is sometimes excluded from these policies to reduce premiums.

In addition to the issues raised previously, Section 2.4.1 of the SOW requires the Contractor to 

keep in mind the criteria of feasibility when recommending a possible insurance program. These 

are addressed sequentially below.

The proposed insurance coverage must conform to RMA’s enabling legislation, regulations, 

and procedures that cannot be changed. The enabling legislation is Title 7, Chapter 36, 

Subchapter I of the U.S. Code, as amended.116 Amendment of this code requires an Act of 

 

115 Bruce Boess, USDA, NASS, Head, Poultry and Specialty Commodities Section, Personal Communication June 3, 2010.

116 See for example http://www.law.cornell.edu/uscode/7/usc_sup_01_7_10_36_20_I.html.
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85

Congress. The Regulations and Procedures implementing this Act are the responsibility of the 

FCIC Board of Directors and USDA RMA. Production insurance and production-based revenue 

insurance requires appropriate documentation of production and production histories. The Act 

appears to preclude provision of insurance for rent and labor payments to growers under the 

industry structure involving grower/integrator contracts. Changes in the Act or the contracts 

would likely be required to assure growers have an insurable interest.

Producers or their agents must be willing to pay the appropriate price for the insurance. 

Since the study was initiated because of industry concerns, there is a priori evidence of some 

customer interest. As noted in the introduction, the willingness of producers or their agents to 

pay will be influenced by the coverage available and the costs associated with the insurance 

offer. It appears there is relatively little interest in broad, multi-peril insurance. Furthermore, 

named peril insurance products are already available for bird mortality and loss-of-income due to 

named perils.

The insurance product must be effective, meaningful and reflect the actual risks of the 

producers. Many perils of concern to growers are uninsurable. The growers perception of the 

utility of the insurance will be greatly influenced by exclusion of management and business 

practices (particularly those controlled by the integrators) that affect the grower‘s cash flow and 

revenue. Coverage of insurable perils will not protect the insured from financial failure from 

many of the perils of concern.

The perils affecting production must be identified and categorized as insurable and noninsurable. Measurement of the outcomes of the enterprise must be such that the uninsurable 

portions of reduction in productivity or production-based revenues can be identified and 

quantified. Some of the production variability is due to management actions (e.g., feed used, 

vaccination schedule, light regime, ―planting date‖ (i.e., the date the house is populated)). There 

are no public data to allow rating or underwriting of this variability. The private data is 

considered to be highly confidential. Some of the variability in output is intentionally imposed 

to limit input costs when market prices are low. Management-related variability (whether 

imposed by an integrator or a grower or poultry producer) would need to be addressed either 

through a substantial deductible or burdensome and challenging underwriting. Growers and 

poultry producers have indicated a high deductible is not an insurance construct they would 

endorse.

Be ratable and operable in an actuarially sound manner. There are no public data to allow 

rating or underwriting of flock or farm-level yield variability. The private data documenting this 

pattern is considered to be highly confidential, and serves as the basis for operating decisions in 

the industry. Despite considerable efforts, the Contractor was unable to collect this supporting 

data from integrators or producers. The Contractor believes in the current environment there is 

little chance of collecting sufficient data. A single grower was willing to share settlement sheets 

from his operation. Some measure of productivity could be extracted from national data on 

inventories of flocks and eggs. The precision of this extrapolated productivity value would not 

be at a level normally used in rating crop insurance.
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86

Contain underwriting, rating, pricing, loss measurement, and insurance contract terms and 

conditions. As noted earlier, operational decisions are made to limit input costs when market 

prices are low. ―Best practices‖ becomes a relative term focused on the net revenues rather than 

on gross revenues or yield. While most diseases are controlled and their impact on production 

manageable, the conditions which substantially impact production from farm to farm or time to 

time are limited named perils (catastrophic disease and structural or mechanical failure) for 

which insurance is commercially available. It might be possible to structure a policy for these 

perils similar to the product available for cultivated clams. Market acceptance would be 

influenced by price. At least one stakeholder indicated that competition in this market from 

federal insurance might undermine the existing insurance safety net that addresses broader 

poultry industry risks (e.g., employee health insurance, equipment coverage, structure insurance, 

etc.)

There must be an appropriate geographic distribution of production to ensure a sound 

financial insurance program. The Contractor understands this requirement to apply to the 

FCIC portfolio, which is distributed throughout the United States. Furthermore, the poultry 

sectors have wide geographic distribution as demonstrated in the sector descriptions.

There must be enough interest for the risk to be spread over an acceptable pool of insureds. 

The Contractor understands this requirement also to apply to the FCIC portfolio, which involved 

more than 1.1 million policies and almost $90 billion of insured liability in 2009. There was no 

evidence of broad interest among the stakeholders in poultry production insurance.

Customers must not be able to select insurance only when conditions are adverse. The 

occurrence of potentially insurable perils of greatest concern cannot be predicted by the insured.

Moral hazards must be avoidable or controllable. Avoiding moral hazard would require 

substantial underwriting constraints. Data for development of this underwriting are limited. 

Although generic best practices can be identified, the industry has fine tuned the conversion of 

inputs (feed and energy) into output (meat and eggs). At the present time, the information 

asymmetries that exist are not likely to change, even as a result of a rigorous development effort.

There can be no chance of beneficial gain. Avoiding the potential for beneficial gain would 

also require the underwriting constraints described previously. Inasmuch as the information 

asymmetries that exist are not likely to change, it would be challenging to avoid the chance of 

beneficial gain.

There must be no unacceptable change in market behavior or unacceptable market 

distortions in terms of either a change in quantity supplied or shift in the supply curve. 

The industry is large. Market forces shape almost every operational decision. While this 

obviously includes the purchase of insurance, it is unlikely the introduction of production 

insurance would change market behavior noticeably. Other market forces will continue to 

dominate the behavior of the markets.
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87

SECTION VII. SUMMARY OF FINDINGS

Over the course of seven listening sessions, the Contractor gathered feedback from 119 attending 

stakeholders. While there were some commonalities in the stakeholder feedback nationwide, 

most of the feedback was regionally disparate. In the South, much of the grower and poultry 

producer concern was tied to the potential for integrator default, and variable energy costs. In 

the North, concerns focused on catastrophic disease and the implementation of federal regulatory 

programs, increasing the cost of operations. While a substantial majority (approximately 70 

percent) of attendees expressed concern related to diseases, there were views by many growers 

that this risk could be controlled by proper bio-security. A smaller majority (approximately 60 

percent) of growers noted increased costs (primarily energy) and longer layout periods were the 

biggest risk concerns the typical grower faces. Notably, a substantial number of growers 

(approximately 40 percent) discussed the potential for severe weather (tornado and hurricanes) to 

destroy houses and facilities, but generally noted that private coverage was already available for 

these perils.

