Production Efficiency of Specialised Swine Producers

Whatever their type of enterprise, US producers should aim to maximise their output saleable pigs, according to Dr Glynn Tonsor at Michigan State University's Department of Agricultural, Food and Resource Economics. This is more important to the bottom line than changing the mix of inputs or scaling up production.
calendar icon 9 December 2009
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The swine industry in the US has changed drastically in recent years. One notable change is the proportion of total market hogs produced from traditional farrow-to-finish operations falling from approximately 65 per cent to less than 38 per cent between 1992 and 1998; this change has continued since 1998 as well. The decline has been coupled with an increase in production by specialised hog operations, as a percentage of total US production, from 22 per cent to 58 per cent over the same period.

An important question that arises from this rapid adjustment is how performance varies across emerging specialised swine production operations and traditional farrow-to-finish operations.

To address this question, Dr Glynn Tonsor at Michigan State University and Dr Allen Featherstone at Kansas State University recently completed an assessment of efficiency in the swine industry. The main purpose of this project was to examine how efficiency varies across five different swine production specialisations: farrow-to-finish, farrow-to-feeder, feeder-to-finish, farrow-to-weaning and weaning-to-feeder. This short note highlights the findings of this study.

"..focus on effectively converting operation inputs into sellable hogs rather than changing the mix of inputs or adjusting operation scale."

To address this question, the authors used the 2004 USDA Agricultural Resource Management Survey (ARMS) of US hog producers as the source of the data for this study. This survey collected detailed information from a cross-section of 1,198 hog operations in 19 states and was designed to be representative of producers across the swine industry. It is worth noting that several things have changed in the industry since 2004 that may impact this study’s findings, but the next available ARMS data set will not be accessible for at least another year as it conducted about every five years.

The demographic characteristics of producers completing the 2004 USDA Agricultural Resource Management Survey varies notably across firm specialisations. Farrow-to-finish producers tend to be older, less educated, more experienced, looking to exit the industry sooner, and less specialised in hog production than representative farrow-to-feeder, feeder-to-finish, farrow-to-weaning, and weaning-to-feeder producers.

The frequency of larger operation sizes tends to be higher for feeder-to-finish and weaning-to-feeder operations, especially relative to more traditional farrow-to-finish operations. The geographical distribution and relative importance of feed, labour and capital inputs also varies by specialisation. These differences and the desire for increased understanding of economic forces driving observed specialisation in the industry call for further analysis of efficiency within and across specialisations.

For economists to consider a firm to be ‘overall efficient,’, it must produce the actual level of output with the lowest level of inputs (i.e. be technically efficient), use the optimal bundle of inputs given the price of those inputs (i.e. be allocatively efficient) and must operate at a size that minimises average cost (i.e. be scale-efficient).

Results of the study suggests the industry’s farrow-to-finish producers include a diverse set of operations that may use older facilities, smaller scales of production, and traditional production methods relative to a more homogeneous set of farrow-to-feeder and weaning-to-feeder operations.

The results also suggests farmers of each specialisation may have more room for efficiency enhancement by improving their ability to produce on the cost or production frontiers rather than focusing on altering the allocation of inputs. That is, producers are encouraged to focus on effectively converting operation inputs into sellable hogs rather than changing the mix of inputs (e.g. labour, capital or feed ratios) or adjusting their operation scale.

Producers interested in additional information on this study may contact Dr Tonsor ([email protected]).

December 2009

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