Factors affecting the selection of business arrangements by hog producers in the United States

The structure of the U.S. hog industry is changing rapidly. U.S. hog farms have become smaller in number, larger in size and more specialized. This study examines the factors that influence the hog producer\u27s choice among business arrangements offered in the U.S. hog industry. A national survey was mailed to 4,986 hog producers to determine these factors. The survey consisted of questions covering topics such as: production characteristics, autonomy, transaction costs, risk, social relationships, and demographics. A response rate of 21% was received from the mailed surveys. Four alternative business arrangements were used: independent production, cooperative farming, flat-fee contract, and incentive payment contract. The multinomial logit and binomial logit models were employed to determine factors influencing producers\u27 choice of business arrangement. Results indicate that independent producers are, in general, more likely to be breeding sow operators, diversified, corn producers, located in the same counties as flat-fee contract producers, frequent checkers of market prices, have higher debt, value autonomy and relationships with feed merchants more, and be relatively more educated than incentive payment contract producers. Cooperative producers are also more likely to be breeding sow operators, diversified, corn producers, and located in the same counties as flat-fee contractees. They are also likely to have accumulated higher assets, have higher debt and greater farm assets, be risk averse, be concerned about autonomy and relationships with feed merchants, and be relatively more educated than incentive payment contract producers. Flat-fee contract producers are more likely to be finishers located in counties with independent and cooperative producers, work more hours off-farm, and be owners of greater farm assets. They are less likely to value autonomy and more likely to value relationships with neighboring farmers. Finally, incentive payment contract producers are generally larger, lower debt finisher or breeding sow operators who work more hours off-farm, value autonomy less and relationships with lenders more than other business arrangements. They are likely to be located in counties with cooperative producers