[Owning each link in the supply chain enables companies to reduce
operating costs and go bigger. Costco is outdoing them all by being
both the meat producer and the retailer.]
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PORTSIDE CULTURE

COSTCO’S INFLATION-PROOF $4.99 ROTISSERIE CHICKEN, EXPLAINED  
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Kenny Torrella
July 18, 2022
Vox
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_ Owning each link in the supply chain enables companies to reduce
operating costs and go bigger. Costco is outdoing them all by being
both the meat producer and the retailer. _

Inside one of the barns where chickens are raised for Costco’s
supply chain, Mercy For Animals

 

In 2019, Costco became the first US retailer to set up its own chicken
business, contracting farmers in Nebraska and Iowa to raise 100
million birds and building a feed mill, hatchery, and slaughter plant.
Costco has instituted some practices that are more humane and fair
than most conventional chicken companies, but some residents are
unhappy with the company’s presence. |

Americans love their chicken, eating some 7.5 billion of them every
year. That’s enough for about 23 birds for every man, woman, and
child in the country. So the fact that inflation has hit poultry
prices particularly hard — chicken prices increased 18.6 percent
between June 2021 and June 2022, outpacing inflation for food as a
whole — has been tough for Americans to swallow.

But throughout the year of inflation — and for 11 years before that
— one poultry product has remained at the same bargain-basement
price: Costco’s $4.99 rotisserie chicken.

The roasted birds have been hailed as an economic lifeline — most
rotisserie chickens will run you $6 to $10 — but the chicken isn’t
cheap because of corporate benevolence. In 2015, Costco said it was
able to maintain its low price because the company considers the
rotisserie chicken a “loss leader.” That means its purpose isn’t
to bring in profits, but rather to bring in customers to buy more of
the wholesale retailer’s bulk toilet paper and five-packs of
deodorant. And it works. The item is so popular among Costco members
that it has its own Facebook fan page with 19,000 followers.

But there’s another reason the birds have remained so affordable. In
2019, Costco made an unprecedented move to source its chicken at even
lower margins: It set up its own feed mill, hatchery, and slaughter
plant in Nebraska, and contracted nearby farmers to raise over 100
million birds each year, all under the name Lincoln Premium Poultry
(LPP). It could be saving the company up to 35 cents per bird.

It’s a classic example of “vertical integration.” That means
owning each link in the supply chain, which enables companies to
reduce operating costs and go bigger. It’s how some of the
country’s largest chicken producers, like Tyson Foods, took over
much of America’s chicken business. Now, Costco is outdoing them all
by being both the meat producer and the retailer.

The move worries industrialized animal farming critics, who say that
over the last few decades, meat industry consolidation has worsened
conditions for meat-processing workers, intensified largely unchecked
air and water pollution, and weakened rural economies.

Lincoln Premium Poultry declined an interview request and Costco did
not respond to repeated requests for comment.

To Costco’s credit, the company has made some improvements when
compared to most conventional chicken companies. That’s not saying
much, but it’s something. The company uses a more humane slaughter
method than the industry standard in its Nebraska plant, its contracts
with independent farmers are more fair than average, and at $4.99 per
bird, no one could accuse the company of price fixing.

But Costco still relies on nearly all of the same practices as the
rest of Big Chicken, making it an important case study in the hard
limits of trying to produce more equitable meat in America’s
consolidated, extractive food system, one where consumer price
apparently still matters far more than farmer, worker, or animal
welfare.

Picking apart Costco’s chicken supply chain means picking apart
America’s paradoxical relationship with meat. We’re eating as much
of it as ever, praising a company for keeping a whole chicken as
affordable as a pint of cheap beer, while also growing outraged at how
people and animals are treated to put cheap chicken on our plates.

The “death smell” of Big Chicken

Around two years ago, the North Carolina-based private equity firm
Gallus Capital set up three 16-barn sites to raise chickens for
Costco, all within 1.25 miles of Greg Lanc, a soybean and corn farmer
in Butler County, Nebraska. Each barn is permitted to house 47,500
chickens, which translates into a total of around 2 million chickens
alive at any given time in the facilities. And the whole thing has
been nightmarish for Lanc.

Lanc says the stench from the barns — a mix of ammonia-laden manure
and what he calls “the death smell” from the pits of decomposing
birds — has pervaded his home. “[The smell] tries to get inside
anything it can.”

The rotting birds attract swarms of flies, and the noise from trucks
transporting feed and chickens is constant, beating up the roads and
kicking up dust. Sometimes the traffic is heavy enough to knock
pictures off the wall.