While AGR/AGR-Lite products may seem an attractive insurance option for poultry producers 

and growers, some expressed concerns that the requirements for insurance were burdensome. 

Although smaller layer operations are eligible for the adjusted gross revenue products in some 

states, many poultry operations are not eligible as a result of their limited crop diversification 

(for AGR), size, or location. For the smaller operations, limited diversification of production 

reduces the maximum amounts of insurance and coverage levels available to producers. By 

RMA standards, poultry growers and producers would be interested primarily in high coverage 

levels (higher than available under AGR and AGR-Lite) and low premiums. Finally, RMA has 

made internal determinations income from grow-out operations is not eligible under the adjusted 

gross revenue programs because of issues related to insurable interest. Many of the growers‘ 

concerns seem to emanate from uncertainty regarding their contractual partners, the effects of 

integrator actions on their annual income, and a general sense of vulnerability because of the 

nature of the contractual relationships. Marketing vulnerability is not an insurable cause of loss 

under any federal crop insurance program, and should not be.

From RMA‘s perspective, there are the fundamental questions regarding a grower‘s insurable 

interest, and the non-trivial questions regarding identification, measurement, and tracking of a 

livestock ―crop.‖ Moreover, the proprietary and closely guarded nature of production data 

makes the prospect for development of meaningful premium rates highly questionable. In light 

of the many issues identified in this study, including the failure of the poultry industry to meet 

many of the criteria of feasibility, the Contractor has determined it is not currently feasible to 

develop production insurance for the livestock industry. Inasmuch as there has been a 

substantial change (in 2009) in federal policy regarding poultry industry contract secrecy, it is 

possible sufficient farm-level data to develop such insurance will become available over time. 

Consequently, the Contractor suggests RMA consider revisiting this issue in 2015.
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Appendix A

Grower Contract Transparency
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Rules and Regulations Federal Register

63271

Vol. 74, No. 231

Thursday, December 3, 2009

This section of the FEDERAL REGISTER contains regulatory documents having general 

applicability and legal effect, most of which are keyed to and codified in the Code of Federal 

Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. Prices of new 

books are listed in the first FEDERAL REGISTER issue of each week. 

DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and Stockyards Administration

9 CFR Part 201

RIN 0580–AA98

Poultry Contracts; Initiation, Performance, and Termination

AGENCY: Grain Inspection, Packers and Stockyards Administration, USDA.

ACTION: Final rule. 

SUMMARY: The Department of Agriculture‘s Grain Inspection, Packers and Stockyards 

Administration (GIPSA) is amending the regulations issued under the Packers and Stockyards 

P&S Act, 1921, as amended, (7 U.S.C. 181 et seq.) (P&S Act) regarding the records that live 

poultry dealers must furnish poultry growers, including requirements for the timing and contents 

of poultry growing arrangements.

The amendments to the regulations will require that live poultry dealers timely deliver a copy of 

an offered poultry growing arrangement to growers; include information about any Performance 

Improvement Plans (PIP) in poultry growing arrangements; include provisions for written 

termination notices in poultry growing arrangements; and notwithstanding a confidentiality 

provision, allow growers to discuss the terms of poultry growing arrangements with designated 

individuals.

DATES: Effective Date: January 4, 2010.

FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Director, Policy and 

Litigation Division, P&SP, GIPSA, 1400 Independence Ave., SW., Washington, DC 20250, 

(202) 720–7363, s.brett.offutt@usda.gov.

SUPPLEMENTARY INFORMATION: As the Grain Inspection, Packers and Stockyards 

Administration (GIPSA), one of our functions is the enforcement of the Packers and Stockyards

Act of 1921, as amended. Under authority granted to us by the Secretary of Agriculture 

(Secretary), we are authorized (7 U.S.C. 228) to make those regulations necessary to carry out 

the provisions of the P&S Act. Section 201.100 of the regulations (9 CFR 201.100) specifies the 
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terms of the poultry growing arrangement that must be disclosed to poultry growers by poultry 

companies. 

We believe that the failure to disclose certain terms in a poultry growing arrangement constitutes 

an unfair, discriminatory, or deceptive practice in violation of section 202 (7 U.S.C. 192) of the 

P&S Act.

It is common knowledge in the industry that because of vertical integration and high 

concentration, live poultry dealers normally present poultry growers with poultry growing

arrangements on a  ̳ ̳take it or leave it‘‘ basis. The poultry growers do not realistically have the 

option of negotiating more favorable poultry growing arrangement terms with another live 

poultry dealer because there may be no other live poultry dealers in the poultry grower‘s 

immediate geographic area or there may be significant differences in equipment requirements 

among live poultry dealers. There is considerable asymmetry of information and an imbalance in 

market power. Growers sometimes do not know or understand the full content of their own 

poultry growing arrangement with the poultry companies and are constrained by confidentiality 

clauses from discussing their poultry growing arrangement with business advisers. This final rule 

ensures that all poultry growers are fully informed and can make sound business decisions prior 

to entering into a poultry growing arrangement with a live poultry dealer. In addition, growers 

often have much of their net worth invested in poultry houses, which have limited value for 

purposes other than raising and caring for poultry. At the same time, live poultry dealers may 

have a staff of accountants, economists, attorneys and other business advisors whose job is to 

perform market research and advise the live poultry dealers‘ management on how poultry 

growing arrangements with poultry growers should be structured to protect the live poultry 

dealers‘ financial interests. Growers who have invested heavily in poultry houses may face the 

choice of signing a poultry growing arrangements in which disclosure of terms is incomplete 

and/ or not provided in a timely fashion or facing financial difficulties, including possibly exiting 

the poultry growing business or going bankrupt. In some cases, live poultry dealers already 

provide complete information in a timely fashion. This final rule, however, will level the playing 

field by requiring that all live poultry dealers adopt fair and transparent practices when dealing 

with poultry growers.

