I wasn’t gesturing toward the relative competitiveness because it’s important per se (you’re right that it isn’t) but rather as a way to gauge absolute competitiveness for those who don’t already know that a net profit margin of 5.7% isn’t bad at all. My intuition is that people realize that both defense and healthcare firms make decent profits (as they do) and hence that this fact would help convey that farmers (whether large or small; and if your point is that they can differentiate themselves and do some monopolistic competition then you’re already on my side vs M&H) are not typically right on the edge of survival.
However I don’t personally think the level of competition is crucial to anything here. M&H believe that it’s necessary for their argument (in the abstract they say their case rests on it), so I was pointing out that (a) it’s actually not that competitive; and (b) if they do think it’s truly competitive (i.e. not differentiated) then that is indeed inconsistent with their own claim on p.23, which is a bad sign for their analysis.
My main point (which you don’t seem to have responded to) remains that these are all conceptual arguments making various particular assumptions rather than actually trying to estimate an individual-level impact with a combination of a concrete well-defined model and empirics.
Instead, the threshold-triggered event is a particular grower’s failure to get a contract to raise birds at all, or a delay in the next shipment of birds, a switch to a different type of agriculture, or a rancher’s choice to sell her land to a developer.
And even if their net profit margins were 5.7% on average, many farms could still be on the edge of survival. Also from M&H:
Even in industries that are vertically integrated, like the market for chickens, “growers” often operate with heavy debt, barely above poverty, and parent firms give them only short-term contracts (J. MacDonald 2008).
Net farm income is the difference between gross farm income and operating expenses, and it amounts to 25-27 percent of gross farm income in each size class. Net farm income, however, varies widely among broiler operations, where a quarter of farms experience losses—negative net farm income. Poor productive performance may be one source of negative net income since, on average, operations with negative net farm income receive fees of 4.8 cents per pound, compared with 5.1 cent per pound for those with positive net income. Depreciation is a more important factor explaining differences in net income. On farms with negative net farm income, depreciation expenses account for 39 percent of gross income, on average, compared with 13 percent for other operations. Farms with recent major capital expenditures will usually record substantial depreciation expenses, often large enough to generate negative net farm incomes. Correspondingly, older operations with fully depreciated assets rarely report negative net incomes.
Furthermore, the 20th percentile of household income[1] across broiler farmers was $18,782 in 2011, according to the USDA, and so close to the poverty line at the time. However, the household income for chicken farmers is relatively high recently, in 2020 (USDA).
Also, about differentiation, I don’t see what the existence of some small high-cost farms selling to small niche submarkets tells you about the behaviour or competitiveness of the conventional large farms, which account for almost all of the combined market. I don’t think it’s a case of monopolistic competition; these are just a few separate submarkets, like free range and organic. Maybe those selling locally are acting nearly monopolistically, with the “local” label or by selling to farmers markets, but it also doesn’t really matter, because they’re selling to a tiny submarket and their supply is very limited. If a kid sets up a lemonade stand in their neighbourhood and sells lemonade above grocery store prices, you wouldn’t conclude from this that an individual lemonade company can set higher prices for grocery stores (or distributors?), where almost all of the lemonade is bought, without being pushed out of the market.
Household income measures the cash income flowing to a household and available for expenditures during a year. For farmers, household income combines the income that the household receives from off-farm activities with the income that the household receives from the farm business, net of expenses and payments to other stakeholders in the business.
I wasn’t gesturing toward the relative competitiveness because it’s important per se (you’re right that it isn’t) but rather as a way to gauge absolute competitiveness for those who don’t already know that a net profit margin of 5.7% isn’t bad at all. My intuition is that people realize that both defense and healthcare firms make decent profits (as they do) and hence that this fact would help convey that farmers (whether large or small; and if your point is that they can differentiate themselves and do some monopolistic competition then you’re already on my side vs M&H) are not typically right on the edge of survival.
However I don’t personally think the level of competition is crucial to anything here. M&H believe that it’s necessary for their argument (in the abstract they say their case rests on it), so I was pointing out that (a) it’s actually not that competitive; and (b) if they do think it’s truly competitive (i.e. not differentiated) then that is indeed inconsistent with their own claim on p.23, which is a bad sign for their analysis.
My main point (which you don’t seem to have responded to) remains that these are all conceptual arguments making various particular assumptions rather than actually trying to estimate an individual-level impact with a combination of a concrete well-defined model and empirics.
The edge of survival is not the only relevant threshold here. Chicken farmers don’t own the birds they raise and only raise them when given a contract, so it’s not entirely their choice whether or not and when they raise any chickens. From M&H:
And even if their net profit margins were 5.7% on average, many farms could still be on the edge of survival. Also from M&H:
From MacDonald, 2008:
Furthermore, the 20th percentile of household income[1] across broiler farmers was $18,782 in 2011, according to the USDA, and so close to the poverty line at the time. However, the household income for chicken farmers is relatively high recently, in 2020 (USDA).
Also, about differentiation, I don’t see what the existence of some small high-cost farms selling to small niche submarkets tells you about the behaviour or competitiveness of the conventional large farms, which account for almost all of the combined market. I don’t think it’s a case of monopolistic competition; these are just a few separate submarkets, like free range and organic. Maybe those selling locally are acting nearly monopolistically, with the “local” label or by selling to farmers markets, but it also doesn’t really matter, because they’re selling to a tiny submarket and their supply is very limited. If a kid sets up a lemonade stand in their neighbourhood and sells lemonade above grocery store prices, you wouldn’t conclude from this that an individual lemonade company can set higher prices for grocery stores (or distributors?), where almost all of the lemonade is bought, without being pushed out of the market.
The USDA’s definition: