As Thanksgiving preparations arrive, I naturally find my thoughts drift to the evolution of turkey demand, technological change in turkey production, market concentration in the turkey industry, and price indications for the classic Thanksgiving dinner. Not that there is anything wrong with it. [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 high cost of the traditional meal. For the economy as a whole, the starting point for measuring inflation is to identify a “basket” or group of related goods, and then track how the price of that basket of goods has changed over time. When the Bureau of Labor Statistics measures the Consumer Price Index, a basket of goods is defined as what a typical American household buys. But one can also select a more specific basket of goods if desired, and since 1986, the American Farm Bureau Association has been using more than 100 shoppers in states across the country to estimate the cost of buying Thanksgiving dinner. The commodity basket of the classic Thanksgiving dinner price index looks like this:
The cost of buying a classic Thanksgiving dinner increased by 20% from 2021 to 2022. The top line of the following chart shows the nominal price to buy a basket of goods for a classic Thanksgiving dinner. The bottom line in the graph shows the price of the classic Thanksgiving dinner adjusted for the overall rate of inflation in the economy. The bottom line is relatively flat, which means inflation for the classic Thanksgiving dinner was actually a good measure of the overall rate of inflation over long periods of time, but you can see the apparent uptick in the real price of Thanksgiving dinner since 2020.
At least part of the reason for the general rise in Thanksgiving prices is a supply shock affecting the turkey industry: an increase in highly pathogenic avian influenza (HPAI). USDA’s Margaret Cornelius and Grace Grossen provide a brief overview in “Livestock, Dairy, and Poultry Outlook: November 2022.” They write: “This year, the turkey industry faced a particular challenge serving Thanksgiving dinner due to outbreaks of highly pathogenic avian influenza (HPAI), in addition to challenges common to all food industries this year—increased production costs, labor shortages, and transportation limitations.”
An outbreak of a highly pathogenic avian influenza virus in 2022 resulted in the loss of about 8 million turkeys from US production this year: for comparison, that’s about 4% of the total number of turkeys “slaughtered” (a USDA term) in 2021. Furthermore That said, Turkey farmers have an incentive to slaughter their turkeys earlier than normal, to protect against the risk of the turkeys becoming infected with the highly pathogenic avian influenza virus, so the average weight of turkeys also decreased in 2022.
Of course, for economists, price is just the beginning of the supply chain discussion in the turkey industry. This is just a small example of the old wisdom that if you want to have a friendly, free-spirited conversation at a dinner party, never sit two economists next to each other. The last time the USDA conducted a “Detailed Overview of the Turkey Industry in the United States” appeared to be back in 2007, though with an update published in April 2014, some turkey market themes fade from those reports on both demand and and supply aspects.
On the demand side, the amount of turkey consumed per person rose significantly from the mid-1970s until about 1990, but then declined somewhat, but appears to have stabilized. The figure below is from the Eatturkey.com website run by the Turkish National Federation two years ago.
The USDA reports that overall consumption of turkey in the United States has declined in recent years, from 5.38 billion pounds in 2016 to 5.1 billion pounds in 2021.
On the supply side, Turkey’s companies are what economists call “vertical integration,” which means that they either carry out all production steps directly, or control these steps with contractual agreements. Over time, turkey production has shifted dramatically, away from a model in which turkeys were hatched and raised in one location, and towards one in which steps in turkey production became separate and specialized—with some of these steps occurring on a much larger scale. The result was increased efficiency in turkey production. Here are some comments from the 2007 USDA report, with references to the graphs omitted to make them easier to read:
In 1975, there were 180 turkey hatcheries in the United States compared to 55 in 2007, or 31 percent of the 1975 hatcheries. Incubator capacity in 1975 was 41.9 million eggs compared to 38.7 million eggs in 2007. Hatching densities have increased From an average capacity of 33,000 eggs per hatchery in 1975 to 704,000 eggs per hatchery in 2007.
For several decades, turkeys were historically hatched and raised in the same process and either slaughtered on or near where they were raised. Historically, operations owned the parent stock of turkeys they raised while providing them with their own eggs. The increase in technology and perfecting turkey farming has led to highly specialized processes. Each production process in the turkey industry is now mainly represented by various specialized processes.
The eggs are produced in laying facilities, some of which have had the same genetic turkey lineage for more than a century. The eggs are immediately shipped to hatcheries and placed in incubators. Once the balls have been hatched, they are usually shipped to a brooding pen. When the husks are mature, they are transported to the fattening facilities until they reach slaughter weight. Some operations use the same building for the entire turkey raising operation. Once the turkeys reach slaughter weight, they are shipped to slaughter facilities and processed for meat products or sold as whole birds.”
U.S. agriculture is full of examples of remarkable increases in yields over a few decades, but such examples always elude me. I tend to think of “turkey” as a product that doesn’t have much opportunity for technological development, but I’m clearly wrong. Here is a graph showing the rise in turkey size over time from the 2007 report.
A more recent update from a news article shows that trend has continued. In fact, most commercial turkeys are now raised through artificial insemination, because the 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 more than a dozen medium-sized producers. Given this reasonably competitive environment, it’s interesting to note that, in the past, the turkey price hike — that is, the margin between the wholesale price and the retail price — tended to fall around Thanksgiving, which clearly helps keep the price down for consumers. However, this pattern may weaken over time, as margins were higher on the last two Thanksgivings, Kim Ha of the USDA explains this in the November 2018 Livestock, Dairy and Poultry Outlook. The vertical column lines in the figure show Thanksgiving. She writes: “In the past, retail prices of turkey in the holiday season at Thanksgiving were typically near yearly lows, while wholesale prices rose. … The data suggests that in the past Thanksgiving season the relationship between retail and wholesale prices of turkey may have be decreasing.”
If this post whets your appetite for more discussion, here’s a post on making processed pumpkin and another on some of the economics of mushroom production. happy times! Anyway, Thanksgiving is my favorite holiday. Good food, good company, no gifts – and all these good topics of conversation. What do you not like?