The failure of a live poultry dealer to deliver a written poultry growing arrangement in a timely 

manner is considered by GIPSA to be an unfair and deceptive practice because growers could 

not otherwise know what the poultry growing arrangement terms will be or whether the terms 

accurately reflect the agreement reached between the parties. This practice could also be 

considered discriminatory if some growers receive written poultry growing arrangements in a 

timely fashion and others do not. A live poultry dealer‘s failure to include written notice of 

termination procedures in the poultry growing arrangement and failure to provide a written 

notice of termination is also considered unfair, discriminatory and deceptive for the same 

reasons.

A live poultry dealer‘s failure to include information about Performance Improvement Plans 

(PIPs) is similarly unfair and discriminatory if some growers receive this information and others 

do not, and deceptive if growers are unaware that such a program exists until they fail to meet a 

minimum performance threshold that was not specified in their poultry growing arrangement.
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GIPSA considers prohibiting growers from discussing poultry growing arrangement terms with 

business advisers unfair because growers are not typically attorneys or accountants. Depriving 

growers of professional advice before they commit to a poultry growing arrangement, 

particularly when the live poultry dealers have access to such advice in drafting their poultry 

growing arrangements 

Current Poultry Contracting Practices

The market for poultry is vertically integrated and highly concentrated. For example, USDA–

GIPSA reported in slaughterers represented 53 percent of the total market share based on 

volume of production.1 A majority of the nation‘s 20,637 poultry growers essentially receive 

poultry growing arrangements on a  ̳ ̳take it or leave it‘‘ basis from a small number of live 

poultry dealers.2 While this concentration of live poultry dealers represents certain economies of 

scale, it also represents a potential for asymmetrical information and a lack of transparency that 

can lead to market inefficiencies.

Live poultry dealers accept much of the short term financial risk. Poultry growers take the longer 

term financial risk by investing in the poultry houses and equipment. Live poultry dealers often 

use a tournament or bonus compensation system in which poultry growers compete with each 

other over a given period of time. Growers, who in the opinion of the live poultry dealer 

consistently underperform, may be placed on a PIP, have their current poultry growing 

arrangement terminated, or not be offered a new poultry growing arrangement or have their 

existing poultry growing arrangement extended.

The current contracting process may involve verbal agreements that are made prior to delivery of 

a written poultry growing arrangement. The process by which new poultry growers are recruited 

can be informal word-ofmouth, although some poultry companies solicit new growers via their 

Web site. Prospective poultry growers must have a line of credit sufficient to finance the 

construction of poultry houses in order to be a successful applicant. A live poultry dealer 

typically inspects a prospective grower‘s property to verify that the grower has sufficient space 

and suitable soil conditions on which to place the houses, has right of way capable of supporting 

truck traffic, and has means to dispose of dead birds and bird waste. The discussion between a 

live poultry dealer and prospective poultry growers to verify these conditions often involves 

verbal commitments, and therefore growers may not have a comprehensive grasp of all their 

rights and obligations. Likewise, growers with existing poultry growing arrangements may make 

similar verbal commitments for poultry house improvements to the live poultry dealer. Currently, 

a poultry grower may receive specifications for the poultry houses from a live poultry dealer and 

use those specifications to obtain a construction loan from a lender prior to receiving a written 

poultry growing arrangement from the poultry company. While most new growers typically 

receive written poultry growing arrangements at about the same time they receive the 

specifications for the poultry houses, some live poultry dealers do not provide growers with 

written poultry growing arrangements until after construction of the poultry houses has already 

started.

The regulations issued under the P&S Act currently protect poultry growers by requiring that the 

poultry growing arrangement include, for example, the per unit charges for feed and other inputs 
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furnished by each party, the duration of the poultry growing arrangement and conditions for its 

termination, and the factors to be used when grouping or ranking poultry growers.

The requirements contained in this final rule are intended to help both poultry growers and live 

poultry dealers by providing the growers with more information about the poultry growing 

arrangement at an earlier stage. This final rule will  ̳ ̳level the playing field‘‘ by requiring live 

poultry dealers to include these provisions in all poultry growing arrangements. Growers will 

have more information upon which to decide whether to accept the terms of the poultry growing 

arrangement. Growers will benefit from a freer flow of information and better pricing 

efficiencies because they are able to discuss the terms of their poultry growing arrangement with 

business and financial professionals before committing to building or upgrading poultry houses. 

With these requirements, poultry growers will be informed of the criteria used to place them on a 

PIP. Live poultry dealers will benefit from having growers who better understand the obligations 

of their poultry growing arrangement and benefit further by having more specific contract 

language to resolve performance issues and the termination of their poultry growing 

arrangements.

Notice of Proposed Rulemaking

GIPSA published a Notice of Proposed Rulemaking in the Federal Register on August 1, 2007, 

(72 FR 41952) seeking comments on amending the regulations issued under the P&S Act to 

require that poultry companies timely deliver a copy of an offered poultry growing arrangement 

to growers; to include information about any PIPs in poultry growing arrangements; to include 

provisions for written termination notices in poultry growing arrangements; and notwithstanding 

a confidentiality provision, allow growers to discuss the terms of poultry growing arrangements 

with designated individuals. The comment period ended on October 30, 2007, and we received 

449 comments on the proposed rule. Based on these comments, GIPSA will modify three of the 

four amendments proposed.

Discussion of Comments

We received 237 postcards containing identical comments from poultry growers. While all of 

these commenters supported adoption of the four amendments in the proposed rule, six

commenters added wording of their own in the margins of the postcards. Three of the six written 

comments referenced housing specification requirements and two commenters suggested that we 

extend the duration of poultry growing arrangements for longer periods than typically stated in 

existing poultry growing arrangements. Because these issues are not raised in the four 

amendments in our proposal, we are making no change to the final rule based on these five 

comments.

We received 92 letters containing identically worded comments from individuals identifying 

themselves as  ̳ ̳taxpayer(s).‘‘ All comments were in support of the proposed rule, and made no 

suggestions for modifying the proposal.

We received 82 identical comments advocating:

o Expanding the phrase  ̳ ̳business advisor‘‘ as used in the proposed rule, to include 

appraisers, realtors or other growers for the same company,
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o Adding a provision prohibiting live poultry dealers from adding riders to poultry growing 

arrangements or otherwise changing the terms of poultry growing arrangements after the 

grower  ̳ ̳sees the first [poultry growing arrangement],‘‘

o Prohibiting the placing of growers on PIPs for factors beyond their control,

o Requiring poultry growing arrangements to include information regarding the financial 

consequences of placement on PIPs, and

o Requiring that live poultry dealers give poultry growers at least 180 days written notice 

of termination. We received 38 additional comments from individuals and trade 

associations which varied in their response to our proposed amendments. These 120 

additional comments are discussed below.

