For the last 10 to 15 years, the political winds have been indicating that large livestock operations are environmentally risky, making them the target of high profile manure regulation revisions. USEPA refers to operations housing 1,000 Animal Units or more as Concentrated Animal Feeding Operations or CAFOs. In theory an animal unit is approximately 1,000 pounds of live weight. This threshold of environmental risk was established in the Clean Water Act nearly 40 years ago and is equivalent to 1,000,000 pounds of resident live weight concentrated on any given facility. While there is some thought that farm expansion may be deterred by the CAFO threshold, the commercial evidence is that large livestock facilities continue to grow.
Concentration is a misunderstood economic benefit. There are excellent reasons for any business to concentrate. Initially, livestock farmers found that they could do a better job of making sure all their animals had better water supplies and better feed to eat if they moved them all inside barns. The first barns were small, and then they got larger. Recent rising costs of feed and energy prices as well as regulatory compliance costs have made getting larger more economically appealing. Profit margins are razor thin, and becoming large and specialized lowers the per unit cost of output, taking advantage of economies of scale. For livestock farms, the driving factors are efficiency and lower costs.
The CAFO environmental problems in the 1990s were due to a supply of manure products that was far greater than the demand for it. No one wanted, or could use the manure resources in the form in which they were produced by the CAFOs. These imbalances created spills and leaks, and other unintended environmental pressures. There are some land-based, manure nutrient assimilation realities, but these are dependent on the dynamic manure and crop production technologies in place.
The Clean Water Act uses live animal weight as the indicator of manure supply — and of environmental risk. The misalignment between manure supply and manure demand is not directly dependent on facility size, but on the ability to effectively reuse the manure. If a production residual that is a liability is converted into one that is profitable, having more of that residual is a good thing. Converting manure into value-added nutrients, energy, and even fiber reduces the environmental risk to negligible levels. As demand for biomass fiber, food and fuel grows, even the value of raw manure is increasing. These quality dimensions are not included in the CAFO regulation or analyses.
The technical changes show up in other ways that actually improve the environmental footprint of large facilities. The dairy industry is an excellent example. The U.S. dairy industry is producing 50 percent more milk today than it did in 1950 with just over half the cows from back then. To get the amount of milk produced today back in 1950 it would have taken 3.5 times more cows, all being fed and all producing manure.
We concentrate plant production as well. We call these operations greenhouses. The 2007 Census of Agriculture reports that for floraculture, nursery stock, vegetables and herbs, and mushrooms there are some 1.15 billion square feet in greenhouses. This amounts to some 26,000 very high-capital, crop production acres under glass. Moving high valued crops into a highly controlled environment enhances product quality and lowers the per unit cost of production. Firms get larger because there are economic benefits.

Hope For The ‘Less-Than-Large’

An economic counterpart to scale economies is scope economies. Economies of scope are discussed less often. These are the economies of diversification. They answer questions of how many outputs can we get from a single facility or capital outlay. One of the reasons we don’t talk about them is that they are difficult to measure. But they are tangible. Meat packers sell many cuts of meat and animal products from a single animal and oil refiners sell many industrial and energy products from a crude oil feedstock. An interesting characteristic of scale and scope is that they are independent. It is not either one or the other. They can work together. The optimization of scope (diversification) and scale (specialization) gives mid-sized operations a chance to compete with the really large operations.
Livestock producers are responding with processing technologies that add value such as composting and anaerobic digesters (AD). Composting was the first wave. More recently the risks of investing in an AD technology are decreasing. Concentrating plant and animal production successfully increases facility efficiency by taking advantage of both economies of scale and the economies of scope. Game-changing shifts in energy and fertilizer prices, as well as a growing interest in local food are creating tests for the traditional economics of concentration. These changing market conditions will provide new opportunities for composting and AD.
Energy costs hit every facet of feed and livestock production, transportation and distribution. Moving facilities closer to population centers and selling more directly to consumers lowers transportation costs and increases market prices for the farmers. Technologies like AD that reduce odors offer a technology tool that is more neighbor-friendly. Fertilizer prices are increasing faster than energy prices. This is also enhancing the value of organic nutrients (and increasing their prices), which also can be locally produced. The growth of manure treatment technologies like AD — along with changes in energy costs and access to local markets — may encourage disaggregation of some of the larger food production systems.
In short, we concentrate animals for economic reasons. And the same reasons apply to concentrated manure. Diversifying a farm by adding enterprises such as AD to a facility can increase the efficiency as well as relax the pressure to get larger.
Mark Jenner, PhD; World Agricultural Economic and Environmental Services (WAEES), California Biomass Collaborative, and Biomass Rules, LLC (www.biomassrules.com)