Vertical integration of agricultural production

Production in livestock agriculture occurs more and more within the framework of vertically integrated companies. These vertically integrated companies shift the decisions of what, where, and how to produce away from farmers and landowners and give the power to marketing entities. In vertical integration, a single firm controls administrative operation of two or more successive stages of production. In vertically integrated firms, management directives dictate the transfer of resources across stages of production and marketing. Vertical coordination, which refers to the synchronization of the successive stages of a production and marketing system (Martinez and Davis, 2002), is achieved through contracting.

Vertical integrators tend to be large grain brokers with established marketing links. They contract with independent growers or producers to farm the livestock. Contracts generally spell out the technology to be used by contract growers, the responsibilities of the growers in the use of that technology, and, often by default, the ownership of animal waste. The vertical integrators provide the feed, medicines, and livestock, the ownership of which they retain. The contractees provide the housing in which the animals are grown, water, and the production services.

Contract production is becoming more common as food processors and distributors seek to gain greater control over their products and ensure market outlets (Martinez, 2002). Contracts allow more information and control over factors related to quality attributes, such as the genetics of the livestock and the feed given to the animals.

Trends in agricultural management and land use 59 4.2 Trends within specific livestock categories

Dairy farms are becoming larger with continuing consolidation and concentration in specific locations (Lakshminarayan et al., 1994). Nearly 50% of dairy production occurred under contract in 1998. From 1950 to 1987, the number of farms reporting milk cows declined by roughly 94%, with the average number of cows per farm increasing from fewer than 6 to 50. Regional trends suggest a shift of dairy production from the Midwest and Northeast to the West and the southern regions of the United States to take advantage of more favorable climate that contributes to lower financial outlays. The high cost of transporting dairy waste to where it can be used in crop production partly explains the transformation of manure from a valued commodity as fertilizer to a waste with little or negative value (Manale and Narrod, 1994).

The swine industry has rapidly restructured over the past 15 years. From 1993 to 2001, contracts for total hogs sold increased from 10% to 72% (Martinez, 2001). Despite the roughly constant inventory of hogs, the number of farms or operations producing swine decreased from some 200 000 in 1994 to roughly 80 000 in 2001. Hogs on farms with more than 1000 head represented 71% of the swine population in 1997, 47% in 1992, and 37% in 1987. Farms with more than 2000 head accounted for 29% of hogs in 1992 compared with 55% in 1997. Operations with 5000 or more head accounted for half of all hogs in 2001 with an average of 16.7 hogs per 0.4 hectare (1 acre) of land (Martinez, 2001).

Operations have concentrated within certain regions, generally clustering around feed granaries or slaughterhouses to reduce transportation costs. In contrast to the traditional locus of swine production in the Midwest, where most crops for feed originate, newer operations and expansion of existing operations occur in the Southeast and Southwest. In these areas, less arable land is available for the spreading of manure on crop and pasture land, the cheapest option for the disposal of animal waste. In the Midwest, producers are more likely to use pit storage for manure and slurry spreaders to deliver the fertilizer to fields and inject it into soils; in the Southeast, producers generally use lagoons for manure storage and sprinkler irrigation linked to the lagoons for delivery to fields (Ribaudo, 2003). The success of lagoon technology in preventing environmental problems depends upon proper siting and adequate storage capacity, particularly in the event of intensive storms. Sprinkler irrigation leaves the manure on the surface of fields where, unlike being injected in the soil, it can more easily wash off in intensive rain.

The poultry industry led the trend towards industrialization of livestock production. Technology developed since the 1950s enabled the automation of chicken and turkey production. Nearly all broilers and egg layers and more than half of all turkeys are produced under contracts to large integrators, with most poultry operations located within 32.19 km (20 miles) of the integrator (Ollinger et al., 2000). This limits the amount of land available for spreading and hence the ease and cost of disposal of the waste.

Even cattle production has undergone major changes. In 1998, some 25% of cattle were produced under contract and, in 1999, 32% were bought under contracts or fed and owned by the beef packers. As the Congressional Research Service points out, the largest 1% of the beef feedlots produces 71% of the fed beef, yet control only 2% of the cropland on fed beef farms. The smallest 92% of feedlots produce 10% of the total but control 75% of the cropland (CRS, 1998).

A great deal of research over the past 40 years has documented the potential of large concentrations of farm animals adversely to affect water quality. The pollution containing both pathogens and nutrients originate, not just from where the animals are raised and the waste products stored, but also from the fields to which the manure and by-products have been applied. Animal waste generated in CAFOs is generally stored in storage pits or anaerobic lagoons until it can be spread on fields (Sweeten, 1992). The lagoons have been known to fail, in part because design specifications to accommodate 25-year storm events have faced more frequent storms (Pagano and Abdalla, 1994). Excessive application, inappropriate methods and timing of application, or poor selection of locations to spread the manure can exceed the assimilative capacity of plants and contaminate ground and surface waters used for drinking or washing of foods (Vanderholm, 1994; USEPA, 2004a). The United States Environmental Protection Agency (USEPA, 2004b) has identified some of the pathogens contained in manure and animal carcasses that can adversely affect human health, other livestock, aquatic life, and wildlife when introduced into the environment. Several pathogenic organisms found in manure can infect humans. Runoff from feedlots, the generally open air space within which animals such as dairy and beef cows are confined, also contains much higher levels of pollutants, including pathogens (Novotny, 1999).