As stated above, commenters advocated expanding the phrase  ̳ ̳business advisor‘‘ as used in 

proposed § 201.100(b) to include appraisers, realtors, or other growers for the same live poultry 

dealer. We are not in favor of adding appraisers and realtors to the list of those with whom 

growers may discuss their poultry growing arrangements. We believe that appraisers and realtors 

should not look to a current grower‘s poultry growing arrangement for guidance on property 

values.

We see no benefit for a live poultry dealer to forbid its growers from discussing the terms of their 

poultry growing arrangements with each other. To do so would impede the growers‘ ability to 

determine whether they have been treated unfairly or discriminated against in violation of the 

P&S Act. We will therefore include poultry growers who have entered into poultry growing 

arrangements with the same live poultry dealer in the final rule based on the comment received.

One commenter suggested that we add family members, banks and anyone on a need-to-know 

basis to the list of  ̳ ̳business advisors‘‘ in proposed § 201.100(b). Another suggested that we 

allow growers to discuss their contracts with attorneys and farmer organizations. Section 10503 

of the Farm Security and Investment Act of 2002 (7 U.S.C. 229b) clearly sets forth that a party to 

the poultry growing arrangement shall not be prohibited from discussing any terms or details of 

the poultry growing arrangement with: (1) A Federal or State agency; (2) a legal advisor to the 

party; (3) a lender to the party; (4) an accountant hired by the party; (5) an executive or manager 

of the party; (6) a landlord of the party; or (7) a member of the immediate family of the party. 

We believe that, with the exception of farmer organizations and poultry growers who have 

entered into poultry growing arrangements with the same live poultry dealer, the groups 

enumerated in the proposed regulation encompass those named by the commenters. While we are 

not including farmer organizations in the final rule, we are adding poultry growers who have 

entered into poultry growing arrangements with the same live poultry dealer. The remaining 

individuals and groups named in the regulation reflect those named in the statute. We consider 

 ̳ ̳Immediate family‘‘ to means an individual‘s father, mother, stepfather, stepmother, brother, 

sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, 

granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughterin-law, the spouse of the foregoing, and the individual‘s spouse in accordance with the definition 

under the Federal crop insurance program, administered by USDA‘s Farm Service Agency.

Commenters suggested that we add a provision to proposed § 201.100(a) to prohibit live poultry 

dealers from adding riders to poultry growing arrangements or otherwise changing the terms of 
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poultry growing arrangements after the grower  ̳ ̳sees the first one.‘‘ We believe that the 

switching of poultry growing arrangements after the grower  ̳ ̳sees the first one‘‘ is not a 

common problem in the poultry industry. The final rule, however, will require that live poultry 

dealers give growers a  ̳ ̳true written copy‘‘ of the offered poultry growing arrangement. Some 

poultry growing arrangements are flock-to-flock agreements. A true written copy of a poultry 

growing arrangement must cover the production of at least one flock. If a live poultry dealer 

makes changes to the original poultry growing arrangement, or substitutes a new poultry growing 

arrangement for the  ̳ ̳true written copy‘‘ that was provided at the same time as the house 

specifications, but prior to picking up a new grower‘s first flock, there is a basis for questioning 

whether the original poultry growing arrangement is the  ̳ ̳true written copy‘‘ of the parties‘ 

agreement. Based on the above analysis of these comments, we believe that no change to the 

final rule is necessary.

A comment received from a poultry grower organization requested that we require a live poultry 

dealer to disclose fully the existence (or the lack thereof) of the company‘s PIP program in its 

poultry growing arrangements. A comment filed by another suggested that all original poultry 

growing arrangements disclose fully a live poultry dealer‘s PIP information. The commenter 

stated that a live poultry dealer should not be able to add riders containing PIP clauses to existing 

poultry growing arrangements. We have reviewed our proposal and agree with the comments. 

We will therefore modify § 201.100(c) in the final rule to require that a live poultry dealer 

specifically disclose in all future poultry growing arrangements whether it has a PIP program in 

existence and the guidelines for the program.

Commenters advocated prohibiting live poultry dealers from placing growers on PIPs for factors 

beyond their control. We acknowledge that all growers run the risk of having a flock perform 

poorly for reasons they may not control. We have found that placement on a PIP, however, 

generally does not occur unless a grower performs poorly over an extended period of time. If a 

poultry grower believes a live poultry dealer systematically has manipulated inputs to the 

grower‘s disadvantage, GIPSA can investigate the grower‘s complaint. However, prohibiting 

live poultry dealers from placing growers on PIPs because of factors beyond the control of 

growers is vague and could result in both growers and live poultry dealers being uncertain of 

when PIPs are justified, and are so subjective that GIPSA might be asked to investigate every 

PIP placement made. Moreover, it is impractical for us to attempt to list every possible factor not 

under the control of growers that could negatively affect performance. We are therefore making 

no change to § 201.100(c) in the final rule based on these comments.

Comments received recommended that we require that live poultry dealers state in their poultry 

growing arrangements the financial impact poultry growers would face if placed on a PIP. We 

have found that live poultry dealers often place smaller flocks on the farms of poultry growers on 

PIPs. This may allow these growers to manage a flock more easily and efficiently. Poultry 

growers on PIPs may experience other adjustments to normal practices intended to help them 

prepare fully for raising and caring for poultry. These changes, while helping to improve 

performance, may reduce payouts to PIP growers. We believe that poultry growers need to know 

what changes to normal practices will occur when placed on a PIP so they may better judge how 

placement on a PIP will affect them.
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One association commented that advanced notice of termination would be especially problematic 

and impractical to implement for growers on PIPs. In most cases, they said, the decision to 

terminate a grower could not be made until the last flock had been picked up, processed and the 

results analyzed. This rule would allow the live poultry dealer to follow through on the PIP, 

including picking up and processing the flock before making a decision regarding whether the 

grower met the conditions of the PIP. If the grower did not meet the conditions of the PIP, the 

live poultry dealer would then provide notice of termination. The notification that the grower did 

not meet the PIP and the termination notice would be sent at the same time. Allowing a live 

poultry dealer to provide written termination notices to a grower on a PIP after picking up the 

last flock would not allow the PIP grower sufficient time to establish business relationships with 

other live poultry dealers. GIPSA believes poultry growers on PIPs should receive advance 

written notice of termination in the same manner prescribed for poultry growers not on PIPs. 

