A bird contract is a type of contract used in the poultry industry between poultry growers and poultry processors. It outlines the terms and conditions under which a poultry grower will raise chickens or other poultry for a processor.
In a bird contract, the poultry processor supplies the grower with chicks, feed, veterinary care, and technical advice. The grower provides the housing, labor, utilities, and other operational costs. Once the birds reach market weight, the processor picks them up for processing and marketing. The grower is paid according to how efficiently they raised the birds.
Bird contracts allow both parties to share the risks and rewards of poultry production. Processors get a steady supply of birds without owning expensive farm facilities. Growers get access to chicks, feed, and expertise without having to invest in hatcheries or formulate feed. When structured equitably, contracts can be a win-win.
History of Bird Contracts
Contract poultry production emerged in the 1950s as a way for processors to secure a steady supply of birds. It enabled the rapid expansion of poultry production by shifting capital costs to growers. By 1975, over 90% of U.S. broilers were grown under contracts.
Initially, contractors paid growers on a market price or cost-plus basis. But in the 1960s, they switched to a ‘tournament system’ that compared the performance of growers in cohorts. Today, most contracts pay growers on performance metrics like feed conversion, livability, and production costs.
Common Contract Terms
While the details can vary, most bird contracts specify:
- The quantity and timing of chick deliveries
- Feed quantity and formulation
- Veterinary supplies and services
- Technical advice and flock supervision
- Utility and fuel allowances
- Performance factors for payment calculation
- Rules for flock disposal and barn cleanout
- Terms for termination or renewal
The contract duration is often tied to the term of financing on a grower’s poultry houses. Many run 5-10 years with options for renewal.
Payment Structures
There are three main payment structures used in bird contracts:
Tournament System
Under a tournament system, growers are ranked based on metrics like feed conversion, livability, condemnations, and production cost. The base pay rate is adjusted up or down from the group average according to the grower’s ranking. This encourages growers to maximize efficiency.
Formula-Based
With formula-based contracts, growers are paid according to a pre-established formula based on inputs provided, cost of production, and performance metrics. The formula may include fixed and variable components.
Market-Based
In market-based contracts, growers receive a base payment per pound plus incentives based on market prices at processing time. This allows growers to share in market upside but also risk.
Pros and Cons for Growers
Potential advantages of bird contracts for growers include:
- Secured market access and predictable cash flow
- Access to expertise and technical support
- Reduced market risk exposure
- Potential for good returns with high performance
- Lower operating costs through bulk purchasing
Potential disadvantages include:
- Significant capital investment in housing
- Payment volatility in some contract types
- Lack of control over inputs and practices
- Inconsistent oversight and support from integrators
- Risk of contract non-renewal
- Limited transparency in pay calculators
Pros and Cons for Processors
Potential advantages for processors include:
- Outsourcing of capital costs and production risks
- Increased control over bird genetics and husbandry practices
- Ability to scale production rapidly
- More consistent and predictable bird supply
Potential disadvantages include:
- Increased coordination and management costs
- Quality variability between growers
- Grower turnover and contract terminations
- Reputational risks from grower relations
Key Contract Considerations
Growers evaluating a potential bird contract should consider:
- Payment rates and formula transparency
- Processor support and reputation
- Cash flow projections and risk management
- Biosecurity and mortality disposal terms
- Length of commitment and renewal options
- Penalties for early termination
- Investment cost payback period
Processors should evaluate factors like regional grower availability, turnover risks, projected market prices, and how increased scale may impact future processing costs before expanding contract production.
Oversight and Regulation
In the U.S., the Packers and Stockyards Act regulates contract poultry production to protect growers. However, there are still frequent concerns over transparency and power imbalances. The USDA Grain Inspection, Packers and Stockyards Administration (GIPSA) oversees the industry and handles complaints.
Some states have additional laws governing poultry contracts. Industry groups like the National Chicken Council also issue voluntary guidelines. Ensuring contracts are equitable remains an ongoing challenge.
Trends and Outlook
Contract production now accounts for over 90% of U.S. broiler output. The share is also growing in turkey and egg production. This system enables the vast scale and efficiencies of modern poultry production.
Major processors continue to push for more contractor-owned housing in newer facilities. They also want longer contracts to better control supply. Some growers are pushing back for shorter terms and stronger protections.
New contract structures like tournament-formula hybrids are emerging to balance risk sharing. Declining rural populations could also constrain future grower availability in some regions.
Conclusion
Bird contracts allow processors and growers to share risks, rewards, and investments in poultry production. When designed thoughtfully, they can provide a steady, profitable return for growers and a reliable supply of quality birds for processors. However, proper oversight and transparent structures are essential to prevent imbalances in power or compensation. Contracts must adapt to balance efficiencies with equity as the poultry industry continues evolving.