Agriculture Reference
In-Depth Information
Supply Chains
The contours of the industrial model of agricultural and food production have come into bold
relief in the last decades. The pieces fell into place as land, labor, and capital were brought
together in a deliberate and coordinated fashion and orchestrated by a small handful of very
large and very powerful agribusiness firms. To ensure large quantities of standardized and
uniform products, food processors entered into formal contracts with individual farmers. Al-
though there are no systematic data available on contract production, Rick Welsh notes that
“since 1960, contracts and vertically integrated operations have accounted for an ever-larger
share of total U.S. agricultural production.” 15 Today, in the United States, about 85 percent
of processed vegetables are grown under contract and 15 percent are produced on large cor-
porate farms. Contract farming allows food processors to exert significant control over their
agricultural suppliers. While the processor benefits from these arrangements, the major dis-
advantage to the farmer is a loss of independence. Many contracts specify quantity, quality,
price, and delivery date, and in some instances the processor is completely involved in the
management of the farm, including input provision.
Contract farming has also increased farm size. Economies of scale dictate that processors
are more inclined to work with large farmers whenever possible. It has been suggested that
the processor's ability to award or refuse a contract has contributed to differences in profitab-
ility between large and small producers and accelerated the process of farm concentration. 16
According to Mark Drabenstott, an economist at the Kansas City Federal Reserve Bank, a
more tightly choreographed food system is emerging throughout the country. “The key com-
ponent in this choreography is a business alliance known as a supply chain. In a supply chain,
farmers sign a contract with a major food company to deliver precisely grown farm products
on a pre-set schedule.” 17
The spread of contract farming is resulting in a reconfiguration of production at the local
level, because it is the processor and not the farmer who determines what commodity is pro-
duced and where. This requirement imposes a distance limit on producers and leads to nar-
rowly defined supply areas revolving around the location of the processing plants. In the pro-
cess of this transformation, the ties between farmers and processors have been restructured.
For farmers in the United States and elsewhere, the globalization of the food system means
that a much smaller number of producers will articulate with a small number of processors
in a highly integrated business alliance. Drabenstott estimates that “40 or fewer chains will
control nearly all U.S. pork production in a matter of a few years, and that these chains will
engage a mere fraction [italics added] of the 100,000 hog farms now scattered across the na-
tion.” 18 In a similar vein, the CEO of Dairy Farms of America (the largest U.S. dairy cooper-
ative), Gary Hanman, recently noted, “We would need only 7,468 farms [out of over 100,000
today] with 1,000 cows if they produced 20,857 pounds of milk which is the average of the
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