Therefore, GIPSA will make no change to the final rule based on the above comment.

Commenters requested that we modify our proposal to require that poultry growers receive 

written notice of termination at least 180 days in advance of the date the termination would be 

effective. The majority of the comments submitted recommended that poultry growers receive a 

minimum of 180 days written termination notice. Another commenter wrote that he/she typically 

receives only 10 days notice of termination, but the commenter did not specifically suggest what 

the minimum number of days should be. The minimum number of days of advance written notice 

of termination recommended by other commenters ranged from 30 days to 2 years. Lastly, one 

commenter recommended that we prohibit the termination of poultry growing arrangements for 

growers with federally guaranteed loans.

Most poultry growing arrangements contain clauses that state that the live poultry dealer will 

provide written notice of termination to growers. We have found in most cases that these clauses 

provide a minimum number of days advance notice of termination that a grower will receive 

under the poultry growing arrangement. The minimum number of days varies from 3 to 30 days 

prior to picking up the final flock, or prior to the anticipated delivery date for the next flock.

The majority of comments to the notice of proposed rulemaking indicate 30 days advance notice 

of termination is insufficient to allow poultry grower‘s time to make other business 

arrangements. The majority of the commenters recommended that we change the time period for 

requiring advance written notice of termination from 30 days to 180 days. On review, we agree 

that 30 days is not sufficient enough time to provide an opportunity for a live poultry dealer or 

grower to make business adjustments. However, we believe that 180 days is too long and may be 

a burden on the party that intends to terminate the agreement. In reviewing the concerns raised 

by the comments that advocated the 180 day period, we believe that 90 days advance written 

notice of termination should be adequate in order to give the affected parties time to make 

adjustments in their business operations. This is especially important given the long-term 

financial risks that an affected party may face. This change will provide the grower with more 

time to work with the live poultry dealer to improve his/her performance, obtain legal and/or 

financial advice or guidance, obtain a new contract with a new live poultry dealer, and/or sell 

his/her poultry growing business. We are therefore changing § 201.100(h) in the final rule based 

on the comments discussed above to require that written termination notices be provided by one 
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party to the other at least 90 days prior to the effective date of termination of the poultry growing 

arrangement.

Many commenters suggested that we expand the requirements for written termination notices to 

include situations in which a live poultry dealer discontinues an existing poultry growing 

arrangement, or elects not to renew or replace an expiring poultry growing arrangement. The 

commenters said that the requirement for written termination notices should encompass all 

situations where one party ends the poultry growing relationship. In our reviews of agreements, 

we have found that poultry growing arrangements have a set duration, such as 1-year or flock-toflock. We believe that our proposed amendment works well in situations where one party 

chooses to end the poultry growing arrangement before the termination date noted in the 

arrangement. A live poultry dealer could also end its relationship with a grower by simply 

allowing a poultry growing arrangement to expire without renewal or offer of replacement. A 

live poultry dealer may also discontinue the use of an established poultry growing arrangement 

and offer a different agreement in its place—one that the poultry grower may or may not accept. 

Requiring written notice of termination in all situations where one party elects to end the poultry 

growing relationship would ensure that a grower is informed when termination is imminent no 

matter what manner or reason is used for termination. Under these circumstances, we will 

modify § 201.100(h) in the final rule to require written notice of termination in instances of a 

poultry growing arrangement‘s termination, expiration, non-renewal and non-replacement. 

Many commenters recommended that we remove language referencing  ̳ ̳pen and paper‘‘ in 

proposed § 201.100(h). The commenters believe that the reference to  ̳ ̳pen and paper‘‘ is 

confusing and that the term  ̳ ̳written‘‘ is sufficient. We agree with the commenters that the 

phrase could be confusing and will modify the amendment in the final rule to delete the phrase 

 ̳ ̳pen and paper.‘‘ 

Commenters also urged GIPSA to require that the delivery of written termination notices be 

made by certified mail, return receipt requested. The commenters argued that e-mail terminations 

were not acceptable because verifying that an e-mail was sent and received is difficult. 

Our proposal requires that live poultry dealers  ̳ ̳provide‘‘ poultry growers with written 

termination and does not favor one mode of delivery over another. We believe that any mode of 

delivery, whether it is by regular mail, certified mail, registered mail, overnight mail, e-mail, 

facsimile, or personal service is acceptable as long as notice is  ̳ ̳provided.‘‘ Proof that written 

notice was  ̳ ̳provided‘‘ is the responsibility of the live poultry dealer. GIPSA‘s past poultry 

investigations reveal that most live poultry dealers send written termination notices by verified 

delivery means. We believe that live poultry dealers should not be restricted to a specific mode 

of delivery of a notice of termination. Therefore, we are making no change to the final rule based 

on the above comments. 

One comment suggested that growers should receive less than 30 days written advance notice of 

termination. That commenter was concerned that once a live poultry dealer gave notice of the 

termination of a poultry growing arrangement for cause, the grower would neglect the flocks in 

its possession. Poultry growing arrangements contain clauses allowing live poultry dealers to 

enter upon the property of poultry growers in order to raise and care for flocks that the live 
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poultry dealer believes may not be receiving adequate care. Once written termination notice is 

provided to the poultry grower, if the live poultry dealer believes the poultry grower is not 

providing sufficient care, the live poultry dealer can exercise its right to raise and care for the 

flock. We will therefore not modify § 201.100(h) in the final rule to permit a shorter period for 

advance notice of termination as suggested.

According to one commenter, growers should have 14 days to accept or reject a new or the 

renewal of an existing poultry growing arrangement. We believe that a 14-day rejection period is 

unnecessary provided that the grower receives a true written copy of the offered poultry growing 

arrangement from the live poultry dealer at the time that the grower receives the poultry house 

specifications for the offered poultry growing arrangement. This should give the grower 

sufficient time to read the poultry growing arrangement, consult with advisors, and decide 

whether to sign the poultry growing arrangement before committing to loans. Therefore, we are 

making no change to the final rule based on the comment.

