Vertical Coordination in the Pork and Broiler Industries: Implications for Pork and Chicken Products

Recent changes in structure of the U.S. pork industry reflect, in many ways, past changes in the broiler industry. Production contracts and vertical integration in the broiler industry facilitated rapid adoption of new technology, improved quality control, assured market outlets for broilers, and provided a steady flow of broilers for processing. Affordable, high-quality chicken products have contributed to continual increases in U.S. chicken consumption, which has surpassed pork and beef on a per capita basis. Incentives for contracting and vertical integration in the pork industry may yield comparable results. If so, these arrangements might be expected to result in larger supplies of higher quality pork products at economical prices.vertical coordination, vertical integration, contracts, transaction costs, technology, chicken, pork, Livestock Production/Industries,

Consumers’ Demand for Pork Quality: Applying Semantic Network Analysis, May 2006

Abstract Consideration of consumers’ demand for food quality entails several aspects. Quality itself is a complex and dynamic concept, and constantly evolving technical progress may cause changes in consumers’ judgment of quality. To improve our understanding of the factors influencing the demand for quality, food quality must be defined and measured from the consumer’s perspective (Cardello, 1995). The present analysis addresses the issue of food quality, focusing on pork—the food that respondents were concerned about. To gain insight into consumers’ demand, we analyzed their perception and evaluation and focused on their cognitive structures concerning pork quality. In order to more fully account for consumers’ concerns about the origin of pork, in 2004 we conducted a consumer survey of private households. The qualitative approach of concept mapping was used to uncover the cognitive structures. Network analysis was applied to interpret the results. In order to make recommendations to enterprises, we needed to know what kind of demand emerges from the given food quality schema. By establishing the importance and relative positions of the attributes, we find that the country of origin and butcher may be the two factors that have the biggest influence on consumers’ decisions about the purchase of pork

Developments and challenges in the European pork sector

This paper aims to give insight into the structure of and variety in the European pork system and suggests topics for further research of the European pork sector. It provides an overview of the different types of pork chains, their quality systems. governance structures and supporting technology. The paper further describes the concentration and up-scaling found in all links of the chain in most of the countries investigated. Moreover, a development towards chain-wide quality management systems and new collaborative structures in the various chains can be recognised. However, there is also a trend towards development of pork chains that aim at high-quality production for regional and niche markets, in particular in Southern European countries. Although the paper tries to give a European picture, it focuses specifically on five countries: the Netherlands, Germany, Greece, Spain and Hungary. The paper concludes with major bottlenecks and opportunities for European pork chains, after which new research issues are raised

THE SUPPLY CHAIN OF PORK: U.S. AND CHINA

Consumers in the United States consume 53 pounds of pork per capita per year. Forty percent of that pork enters the market by way of a contract with a packer or an integrated supply chain arrangement. Chinese consumers consume 37 pounds per capita. Eighty percent of that pork is produced in the backyards of millions of households all over the countryside. The supply chain that brings pork from hog to human is clearly different in these two countries, but both are moving in the same direction. In the United States, pork breeding produced leaner but heavier hogs by the late 1990's. This was largely in response to consumer demand for leaner meat and processors demand for less waste. Stricter sanitation regulation and quality control by food manufacturers led to a more integrated supply chain. Food companies contract with farmers for hogs with particular characteristics being demanded by consumers and retailers. Half of fresh pork and forty percent of processed pork is sold through foodservice establishments in the U.S. Consumers need for time-saving food is revealed by the portion of pork they eat away from home (42% of $35 billion sales) and by the mix of fresh (27%) and processed (73%) pork purchased in retail stores. The emphasis in the U.S. supply chain for pork is on delivering consistent quality of safe meat to consumers all the time. There is considerable research into new pork products. The top ten processing plants handle 43 percent of the total output. China is the largest pork producer in the world slaughtering 526.7 million hogs in 2000, over five times as many as the United States. Although commercial operations and specialized households are growing they provide only about twenty percent of all China's pork. Lower quality and sanitation standards prevent pork produced in backyards from entering the westernized/commercial supply chain but it is an important source of meat in the inland and rural areas of China. Coastal cities have more commercial and imported pork. For example, in Beijing sixty percent of production is from commercial farms. The advent of retail supermarkets and higher incomes in China foretell an increase in commercial pork operations. Direct foreign investment by key Western food companies and retailers are leading the standards for food safety and handling in the larger cities. Based on current pork consumption at various income levels, it is estimated that pork consumption will grow more than seven percent in Chinese cities and 1.5 percent in the countryside over the next ten years. This translates into an additional 12 million pounds of pork in 2011 with the urban consumption surpassing the rural consumption. The pork industry will be driven to emphasize quality, sanitation, and convenience in China as they already do in the United States. With China entering the World Trade Organization (WTO) more pork imports can be expected. Exports will depend on meeting the quality and safety standards of importing countries.Industrial Organization, Livestock Production/Industries,