Growing livestock in close quarters, as occurs in CAFOs, increases the stress level of animals and their susceptibility to disease. The possibility of disease transmission within a facility is further enhanced with the low amount of genetic diversity of the animals. Although this use of standardized animal attributes in confined settings allows for efficient production of the animals, it also allows for fast infection rates since the pathogen faces no or few genetic barriers.

On the plus side of the ledger, production of animals in confinement can reduce the interaction and contact between humans and livestock. This decreased interaction reduces the likelihood of transmission of pathogens from animals to humans and vice versa. The retention of the ownership of the living stock by the integrators creates the strong financial incentive to provide whatever assistance, both diagnostic and therapeutic, necessary to ensure the health of the animals until they are harvested.

In the developing world, the transmission of pathogens from animal to animal and animal to human is a recurrent problem (Delgado et al., 2003). Stock animals are raised in close contact with humans. Flocks and herds are mixed in market settings and small landowner herds can come into contact with animals in large concentrated operations. Infectious agents can become endemic in an area through the reservoir of animals raised in small operations, and backyard farms becoming re-infected through inadequate diagnostic and therapeutic services since these producers typically lack access to diagnosis and control programs. Witness the recent concern regarding avian flu virus evolution and progression in the developing regions of East and Southeast Asia.

To reduce the incidence of microbial infection, therapeutic or prophylactic antibiotic and pesticide use in feed is commonplace and often standard practice in large confined operations. Antibiotics and pesticides in feeds are also commonly used as growth enhancers. An estimated 70-80% of all antibiotics are used globally for non-therapeutic uses in livestock (Schreier, 2002). By reducing the severity and occurrence of low-level infections, more of the animal's energy can be applied to growth rather than defending against disease. According to Schreier, most of the excess winds up in water supplies and drainage systems, the fate of which is largely unknown.

The inadvertent selecting of microbial strains for antibiotic or antiviral resistance through prophylactic use can accelerate the natural evolution of newer strains. Over-applying and spreading animal waste on crop or pasture land can contaminate agricultural land with these newer strains. From there, these new strains can be transported into surface or ground waters and introduced into human settings (JETACAR, 1999). Pathogens originating within a confined operation or inadvertently introduced into a confined operation (through human contact, feed, contaminated implements, or other means) can be retransmitted through the spreading or disposal of the waste on land.

Antibiotics are used in most phases of swine production, with their use increasing between 1990 and 1995, the only years for which data are available. For preventive purposes in feed, 39.1% of operations used antibiotics in 1990, compared with 45.5% in 1995. The 1995 survey by the US Department of Animal and Plant Health Inspection Service (APHIS) found that 92.7% of all swine at the grower/finisher stage received antibiotics in their diet at some time during this growth phase (APHIS, 1996). Virginia Cooperative Extension found that 80-90% of all starter pig feeds, 70-80% of all grower pig feeds, 50-60% of all finisher pig feeds, and 40-50% of all sow feeds are fortified with antimicrobial feed additives (Harper, 2004). For disease prevention and the promotion of growth, 91% of all operations used antibiotics in feed. In farrow-to-finish phase, 89.5% received antibiotics. In cattle production, roughly 25% of small feedlot operations and 57% of large operations used antibiotics. In dairy operations, there are regional differences in antibiotic use. The Midwest has a 95.1% antibiotic use rate and the Southeast has an 80% use rate (APHIS, 2005).

Bacteria can become resistant to the antibiotics used in feed. The US Food and Drug Administration (FDA) concluded in October 2000 that two antibiotics used in poultry had spawned drug resistance (Consumer Reports, 2005b). Soil and waterborne bacteria seem to be acquiring tetracycline resistance genes from bacteria originating in pigs' guts (Ananthaswamy, 2001). Prophylactic feeding of antibiotics to animals can lead to the emergence of resistant strains of gut bacteria, such as Salmonella and hence enhance pathogenic risks.

The developed world is not without its incubators of animal diseases that can and do infect animal vectors that can serve as transmission vehicles. In the United States, a trend is to growing of wild animals, such as elk, bison, and deer, in confined settings. These confined animals can serve as a reservoir and amplifier of pathogenic diseases that can then be passed to domesticated animals or other wild animals (Bulmer, 1989; Meagher and Meyer, 1994). The organisms can thence be transmitted to humans through direct contact (CDC, 2005) or through exposure to a contaminated wild animal.

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  • urho
    What would a typical vertical integration farm contain?
    16 days ago

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