The price consumers pay for animal products at the grocery store does not reflect all of the costs society as a whole pays for these products. One of the important ways these costs are masked is through the provision of subsidies to CAFOs (Confined Animal Feeding Operations). Some subsidies may go directly to CAFOs; others (so-called indirect or implicit subsidies) go to other parts of the economy and are then passed on to CAFOs. These indirect subsidies may easily go unnoticed by the general public, but are just as important to CAFOs in facilitating their operation and growth. Where subsidies go to CAFOs preferentially over other production systems, they provide an especially important advantage.
One particularly substantial indirect CAFO subsidy has been payments made to commodity crop growers, largely for corn and soybeans, which are passed on to the CAFO industry in the form of artificially low feed grain prices. These low prices have largely been the result of the elimination of grain supply controls that were intended to keep prices at a reasonable level. This and other changes in federal farm legislation have allowed the price of feed grains to drop below the cost of production in many years. In response, lawmakers have compensated grain growers for most of the difference between their cost of production and low market prices. Such indirect crop subsidies have amounted to a windfall of several billion dollars per year for the CAFO industry.
A second type of subsidy is direct payments made to the CAFO industry through the federal Environmental Quality Incentives Program (EQIP), which provides about $100 million per year to CAFOs to reduce some of the environmental damage they cause. EQIP subsidies, like commodity crop subsidies, are ultimately paid for by taxpayers, and could become increasingly important as pressure is applied to the industry to clean up its practices.
Although the reduction of harm caused by CAFOs is desirable, EQIP payments raise legitimate questions about whether the public should underwrite CAFOs in this way. This is especially important when considered in the context of alternative production systems that are efficient, cause fewer problems, and have greater societal benefits.
Subsidies are appropriate buffers for the agricultural sector against the uncertainties of nature and price dips due to overproduction, and they encourage conservation and technological innovation. It is essential, however, that subsidies also encourage and support desirable agricultural practices.
How Crop Subsidies Have Propped Up CAFOs
Livestock raised in confinement eat an enormous amount of corn and soybeans. Grain and animal production (and their respective costs) are therefore inseparable when evaluating CAFO production. Over the last 80 years or so, U.S. farm policy has subsidized the production of commodity crops such as corn and soybeans in a variety of ways; currently, some payments are made to commodity farmers regardless of market prices or production costs. Here we examine whether these subsidies have contributed to the growth of CAFOs, which are the primary users of these crops.
A majority of the two most widely cultivated crops in the United States, corn and soybeans, is fed to livestock. In 2007, corn was grown on about 93 million acres and soybeans on about 64 million acres. Alfalfa is grown for livestock forage on about 22 million acres (out of the 60 million total acres devoted to various types of hay); sorghum (mostly for feed) is grown on about 8 million acres and substantial amounts of corn stover (stalks and leaves) are also used for cattle forage or silage.
By contrast, wheat (the crop most widely grown primarily for food in the United States) is planted on about 60 million acres, and rice on less than 3 million acres. Most familiar vegetable and fruit crops are grown on even smaller acreages. For example, potatoes are grown on about 1.1 million acres, tomatoes on about 425,000 acres, apples on about 360,000 acres, lettuce on about 310,000 acres, and carrots on about 100,000 acres.
The tremendous amount of corn and soybeans grown for animal feed reflects the huge amount of animal production in the United States. Feed grain costs make up a large proportion of the cost of raising animals in CAFOs: corn and soybeans generally make up about 50 to 60 percent of the cost of producing chickens, eggs, and pork, and somewhat less for dairy and beef. Because cows can efficiently digest the cellulose that comprises most of a plant’s stalks and leaves, cattle could survive on those parts of crops rather than on kernels or beans. However, in CAFOs a cow’s diet is largely composed of grain, which has high caloric or protein content, can be easily transported to the animals compared with bulkier forages, and is relatively cheap.
Because of the close connection between crop prices and CAFO costs, it is important to understand the forces that determine grain prices in the United States. Federal government policy, for one, has a significant effect on the price of corn, soybeans, and a few other crops. The government has implemented various programs under Title I of the farm bill to buffer farmers against loss (such as losses resulting from farmers’ tendency to overproduce commodity crops, leading to crop prices that are often below the cost of production). Farmers also tend to accept lower market prices because they are not as economically concentrated as farm input industries or food processors and retailers, and their commodities are perishable.
