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Comparison of Premiums and Returns in Organic Pork Production

by 5m Editor
1 June 2001, at 12:00am

By Ben Larson, James Kliebenstein and Mark Honeyman, ISU - Organic pork production is a relatively new and expanding segment of the pork industry. Similar to some other niche markets, it has experienced a relatively rapid growth during recent years.

It is well known that cost of organic pork production is greater than traditional pork production due to increased feed costs and decreased swine performance. The industry has dealt with this by paying premiums to producers who produce the product. However, it is not clear on what levels or how the premiums should be paid to give producers an incentive to provide a steadier product flow throughout the year.

With premium structures currently used for organic pork there are more hogs being produced using summer farrowing than by winter farrowing. This uneven pig flow causes an instability of supply and product flow problems throughout the industry. This instability can lead to problems of slaughter capacity scheduling utilization as the industry grows and matures. Also, at certain time periods the demand for fresh organic pork products may not be met.

During other times, the availability of fresh organic pork may exceed demand. These issues create problems for a developing industry, which is attempting to establish and maintain a reliable consumer base.

The objective of this report is to evaluate alternative premium payments and structures for organic pork production. Structured properly, premiums provide adequate incentives for increased winter farrowing and a more even flow of fresh pork products available to consumers throughout the year.

This report addresses the issue by examining the increase of costs involved in expanding a seasonal (summer only farrowing) organic pork production system to continuous production of organic hogs.

A seasonal and a continuous system of production are used to provide a basis to determine cost differences between the two types of production systems. It is also necessary to examine the production cost differences between the summer and winter periods of a continuous system to establish a basis for differences in premiums paid between winter and summer farrowed hogs.

The final issue addressed is a comparison of premium payment alternatives.

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