USDA's Economic Research Service has released a new report on the pork industry, highlighting the challenges facing the industry. The report, "Economic and Structural Relationships in U.S. Hog Production," states in 2002, nearly half of the U.S. hog inventory was owned by operations with 50,000 head or more.
The main findings of this report are:
The rapid and widespread growth of contract pork production has substantially raised productivity in the industry. On average, contracting raises total productivity by 20-23 percent and by as much as 50 percent for some inputs.
The higher level of productivity associated with contracting implies that responding to concerns about contracting with policies that regulate or restrict contracting would likely impose economic costs on the pork industry and could cause pork prices to rise. However, negative producer welfare effects (loss of autonomy) or costs to contracting (increased transaction costs) could offset the potential on-farm efficiency gains from contracting. * The returns to contracting for contractors and contract growers are largely determined by factors that affect the efficiency of the pork operation, but the size of contracts has not significantly impacted the returns of either party.
The potential for excess nutrients resulting from the concentration of hogs on the land is much higher in Southern States than in traditional pork-producing States of the Corn Belt, and among larger versus smaller operations.
Many pork producers could comply with more stringent regulations on manure management by spreading manure on more of their crop acreage. On average, manure was spread on less than 30 percent of the crop acreage on pork operations.
If alternative or innovative manure management technologies are required to comply with more stringent regulation, large and independent operations are in a much better position than small and contract grower operations to make the necessary capital investments.
The trend toward fewer, larger, and more productive pork operations will likely continue into the foreseeable future.
The managerial ability of individual pork producers is probably as important as size economies in lowering the costs of pork production. * The comparative disadvantages that an area may have in producing pork can be overcome with innovative technologies and business arrangements, making the pork industry highly mobile and able to locate where market and/or regulatory conditions are more favorable.
"These findings paint a picture of an industry increasingly concentrated among fewer and larger farms, and becoming more economically efficient," reports ERS. "However, these changes have not come without problems. Concerns about the increasing market control and power concentrated among packers and large pork operations, and from the manure management problem posed by the increasing concentration of hog manure on fewer operations, are paramount."
USDA says addressing these concerns through regulation would likely impose economic costs that could be passed on to consumers.
"In addition, the relative mobility of the pork industry means that regulations could result in changes in the location of pork production facilities, with ripple effects in local economies. Balancing environmental and economic interests appears to be a major challenge for policymakers dealing with the implications of structural change in U.S. pork production," states ERS.
USDA’s Economic Research Service