Why Is Costco Opening Its Own Chicken Farm?

Why Is Costco Opening Its Own Chicken Farm?

Costco is cheap really cheap. This chicken costs five dollars. These birds are an iconic Costco product. Costco sells about 60 million of them every year. Sounds like a great moneymaker right. Wrong. Costco sells these chickens at a loss sometimes up to 30 to 40 million dollars per year. The chickens are a lure to get customers in the door. They’re placed strategically at the back of every Costco so customers might pick up other items along the way. That’s why Costco wants to keep the price so low. The trouble is that chicken prices have crept up over the last 10 years and the industry is practically an oligopoly run by the likes of Tyson and Perdue. Costco like most American Grocers buys from these behemoth companies because there’s no other option. But not anymore. In 2016 Costco announced its plans to open a chicken farming operation in eastern Nebraska. It will own the whole supply chain from baby chicks to feed to the final product. This operation will provide Costco with 40 percent of its yearly chicken needs about 100 million chickens. That’s one hundred million chickens. It won’t have to buy from Tyson or Perdue. But here’s the problem. Large scale chicken farming doesn’t really exist in Nebraska. So Costco is paying the not so cheap price of 440 million dollars to make it happen. Costco’s chicken operation will process about 2 million chickens every week. Here’s how it will work. Costco will own the chickens feed and the processing plant. Local farmers will own the barns and equipment and raise Costco’s chickens to maturity. Then the chickens will go to the plant in Fremont Nebraska where workers will prep the birds for sale. Some will be sold in parts but most will become those famous rotisserie chickens. This model is called vertically integrated agriculture. It’s a relatively new method of farming. But today it’s responsible for 95 percent of the nearly 9 billion chickens produced in America each year. So how did we get here. In the early 20th century chicken meat was merely a byproduct of egg production. The only chickens sold for meat were older hens who could no longer lay eggs. So it was a rare and expensive product even though the meat would be tough and unpalatable. By today’s standards. But that changed rapidly after World War 2. A couple of large companies Tyson and Perdue found ways to increase the number of chickens they would raise through the industrial model where large numbers of similar breeds are raised in confinement in houses. And the discovery that antibiotics are administered in small doses daily not only keep the chickens healthy but would bring them to market weight faster. Farmers can now raise fatter chickens with less feed in less time and Americans quickly gained a taste for them. In 2012 the average American consumed four times as much chicken as they did in 1950. More people eating more chicken sounds great for farmers right. Not really independent farmers struggled to keep up with costly new equipment so small to mid-sized farms began disappearing vertically integrated mega farms took their place producing twenty nine percent of chickens in 1967 but ninety five percent today. By 2017 the industry produced over 30 billion dollars worth of chickens so chicken went from a luxury product to the most commonly consumed meat in just a few decades. But this system has its own problems. The modern chicken industry has faced a slew of criticisms inhumane treatment of the chickens devaluation of property near processing plants abusive treatment of plant workers environmental degradation and exploitative farming contracts. The contracts especially have come under fire in recent years as farmers speak out in documentaries and file lawsuits against their former employers. Just ask Craig Watts who farms chickens for produce from 1992 to 2016. You just turned over control of your farm to that company. You did it the way they told you to do it. Whether it made sense to you or not. But at the end of the day you could follow those to a tee and they could still find something that you didn’t like. It was like hitting a moving target. A typical mega farm has three to five chicken barns each of which costs the farmers about two hundred thousand dollars. Journalist Christopher Leonard argued in his 2014 book The Meat Racket that this system makes farmers into modern day sharecroppers trapped in indebted servitude on the edge of bankruptcy but taking their business elsewhere isn’t an option for chicken farmers. Chicken companies essentially have spheres of influence across the US. And most farmers only live close to one of them. To top it off wholesale chicken prices have shot up over the last 10 years. Recent lawsuits alleged that this is because the biggest chicken companies illegally aspired to fix prices. To put it simply chicken companies are making huge profits but consumers are paying more and many chicken farmers live in poverty. This is the industry that Costco is about to enter but it wants to do it differently. While the specifics of Costco’s contracts are confidential a representative explains the basics to CNBC. Let’s take a look. First Costco offers 15 year guaranteed contracts. Most contracts are much shorter sometimes only lasting one year or even just one flock of chickens. This should give Costco’s farmers time to pay off their two million dollar loans. However Costco can also cancel a contract with 90 days notice. I didn’t I don’t know why we would accept a contract unless there is some gross negligence on the part of on behalf of the broker. I think that’s the reason those types of arrangements are there. Christopher Leonard argues that similar terms in other contracts make it too easy for companies to cancel giving them a disproportionate amount of power over the farmers. Second Costco will pay a baseline amount for each flock regardless of quality as well as bonuses for good flocks. If a farmer consistently underperforms they’ll be placed in a grower improvement program which basically says grower growers here’s a challenge we see and this is a new benchmark we want to help you get to so that you’re performing better and working with them. What’s the former Perdue farmer sees the program as nothing more than a first step to a canceled contract. That’s pretty common in poultry contracts. One bad luck can make a three long average really bad in a hurry. Third Costco is working with the Nebraska Department of Environmental Quality to meet standards that are not required by state or federal laws. But researchers from Johns Hopkins argue that regulations can only do so much to prevent the worst outcomes of large scale vertically integrated agriculture. That part of Nebraska has somewhat of a fragile ecosystem and and the the waste that is generated every shadow which is put on fields is great fertilizer. While the right quantities it is but if you’re producing 2 million chickens in a really small area it becomes a runoff problem. Finally Costco will pay its 1000 meatpacking plant workers fifteen dollars an hour well above Nebraska’s nine dollar state minimum wage. However that’s still significantly less than the starting salary at Hormel plant in the 1990s Costco’s chicken operation will add an estimated one point two billion dollars 10 Nebraska’s annual GDP so it could be a boon for Nebraska farmers who have signed up hope that adding chickens will bolster their farms for years to come. One of the most exciting parts of adding chickens to our operation is that I have a daughter who is graduating from University of Nebraska Lincoln because of the chicken operation we’re able to bring her home. But others disagree. Randy Rupert a longtime resident of eastern Nebraska formed a group specifically to oppose the move. We don’t want vertical integration in Nebraska. It’s wrongheaded it’s bad for the environment it’s bad for farmers it’s bad for towns are our mantra is This is not farming this is this is industrial production of widgets Costco’s chicken operation won’t open for another year. And besides the industry as a whole is moving towards organic chicken. But with the State of the industry as it is now it’s worth asking is five dollars for a whole chicken just too good to be true.