“When it’s really bad, I’ve had times where I don’t want to
stay here,” he says. “You wake up in the morning with a runny nose
and your eyes just burning and there’s no reason for it ... My A/C
runs all the time. If you open a window for any reason — dust,
flies, the smell, you’re at the mercy of all of that. ... I have
friends stop by and they want to gag.”

Lanc says he and another Butler County resident met with Nebraska’s
governor, Pete Ricketts, in June of 2021, which prompted Ricketts’s
office to file a complaint about the Gallus-owned farms with the
Nebraska Department of Environment and Energy (NDEE). But Lanc says it
didn’t reduce the odors from the farms. “[NDEE] did an inspection
... and [said] everything’s in compliance.”

“I don’t in any way want to interfere with someone’s life,”
Jody Murphey, managing partner of Gallus Capital, which owns the
farms, told me. “That’s not our intention, by any means. ...
There’s no perfect answer here. When we build a farm, we have to
build it somewhere. And it’s virtually impossible to put it in a
location that is free of an impact for everybody. I’m sensitive to
that.”

Murphey added that the farm contractors who live on-site haven’t
complained to him about the smell. “We do whatever we can to lessen
that [odor] impact, and we’ll continue to do so. And if we can
consult with outside third parties, and if there are products on the
market that will, I guess, reduce that impact, we’re all for it,”
Murphey said.

Lanc says that despite the personal effect of the chicken farms on his
life, he hopes local, independent farmers who contract with Costco
succeed. But he’s also worried about what the mega-operations that
surround his home will do to his health over the long term. A 2021
study found that air pollution from chicken farms is linked to 1,300
premature deaths in the US each year.

“Everybody has said that these operations are going to be around for
a long time,” Lanc said. “Well, I’m in my late 40s. ... Do I
want to live here 20 years from now and deal with this same situation?
I mean, will I be here? Will the health problems eventually catch up
with me?”

 The debt trap of modern-day chicken farming

As bad as living close to an industrialized poultry operation can be,
life may not be much better for some of the workers raising the
chickens that will end up on Costco’s shelves.

Chicken farming in the US is a little like driving for Uber, but with
much, much higher stakes. Farmers are typically contractors and take
on much of the liability in raising chickens: They need to secure
loans worth hundreds of thousands, or millions, of dollars to build
out barns, in much the same way an Uber driver supplies their own car.
The farmer also relinquishes control over the quality of the inputs
— the birds and the feed — and that quality, in part, affects how
much they get paid, in the same way Uber attracts customers of varying
quality, cordiality, and generosity.

Poultry contract farmers are often paid via a zero-sum “tournament
system” which critics say effectively pits farmer against farmer.
Those who convert feed to meat more efficiently are rewarded
handsomely at the expense of lower-performing farmers who earn a
below-average payout. (The spread of chicken farmer income is
enormous, with the 20th percentile of earners making around $19,000
per year in 2011 and the 80th percentile making around $143,000.)

In a plus for the retailer, Costco says it’s done away with the
tournament system. Still, John Hansen, president of the Nebraska
Farmers Union, which advocates for independent farmers in the state,
says that while Costco’s contracts are better than average, “that
doesn’t mean that they’re good — that just means they’re
better than average.”

The environmental nonprofit Food and Water Watch found that areas of
Iowa with industrialized pig farming, which has become increasingly
contract-based, have experienced higher rates of economic and
population decline than those that haven’t. The Pew Research Center
has drawn similar conclusions, which goes against a common meat
industry talking point that contract farming boosts local economies
and helps to keep struggling farm families on their land.

“The state of Nebraska might get a few taxes off of Costco, but all
the profit is in a hermetically sealed tube that shoots it back to
[Costco in] Seattle,” says Randy Ruppert of Nebraska Communities
United, a nonprofit that advocates against industrialized animal
farming. (Costco is headquartered in the Seattle suburb of Issaquah.)

 Costco counters that its slaughter plant alone has brought around
1,100 jobs to Nebraska. But US poultry slaughter plant jobs are some
of the most dangerous and grueling jobs in the US. Slaughter lines
move at a dizzying pace — 140 birds per minute — and chicken
processing plant employees, working quickly with knives, suffer cuts
and hand and wrist injuries as they try to keep up.

