Poultry Processing

Industry Overview

The poultry-processing industry comprises about 500 companies with combined annual revenue of $40 billion. Large companies include Tyson Foods, Pilgrim's Pride, and Perdue Farms. The industry is highly concentrated: the 50 largest companies hold more than 90 percent of the market.

Competitive Landscape

Demand is driven by population growth and export markets. The profitability of individual companies depends on efficient production and distribution, because the finished product is a commodity. Big companies have large economies of scale in production and distribution. Small companies can compete successfully by serving a limited geographical area or by producing a specialized product. Average annual revenue per employee at big processors is $150,000.

Products, Operations & Technology

Major products are fresh or frozen young chickens, fresh or frozen turkeys, cooked or smoked poultry, and other birds such as ducks, geese, and Cornish hens. Young chickens account for about 65 percent of industry revenue, processed meats 25 percent, and turkeys less than 10 percent.

Chickens grown for eating (rather than laying eggs) are called broilers. About 9 billion broilers are produced in the US each year; the average broiler weighs 5 pounds. The large producers use industrial techniques that have been developed to produce chicken products at the lowest possible cost. These involve large feeding operations - using chicken breeds that efficiently turn feed into meat - and large distribution systems that can rapidly put fresh chicken parts (a highly perishable product) on supermarket shelves.

A typical chicken (or turkey) operation involves distinct steps. Chicks are produced from eggs laid by breeder flocks, which are usually owned by the processor but may be maintained on contracted breeder farms. Eggs are collected and moved to hatcheries, where they're incubated and hatched in a process that takes about 21 days. A large producer like Pilgrim’s Pride may own a dozen hatcheries. The yield of eggs that hatch from those that are "set" is close to 85 percent. Day-old chicks are inspected, vaccinated, and transported to "grow-out" farms, where they're placed in chicken houses and fed to maturity. Males and females are segregated because they grow at different rates.

Grow-out operations are typically run by contract growers, with feed, veterinary services, and technical advice supplied by the processor. A large processor like WLR uses hundreds of contract growers in various states to supply just a few processing plants. Contract growers are paid based on the live weight of chickens they deliver, usually with a minimum guaranteed rate and various incentives. Because feed composition is critical to the rate at which chickens convert feed to body weight, processors have their own formulations and operate their own feed mills. Corn and soybean meal are the major ingredients of feeds and the largest cost of producing chickens. Feed conversion rates are close to 2.00; that is, it takes 10 pounds of feed to produce a 5 pound chicken. Chickens are fed at grow-out farms for eight to ten weeks until they reach processing weight, depending on the breed. Cornish Cross Broiler pullets can attain a weight of 6 pounds in 56 days, HY-Y Broilers take a week longer to attain the same weight but have larger breasts and less fat. Some processors have developed proprietary chicken breeds.

Mature birds are trucked to processing plants that are highly automated, where they are killed, de-feathered, and chilled. The amount of further processing, such as deboning, quartering, breading, and spicing, depends on the product ordered by the customer. Final products may be ice-packed, deep chilled or frozen, whole, cutup, or boneless. Further processing may be done in cooking or smoking facilities. Products are packaged, labeled, and shipped in refrigerated trucks. Some processors have their own cold storage facilities. Waste parts like feet, heads, organs, etc. are processed into animal or pet food.

Computer technology is necessary to track customer orders, which may include dozens of different product configurations, and to operate the elaborate distribution systems that must deliver product rapidly.

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