100 Replies to “Why Is Costco Opening Its Own Chicken Farm?”

  1. More Factory Farms and they do NOT treat the animals and fowl very good just the minim amount of feed and they never get full and are always hungry . Water they get all they want and the hormone they add to their feed more milk more piglets and wearing out milk cows and sow hogs reproduction organs . Laying hens making them lay an egg a day ends up with what they call blowout . Meaning laying to many eggs and her system can not handle it then she dies this is big business . Then these factory farms have high jacked the farm bill meant for grain farmers not having to pay over time wages. The farm bill is a mess and the loop holes need to be fixed so factory farms do not get rich on tax payers money .

  2. Nothing like destroying and taking away markets from small family farmers like myself!!!!!
    Milk, beef, chicken, pork. What happened to small family farms. Companies like these are killing us every day!!!!

  3. Farmers ALWAYS have other options to sell chickens, its called marketing themselves. Any farmer can start a chicken farm and build their own brand and have or contract out the processing and find a retailer or retail themselves. There is no reason any buyer is obligated to buy someone chickens. There is a large demand for niche organic and pasture chicken.

    I do love Costco and am a member and like what they are doing it also shows how competition in business models is the best way.

  4. Costco sure is plugging that carbonated water. That's how they get their lost chicken money back. Water and CO2 in a can. Cha Ching!

  5. so wait they sell 60 million chickens a year…the farm will produce 100 million chickens. but this will only be 40% of of there needs? Something seems a bit off here.

  6. WHERE IS THE MONOPOLIST OUTRAGE PEOPLE!?!?!?!? They have admitted to "Chicken Dumping" and yet where are the demands to break up Costco?
    I swear all you left wing whack jobs are selectively stupid. -.-

  7. My wife and I quit eating chicken about 6 years ago. Chicken flesh is loaded with fat. It is not only in the skin.
    We consume it about once every 6 months, and I know that neither of us miss it a bit.
    Take a look the the body types shopping at Costco and what is in their grocery cart It is always amusing for me to match these two factors.
    Costco is killing people by supplying them with foods that they crave by encourage them to buy far more than they need.
    Smart people do not engage themselves with this practice

  8. This isn't something too revolutionary. This sounds a lot like same thing Tyson and Perdue do. All the expensive things, the land, chicken houses, equipment, etc are paid for by the farmers, Costco reaps the rewards and little risk and cost to them. If they keep their promises, that'd be great, but in our capatalist market as it currently where maximizing profits are the only goal, and being a good citizen is a thing of bygone years… Well, we shall see.

  9. You talk like Costco invented the rotisserie chicken.
    My local grocery has had them since the 80's and still do.
    And Vertically integrated farming isnt new.
    The gobernment has been paying people to raise cattle for beef for ages.
    They pay for the feed.
    They pay for the animal.

