Not only has the market share for large firms increased, but the relationships between processors and producers have become closer. The movement toward a closer relationship between processors and input providers is linked, in part, to the cost structure of the meat processing industry. Meat processing is a decreasing cost industry, i.e., economies of size exist. This implies that the average costs of processing decline rapidly as the number of animals slaughtered increases. Vertical integration or coordination has been the primary method used by processors to increase efficiency in livestock marketing channels.
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.