Why Innovating in Animal Agriculture is Hard

Structural barriers to innovation in animal agriculture means that change happens slowly, and isn't always pointed in the right direction.

We previously explored how technology can theoretically help us build an industrial animal agriculture that meets our expectations of responsible animal stewardship. However, putting this into practice is complex. There are fundamental structural barriers within animal agriculture that make innovation particularly challenging, especially regarding animal welfare. The free market can, in theory, drive the necessary change, but without strong institutional support, it will happen too slowly, and it won’t always be pointed in the right direction. 

Bigger businesses, less innovation

One of the defining features of the animal agricultural landscape today is consolidation. For example, in the United States, just four major meat packing companies control 85% of beef processing, creating an environment where innovation struggles to take root. This consolidation has several dampening effects on progress:

1. When few companies control most of the market, each has less of an incentive to grow market share since their competitors are each more powerful, and there’s a point after which antitrust scrutiny becomes an issue. Instead, they tend to focus on retaining market share, cutting costs, and mitigating downside risk. The upside to innovation is lower and the potential downside is higher.

2. Large, dominant companies can become sclerotic, codifying the culture and processes that initially led to their success. This makes it more difficult to adapt to changing market conditions or new disruptions.

3. Startups with new technologies have few potential customers, giving those customers outsized leverage.

However, animal agriculture is not one industry, but rather a collection of structurally similar industries (dairy, beef, pork, chicken, eggs, and a few others). Many parts of the animal agriculture supply chain are highly consolidated, but some are more consolidated than others. For example, the companies that manage livestock genetics tend to be the most consolidated, with just two companies controlling most of the global market for broiler and layer genetics respectively. 

In contrast, the egg industry stands out as one of the least consolidated sectors, where the top 10 egg producers only control 50% of the market. It's no coincidence that the egg industry is also the most dynamic and fastest-moving part of animal agriculture. Over the last 15 years, the US egg industry has transitioned from 5% to 41% cage free, which is one of the biggest shifts in industrialized agriculture ever seen. More recently, the US started moving very quickly to adopt in-ovo sexing. The companies leading this new trend are small relative to the norm in animal agriculture, giving them the nimbleness needed to quickly take advantage of this new business opportunity. They also have a highly differentiated base of consumers who are especially excited to pay more for eggs made with this technology. 

Bigger animals, more money

Even though the egg industry is less consolidated, that doesn’t necessarily mean it’s easy to innovate. One countervailing force is that the total market value of egg production is small relative to other animal protein markets, and each individual bird is less economically valuable.

An analysis of the five main sectors within US animal agriculture shows this as a general trend. The beef and dairy industries have the fewest animals because cows are so large, but each animal is significantly more valuable than in the chicken or egg industry. Beef and dairy also are significantly larger markets than the rest of animal agriculture.

1 - For dairy cows and layers, this is the rough cost to purchase a fully productive animal. For meat animals, this is the cost a slaughter plant might pay a farmer.

This economic reality creates an unfortunate mismatch between where innovation happens and where it's most needed from an animal welfare perspective. The industry naturally directs more resources toward improving conditions for high-value animals like cattle because, simply put, innovation requires money. Companies need capital to invest in R&D and new equipment, which is easier in bigger industries. Likewise, investments into the health or welfare of an individual animal is easier when the animal is worth hundreds of dollars, rather than a few bucks.

This is suboptimal from an animal welfare standpoint for two reasons:

1. What really matters for animal welfare is the condition and treatment of individuals. And when there are more animals, industry-wide shifts affect more individuals. A new poultry technology could have implications for billions of individual animals, while a cattle technology would only affect tens of millions. 

2. Larger animals generally have higher welfare than smaller animals, because it’s more difficult to guarantee the humane treatment of individuals when there are more animals on a farm. Some poultry facilities in the U.S. house over five million chickens, whereas the largest cow feedlots rarely break 100,000. With that many animals on site, even the most competent operators will struggle to ensure that each one is free from hunger, thirst, pain, injury, or disease. 

