AgDM newsletter article, January 1998

Pork industry changes affecting farmers/agribusinesses

By Dan Otto, Extension Economist, 515.294.6147, dmotto@iastate.edu

Farmers and agribusinesses are increasingly concerned that large scale hog facilities are adversely affecting how they do business.  To answer this concern, “focus group” meetings were held around the state during the summer of 1997.  Sessions were held in Atlantic, Iowa Falls, Sioux Center, Manchester, and Washington.

Five focus groups involved hog producers of various ages who finished from 800 to 5,000 hogs annually (mostly farrow-to-finish).  Another five focus groups involved agribusinesses that represented the full range of inputs and services used by producers.

Producer responses

All producers in the focus groups expressed concerns that, because of industry changes, producers cannot stay viable by doing business as usual.  However, for the most part, independent producers believe they will stay independent.  In general the producers felt the hog industry is important for their geographic area and that the economy is in better shape because there is pork production in the region. 

Inputs
Producers prefer to purchase inputs locally.  Those who purchase off-the-farm complete feeds are most likely to purchase their feed locally.  However, they will not pay higher prices or accept lower quality or service just to stay local. 

Expansion
Some farmers said they would expand to allow family members to stay in farming. They will expand, but mostly as technology allows them to produce more hogs with the labor they have available.  Some thought they would need to change their facilities if they were going to adopt the leaner genetics preferred in the marketplace.  Some producers believe that, if they did not produce pork, they would have to quit farming.

Industry changes
Producers were not happy with the changes taking place in the hog industry but recognized some good aspects.  Improved genetics and new facility technologies were areas where they felt large producers had helped the industry.  Several producers thought they could use the technology introduced by the mega producers and raise hogs cheaper than them because they do not have as much overhead.

Market access
The major fear expressed by most producers was a loss of market access.  They fear packers have (or will have) contracts with the mega producers and smaller producers will not be able to market hogs competitively.

Regulation

Producers generally were concerned about regulation.  They recognize there needs to be restrictions on locations of facilities and manure management, but they are concerned the regulations will be so stringent that they will not be able to afford to comply.  They also fear that some geographic areas will have more lenient regulations, and thus, a competitive advantage.

Structure
Many producers reported that the amount of farrowing is declining in their area.  They thought that more feeder pigs were coming into the area from out-of-state.  They also believed that the same number of hogs are being finished as in past years, but by fewer people.

Agribusiness responses

The agribusiness focus groups reported dramatic changes in the hog industry.  Many of the smaller farmers are leaving the hog industry, and, at the same time, many large scale finishing facilities being constructed.  Very few young farmers are getting into the business.  Those that are tend to be contract finishers. 

Many producers are getting out of the farrowing business.  The main reason given is the difficulty of hiring reliable, skilled workers in this labor-intensive, high-skilled portion of the industry.  Finding good sources of feeder pigs is a critical concern for many producers.

Feed
Feed is generally purchased locally unless it is mixed on the farm.  Producers who grind and mix on the farm, especially those who use a pre-mix and soybean meal, are more likely to purchase their inputs from greater distances.  These people are very price conscious and expect good service.  Timely delivery of quality products is required.  Many feed dealers are now providing auxiliary services such as:

Credit
Credit is generally available for those producers who can show adequate cash flow or who have other collateral to back loans for buildings.  However, some local banks do not have the lending capacity or choose not to participate in loans for large facilities.

Services
Insurance, recordkeeping, and legal services have changed.  This is probably due to the advent of computers and the need to tailor services to meet the specific needs of producers. 

Livestock hauling is arranged with local haulers by producers.  Large producers normally have their own trucks.  Producers selling feeder pigs often deliver them using their own equipment.

Veterinary services are purchased locally by producers, but more of the work now falls into the consulting category.  Most producers do their own treatments and vaccinations with medication purchased from a local veterinarian or other local supplier.  Some common medications are purchased at wholesale or from large cash-and-carry suppliers.

Equipment
Equipment is generally purchased with the building.  Repairs and replacements are purchased from the original builder.  Concrete and earth moving services are purchased locally.  Structural material is often brought in from longer distances.  Most of the time a local contractor does the building work for producers.  Many of the larger units use local contractors to construct the buildings to their specifications.

Conclusions
Overall, most agribusiness people felt that the loss of agricultural suppliers was due more to the general reduction in the number of farmers than to changes in the pork industry.  The downward pressure on margins requires larger volumes and the service and consultation needs of producers requires higher quality, more costly people.

Many of the agribusiness people expressed an interest in working with fewer but larger producers, and negotiating longer-term contracts to facilitate their long-run business plans. 

The agribusiness people believed that local changes in pork production have been generally beneficial.  Many felt that, if changes are not made locally, pork production will move to some other area of the state and depress the local business economy.

Implications

Both produces and agribusinesses acknowledged that there are fewer farmers overall and fewer farmers raising hogs.  They also agree that this is not good news for businesses in rural communities.  But both groups believe there would be even fewer farmers without the adoption of new technology and production systems.

Expansion
Among producers there appears to be a reluctance to expand beyond the point where someone outside the family must be hired.  This trend is very damaging to the farrowing industry in the state.  The loss of the farrowing industry is detrimental to economic development efforts because the more labor-intensive farrowing activities involve the higher skilled, better paying jobs in the hog industry.  The unwillingness to go outside the family also seems to be limiting the development of effective networks among producers.

Services
Agribusiness is becoming more service-oriented in an attempt to build customer loyalty.  They see producers demanding service but not wanting to pay extra for it.  On the other hand, producers aren’t sure the service is worth the extra price.

Coordinated system
In the future, many agribusinesses expect to be part of a coordinated system where they will need to provide a source of pigs to get the business of producers.  As fewer producers remain, agribusinesses also are likely to become integrated and fewer independent agribusiness firms will remain.

 

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