1. Introduction
Broilers have been produced under contract since mid-century, and today, 85 percent of
chickens are grown under contract. Judged by their prevalence, contracts are an integral part of
organizing poultry production. Most of the broiler contracts use “two-part piece rate
tournaments” payment structure consisting of a fixed base payment per pound of meat produced
and a variable bonus payment based on the grower’s relative performance. Current literature on
tournaments emphasizes their role in reducing moral hazard on the grower side and other
contracting costs (Goodhue;Knoeber; Knoeber and Thurman, 1994; Knoeber and Thurman,
1995; Vukina and Foster). It is claimed that the contracts have benefited farmers by offering
opportunities to earn income with relatively low capital requirements. It has alleviated typical
cash flow problems for the small farms, and induced enterprise diversification on the farm. It is
argued that the significant gains from contracts comes through the reallocation of risk from the
farmers to integrators who have means to act upon uncertain outcomes (Knoeber and
Thurman1995)
Despite their favorable properties, many broiler growers are dissatisfied with the existing
pay-structure.They have repeatedly expressed their concern about the relative performance
payment structure based on tournaments. What they believe is that it is unfair to compare their
production costs with those of other growers in determining their payments. They consider this
pay-structure unfair, may be, because they face group composition risks in it which arises from
the homogenous treatment of the grower’s ability even though they are heterogeneous. They
have complains that gains from contract arrangements are largely being appropriated by the
integrators through that unfair relative payment structure, while they receive only small, or even
negative, returns from contract production.
Out of such concern for grower discontent, a number of states have made some failed
attempts to protect growers. On the federal level, in 1997 the Grain Inspection, Packers and
Stockyards Administration(GIPSA) of the US Department of Agriculture announced that it was
considering “the need for issuing substantive regulations to address concerns in the poultry