[my emphasis]
That's exactly what it comes down to. Additionally, there's the question whether our treatment of animals being 'somewhat better' than nature's is 'enough'. (And we'd be talking about nice farms here, factory farms are clearly worse than nature's average.)
I think the argument you introduced doesn't hold up. Nature is indeed cruel, but that doesn't give us the right to mimic it.
In Saudi Arabia, all religions except Islam are severely discriminated against. Does that mean other countries should/can ban Islam? Obviously not, because by repeating the mistakes of others, we'd be giving up the edge that allows us to call it a 'mistake' in the first place. We know better, so we should do better.
Now to the 'value of being alive'. This is a far-reaching question, but I think the answer is obvious when you think it through. I don't see any reason why 'life' should have intrinsic value. Maybe 'happy life / happiness' has it, but even that's highly questionable. If we accept that 'happy life' is ethically desirable, we would have to try our very best to fill the whole universe with happy sentient beings (and, if necessary, even sacrifice some pre-existing happiness for more beings). Parents would be obliged to have as many children as possible if they're wealthy enough to raise them happily. Intuitionally, that doesn't seem right.
I think 'creating life' is a morally neutral process, the interests of a sentient being can only come into play once it actually exists. So we're not doing the animals a favor by having them in masses, because if they didn't exist, they couldn't care.
Dennett is probably right about the sheep, but only in a limited way. If 'sheep consciousness' only lives 'in the moment' and doesn't care about future plans, then they might as well have gone extinct, ethically it wouldn't make a (direct) difference. This may sound counterintuitive, but the conclusion rests on solid assumptions (preference utilitarianism, see 'Practical Ethics' by Peter Singer for an introduction). Anyway, cows, pigs and chicken have it, on average, much worse than sheep, so the 'better than the state of nature' reasoning doesn't apply there.
Off topic:
The Dennett quote is awesome in regard to religion. I wish I had read 'Breaking the Spell' instead of 'God Delusion' (I love Dennett's books; Dawkins is great too but he's better with biology), but since I've had my fair share of religion debates, I'd probably be bored by the unavoidable redundancy that comes with reading several books on the same topic.
I see your point. Maybe I'm naive, but I'm somewhat optimistic regarding the strength of reason. Admittably, from all the countless discussions I've had with religious people, I only changed the minds of four (that I know of, and three of them were already starting to doubt certain things they'd been told); and regarding vegetarianism, I've only managed to make some people a little bit more aware of the issue (i.e. they'd try to eat a bit less and look better where they buy from), but still, I'm trying (: After all, I myself became, against my primordial meat-loving desires, convinced that the choice was either vegetarianism or hypocricy, all this by mere arguments. Also, I don't like the word 'preaching' because it implies dogma. I don't see myself as having all the answers, I'm just providing input for dialouge. I'm very confident about my views, but I have changed them regarding some issues in the past, so they might change again in the future if I ever encounter convincing arguments against them. But yeah, maybe being less 'aggressive' works better. Actually, I'm less 'aggressive' about the issues in real-life, there I'm more 'polite'. Here it's all about hard facts and arguments, mere text, no emotions (:



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