Bigger, Specialized, Contract-Run: How U.S. Hog Farming Got More Productive, 1992-2004

Between 1992 and 2004 the number of U.S. farms with hogs fell by more than 70 percent, yet the national herd stayed at about 60 million head. USDA's Economic Research Service (ERS) used surveys of hog producers from three points in time to show how that happened and what it did to productivity and costs. Its answer: about half of the productivity gain came from larger scale and about half from new technology.

Fewer, larger, more specialized farms

• Consolidation. Farms with hogs dropped from more than 240,000 in 1992 to fewer than 70,000 in 2004, while the inventory held steady, so a few big operations produced a growing share. Hog production consolidated faster than almost any other livestock.
• Size. The average operation grew from 945 head to 4,646. The share of the inventory on operations with 2,000 or more head rose from less than 30 percent to nearly 80 percent, and operations with 5,000 or more held over half of it.
• Specialization. Hogs once came mostly from farrow-to-finish farms that handled every stage from breeding to slaughter. In 1992, 65 percent came from them and 22 percent from specialized finishing operations; by 2004 it was 18 percent and 77 percent.
• Contracts. Hog operations under production contracts rose from 5 percent in 1992 to 67 percent in 2004. Under a contract, a processor or other owner (an integrator) typically supplies feeder pigs, feed and veterinary services, and handles marketing, while the grower is paid a fee for capital, utilities and labor. That lets growers specialize in one phase of production and expand their hog operations instead of growing crops for feed.
• Geography. Production also moved to states outside the Corn Belt, especially North Carolina, Oklahoma and Utah.

Chart from USDA's Economic Research Service.

On the farms themselves, hogs rose from 46 to 71 percent of the value of production, and the share of grain grown on hog farms for their own hog feed fell from about half to below 20 percent.

Less feed, less labor, lower costs

Specialized feeder pig-to-finish operations, the type most likely to use contracts, improved the most. Per hundredweight of gain, they used 44 percent less feed and 83 percent less labor. Farrow-to-finish farms improved less, with 15 percent less feed and 52 percent less labor. That helps explain why feeder pig-to-finish operations took a growing share of output.

Real production costs per hundredweight of gain were 28 percent lower in 2004 than in 1992 for farrow-to-finish producers, about 2.7 percent a year, and 44 percent lower for feeder pig-to-finish producers, about 4.7 percent a year. The authors call the structural change the result of economic competition: larger operations that are more profitable tend to grow, and those that adopt cost-saving technology first, or sit in regions with cheaper inputs or nearer markets, are more likely to survive.

Chart from USDA's Economic Research Service.

What technology did

New genetics, nutrition, housing and handling equipment, veterinary services and management all contributed.

• Artificial insemination (AI). Used on 73 percent of sows by 2000, compared with 1 percent in 1990.
• All-in/all-out housing. Pigs of similar age and weight move through each phase together, which lets producers tailor feed to the pigs' age and clean facilities between groups to limit infection. It rose from 25 percent of finishing operations in 1990 to 57 percent in 2000, covering about 85 percent of finished hogs.
• Phase feeding and breeding practices. Specialized finishers more often fed diets matched to life stage, and specialized farrowing operations more often used AI, high-quality breeding stock and terminal crossbreeding.

Larger operations adopt such technology more. In 2004, only 4 percent of farrow-to-finish operations with fewer than 500 head used AI, against 92 percent of those with at least 5,000 head. The survey data show increasing returns to scale: unit costs fall as operations grow.

Chart from USDA's Economic Research Service.

More to come?

For the largest operations, current technology offers only small further gains from scale, but smaller operations (under 25,000 hundredweight of gain a year) still seem to have room. And technological innovation showed no sign of slowing between 1998 and 2004, so ERS expects productivity gains to continue.

Sources

• USDA Economic Research Service, Amber Waves, Technology, Larger Farm Size Increased Productivity on U.S. Hog Farms, drawn from Nigel Key and William McBride, The Changing Economics of U.S. Hog Production, ERR-52; rewritten in hubnx's own words.