  10. The chicken are not a lure to get customers in the store, they are about to expire that's why they cook them and sell them cheap, China has been doing this for many years.

  11. When you are actually presented with the numbers of chickens that are consumed a year, it's scary to think this many chickens are born, raised, and killed just for human consumption…. Thank god I don't eat meat….

  12. I watched the video and the model is exactly what all the other large chicken conglomerates are doing. This model enslaves farmers because they are pretty much locked into what ever cosco wants to pay them. Cosco owns the chicken, the feed, and the processor. The farmer "owns" (owes to the bank) the multi million dollar chicken house where the chickens are raised. Essentially they are using their influence to get farmers to share the of the liability of massive infrastructure and giving them a small cut so they can make payments on that infrastructure. It's like a parent and child co-signing a loan for a nice boat. The parent says "I get to drive the boat because I'll pay for the fuel, you keep making all the payments so you get the opportunity to ride in the boat with me on the weekends."

  13. Its a consumer problem, 90% of people pride themselves in buying crap food at the lowest price. I know wealthy people bragging how much they save on the crap ignoring quality organics bring better health

  14. We don’t want this crap in Europe.
    No testing so just treated with poison to get rid of bacteria.
    Sounds good America .

  15. These midwest farmers are complaining about environmental damage when they are the one who let Donald trump abolished all Obama EPA rules because it was slowing progress. Then they go and complain that this is too much.

  16. It is the dirty trick of large corporations to own everything in meat agriculture that makes money (the animals they slaughter) and make the little guy responsible for owning and upgrading everything that costs money (the equipment used in animal slaughter).

  17. It's all a science from putting the chickens to the back to reshuffling their product locations so that the members don't get used to the store layout. Everyone does this in retail. For Costco is very smart of them to make their own supply of chickens. They did with the hot dogs when they used to go with Hebrew National. It's all about lowering costs so that the $30 to 40 million in loss from the chickens they sale isn't that harmful.

  18. are the chickens pastured chickens? what is the fed, hope isn't corn? what about antibiotics and hormones? I don't eat chicken anymore until the industry does it in a healthy process fit for human consumption. "is $5 for a chicken to good to be true? yes, eat and watch your health deteriorate! pay now or pay later.

  19. Costco is the best. Quality products at its cheapest. F amazon. Crappy product. Only brianwashed American shop from Amazon. Go do some research you will know why I am saying it from experience

  20. I'm a huge fan of Costco. I think they are a great company and super-smart to do this. I wish Costco and the Chicken Farmers well.

  21. What did that women's statement even mean because your raising chickens you can bring your daughter home? I need clarification what does that even mean? Your daughter loves chickens so much she can finally stand her mother or something. JK but seriously what does that statement mean?

  22. The actual farming is not controlled by Costco. But it appears that their farmers are being held to high standards, while still being treated well. Whatever the case may be, competition in large-scale poultry farming is a good thing.

  23. The chicken oligopoly and other monopolies/oligopolies that have risen in the U.S. since 1980 should be broken up by antitrust enforcement. This is one of the major problems contributing to economic and labor market dysfunction in the U.S.

  24. I say if Costco can do a much better job at getting chicks raised into full grown chickens without antibiotics, and have more natural chickens being served in their stores, as well as put money into a states economic value, as well as putting farmers to work with good pay, benefits, and no chance at their farm being swiped out from under them, hell go for it, the way I see them run their stores, their employees are happy workers, that says a lot about their company policies

  25. All of our food is very unhealthy. We can't even trust the labeling because it's just marketing that means something different under legal USDA laws than what we think it means in English.

  26. why do i feel guilty for eating meat? not right doing this to animals. after all can you say you are not a living breathing animal? Should we not be harvested? We were in the Battle of Leningrad, for real!!!! Stalingrad too, but to a lesser extent.

  27. The way they're explaining it sounds impressive and all, but that's almost identical to the way ALL poultry farming (chicken and turkey) is done in the U.S. The only change here would be that Costco will own both ends of the operation, so they don't need to buy their chicken at higher prices from an outside source. It's hardly some big revolutionary business model. If you were running a butcher-shop and happened to also own a farm on which you raised all your own products, then OBVIOUSLY you're going to be making more money than a shop who bought their meat elsewhere.

  28. since this was made several years ago, anyone have an updated link to any report on how well or how bad they are doing now at end of 2019/beginning of 2020?

  29. Why dont we grow chciken the natural way the healthy way instead of that way pay a little bit more but we bbn eat healthy food n it better for our health and better for our environment

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