Since Costco sells its birds whole, it requires less processing and
thus less knifework, which could result in fewer injuries than the
average plant. And at its Nebraska slaughter plant, it uses a
slaughter method called controlled atmosphere stunning. That method
reduces workers’ contact with chickens and reduces the likelihood of
injury. But Darcy Tromanhauser of Nebraska Appleseed, a nonprofit that
advocates for worker protections, said, “The combination of speed,
slippery floors, some knives, and heavy machinery is still a worrisome
combination anywhere.”

Earlier this year, a chemical leak at Costco’s poultry processing
plant injured three workers.

“This is just what you find when you walk into an industrial chicken
barn”

In 2020, an investigator with the animal rights group Mercy For
Animals worked at a Costco chicken farm wearing a hidden camera and
documented birds bred to grow so fast they had trouble walking,
chickens with ammonia burns caused by lying in their waste, and piles
of rotting dead birds. (Disclosure: I worked at Mercy For Animals
prior to Vox.)

Costco’s treatment of chickens gained national attention when former
New York Times opinion columnist Nicholas Kristof wrote about the
investigation; even the creator of the Costco rotisserie chicken
Facebook fan page was mortified enough to film a video calling for
change.

As unappetizing as the conditions were, Leah Garcés, Mercy For
Animals’ president, said they were typical across US poultry farms:
“I have been into many, many chicken barns and this is just what you
find when you walk into an industrial chicken barn.”

Months later, Costco stated it would explore giving birds more space
and requiring its third-party, non-organic chicken suppliers to use
the more humane slaughter method that it already uses at its Nebraska
plant. Nothing committal, no timelines, but progress nonetheless,
Garcés said. Critically, she says, the company acknowledged some of
the health issues caused by fast-growing chickens, a top priority for
animal welfare advocates, and said it’s speaking with chick
suppliers about breeding chickens to have fewer leg issues.

 Nor is Costco alone in these changes. Perdue Farms, the fourth
largest US poultry producer, has led the pack among the top 10 in
experimenting with and implementing welfare changes, such as giving
chickens a little more space, installing windows on barns to provide
natural light, and researching better breeding practices. The changes
are modest, but animal welfare groups have praised the company for
being the first mover. Wayne Farms, the seventh largest producer, is
also raising some of its chickens with similar requirements.

Both companies can meet some of the demand of the 200 restaurants and
food companies that have signed on to the Better Chicken Commitment, a
pledge to source higher-welfare chicken by 2024.

Costco hasn’t signed on — doing so would likely make it difficult
to maintain its $4.99 price tag, something it has made clear it
intends to do, inflation be damned.

Alene Anello, president and founder of the nonprofit Legal Impact for
Chickens, hopes she can speed up change through the courts. Last
month, Anello filed a lawsuit alleging that Costco is violating
Nebraska and Iowa animal welfare laws that prohibit animal neglect.
The lawsuit alleges that because Costco raises chickens to grow so
quickly to the point they have trouble walking, some birds can’t
access water and feed, causing them to die from dehydration,
starvation, and untreated injuries and illnesses. (Disclosure: Anello
and I both interned in separate departments at the Humane Society of
the United States in 2009. I also worked with a plaintiff in the
lawsuit, Krystil Smith, at the Humane Society of the United States in
2013.)

“The main relief we want is just an injunction ... saying Costco
needs to treat birds better and make sure each of the birds has food
and water,” Anello says. It’s an attempt to force a chicken
company to address alleged long-standing health issues wrought by
chicken breeding — that is, if they can win.

Though Costco’s business model has been controversial to some, it
could be the future. Wingstop, a chicken chain with over 1,500 US
locations, said in May that it’s considering setting up its own
supply.

As for Nebraskans unhappy with Costco’s move into the Cornhusker
state, it’s unlikely they’ll see much redress in the coming years.
Jim Pillen, the Republican candidate for Nebraska governor, is
expected to win this November. He was also the country’s 16th
largest pork producer as of 2016, and has made it clear he’s
unlikely to step in to regulate Nebraska’s chicken industry.

Some change could come from the White House, though. In late May,
President Joe Biden announced the first in a suite of regulatory
updates to give contract farmers a little more power in their
relationship with meat companies. But given persistent inflation and
the fear of a recession, the drive for consumers to tighten budgets
wherever possible will remain strong, especially for necessities like
groceries. That means for now, the $4.99 rotisserie chicken likely
isn’t going anywhere but into more shopping carts.

Correction, 2 pm: A previous version of this article misstated the
number of Wingstop locations in the US. There are more than 1,500.

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