Therefore, the natural incentives of the industry push technological innovations for welfare into areas where they aren’t necessarily as important. The vast majority of animals we raise for food are chickens, but they receive a relatively small amount of the innovation-focused funding. 

Structural and cultural factors

These aren’t the only structural factors that make it hard to innovate. Animal agriculture has high capital requirement and creates cheap commodity products sold at razor thin margins. Businesses have little free cash flow, restricting their ability to make long-term investments in R&D or new equipment. 

This restrictive business environment makes it difficult to attract top talent and entrepreneurs. The industry also has a generally negative reputation outside of agricultural communities, and the idea of working with live animals can be unpalatable for those that didn’t grow up doing it. The lack of strong talent means fewer promising investment opportunities, resulting in a vicious cycle. From How to Be a Techno-Optimist for Animals:

Animal agriculture currently receives less than 3% of the VC funding going into the broader ag space. It’s known as a slow-moving backwards-looking industry, unresponsive to changing consumer preferences. In a stunning narrative violation, all of the most innovative companies in animal agriculture are European, and there’s a pervasive and insidious notion in American animal agriculture that we’re always 10-15 years behind Europe. 

Animal agriculture is one of the few parts of the US economy where we’ve completely ceded leadership in innovation to Europe.

All of these factors make innovation in animal agriculture especially hard. However, the situation is not hopeless: the energy sector faced similar structural challenges, but still pulled off a remarkable transformation. Solar energy, once prohibitively expensive, is now the cheapest source of new energy, and other clean energy like wind, geothermal, and nuclear are well-positioned for success. The lesson of the climate movement is that such structural challenges can be overcome when broader society decides a problem is worth solving.

Lack of institutional support

The way that broader society makes this kind of decision is through its institutions, like the government, the media, academia, and NGOs. One of the reasons climate tech has been so successful is because it’s had massive support from broader institutions, which animal welfare currently lacks. Companies developing green technologies have access to special pools of mission-aligned capital, are often actively supported by governmental policy, and are more likely to have favorable stories in the media which help attract top talent and investors. They can receive free help from mission-driven nonprofits, benefit from better academic research, and follow roadmaps set forth by think tanks. This kind of institutional support can help spur innovation in a space where the free market would move too slowly or otherwise be insufficiently responsive to externalities.

The societal emphasis on sustainability is apparent even within animal agriculture. Many initiatives exist to reduce the environmental footprint of raising livestock, from adding seaweed to cattle feed to reduce their methane emissions, to improving genetics to reduce the amount of feed that each animal requires.

This innovation in sustainability is a good thing. But it’s strange that it’s pursued to a greater degree than innovation in animal welfare since consumers generally claim to care more about welfare than sustainability when it comes to animal products. For example, in a recent survey by Merck Animal Nutrition, 66% of respondents ranked animal welfare as very or extremely important to their animal product purchasing decisions, compared to 55% for sustainability. Likewise, a recent paper by agricultural economist Jayson Lusk showed that Americans consistently expressed a higher willingness-to-pay for claims around animal welfare when compared to sustainability. 

Animal agricultural producers therefore have a stronger natural incentive towards animal welfare, but in practice skew toward sustainability because that’s where the institutional support is. One of the ways this tension manifests is that animal welfare is often awkwardly shoehorned as a subcategory of sustainability, despite the fact that they are utterly distinct goals that are sometimes even opposed to one another.

The economic incentives to improve animal welfare alone don’t provide the urgency and direction needed to build the type of agricultural system that society wants. In order to achieve this change, we need a strong foundation of institutional support, like there is for fighting climate change. The public has a clear, demonstrated interest in farm animal welfare, but we’ve historically lacked ways to channel this interest towards productive ends. Instead, advocacy groups have focused on unproductive initiatives like promoting veganism.

To overcome the structural barriers within animal agriculture, we need things like increased funding for welfare-focused R&D, policy frameworks that reward companies for improving welfare, and work by NGOs to help farmers understand and implement new technologies, and to help educate the public as to their benefits. By building this institutional infrastructure, we can help the industry overcome its structural barriers and drive meaningful improvements in animal welfare. The demand exists, the need is clear, and with proper support, innovation can flourish.

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