Economists Predict Bad Year For Chicken Business

John Anderson, an agriculture economist at Mississippi State, says the 2009 chicken forecast is not looking so good. He and his peers are predicting a reduction in chicken production for the first time in more than three decades. Anderson tells host Andrea Seabrook why this is happening and its implications for consumers.

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ANDREA SEABROOK, host:

And now, some fowl news. We've been turkey all week, so let's spend a few minutes talking chickens, specifically the business of chickens. This has been a growth industry for decades, but economists are predicting that next year, we'll see the first decline in chicken production since the early 1970s.

Professor John Anderson is on the line now to explain what's happening in the chicken market. He's an agriculture economist at Mississippi State University. And sir, you grew up on a chicken farm?

Dr. JOHN ANDERSON (Department of Agricultural Economics, Mississippi State University): We raised chickens on the farm where I grew up. Yes, it wasn't our only occupation, but it was an important part of what we did.

SEABROOK: So what can you tell us, then, looking into the future about those projections for 2009?

Prof. ANDERSON: Well, I think, before we look into the future, it's important to kind of look back over the recent past and see what this industry has come through over the last couple of years. Beginning in late 2006, we had a tremendous increase in all commodity prices, but the commodities that were of particular interest to the broiler industry were feed and fuel.

SEABROOK: Broiler chickens.

Dr. ANDERSON: Broiler chickens, yes. A broiler, when you buy chicken in the grocery store, you're buying a broiler. So high corn prices and high fuel prices really had a big impact on the broiler industry and have caused quite a bit stress in that industry at all levels.

SEABROOK: But oil prices are down almost two-thirds since this summer, and grain prices have plummeted, too. Shouldn't that be good news for the chicken business?

Dr. ANDERSON: Well, I think that is good news for the chicken business. So we are getting some relief on that side, but we're going right out of that situation into another situation where we think demand is probably going to be pretty weak because of the economic situation.

SEABROOK: You know, I had heard people project that, as this worldwide recession takes hold, that consumers will buy less meat. But I didn't know that counted for chickens, too. I thought it was mainly for red meat.

Dr. ANDERSON: Well then, I think it does remain to be seen how much of a decrease in demand we have. But I think there are two components of demand that we are concerned about with respect to the broiler industry. First of all, export demand. Part of the reason that we've had fairly strong demand in the last few years in the broiler industry is that foreign demand has been good.

I mentioned high oil prices a few minutes ago. From a cost of production point of view, that was very bad for the broiler industry. It did, however, help with broiler exports because a lot of our broiler exports go to Russia, and high oil prices have been very good for their economy. They've had a lot of money to spend, and part of what they bought has been chicken. So we may see some reduction in foreign consumption of U.S. chicken as the economy slows down.

The other issue is the exchange rate. Even though we've had this economic downturn, the dollar has gotten stronger, and that will potentially hurt U.S. exports for chicken. On the domestic side, a lot of chicken now is consumed away from home.

SEABROOK: Hmm.

Dr. ANDERSON: We may see that slowdown. It was funny. I was in McDonalds over the weekend, and we think of McDonald's as a hamburger joint. At least I do. I think most people still do.

SEABROOK: Uh hmm.

Dr. ANDERSON: But on the value menu in our local McDonald's, we've got 11 items. Six of those are chicken items.

SEABROOK: How about that?

Dr. ANDERSON: So, away-from-home consumption is a significant part of demand for chicken now. And that's a component of demand that's always susceptible to weakening in an economic downturn.

SEABROOK: So, if the industry is struggling, what does that mean for the consumer going to the grocery store? Does that mean that the prices will get higher or lower in the meat case?

Dr. ANDERSON: Well, I think what we'll probably see is, we're looking at possibly a reduction in poultry production for the first time since 1973. Ultimately, that will probably result in a higher price.

SEABROOK: Professor Anderson, how does the broiler industry cut back production?

Dr. ANDERSON: Well, there are two or three different ways to take an effect in production. I mean, the most obvious way is that they can just produce fewer birds.

The other thing that they can do is to harvest the birds at a lighter weight. You know, maybe a quarter to a half pound a bird doesn't sound like a lot, but if you multiply that by millions and millions and millions of birds that are being harvested, it amounts to quite a few pounds of poultry. So, those are two ways that they can influence their level of production.

SEABROOK: Professor John Anderson, he's an agriculture economist at Mississippi State University. Thanks so much for joining us.

Dr. ANDERSON: Thank you for having me.

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