An Urban's Rural View

The Infrastructure That Links Producers and Retailers

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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It's a supporting actor on the economic stage, and yet an incredibly important one. Call it the middleman network - that chain of brokers, storage centers, intermediate processors and other businesses that link those who produce goods, like farmers, to those who sell them, like grocery stores. It includes grain elevators, packers, canneries, ethanol plants and co-op buying bodies.

Predictability is one of this network's strengths. Retailers can invest knowing they have an assured source of supply. Producers can produce feeling confident someone will buy what they have to sell.

To be sure, predictability can discourage innovation. One reason Corn Belt farmers grow corn and beans almost exclusively is the existence of a middleman network dedicated to these crops—and the absence of a network for alternative crops. A Corn Belt farmer thinking of planting a few thousand acres of vegetables would have to wonder, "Who will I sell them to?"

At the same time predictability can stimulate new investment in the middleman network, and new investment can encourage farmers to diversify. Consider Costco's plan to launch a new broiler chicken operation in eastern Nebraska.

Costco's members — you have to buy a membership to shop at Costco's warehouse-style stores — love both the taste and the price of its $4.99 rotisserie chickens. The retailer loses an estimated $40 million a year… on the birds but they draw customers to the stores. Once there — well, speaking for myself, once I'm there, things I didn't come intending to buy somehow find their way into my cart.

By producing some of its own chickens, Costco hopes to cut waste, boost efficiency and improve profitability (…). Because the poultry operation itself will need 300,000 bushels of corn and 3,000 tons of soybean meal every week (…), it makes sense to put it in the heart of the corn-and-beans belt.

The area's farmers would not only benefit from the additional demand. Some of them would have the chance to branch into the broiler biz. DTN's Chris Clayton reported that for the Costco plant to process 1.6 million birds a week, farmers would need to set up 332 broiler barns, 48 breeder barns and 24 pullet barns.…

What's not to like in all this? For the community, the environmental impact, broadly defined. Local opponents want more discussion of the "risks of disease associated with raising poultry" and "the pressure they say the plant and its 1,100 employees would put on area roads, housing and schools."…

Fair enough. These are legitimate concerns. If the community decides the risks are too serious, Costco won't get its permits and the proposal will be stillborn. One Nebraska town has already said no.…

Prospective chicken farmers have concerns, too. Before borrowing the $1.5 million they'll need to build a four-barn operation, they want to make sure they'll make enough to pay off the loan. What terms will they be offered by Costco's plant manager, Lincoln Premium Poultry? Contract chicken growers in other states are warning them to read every word of the proposed contract carefully.

Costco is talking about a contract with more guarantees for growers than the industry norm. Farmers are cautiously optimistic. But as a lawyer representing growers told DTN's Clayton, the devil is in the details.

Costco is working to address everyone's environmental, economic and other concerns. The retailer may not succeed in satisfying the doubters, but if it does, the plant will transform the area's agriculture. An area that today produces too few broilers to mention will become a broiler hub. The investment will also invigorate the local economy. And it will make those of us who like Costco's rotisserie chickens happy, too.

That's the power of the middleman network.



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