Is Higher-Welfare Farming Scalable?
Could be more than you think.
If you ask a vegan whether they have a problem with their local small family farm that has a few animals, treats them well, operates with integrity, and sells products at the farmer’s market, the common response is that there might not be a problem with that particular farm, but that’s not how most of the meat we consume is produced. They would be correct.
Push farther and the question might come up whether we could feed the country with meat made in this way, if we collectively decided it was worth it, and the right incentives were created. You might then hear them say that this sort of farming is not “scalable.”
This is an implicit assumption I think a lot of people hold that’s largely left uninterrogated. I think the real story is more complicated, and that higher-welfare farming systems, while challenging, are more scalable than they seem. We just have to want it badly enough.
A brief detour into sugary candy
Scalability can be a messy concept, but a toy example may help. I once got really into making caramel on my stovetop. The basic process is that you mix sugar into water, then boil the mixture until all the water evaporates. Because there’s no more evaporative cooling, the temperature starts rising rapidly. You have to target a very specific temperature so that the sugar is hot enough to become gooey, but not so hot that it burns. Once you reach that temperature, you turn off the heat, add fat, quickly mix, then let cool.
This exact process works wonders in my kitchen, but there's a way in which it's not scalable, at least without modifications. Imagine heating up a 100,000 liter vat full of sugar water, via heat source from the bottom of the container. Once all the water evaporated, the bottom of the vat would heat up quickly, but the rest of the sugar would remain cool. The sugar at the bottom of the vat would then burn before the sugar at the top even begins to heat up. You’d end up with an inconsistent mess.
Fortunately for See’s Candies, there are many ways to make this process more scalable. For example, you could use alternative heating systems that apply heat in different ways, e.g. a heating jacket that delivers heat through the sides of the vat in addition to the bottom. You could also develop a container that constantly mixes the sugar inside the vat, although there would be some nontrivial engineering involved in ensuring a highly consistent temperature gradient throughout the mixture.
Making these adjustments would be a critical step if you wanted to start producing caramel at any meaningful scale. There’s a limit to how much you can make just by having more people in more kitchens making more batches on more stoves.
In doing so, not only would you be able to make more caramel. You’d also be able to make caramel less expensively due to economies of scale. This is the important lesson of scalability: everything gets cheaper with scale. For new technologies, this is known as coming down the “cost curve.” Why is solar energy now the cheapest source of energy, when it was prohibitively expensive for many decades? It came down the cost curve.
There are many reasons things get cheaper as they scale, especially new technologies. To list just a few:
Cheaper capex: In the previous example, the cost of the vat per unit of caramel would decrease with scale. As 3D shapes increase in size, volume increases faster than surface area, meaning that a 10,000L tank needs less steel per liter than a 1,000L tank.
Leverage: As a larger buyer, you have more leverage over your suppliers, allowing you to negotiate bigger bulk discounts and pass those savings onto your customers.
Gains from R&D and optimization: When operating at a larger scale, marginal improvements in your production process are amplified across a larger quantity of goods.
Fixed cost absorption: Many costs like management, accounting, compliance and marketing are relatively fixed regardless of production volume. As you scale up, these costs get spread across more units.
What is scalability?
At a high level, scalability pertains to the relative difficulty of doing 10x, 100x, 1,000x more of something. However, there’s still some ambiguity as to what we mean when we say something is “scalable.” In my mind, there are at least three possible definitions:
Supply scalability: Is it actually possible to do substantially more of something, given the technical details of the process? For example, suppose that the optimal heating jacket required some rare earth mineral of which there was simply not enough in the world. That would limit scalability. Or, suppose that the manufacturing costs of larger mixing tanks increased substantially faster than the cost of materials decreased. That would also limit scalability on the supply side.
Demand scalability: Are there enough people that would buy the product if you produced more of it? Each step of increasing scale and reducing costs requires more people to buy the product at a slightly lower price. If the demand curve of the product isn’t shaped in a way that allows producers to move down the cost curve, that also, in a sense, limits scalability. If caramel were a delicacy only a few people enjoyed, it wouldn’t matter how cheaply you could make thousands of pounds, as you would still only have a market for hundreds.
A path to the right equilibrium: Suppose that the world is divided into two types of people—a small group of people happy to pay $100/lb for premium caramel, and a larger group that would be willing to pay $1/lb for caramel but nothing more. In this scenario, no one has a willingness-to-pay in between. There are then two possible equilibria. The first is one where a distributed industry of small artisan caramel makers working in their kitchens would supply the high willingness-to-pay customers at high costs, but most people wouldn’t consume caramel. The other is one where there are huge caramel factories making dirt-cheap caramel for the mass market. If we found ourselves in the first equilibrium, it might not actually be practicable to get to the second equilibrium, even though the supply and demand is technically there. The capital expenses might be so high that the uncertainty about demand, or lack of financing options would heavily discourage people from attempting to reach the second equilibrium.
Scalability being limited by not having a path to the right equilibrium isn’t as far-fetched as it might sound. It actually happens frequently when there are multiple competing products. Take plant-based meat as an example. There’s a well-proven market of vegetarians and vegans who are happy to pay for expensive plant-based meats. I believe there’s also a large consumer base that would happily buy reasonable facsimiles of meat if they were close enough to but significantly cheaper than the real thing (imagine plant-based burgers the price of beans). In the limit of scale and optimization, plant-based meat is almost certainly cheaper to produce than animal meat, since the inputs are cheap and the processes are fairly simple (especially when compared to rearing a live animal). However, today’s plant-based meat companies have had a rough time moving down the cost curve, and they may never succeed. A world in which there are massive plant-based meat factories churning out dirt-cheap plant-based meat is one with a radically different food supply chain, and getting from here to there is a challenge that the industry has not yet shown it can solve.