RELATIONSHIPS BETWEEN INDUSTRIALIZED AGRICULTURE AND ENVIRONMENTAL CONSEQUENCES: THE CASE OF VERTICAL COORDINATION IN BROILERS AND HOGS

This paper examines the relationship between industrialized production in the pork and broiler industries and the natural environment. Historical perspectives are presented regarding the movement toward increasingly concentrated and coordinated pork and broiler production units in the South. The relationships between animal byproduct management and environmental quality, both at the farm level and within a geographic region, are addressed. Using the North Carolina pork industry as a background, current regulations and potential policy implications to protect environmental quality are discussed.Environmental Economics and Policy, Livestock Production/Industries,

Price and Quality of Pork and Broiler Products: What's the Role of Vertical Coordination?

Significant changes in vertical coordination of the U.S. broiler industry many years ago may provide useful insight into the rapid changes occurring in today's pork industry. Under production contracts and vertical integration, the broiler industry developed and grew into the leader in U.S. meat production-outpacing beef and pork. Production efficiencies, quality assurances, and convenience in product offerings have led to falling chicken prices and rising per capita consumption. Incentives for contracting in the pork industry are similar to those in the broiler industry in many ways. The similarities suggest that consumers may also expect plentiful supplies of high-quality pork products at economical prices.Demand and Price Analysis, Industrial Organization,

RELATIONSHIPS BETWEEN INDUSTRIALIZED AGRICULTURE AND ENVIRONMENTAL CONSEQUENCES: THE CASE OF VERTICAL COORDINATION IN BROILERS AND HOGS

This paper examines the relationship between industrialized production in the pork and broiler industries and the natural environment. Historical perspectives are presented regarding the movement toward increasingly concentrated and coordinated pork and broiler production units in the South. The relationships between animal by-product management and environmental quality, both at the farm level and within a geographic region, are addressed. Using the North Carolina pork industry as a background, current regulations and potential policy implications to protect environmental quality are discussed.Industrialized agriculture, Sustainability, Vertical coordination, Environmental Economics and Policy, Livestock Production/Industries,

NEW AGGREGATE AND SOURCE SPECIFIC PORK IMPORT DEMAND ELASTICITY FOR JAPAN: IMPLICATIONS TO U.S. EXPORTS

A two-stage model estimates aggregate and source-specific import demand elasticities for pork in Japan. The low income elasticity of imported pork and low income elasticity of U.S. pork reflect consumer survey results of low quality rating for imported pork compared to domestic pork, and rating for U.S. pork not higher than Canadian pork. To maintain and increase market share, the U.S. needs strategies to reverse consumer attitude by positioning U.S. pork as high quality, safe, and low cost.Demand and Price Analysis, International Relations/Trade, Livestock Production/Industries,

