How Contract Farming Makes Big Corporations Rich And Family Farmers Broke

The U.S. poultry industry took in over $70 billion last year, with industry-leader Tyson reporting $53 billion in revenue, for chicken and more. The vast majority of farmers didn’t see much of that profit at all. Thanks to what’s known as contract farming, many of the people who run these farms find themselves underpaid, debt-ridden and broke, with no foreseeable exit strategy. Meanwhile, the large agribusinesses with whom they’re contracted rake in the profits.

Under the contract farming model, large meat processors like Tyson and Perdue deliver animals and feed to individual farmers, who raise them in their own facilities before returning them to the processors. The farmers have to abide by the processors’ guidelines in raising the animals, and their payment varies depending on the performance of other growers in the area.

“Fundamentally, you’re getting paid for time and space,” James MacDonald, research professor of agricultural economics at the University of Maryland and former staffer at the USDA’s Economic Research Service, tells Sentient. “You, the grower, are providing the housing, significant capital investment and labor and management, and you’re most likely, these days, also paying for utilities.”

While all sorts of agricultural commodities are farmed via contract, the model is practically the only game in town when it comes to poultry: According to the USDA, in 2020 88 percent of all poultry in the U.S., and 99.5 percent of all meat chickens, are farmed under contract. Given that over half of all chicken in the U.S. is processed by just four companies — Perdue, Tyson, Pilgrim’s Pride (a division of JBS) and Sanderson Farms — these contract farmers are usually contracting with one of those companies.
Contract farming may sound like a good economic model, but many farmers say it’s left them debt-ridden.

How Does Contract Farming Work?

In livestock farming, production contracts are agreements between individual farmers and the large agribusinesses that process and sell the meat.

These agribusinesses — often referred to as “integrators” due to their adoption of vertically-integrated production models — agree to provide animals and feed to the farmer, and to pay the farmer for raising those animals for a certain period of time. The farmer, in turn, agrees to raise the animals in accordance with the integrator’s guidelines, and to give the animals back to the integrator once they reach slaughter weight.

Under production contracts, farmers don’t buy or own the animals they’re raising, and aren’t “selling” them to the meat processors. They are simply being paid by the integrator to perform the service of raising the animals before they’re slaughtered. Exactly how much contract farmers get paid is a complicated question that we’ll dive into later.

“In any production contract, there’s a set of inputs that are being provided by the contractor or the processor, in this case, and there’s a set that’s being provided by the grower,” MacDonald says. “And that’s why production contracts tend to be pretty thick, because there’s a lot of detail on who’s contributing what.”

In theory, production contracts offer a number of protections and upsides for producers. Farmers who produce under contract receive guaranteed regular payments for the length of the contract, and thus don’t have to worry about marketing their product or finding buyers for it. They also don’t have to source their animals or buy feed, as both are provided by the integrator, which both saves them money and shields them from market fluctuations in the price of animals and feed.

The Problems with Production Contracts

On paper, contract farming provides farmers with a regular, reliable source of income. In practice, contract farming has left many farmers broke, destitute, and devastated. Here’s why.

Startup Capital

Under production contracts, integrators own the animals, while farmers own the facilities in which the animals are raised. In a 2015 segment on contract farming, John Oliver dryly characterized this arrangement as one in which “you own everything that costs money, and we own everything that makes money.”

He wasn’t wrong. In 2016, the average poultry farm had four chicken houses, and the average cost of building a chicken house was $300,000, according to Rural Advancement Foundation International (RAFI). This means that would-be contract farmers needed to invest over $1 million of their own money before raising a single bird.

The price has only increased since then: In 2023, Southern Ag Today reported that building a new poultry farm can cost upwards of $5 million, as many new farms are expected to have eight chicken houses instead of four. And none of these expenses includes the cost of the land itself — just the facilities.

“A typical four-house facility in Maryland now is going to cost you about $2 million, exclusive of the cost of the land,” MacDonald says. “That’s a major investment.”

Needless to say, most people don’t have a spare million dollars lying around, so farmers often take out enormous loans in order to build these facilities. This is the first issue with production contracts: The farmers who sign them incur massive amounts of debt before they’ve raised a single animal. It’s no accident that in the U.S., chicken farmers have a higher debt-to-asset ratio than any other type of farmer, according to the USDA.

Ideally, these farmers would be able to pay off their debt through the money they earn from the contract. The problem is that the length of the contract — that is, the amount of time in which they’re guaranteed to be paid by the integrator — is typically much shorter than the length of the mortgage on their production facilities.

Mortgages are typically at least 10 years, and often much longer. But as of 2022, 64 percent of production contracts for chicken farmers were for five years or less, according to a poll commissioned by the National Chicken Council. Almost one-third of all contracts were signed on a “flock-to-flock” basis, which means they only lasted 5-10 weeks (the average length of time needed to raise a flock to slaughter weight) and had to be continually renewed. Only 13.4 percent of contracts lasted for 10 years or more.

Unreliable, Insufficient Payments

Although contract farmers receive guaranteed regular payments for their services, the exact amount that they’re paid can fluctuate wildly, thanks to what’s known as the “tournament system.”

Production contracts establish a “base pay,” or the price-per-pound that farmers receive when they deliver the grown animals to the integrator. In poultry farming, this payment rate generally hovers around six cents per pound. But calling this a “base pay” is misleading, as no farmer is actually guaranteed to receive that much money per pound.

“The way you get paid under production contracts in poultry depends upon your performance compared to other growers delivering chickens that week,” MacDonald explains. “Performance is how many your chickens die, and how efficiently do your chickens convert feed to meat to weight.”

Here’s how it works. Integrators place the farmers with whom they have contracts into groups, and determine the average amount of meat produced by each group at the end of the growing period. Farms that successfully produce more pounds of chicken during that time than the group average receive a bonus on top of their base pay, while those that fall short of the average receive a deduction.