Indirect Subsidies across Sectors
In summary, commodity crop subsidies that compensate for low grain prices contributed about $34.74 billion between 1997 and 2005 to poultry, swine, beef, and dairy CAFOs. This amounts to about $3.86 billion per year, with the proviso that data for dairy cows and beef cattle are limited by region and year, and therefore nationwide averages over time are provided for illustration purposes rather than as highly accurate values for these sectors. The data from the preceding analyses are summarized in the following table.
Because of integration in the animal products industry, these savings are a boon to processors as well as CAFOs. For example, the four largest broiler companies saved approximately $5.6 billion from 1997 to 2005, and the four largest swine processors saved about $4.3 billion.
Subsidies for Alternative Production Methods
It is useful to ask whether alternative methods of producing livestock have also benefited from crop subsidies. Have these subsidies favored CAFOs over other means of producing livestock that have fewer externalities? Diversified farms—those that produce both grain and livestock—are one alternative to specialized CAFOs, which grow little or no grain.
CAFOs have much less cropland available, relative to the amount of animals, compared with smaller operations. Medium-sized operations of 150 to 300 AU (animal units—an animal unit equals one cow or 2.5 pigs) had 0.17 AU per acre of cropland available to receive manure in 1997, while CAFOs had 1.7 AU per acre—or 10 times less land per animal. Smaller and medium-sized diversified farms would generally be expected to use all of the manure produced by their animals in an economically and environmentally favorable manner (provided their cropland is near the livestock operation).
Changes in the 1990 farm bill allowed farmers to retain the grain they produce but still receive loan deficiency payments. Therefore, diversified farms could benefit from Title I subsidies even if they retained their grain as feed for their own animals rather than opting to sell it. However, grain subsidies do not necessarily entirely compensate for low grain prices. One study found that, over a two-year period, Title I subsides usually did not fully compensate farmers for the difference between production costs and grain prices, creating a “subsidy gap.” Even with subsidies, returns for corn were 6 percent below production costs for 2000 and 1 percent above production costs for 2001; soybean returns were 9 percent and 11 percent below production costs, respectively.
CAFOs that buy grain would not experience this subsidy gap because they would purchase grain at the low market price, while diversified farmers would have to contend with production costs not entirely compensated by subsidies. Even though diversified farms could benefit from crop subsidies, they would not receive as great a benefit as CAFOs that purchase grain.
To illustrate the subsidy gap, our calculations show the lower feed cost for CAFOs compared with hog farmers who grew their own grain in 2000 and 2001 (see below table). Title I subsidies would therefore have favored the development of CAFOs over diversified farms. It should also be noted that even with subsidies for diversified farms that grow their own grain, such farms may generally have produced this grain at a loss.
Indirect subsidies for pasture systems
To the extent that alternative means of livestock production do not use subsidized grain, they would not benefit from crop subsidies. In particular, pasture production and non-grain forages are not subsidized and are therefore put at a disadvantage by these non-market practices.
Many alternative production methods can be as profitable as CAFOs (or more so), but tend to be somewhat less efficient in terms of feed conversion. In other words, more feed is often needed to produce a unit of product (meat, milk, or eggs) compared with CAFOs. But these analyses do not take the costs of externalities into account. Doing so is a complicated task; what follows merely scratches the surface.
First, alternatives are often less reliant on grain production—itself a system of questionable sustainability under prevalent farming practices. Although this topic is beyond the scope of this report, grain production is a major contributor not only to soil degradation, but also to the pollution of aquatic ecosystems that are important sources of food. Less than half of the synthetic fertilizer applied to feed crops is utilized, with much of the rest contributing to water pollution. Some is converted into nitrous oxide, an extremely potent heat-trapping gas that contributes to global warming.
The costs of the damage caused by crop externalities may decrease when alternative livestock production methods substitute pasture and perennial forages for grains. Properly maintained perennial pasture builds soil, protects water quality by reducing nutrient runoff and leaching, and captures carbon dioxide—the heat-trapping gas most responsible for global warming—at higher rates than grain crops, apparently even when compared with conservation-tillage systems used with soybeans or corn. It is important to keep in mind, however, that overgrazed or otherwise poorly maintained pasture can also create substantial externalities in the form of land degradation and water pollution.
