As Thanksgiving preparations approach, I naturally turn my attention to the evolution of turkey demand, technological changes in turkey production, market concentration in the turkey industry, and Thanksgiving classic dinner price indices. Not that there’s anything wrong with that. [This is an updated, amended, rearranged, and cobbled-together version of a post that was first published on Thanksgiving Day 2011.]
Perhaps the biggest news about Thanksgiving dinner this year is the rise in the cost of traditional food. For the economy as a whole, the starting point for measuring inflation is to identify an appropriate “basket” or group of goods, and then track the change in the price of that basket of goods over time. When The Bureau of Labor Statistics measures the consumer price index., a basket of goods is defined as what a typical US household buys. But if you wish, you can define a more specific basket of goods, and since 1986. The American Farm Bureau Federation used more than 100 buyers in states across the country to estimate the cost of buying a Thanksgiving dinner.. The shopping cart for their classic Thanksgiving dinner price index looks like this:
The cost of buying a classic Thanksgiving dinner has increased by 20% from 2021 to 2022. The top row of the following graph shows the nominal purchase price of a classic Thanksgiving dinner basket. The bottom line on the graph shows the cost of a classic Thanksgiving dinner, adjusted for the overall rate of inflation in the economy. The bottom line is relatively flat, which means that classic Thanksgiving dinner inflation has actually been a good indicator of the overall rate of inflation over long periods of time, but you can see a distinct increase in the real Thanksgiving dinner price from 2020.
At least part of the reason for the overall rise in Thanksgiving prices is the supply shock affecting the turkey industry: the outbreak of highly pathogenic avian influenza (HPAI). Margaret Cornelius and Grace Grossen of the USDA offer a brief overview in the Livestock, Dairy, and Poultry Outlook: November 2022They write: “This year, the turkey industry has faced a particular challenge in its Thanksgiving dinner delivery due to the outbreak of highly pathogenic avian influenza (HPAI), in addition to challenges common to all food industries this year – increased production costs, labor shortages and transport restrictions”.
The HPAI outbreak in 2022 resulted in the loss of about 8 million turkeys from US production this year: by comparison, that’s about 4% of the total number of turkeys “slaughtered” (USDA’s term) in 2021. farmers have an incentive to slaughter turkeys earlier than usual to protect them from the risk of HPAI infection, so the average weight of turkeys also dropped in 2022.
Of course, for economists, the price is only the beginning of the discussion of the supply chain of Turkish industry. This is just a small illustration of the old wisdom: if you want to have a free and hearty conversation at a dinner party, never sit two economists next to each other. Last time The USDA made a detailed “Overview of the US Turkey Industry” apparently as early as 2007, although an update was released in April 2014. Some themes about the turkey market stem from these reports of both supply and demand.
On the demand side, the amount of turkey consumed per person increased sharply from the mid-1970s until around the 1990s, but then declined somewhat, but appears to have stabilized. The picture below was taken from the website Eatturkey.com, which was run by the National Turkey Federation a few years ago.
The USDA reports that overall U.S. turkey consumption has been declining in recent years.from £5.38 billion in 2016 to £5.1 billion in 2021.
On the supply side, Turkish companies are what economists call “vertically integrated,” meaning they either carry out all stages of production directly or control those stages through contractual arrangements. Over time, turkey production has shifted significantly from a model in which turkeys were bred and raised in one location, to a model in which the stages of turkey production have become separate and specialized, with some of these stages taking place on a much larger scale. The result was an increase in the efficiency of turkey production. Here is a comment from 2007 USDA reportreferences to graphs have been omitted for readability:
There were 180 turkey hatcheries in the United States in 1975, up from 55 in 2007, or 31% of 1975 hatcheries. Hatchery capacity in 1975 was 41.9 million eggs, compared with 38.7 million eggs in 2007 . Incubation rates have increased from an average of 33,000 eggs per hatchery in 1975 to 704,000 eggs per hatchery in 2007.
A few decades ago, turkeys were historically bred and raised in the same operation, and then slaughtered either at or near their rearing site. Historically, businesses have owned turkey parent stock, which they raise while supplying their own eggs. Advances in technology and skill in turkey breeding have led to highly specialized operations. Each production process of the turkey industry is now mainly represented by various specialized operations.
The eggs are produced on poultry farms, some of which have kept the same genetic breed of turkeys for more than a century. Eggs are immediately sent to incubators and laid in incubators. Once the poults hatch, they are usually sent to the brooding barn. As the poults mature, they are transferred to rearing facilities until they reach slaughter weight. Some businesses use the same building for the entire turkey rearing process. Once the turkeys reach slaughter weight, they are sent to slaughterhouses and processed into meat products or sold whole.”
US agriculture is full of examples of significant increases in yields over several decades, but such examples always make my jaw drop. I tend to think of “turkey” as a product that doesn’t have much room for technological advancement, but I’m obviously wrong. Here is a graph showing the increase in turkey size over time from a 2007 report.
BUT a recent update from a news article shows that this trend is continuing. Indeed, most commercial turkeys are now bred by artificial insemination because males are too heavy to do otherwise.
Turkey production is not a very concentrated industry with three relatively large producers (Butterball, Jennie-O and Cargill Turkey & Cooked Meats) and then over a dozen medium-sized producers. Given this fairly competitive environment, it’s interesting to note that turkey markups, that is, the difference between the wholesale and retail price, have tended to come down around Thanksgiving in the past, obviously helping to keep prices lower for consumers. . However, this pattern may weaken over time as margins have been higher in the last couple of Thanksgiving days. Kim Ha of the USDA explains this in the November 2018 Livestock, Dairy, and Poultry Outlook report.. The vertical lines in the figure represent Thanksgiving. She writes: “In the past, retail turkey prices during the Thanksgiving holiday season have typically been close to yearly lows while wholesale prices have risen. … The data suggests that the ratio between retail and wholesale turkey prices may decrease over the past Thanksgiving season.”
If this post whets your appetite for more discussion, here’s a post on the processed the gourd industry and more onsome economic aspects of mushroom production. Good times! Anyway, Thanksgiving is my favorite holiday. Good food, good company, no gifts, all good talking points. What’s not to like?