Vertical integration refers to ownership across pricing points in a market channel. An example of vertical integration would be the ownership of hogs by processors from birth through processing and wholesaling. Vertical coordination between producers and processors takes several different forms. This provides better types of products demanded by consumers. The following discussion of the current structural states of the broiler, pork, and beef industries may help to contrast the differences in these industries and trends that will reshape the beef sector in the future.
Integrators are companies that own chickens literally from the egg to the final product.
Fully-integrated broiler complexes are designed to capture economies of size that exist in broiler and feed processing by coordinating all the production, processing, and marketing activities needed to raise the bird and bring a final product to the consumer. This coordinated process across pricing points has gained some important efficiencies for the broiler industry, and has given the broiler industry a clear cost advantage over the beef industry. Although the pork industry is considerably less integrated than the broiler industry, a steady increase for hogs under production contract have occurred since 1988. Improvements in genetics and better management practices have aided the hog industry in reducing feed conversion ratios and death losses. A key issue is which group, contractors or non-contractors, will win the battle of matching the genetic qualities of pigs with the desired market characteristics.