A chicken “grower” raises day-old chicks to slaughter age/weight on behalf of an “integrator” – a vertically integrated chicken business.
This contract is different from an offtake agreement or a futures contract because from the day they are born to the day they are slaughtered and sold the chickens are owned by the integrator. The integrator supplies feed and the medicine and the contract grower supplies housing, labour and other operating needs (electricity, water etc.) to keep the birds in ideal conditions to gain weight. When the chickens are grown (6-7 weeks) to the right age, they are collected and the grower is paid on weight. To give you an example, in the “Big Bird” documentary they mention being were paid around $0.36 per chicken, that is around R5.50, let’s say R5, and they kept around 20 000 birds in one big growout house, and managed a few houses. So that is a gross of around R100 000 per growout house every 7 weeks. (I assume not all the birds will survive but let’s keep things simple for now).
In theory, this “arrangement” benefits the integrator more than the grower. Those in support of this argument say that they are outsourcing the least paying, most expensive part of the integrated value chain, no need to deal with labour issues and for integrators, it’s like owning their own farm but someone else paying for it. I say so what? This happens in business all the time, big business with lots of infrastructures who has spent a lot of money to gen into a certain position.
Here is what I say:
For the contract growers, it provides them with a certain source of income without needing to outlay capital for chicks and feed go out and find a buyer, not only can they not find the price they are looking for they might not be able to sell all as they are at the mercy of the supply and demand in the market, this is a sure and stable amount of money those other risks are the problem of the integrator, not the grower. Most importantly this is a constant source of income.
As for saying for the integrators, it’s like owning their own farm but someone else paying for it that is bullshit, for the grower not only can they have a good salary, that constant source of income and what is left after salary can be used to pay off a farm that is in the grower’s name and after a few years when the farm is paid off the grower can walk away and they have a very valuable property thanks to the integrator. This business model has some detractors but it is one of the fairest business models around. Nobody is holding a gun to the grower’s heads, they can hatch their own chickens, vaccine, raise, feed, and sell them. Also, remember most of the growers in the US are experienced farmers with their own farms if this model was so unfair then they would not be doing it they would be raising their own animals.
Will this become the prevailing model in SA
The main thing that prevents this from becoming the mainstream model is the mindset of South Africans. In general in America and other cultures, success is praised, in South Africa, they will tear you down so the entrepreneurs in those cultures where success is praised have a far better mindset. Within small business contracting and subcontracting and even employment like piecework, there is what I call the “taxi driver mentality” which I will talk about in a moment. The gist of the matter is the contractor often cuts corners and do a shoddy job because they want to make as much profit as possible, the quality of the job is not important. That is what will prevent this from becoming a popular small business model in South Africa. But there is still opportunity because a lot of South Africa’s poultry players are so inefficient.