Confined animal feeding operations (CAFOs), sometimes called factory farms or industrial animal operations, are defined by the Environmental Protection Agency (EPA) as livestock operations that do not sustain their own crops or other animal feed and that house more than 1,000 “animal units”—equivalent to 2,500 swine of 55 pounds or more. Hog CAFOs in particular have been widely criticized in the environmental, public health, and toxics literature. Main concerns include nutrient runoff from manure, which leads to water and soil contamination; particulate matter air pollution; and overwhelming odor. This study finds that after the passage of the 1996 Farm Bill, the average market price of hog feed was 26% lower than what the feed cost to produce. This decline brought operating costs for CAFOs down by 15%. The savings to CAFOs between 1997 and 2005 averaged $947 million per year, a 535% increase over the 1986-1996 period. Also drawing on data provided in two academic studies that assess the cost of alternative manure-management strategies, we find that the use of alternative technologies and/or the acquisition of more land to reduce over-application of manure would raise CAFOs’ operating costs by 2.4%-10.7%, depending on the strategy employed.
We conclude that in an economic climate of full-cost feed and with more stringent environmental regulation, CAFOs would see their operating costs rise by between 17.4% and 25.7%. According to USDA estimates, this could virtually eliminate the apparent cost advantage CAFOs have had over mid-sized diversified hog producers. With these added costs, CAFOs may have difficulty out-competing mid-sized, diversified hog producers purely on cost. It may well be shown that CAFOs’ apparent economies of scale have been less the result of efficiency than they are the result of government policies that have favored large-scale industrial animal production.