Political Economy of Regulation of Broiler Contracts

In this paper we present a brief history of regulation of broiler contracts whose main characteristic has been that virtually all regulatory attempts on either federal or state levels have failed. We identify two possible sources of market failure that may justify regulation: asymmetric bargaining power between integrators and contract growers and imperfect information. We search for the explanation for this outcome by comparing the public interest theory of regulation with the interest group theory (Posner 1974). Based on the existing literature on possible market failures in broiler contracts, we found that empirical evidence in support of those is rather weak. This may or may not explain the existing lax regulatory environment in which poultry processors operate from the public interest theory’s point of view. However, we can build a more compelling case for the lack of regulation resorting to the interest group theory’s main arguments as formulated by Becker (1983). Broiler Industry Organization Modern broiler industry is a vertically inte-grated system of production, processing, and distribution. Broiler companies (called inte-grators) control all stages of production rang-ing from breeding flocks and hatcheries to broiler grow-out and processing. Over the past 40 years, the industry has become increasingly concentrated such that in 2002 the industry’s five-firm concentration ratio based on the vol-ume of production was 55.41. The largest five firms in the industry are Tyson Foods, Gold