PORK MARKET DEVELOPMENT RESEARCH PROJECT: MARKET POTENTIAL FOR ALBERTA'S PORK IN SELECTED U.S. MARKETS

The ethnic Asian market in Washington and Oregon constitutes a sizable niche market for fresh Canadian pork. Since California possesses a large population segment that originates from Asia, the characteristics of the ethnic Asian-origin market in the northern part of that State are also of interest since this may also be a potential niche market for Canadian pork. The objectives of the first part of this study are to evaluate the Asian ethnic markets for fresh pork in the United States Pacific Northwest and Vancouver. In the second part of the project the assessment of the market for fresh pork by Asian-origin consumers was extended to San Francisco. In this extension, a detailed assessment was also made of the product preferences for fresh pork by Asian-origin consumers in San Francisco and the behaviour patterns associated with store choices of these fresh pork consumers. Asian retailers and distributors in Vancouver, Seattle and Portland were surveyed by direct interview during November and December 1996. The survey applied semantic differential scaling questions, open-ended questions and a stated preference task, a conjoint methodology, to examine pork retailer's and distributor's perceptions of fresh pork produced in Western Canada and in the Midwest United States. Personal interviews with wholesalers and retailers were also applied in the San Francisco market survey which was conducted in 1998. Two consumer surveys were also conducted in San Francisco in 1998, directed at Asian-origin consumers of fresh pork. The structure of the market for fresh pork represented by retailers catering to Asian consumers in Vancouver differs from that in Seattle and Portland. The "Asian market" in Vancouver is dominated by many small shops that deal directly with packers. The small shops in Seattle and Portland deal with distributors and wholesalers. Distributors play a small role in Vancouver's retail market. Asian retailers in Seattle deal with a variety of suppliers, including both packers and distributors. In Portland, retailers catering to Asian consumers trade mainly with distributors and a local packer-wholesaler. In San Francisco, Asian stores and butcher shops prefer to obtain pork through smaller joggers, while American style supermarket retailers catering to the Asian consumers purchase pork directly from meat packing companies; fresh pork is sold in different ways in the different types of stores catering to Asian consumers that are found in these markets. The first survey found that Western Canadian pork enjoys an image of superior quality amongst retailers and distributors in Seattle's ethnic Asian market. Asian retailers in Portland are less familiar with Western Canadian pork and did not regard it as highly as did retailers in Seattle. However, distributors in Portland are more familiar with Western Canadian pork and consider it to be superior to Midwest United States pork in terms of overall quality, meat colour and fat trim. In both these markets, Western Canadian pork is generally considered to be expensive. These results are not statistically significant, however they are of economic relevance since most of the major players in the segment were interviewed. Little knowledge of Western Canadian pork was evidenced by retailers or consumers in this market segment in San Francisco. Western Canadian pork presently enjoys a reputation for superior quality amongst the retailers that specialize in sales to Asian consumers in Seattle and Portland. However it is also clear that many members of the trade lack information or experience with Canadian pork. Consequently, there is an opportunity for Canadian processors to maintain or increase market share through more education and promotion to this market segment. The 1998 survey of Asian-origin consumers of fresh pork in San Francisco focused on two aspects: preferences for fresh pork attributes and choice of store for fresh pork purchases. An intercept survey method was chosen to select and interview consumer respondents. Some 40% of the 196 respondents to the store choice survey purchase most of their fresh pork from American style supermarkets, 33% purchase mostly from small Asian stores, 24% from large Asian stores, and the rest from butcher shops. The most popular cut of pork purchased by Asian consumers is loins, followed by pork shoulders and butts, then pork leg, bellies, hock, and offal. The analysis indicated that socio-economic and demographic factors, as well as store attributes, significantly affect Asian consumers' store and product choices. The analysis of the ranking of selected attributes of fresh pork by Asian-origin consumers in San Francisco, California showed that freshness is ranked as the most important attribute, followed by the attributes of the color of meat, lowness in fat, and the whiteness of fat. The attributes of price, freedom from chemicals, and being USDA labelled were also ranked to be of importance. The attributes of little or least importance were knowing that pork came from the US, customized pork cuts, the variety of pork cuts, packaged pork, vacuum packed pork and seasoned and prepared pork. Empirical results from an ordered probit model postulated to explain respondents' rankings of attributes indicate that particular demographic and socio-economic characteristics of Asian-origin consumers influenced the importance rankings for the pork attributes that were identified to be important. For example, Chinese origin consumers were appreciably more sensitive to pork price than were other Asian-origin groups. One facet of the findings is that marketing strategies should not treat Asian-origin consumers as a single homogenous niche group in marketing since there are identifiable sub-groups of these consumers with specific attitudes and preferences. The importance placed on different attributes by particular ethnic subgroups, and their different preferences for stores at which fresh pork is purchased, provides useful information on which to develop strategies to target market development activities at the Asian-origin ethnic subgroups.Marketing, International Relations/Trade,

Quality Differences and Risk Shifting Associated with Alternative Marketing Arrangements in the Swine Industry

We analyze quality differences in market hogs across alternative procurement methods. The test results show that alternative marketing (procurement) channels generate hogs of statistically different quality. However, the quality ordering of alternative marketing arrangements is not unique, but varies across quality attributes, and the quality differences do not appear to be economically significant. We examine the relationship between alternative procurement methods for live hogs and the quality of the resulting pork products. The correlation coefficient between the non-spot market purchases of live hogs and the Hicks’ composite quality index for pork products is positive and significant, but the magnitude of that effect is small. Finally, we show that different types of marketing arrangements exhibit different price volatilities, subjecting the producers selling their hogs through these channels to different levels of risk.Livestock Production/Industries, Marketing,