Higher-welfare farming
With all that in mind, we can return to the question of whether higher-welfare farming is scalable. I think the most intuitive notion of scalability is supply scalability. When we come back to the question of whether higher-welfare farming is scalable, I think it’s clear that it is fairly scalable under this definition.
Some major inputs to animal protein production are feed, labor, equipment, and veterinary care. None of these seem to have fundamental limits on scalability. One major thing that sets current higher-welfare farms apart is that there are generally more humans involved in taking care of fewer animals. However, in principle, there’s nothing impossible about a farming system where there are tons of people (or, more likely in the future, AIs and robots) involved in giving each animal individualized attention. Remember, supply scalability is more about what’s possible rather than what’s economical.
The one area where there might be scalability limitations is land, especially grazing land for cattle. In theory, we could run out of land on earth if we were to raise enough 100% grass-fed cattle to supply global demand. However, I don’t have a sense of how close we actually are to this limit. Additionally, this worry really only applies to beef, which requires significantly more land than other kinds of animal protein. Pasture-raised chicken or pork requires relatively little land compared to beef, since the animals aren’t eating the grass, they’re just living on it. For the US’ 400 million egg laying hens, allocating the requisite 108 square feet of pasture land for each of them would use up 1 million acres of land, less than 1% of the roughly 120 million acres of pastureland in the country. Additionally, in the true techno-optimist vision of humane husbandry, idyllic artificial environments should also be on the table.
The other fundamental limit on supply scalability in animal agriculture is the capacity of the oceans to produce wild caught fish. We’ve already hit this limit, which is why most of the growth in seafood production is coming from aquaculture.
In our theoretical argument with a vegan, the pushback then might become “Well, there’s not enough people that will pay more for higher animal welfare to actually make up a significant part of the market.” They might point out that the vast majority (99%) of animals we currently eat are raised on commodity farms. But now we’re talking about a different type of scalability—demand scalability.
This is the part of the vegan’s argument that carries more weight. While consumers generally express extremely high willingness to pay for better welfare in surveys about animal products, their behavior at the grocery store often demonstrates a cost-sensitivity that makes it difficult to build a sustainable business around higher-welfare farming systems. While the US has more robust specialty markets for animal products when compared to other parts of the world, higher-welfare products are still a small minority of overall products consumed.
Where are the equilibria?
That said, the current state of demand for higher-welfare products is consistent with two distinct hypotheses:
We have already hit fundamental limits on the demand scalability of high-welfare farming.
It’s been challenging for companies to move to the equilibrium that makes higher-welfare farming economical.
One piece of evidence in favor of hypothesis 2 is the remarkable success of the pasture-raised egg company Vital Farms. Founded in 2007, Vital Farms experienced massive growth and is now the second biggest egg brand in the country by revenue (behind Eggland’s Best, the largest commodity egg brand), and accounts for 3-4% of the total US layer flock. And they’re still experiencing annual growth rates of above 30%.
When I walk into my local Whole Foods, Vital Farms eggs are selling for $10 a dozen. At the highest end, there are options from small local egg farmers that are selling for $13 a dozen. Lots of things go into this cost difference, but a very loose first approximation of the cost reduction Vital Farms has been able to achieve through scale is therefore $3. This cost reduction has allowed them to create a thriving, successful business on the back of better animal welfare. They may not be perfect along every metric, but it’s hard to contend that they’re not significantly better for animal welfare than most alternatives.
Indeed, four of the five biggest egg brands by revenue in the US are solidly in the specialty category (although branded eggs are a smaller category than private label). We don’t yet see this in other parts of animal agriculture, suggesting that there is room to grow.
That’s not to say scaling higher-welfare farming is easy. Vital Farms pulled off something very impressive that’s proven difficult to recreate. For example, a higher-welfare chicken meat company called Cooks Venture raised significant venture capital only to implode in a spectacular manner last year, demonstrating the difficulty of building a business around higher-welfare products.
Moving to better equilibria
The current price of higher-welfare farming is the most expensive it will ever be. Rather than oversimplifying by saying it’s “not scalable,” we need to understand that it will become cheaper as it becomes more common.
And even if there are fundamental limits on the demand scalability of higher-welfare farming, demand is not fixed. Attitudes towards animal welfare can change, shifting the demand curve for higher-welfare products. Additionally, as overall societal wealth increases, the share of our income devoted to animal protein decreases, lowering the intrinsic cost of the welfare premium.
In order to increase the economic viability of higher-welfare farming, we need to decouple the ideas of “small scale” and “higher-welfare” farming. Most people tend to associate higher-welfare farms with small farms, likely because we associate welfare with individual attention from the farmer. Attention is great, but it’s only one part of the picture. Take in-ovo sexing as an archetypal example: the probable way that in-ovo sexing will become the default in global egg production is by becoming cost competitive with manual sexing methods. This will only happen with scale, and in fact small scale hatcheries may struggle to transition due to insufficient throughput to justify an entire in-ovo sexing machine.
If we’re serious about finding better ways to feed the planet, we need to be thinking in terms of both welfare and scalability. Fundamentally, I think these two things are more aligned than they might initially seem. The challenge with higher-welfare farming is the increased cost, and scale is one of the best levers to lower cost that we have at our disposal. Rather than idealizing the bucolic family farm that can only feed a handful of people, we should instead celebrate initiatives like Vital Farms and Cooks Venture, which attempt to make higher-welfare farming accessible to everyone.