The commenter agreed with the proposed rule for timely delivery of poultry growing 

arrangements to growers presented in the August 1, 2007 notice. The commenter, however, 

suggested in this same section that we also require that subsequent changes to poultry growing 

arrangements, whether in oral or written form, be incorporated into a new true written complete 

copy and presented as a new offer of a poultry growing arrangement, not as a unilateral change 

to the existing poultry growing arrangement. Because this suggestion is outside the scope of our 

proposal for the timely delivery of poultry growing arrangements to growers, we are making no 

change to the final rule based on the comment.

One commenter recommended that we require that live poultry dealers provide growers with a 

letter of intent or written approval of a grower in addition to the poultry growing arrangement. 

Another commenter recommended that we also require delivery of letters of intent or written 

grower approvals at the same time the live poultry dealer provides the poultry house 

specifications. While a letter of intent is a written record of a live poultry dealer‘s intention to 

sign or enter into a poultry growing arrangement with a grower, we believe that the poultry 

growing arrangement would contain the substantive information that a grower would need in 

order to decide if he/she will grow poultry for a live poultry dealer. Also, linking the delivery of 

poultry growing arrangements with receiving a letter of intent would not necessarily guarantee 

that the prospective grower would receive his/her poultry growing arrangement before 

committing to a construction loan for poultry houses. We believe that the delivery of a poultry 

growing arrangement should instead be linked to the receipt of the poultry house specifications 

so that a grower is assured of his/her contractual relationship with the live poultry dealer prior to 

financing a construction loan. We are therefore making no changes to § 201.100(c) in the final 

rule based on these comments.

One comment argued that it is not necessary to require that live poultry dealers deliver poultry 

growing arrangements at the time written house specifications are delivered. The commenter said 

that provisions for delivery are normally addressed in poultry growing arrangements between 

live poultry dealers and growers. Since we have received numerous complaints regarding the 

slow delivery of poultry growing arrangements, we continue to believe that our proposed 
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amendment regarding the timing of the delivery of poultry growing arrangements is needed. We 

are therefore making no change to the final rule based on that comment.

One organization said that we should require that live poultry dealers give growers information 

about the feed and medications supplied to them. They also wanted growers on PIPs to have the 

right to reject flocks. One individual argued that live poultry dealers should be required to let 

growers see the hatchery and mortality records of other growers in their settlement groups so 

they could judge the fairness of the performance rankings. We are not requiring that live poultry 

dealers provide information on feed, medications, hatchery origins or mortality rates of poultry 

growers by other growers. If a poultry grower believes a live poultry dealer has systematically 

manipulated inputs to the grower‘s disadvantage, the grower may choose to report their 

complaint to GIPSA for investigation. Furthermore, these issues go beyond the scope of the 

subject matter of the proposed rule. We are therefore making no change to the final rule based on 

this comment.

Finally, the amendments in the proposed rule for  ̳ ̳Written Termination Notice; furnishing, 

contents‘‘ listed three items that termination notices must contain. In addition, the phrase,  ̳ ̳In 

the case of termination * * *.‘‘ was inadvertently included in the proposed regulatory text and 

will be removed from § 201.100(h) in the final rule. The authority citation in the proposed rule 

has also been revised in the final rule to reference the entire P&S Act (7 U.S.C. 181–229c) as the 

authorizing statute. The authority citation has been further revised in the final rule to delete 

references to 7 CFR 2.22 and 2.81, which refer to the delegation of authority of the Secretary of 

Agriculture to administer the P&S Act to the Under Secretary for Marketing and Regulatory 

Programs, and to further delegate that authority to the Administrator of GIPSA, respectively. For 

clarity and consistency with the statutory definition of a poultry growing arrangement, we are 

also replacing the term  ̳ ̳contract‘‘ with the term  ̳ ̳poultry growing arrangement‘‘ everywhere 

the word  ̳ ̳contract‘‘ appears throughout the final rule. In addition, proposed new paragraph (h) 

has been revised in the final rule into (h), (h)(1), (h)(1)(i), (h)(1)(ii), (h)(1)(iii), and (h)(2) in 

order to make the regulatory text clearer.

Executive Order 12866 and Regulatory Flexibility Act

This final rule has been determined to be significant for the purposes of Executive Order 12866, 

and therefore, has been reviewed by the Office of Management and Budget.

We have prepared an economic analysis for this final rule. The economic analysis provides a cost 

benefit analysis, as required by Executive Order 12866. The provision in this final rule addresses 

the records that live poultry dealers must furnish poultry growers, including the requirements for 

the timing and contents of poultry growing arrangements. Vertical integration and high 

concentration in the poultry industry cause considerable asymmetry of information, lack of 

transparency, and an imbalance in market power. The asymmetry of information at the time of 

contract negotiation, and the initial fixed investments poultry growers must pay to enter into the 

poultry growing business, make the typical grower vulnerable to hold-up costs.3 Hold-up costs 

arise in poultry production because of the relatively high fixed costs incurred by poultry growers 

for poultry houses that have no value outside of poultry production.4 For example, without full 

and timely information, the poultry grower may not be able to negotiate compensation rates that 

effectively cover all costs, including annualized depreciation on its fixed investment. An 
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incentive exists for the live poultry dealer to compensate the grower at a rate that covers all but a 

portion of the grower‘s annualized depreciation cost.5 The poultry grower has no recourse after 

signing a contract with a live poultry dealer but is responsible for a large investment. The poultry 

grower cannot likely sell the investment and leave the business because a poultry house has no 

value outside the poultry business. If the poultry grower chooses to stay in business, however, 

the grower may learn too late that its earnings will not cover as much of the costs as originally 

expected.

Poultry growers have few options for negotiating more favorable contract terms among live 

poultry dealers because of geographic distance or equipment requirements. Growers often have 

much of their net worth invested in poultry houses, which have limited value for purposes other 

than raising and caring for poultry. And, without full and timely information, growers sometimes 

do not know or understand the full content of their own poultry growing arrangements with the 

live poultry dealers and are constrained by confidentiality clauses from discussing their terms 

with business advisers. These factors combined lead to market failures that cannot be resolved 

through private treaty negotiation to achieve an efficient market solution.6 GIPSA believes that § 

201.100(b) of this final rule will free poultry growers from these constraints by allowing them to 

discuss the terms of their poultry growing arrangements with business and financial advisors. By 

fostering the flow of business and financial information to growers, this final rule will lead to 

greater pricing efficiencies in the poultry industry.

