A Contract Chicken-Raising Primer

NPR:

Perdue owns the chickens. It also supplies the feed that they eat. About a month from now, when the birds have grown to about 4.5 pounds, the company will send a truck to carry them away, and Watts will get paid. But he never knows how big his check will be.
"It's like that test you took in school — you kind of want to know how you did, but you really don't? It's that kind of feeling," he says.
The uncertainty is part of a peculiar payment system that the chicken industry uses. It's often called a tournament. Critics say it's more like a lottery.
The companies set an average price that they will pay for raising the chickens — in this case, 5 cents per pound. But some farmers will get more than that, and others less, depending on a formula that measures their performance. It's mainly based on feed efficiency: how much weight the chickens gained, compared to how much feed the company supplied.
The farmers are ranked, like teams competing in a sports league. The top-ranked farmer can get paid up to 50 percent more, per pound of chicken delivered, than the one at the bottom. "The pie doesn't change," Watts says. It's just divided into bigger and smaller slices.
The entire chicken industry uses this system, and Tom Vukina, an economist at North Carolina State University who's studied it, says that from an economic point of view, it's beautiful.
"It is really brilliant," says Vukina. It solves problems that academic economists have examined with high-powered theory. Problems such as how companies can make sure workers do a good job when they can't be monitored, or how to convince independent contractors to invest in new equipment.

Some farmers contend that the feed efficiency depends on which birds a farmer gets:

The really unfair thing, according to Craig Watts, is that whether he ends up at the top or the bottom of the rankings is out of his control. It seems to depend mainly on which birds the company sent him.
"I've been a good grower, I've been a bad grower, and I've been an every-point-in-between grower, and I'm the same guy doing the same thing," he says. "I'm the only thing that's constant on that farm."
But once you owe all that money, he says, you're stuck, because those loans are secured by the land on your farm, or by your home. "We've got ties to the land, and they exploit that, because we're going to do whatever it takes not to lose our farm," Watts says.

Somebody on the farmer side has to be making money, but it would be interesting to see how many guys are consistently at the top in the payment system.