This system incentivizes farmers to take steps to lower their animals’ mortality rates, and make them as fat as possible. But it introduces a number of inequities as well. For one, much like a college professor who grades on a curve, the tournament system effectively penalizes farms that, through no fault of their own, happen to be placed in the same group as the top-performing farms in their region.

“If you’re in a group that’s got, like, the two best growers in the state, you’re screwed,” MacDonald says. “You’re never going to win.”

Tournament grouping isn’t the only factor that, despite being out of a farmer’s control, can nevertheless result in them taking a pay cut. Under production contracts, the integrator is responsible for many logistical and operational details that directly impact a farm’s production: The amount of chicks a farm receives, the day the grown chickens are picked up, the precise feed mixes delivered to each farm, the day that feed is delivered and countless other variables are controlled solely by the integrators, not the farmers.

Any mistake in any of these areas can be disastrous for a farm’s output — and mistakes are common. In a 2022 survey of 105 poultry growers by Rural Advancement Foundation International, 96 percent reported that they’d received a pay dock due to late or incorrect feed deliveries. Many growers also reported being given sickly chicks by integrators, or having their chickens picked up before they’d reached maximum weight, which also resulted in lower payments.

According to 2020 data from the USDA, the per-pound rate that contract chicken farmers received that year ranged from 4.29 cents to 9.64 cents, meaning that some were making more than twice as much as others due to factors largely beyond their control.

Canceled Contracts

As predatory as these contracts can be, they do at least guarantee some amount of money for farmers over some period of time. But some contracted farmers don’t even get this: Integrators have been known to abruptly cancel contracts with growers, leaving them with millions in debt, tens of thousands of birds, no money for feed and no prospective buyers.

This happens with both large integrators and small. In 2023, Tyson closed four of its processing plants in Arkansas, Missouri and Indiana, and canceled the contracts it had with poultry farmers in those regions. For many of these farmers, the shuttered plants were the only ones close enough to be viable buyers, given the cost of shipping the chickens, leaving them with no way to continue running the farms they’d invested in.

To make matters worse, many of the affected farmers claim that Tyson representatives encouraged them to make costly investments in their infrastructure in order to improve their production capacities in the years leading up to the plant closures, thus increasing their debt holdings even further.

Tyson is now facing at least two lawsuits over these canceled contracts. In one, growers claim that the company knew it was going to shut down the plants as far back as 2021, but continued pushing farmers to upgrade their facilities regardless. Another lawsuit accuses Tyson of intentionally selling the shuttered plants to a non-competitor, thus ensuring that the growers wouldn’t have an alternative buyer for their chickens.

Multinational conglomerates like Tyson aren’t the only processors who’ve done this, as a similar situation played out in 2024 with Pure Prairie Poultry, an Iowa-based poultry processing plant. In October, the company filed for bankruptcy, leaving its contracted growers in a financial lurch — and one million chickens without anybody to feed or care for them.

Contractually-Obligated Animal Suffering

In many cases, integrators don’t merely allow the mistreatment of animals by contracted farmers — they actively require it.

In 2014, longtime contract chicken farmer Craig Watts allowed a film crew from Compassion In World Farming to document the conditions inside his facilities. Integrators often instruct their contracted farmers not to do this, and the video from Watts’ farm made it clear why: It showed chickens panting, paralyzed, diseased, unable to stand and lying dead on the floor among the living birds.

Unfortunately, this kind of suffering isn’t at all unusual in industrial poultry farms. But what’s notable here is that Watts actually wanted to give the chickens better living conditions, but said he was forbidden from doing so under the terms of his contract: Perdue, the integrator with which he was contracted, required him to keep the birds in an enclosed space, with four solid walls and no access to fresh air or natural sunlight.

Hours after that video was published, investigators from Perdue made a surprise visit to Watts’ farm to audit the animal welfare — the only such visit they’d made to his farm in 22 years. The company allegedly put him on a Performance Improvement Plan and required him to take a course in biosecurity and animal welfare. Over the course of the next year, the company visited his farm 17 times, according to Compassion in World Farming.

Watts ultimately left the chicken farming industry entirely, and sued Perdue for whistleblower retaliation. But chickens on contracted farms still suffer regularly, as a 2022 investigation by Mercy For Animals found.

Is There Any Help On The Horizon?

Although many contract farmers find themselves in an impossible bind, there have been some small positive developments in recent years. In 2019, Mercy for Animals launched The Transfarmation Project, which provides resources and training for contracted farmers who wish to convert their facilities into plant-based farms (Watts, who works with The Transfarmation Project, is now a mushroom farmer, along with other work in the agriculture reform space).

In addition, the USDA enacted several regulations during the Biden administration aimed at making contract farming more equitable for farmers. These regulations require integrators to provide growers with more transparency into how they’ll be paid and what upgrades will be expected of them over the years, and to follow certain rules while constructing their tournament pools in order to ensure fair competition for all growers. A meat industry trade group has asked President Trump to rescind the rule, which is now the subject of a lawsuit.

The Bottom Line

The financial ruin that befalls contract farmers rarely affects the large processors.

In a 2021 lawsuit, contract farmers sued the four largest meat processors, arguing that they’d crafted their contract models with the goal of suppressing farmers’ profits. The farmers said that they’d been working 12-to-16-hour days while earning as little as $12,000 a year, while the processors were making billions of dollars. Tyson and Perdue ultimately paid $35 million to settle the lawsuit.

As it stands, the contract farming model empowers the richest agribusinesses and increases their control over the industry as a whole. In this sense, it’s a great business model for them. But for the farmers and animals who actually populate these farms, contract farming is often a one-way ticket to destitution.