Ammonia emissions from manure are a major source of water and air pollution, and form fine particulates that can cause respiratory ailments. A summary of several research projects reports that grazing dairy cattle release an average of 6.4 kg of ammonia per cow per year, with 10.5 percent lost to volatilization (the movement of ammonia from manure into the atmosphere as a gas), while dairy cattle in confinement produced 15.5 kg per cow per year, with 22 to 45 percent lost to volatilization and another 13 percent lost during spreading. Pastured dairy cattle thus produce about 0.67 kg of volatilized ammonia per year, while confined dairy cows release about 5.4 to 9.0 kg per cow. According to these values, confined dairy cows produce about 8 to 13 times as much volatilized ammonia per cow as pastured dairy cattle.
Integration of animal and crop agriculture provided by CAFO alternatives generally benefits both types of farming and the environment. An integrated system in Minnesota that tested two different watersheds found that phosphorus in streams was reduced by about 70 percent, nitrogen by 51 to 74 percent, and sediment by 35 to 84 percent. A model integrated regional livestock and crop system in Iowa, with animals in close enough proximity to crops or pasture to replace synthetic nitrogen fertilizer with manure, and where pasture replaced some of the corn and soybeans, could produce livestock with environmental benefits such as reduced water pollution. In addition, the number of finished hogs in this system could actually increase from the current 940,479 head to 7,566,400 within the study area (a watershed). There is clearly a major advantage in linking livestock to crops, which can be readily achieved by relocating livestock near crops.
Impact on global warming
One important externality of livestock production is the emission of heat-trapping gases such as methane. Cattle are a major source of methane, which is produced during both the fermentation of feed in the animal’s gut and the anaerobic fermentation of manure in CAFO lagoons and other manure holding structures.
Cows that feed on pasture or forage produce more methane during digestion than grain-fed cows. Though this may be reduced substantially by optimizing productivity through managed intensive rotational grazing (and by methanotrophic bacteria which are present in biologically active soils — ed.), it is not clear that methane levels can be reduced to those of grain-fed cattle.
Production of the heat-trapping gas nitrous oxide from the breakdown of fertilizer used to produce grain must also be weighed against the production of nitrous oxide from manure produced by CAFOs and their alternatives. Therefore the net effect on global warming pollution from pasture- versus grain-fed livestock is unclear. It should be noted, however, that although methane production may be about 125 percent higher on pasture operations compared with CAFOs, the atmospheric impact would likely be offset by higher capture of carbon dioxide.
The results of several studies suggest that perennial pasture may capture about 0.9 metric ton of carbon dioxide per hectare per year, while commodity crops in Minnesota—even when grown under conservation tillage—capture only one-third that amount.
On balance, it appears likely that alternative production systems that reduce the size and geographic density of animal feeding operations have substantial benefits compared with CAFOs. It is not possible at this time to determine whether lower global warming pollution is one of those benefits, but alternative integrated animal and crop production systems will likely substantially reduce other externalities associated with CAFOs.
The small sample of studies discussed above cannot be used to draw sharp conclusions about the productivity of alternative animal production methods compared with CAFOs. Many variables can affect both productivity and profitability, including management capability, geography (e.g., regional climate), and availability of processors and markets. Some important parameters also change over time as research develops new innovations and breeds or as the prices of grain, energy, and other inputs change.
Despite these data limitations, however, this overview of alternative animal production and historic trends related to animal feeding operations allows us to draw some broad conclusions about CAFOs and alternative animal production methods. First, although CAFOs often exhibit some minor economies of scale, superior management may often be more important in determining production efficiency in at least some sectors. Well managed smaller to medium-sized swine operations, for example, are as economically efficient as large CAFOs. Alternative systems can often produce animal products cost-effectively, and at a net profit to producers.
Second, the largest obstacle facing alternatives is not the inability to produce animals efficiently, but the effects of processor-related market power. Challenges in this regard (vertically coordinated production contracts between CAFOs and processors, elimination of smaller processors, and shrinking of efficient spot markets in some areas) could hamper smaller and alternative producers even when they may otherwise produce animals in a cost-effective and profitable manner.
Finally, alternatives that integrate animal and crop production can provide benefits to farms and society alike, in the form of higher profitability and reduced externalities. Linking manure to cropping systems, for example, creates major economic, social, and environmental benefits for an entire region. Considering the relatively limited research currently available on ways to improve alternative animal farming systems, further research is needed to expand these benefits.