Production contracts and productivity in the U.S. hog sector

Abstract

This article measures the impact of contracting on partial and total factor productivity and the pro-duction technology of U.S. hog operations. A sample selection model accounts for the fact that unobservable variables may be correlated with both the operators ’ decision to contract and farm pro-ductivity. Results indicate that the use of production contracts is associated with a substantial increase in factor productivity, and represents a technological improvement over independent production. Results also identify determinants of farmers ’ decisions to contract and other factors influencing farm productivity. Key words: production contracts, productivity, sample selection, technological difference. The rapid increase in the use of production contracts is a notable feature of the structural change taking place in the US hog industry. Between 1992 and 1998, the portion of feeder pig-to-finish hog operations using production contracts increased from 11 % to 34%, while the share of output produced under con