GIPSA has considered and collected input on potential alternative and believes that no viable 

alternatives to this final rule exist. This final rule imposes on live poultry dealers primarily office 

costs (e.g. revising poultry growing arrangements). GIPSA believes that these costs will be 

significantly less than the benefits that will be achieved from a reduction in general market 

inefficiencies.

Copies of the analysis are available by contacting the person listed under FOR FURTHER 

INFORMATION CONTACT or on the Regulations.gov Web site (see ADDRESSES above for 

instructions for accessing Regulations.gov).

The Small Business Administration (SBA) defines small businesses by its North American 

Industry Classification System Codes (NAICS).7 The affected entities and size threshold under 

this final rule are defined by the SBA under NAICS codes, 112320 and 112330, broiler and 

turkey producers, respectively, if sales are less than $750,000 per year. Live poultry dealers, 

NAICS code 31165, are considered small businesses if they have fewer than 500 employees.

GIPSA maintains data on live poultry dealers from the annual reports that these firms file with 

the agency. Currently, there are 140 live poultry dealers (all but 16 are also poultry slaughterers 

and would be considered poultry integrators) that will be subject to this final rule. According to 

U.S. Census data on County Business Patterns, there were 64 poultry slaughters firms that had 

more than 500 employees in 2006. The difference yields approximately 75 poultry 

slaughters/integrators with fewer than 500 employees and would be considered as small business 

that will be subject to this final rule.
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Another factor, however, which is important in determining the economic effect of the 

regulations, is the number of poultry growing arrangements held by a live poultry dealer. Poultry 

growers enter into a poultry growing arrangement with one live poultry dealer, whereas a live 

poultry dealer may have a number of poultry growing arrangements with many growers. While 

growers may have sophisticated growing facilities, many are independent family owned 

businesses that are focused on growing poultry to the specifications outlined in their poultry 

growing arrangements. Most live poultry dealers, however, are much larger integrated 

commercial entities that breed, hatch, slaughter and process poultry for the retail market. Given 

the business size differential between a poultry grower and a live poultry dealer and the regional 

monopsony power a live poultry dealer may have, the live poultry dealer has much more 

information to consider when establishing the terms of and entering into a poultry growing 

arrangement. The live poultry dealer is much more likely to have a staff of financial and business 

advisors on which to rely. By contrast, the poultry grower operating under an existing poultry 

growing arrangement may not be allowed to share the terms of the poultry growing arrangement 

with its advisors.

GIPSA records for 2007 indicated that there were 20,637 poultry growing arrangements of which 

13,216, or 64 percent, were held by the largest 6 live poultry dealers, and 95 percent (19,605) 

were held by the largest 21 live poultry dealers. These 21 live poultry dealers are all in SBA‘s 

large business category, whereas the 19,605 poultry growers holding the other side of the poultry 

growing arrangement are all small businesses by SBA‘s definitions. The situation in general for 

the nation‘s poultry growers operating under poultry growing arrangements is that the growers 

are almost all small businesses with a poultry growing arrangement held by one of the very large 

live poultry dealers. To illustrate the magnitude in size differences between the growers and the 

live poultry dealer, using grower gross sales revenue of $750,000 per year and the average gross 

sales revenue of three of these very large live poultry dealers, yields a ratio of roughly 1:23,000. 

We believe that providing poultry growers with the ability to discuss the terms of their poultry 

growing arrangements with business and financial advisors will enable the growers to make 

more informed decisions as they negotiate the terms of their poultry growing arrangements with 

the live poultry dealer. This final rule will help to level the playing field for poultry growers by 

providing them with access to financial and business information and advice that is accessible to 

live poultry dealers, and therefore will help to balance market asymmetric inequities. Although 

the costs and benefits are largely intangible, GIPSA believes that the costs to both poultry 

growers and live poultry dealers firms will be essentially negligible. This final rule does not 

impose significant additional requirements on the actions firms must enact; merely the timeliness 

of those actions. While this final rule requires that poultry growers and live poultry dealers 

commit in writing to terms and conditions that are already in effect, it does not mandate what 

those terms and conditions must be. Thus, the only additional cost is simply the cost of 

producing and transmitting the printed document. GIPSA did not receive any comments from 

live poultry dealers or others that suggested that there would be any significant costs of 

implementing the provisions in this final rule.

Collectively, the provisions in this final rule mitigate potential asymmetries of information 

between poultry growers and live poultry dealers, which lead to better decisions on the terms of 

compensation and reduce the potential for expressions of anti-competitive market power. The 

provisions in this final rule achieve this primarily through improved quality and timeliness of 
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information to poultry growers, and to some extent to live poultry dealers as well. Benefits will 

accrue to growers from an improved basis for making the decision about whether to enter into a 

poultry growing arrangement, and from additional time available to plan for any adjustments in 

instances when the grower is subject to termination of a poultry growing arrangement. GIPSA 

also believes that live poultry dealers will also benefit from this final rule because all live poultry 

dealers will be required to provide poultry growers the same information in a full and timely 

manner. Disclosure of this information between the live poultry dealer and the poultry grower 

will lead to greater transparency in the poultry industry and promote fairer competition among 

live poultry dealers. In addition, GIPSA believes that net social welfare will benefit from 

improved accuracy in the value (pricing) decisions involved in transactions between poultry 

growers and live poultry dealers as they negotiate poultry growing arrangements.

Based on the discussion in the analysis above, GIPSA therefore has determined that the effect on 

all small businesses will not have a significant economic impact on a substantial number of small 

business entities as defined in the Regulatory Flexibility Act

(5 U.S.C. 601 et seq.).

Executive Order 12988

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. These 

actions are not intended to have retroactive effect. This final rule will not pre-empt state or local 

laws, regulations, or policies, unless they present an irreconcilable conflict. There are no 

administrative procedures that must be exhausted prior to any judicial challenge to the provisions 

of this final rule.

Paperwork Reduction Act

This final rule does not contain new or amended information collection requirements subject to 

the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). It does not involve collection of 

new or additional information by the federal government.

Government Paperwork Elimination Act Compliance

We are committed to compliance with the Government Paperwork Elimination Act, which 

requires Government agencies provide the public with the option of submitting information or 

transacting business electronically to the maximum extent possible.

List of Subjects in 9 CFR Part 201

Contracts, Poultry and poultry products, Trade practices.

For the reasons set forth in the preamble, we amend 9 CFR part 201 to read as follows:

PART 201—REGULATIONS UNDER THE PACKERS AND STOCKYARDS ACT

1. The authority citation for part 201 continues to read as follows:

Authority: 7 U.S.C. 181–229c.

2. Amend § 201.100 to redesignate paragraphs (a), (b), (c), (d), and (e) as (c), (d), (e), (f) and (g); 

add new paragraphs (a), (b), (c)(3), and (h); remove  ̳ ̳and‘‘ at the end of newly designated 

paragraph (c)(1), remove  ̳ ̳.‘‘ at the end of newly designated paragraph (c)(2)(v), add  ̳ ̳; and‘‘ at 

the end of newly designated paragraph (c)(2)(v), and revise the introductory text of newly 

designated paragraph (c) to read as follows:
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§ 201.100 Records to be furnished poultry growers and sellers.

(a) Poultry growing arrangement; timing of disclosure. As a live poultry dealer who offers a 

poultry growing arrangement to a poultry grower, you must provide the poultry grower 

with a true written copy of the offered poultry growing arrangement on the date you 

provide the poultry grower with poultry house specifications.

(b) Right to discuss the terms of poultry growing arrangement offer. As a live poultry dealer, 

notwithstanding any confidentiality provision in the poultry growing arrangement, you 

must allow poultry growers to discuss the terms of a poultry growing arrangement offer 

with:

(1) A Federal or State agency;

(2) The grower‘s financial advisor or lender;

(3) The grower‘s legal advisor;

(4) An accounting services representative hired by the grower;

(5) Other growers for the same live poultry dealer; or

(6) A member of the grower‘s immediate family or a business associate. A business 

associate is a person not employed by the grower, but with whom the grower has a 

valid business reason for consulting with when entering into or operating under a 

poultry growing arrangement.

(c) Contracts; contents. Each live poultry dealer that enters into a poultry growing 

arrangement with a poultry grower shall furnish the grower with a true written copy of 

the poultry growing arrangement, which shall clearly specify:

* * * * *

(3) Whether a performance improvement plan exists for that grower, and if so specify 

any performance improvement plan guidelines, including the following:

(i) The factors considered when placing a poultry grower on a performance 

improvement plan;

(ii) The guidance and support provided to a poultry grower while on a performance 

improvement plan; and

(iii)The factors considered to determine if and when a poultry grower is removed 

from the performance improvement plan and placed back in good standing, or 

when the poultry growing arrangement will be terminated.

* * * * *

(h) Written termination notice; furnishing, contents.

(1) A live poultry dealer that ends a poultry growing arrangement with a poultry grower 

due to a termination, non-renewal, or expiration and subsequent non-replacement of a 

poultry growing arrangement shall provide the poultry grower with a written 

termination notice at least 90 days prior to the termination of the poultry growing 

arrangement. Written notice issued to a poultry grower by a live poultry dealer 

regarding termination shall contain the following:

(i) The reason(s) for termination;

(ii) When the termination is effective; and

(iii)Appeal rights, if any, that a poultry grower may have with the live poultry dealer.
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(2) A live poultry dealer‘s poultry growing arrangement with a poultry grower shall also 

provide the poultry grower with the opportunity to terminate its poultry growing 

arrangement in writing at least 90 days prior to the termination of the poultry growing 

arrangement.

J. Dudley Butler,

Administrator, Grain Inspection, Packers and Stockyards Administration.

[FR Doc. E9–28947 Filed 12–2–09; 8:45 am]
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Appendix B

Listening Session Agenda
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B1

Agenda

Feasibility Research Report for Insuring Commercial Poultry Production

Introduction and Purpose

Research Overview

o Understanding Insurance

o USDA and RMA‘s Role in Crop Insurance

o Available Federal Insurance Programs

Sector Insurance Feasibility and Risk Profile

o Production Perils

o Market Perils

o Revenue Variability/Risk Tolerance

o Producer Contracts

Questions and Open Discussion
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Appendix C

NASS Poultry Methodology
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contained on this sheet is subject to the Contract No: N10PC18148

restrictions on the title page of this report.

C1

Reliability of Poultry Production and Value Estimates117

Survey Procedures: These estimates were based on inventory, disposition, production, and 

price estimates as published in various NASS poultry and agricultural prices reports, as well as 

information on imports, exports, and slaughter obtained from other sources. Individual NASS 

field offices maintain a list of all known poultry operations and use known sources to update 

their lists. Data are collected from all known broiler hatcheries and turkey grow-out operations. 

Also, data are collected from layer and egg contractors and independent producers who have at 

least 30,000 table egg layers, flocks of hatchery supply layers, or pullet only operations with at 

least 500 pullets. In every situation, operations are contacted as close to the reference date as 

possible and given adequate time to respond via mail, fax, or electronic data reporting (EDR). 

Those that do not respond are contacted by phone. Care is exercised to ensure that all operations 

of interest are accounted for in the estimates.

Estimation Procedures: Sound statistical methodology is employed to derive the estimates 

from reported data. All data are analyzed for unusual values. Data from each operation are 

compared to their own past operating profile and to trends from similar operations. Data for 

missing operations are estimated based on similar operations or historical data. NASS field 

offices prepare these estimates by using a combination of survey indications and historic trends. 

Individual State estimates are reviewed by the Agricultural Statistics Board for reasonableness.

Revision Policy: Revisions to previous estimates are made to improve estimates and are 

generally the result of late or corrected data. For all species, previous year estimates are subject 

to revision when the current year estimates are made. Five years of estimates are also reviewed 

after the Census of Agriculture data are available. Estimates are considered final after Census 

review and no revisions are made after the final estimates are published.

Reliability: Estimates in this report have no sampling error since they are based on a census of 

all known contractors and independent producers who have at least 30,000 table egg layers, 

flocks of hatchery supply layers, pullet only operations with at least 500 pullets, all known 

broiler hatcheries, and all known turkey grow-out operations. However, estimates are subject to 

errors such as omission, duplication, and mistakes in reporting, recording, and processing the 

data. While these errors cannot be measured directly, they are minimized through strict quality 

controls in the data collection process and a careful review of all reported data for consistency 

and reasonableness.

 

117 USDA, NASS, 2009, Poultry - Production and Value 2008 Summary, 

http://usda.mannlib.cornell.edu/usda/nass/PoulProdVa//2000s/2009/PoulProdVa-05-29-2009.pdf, accessed May, 2010.