International Relations/Trade, Livestock Production/Industries, Marketing,

Purcell, Joseph C.

Sullivan, Gene D.

English

Research Papers in Economics

JOURNAL OF AGRIBUSINESS  FEBRUARY, 1986 
INTERREGIONAL AND INTERNATIONAL 
COMPETITION IN THE PORK INDUSTRY 
Joseph C.  Purcell and Gene D.  Sullivan 
Pork  is an  important  component  of  the 
American  diet -- ranking second  to beef  in  the 
meat  category.  Both  production  and  consump- 
tion of pork  vary  due  to  the  biological nature 
of  production and  lags  in response  to changing 
demand  and  price signals.  Pork  production and 
consumption  are  .,so  responsive  to  technol- 
ogies avallabllity and  cost of substltutes. 
PORK  PRODUCTION.  TRADE.  AND  CONSUMPTIC4 
During  the  1970-1985  period.  U.S.  pork 
production  ranged  from  11  .8  billion pounds  in 
1975  to 16.6  billion  pounds  in 1980  (table 
1).  Pork  productlon  is  cyclical in  the Unlted 
States  wlth  no  apparent  trend  during  the 
15-year  period 1970-85. 
U.S.  exports  and  imports  of  pork  are  of 
minor  importance  conpared  with  the  produc- 
tlon-consumption  balance  (table  1).  Prior  to 
1980,  imports  and  exports  of  pork  were  nearly 
balanced  --  net  imports  usually  in the  range 
of  200  to 300  million pounds,  accounting  for 
1%  to  2%  of  U.S.  consumptlon.  However, 
between  1980  and  1985  imports  of  pork  trended 
sharply  upvard  while  exports  trended  doun- 
ward.  Based  on  a  preliminary  estimate  for 
1985,  net imports  of pork approached  1 billion 
pounds  and  accounted  for  about  6%  of  total 
consumption.  This  trend  portends  the  U.S. 
becoming  a major importer of pork. 
During  the  1970-1985  period,  pork  con- 
sumption  in the  U.S.  paralleled  production -- 
ranging  from  a  low  of  11.8  billion pounds  in 
1975  to  a  hlgh  of  16.6  billion  pounds  in 
1980.  During  this  same  period.  pork  con- 
sumption  per  capita  ranged  from a  lov of  55.4 
pounds  in 1975  to a  hlgh  of  78.7  pounds  in 
1971.  Pork  consumption  in  the U.S.  exhibits a 
cyclical  pattern  wlth  an  underlying  slight 
dounward  trend. 
Although  the  Unlted  States  has  tradition- 
ally been  near  self-sufficient  in pork.  this 
is not  the  case  with  individual  states  and 
regions.  Pork  production  (hog  slaughter)  Is 
supply  orlented  and  occurs  in close  proximity 
wlth  hog  production.  However,  part  of  the 
pork  curing  and  processing  --  including 
speciality products -- is  market  orlented. 
Hog  production  is  concentrated  in  the 
North Central  Region  of  the United  States  and 
nore  specifically  in the  Central  Corn  Belt 
(figure 1).  This  concentration  of  hog  produc- 
tion coincides  wlth the major  concentration of 
feed  grain production --  especially corn.  The 
major  concentration  of  hog  productlon  centers 
in  Iowa.  Illinois  and  Indiana  but  extends 
westward  into  eastern  Kansas.  Nebraska,  and 
South  Dakota,  northward  into  southern 
Minnesota,  Wisconsin  and  Michigan  and  eastward 
into western Ohio. 
Minor  areas  of  hog  production  include  the 
South  Atlantic  Coastal  area  extending  from 
eastern  Virginia through  the eastern  Carolinas 
into  southern  Georgia  and  Alabama;  and  the 
western  parts  of  Kentucky  and  Tennessee. 
These  areas  also  coincide  wlth  minor  concen- 
trations  of  corn  production.  The  Northeast 
and  Western  Regions  of  the  United  States  are 
highly deficit in  pork. 
U.S.  REGIONAL  COIIPARISONS  IN PORK  PRODUCTION 
Locational  ramifications  in  competltive- 
ness  or profitability in hog  production depend 
largely  on  locational  differences  in  feed 
costs,  feed  conversion  efficiency.  housing  and 
labor costs;  and  on  returns or prices received 
for hogs. 
Van  Arsdall  and  Nelson  completed  an 
analysis  of  returns  and  costs  to hog  produc- 
tion in the  United  States  (1).  Although  the 
study  focuses  on  ecohomles  of  size,  estimates 
are  provided  on  returns  and  costs  for  the 
North  Central  and  Southeast  regions  separate- 
ly.  These  estimates  are sumrized in  table 2 
for the  base  years  1982  and  1983,  by  region 
and  by  size group. 
Hog 
in 1982 
1983  due 
production  was  relatively  profitable 
but  highly  unprofitable  (losses)  in 
! to higher feed  costs and  lower  prices 
received  for hogs.  An  upsurge  in feed  prices 
in 1983  is attributed  to the  supply  reducing 
impacts  of  the  PIK  (Payment-in-Kind)  program 
and  widespread drought. 
Gross  Returns to  Hog  Production (Prices) 
According  to the  Van  Arsdall-Nelson  study 
(1).  prices  received  for  hogs  (returns  per 
hundredweight  of  product  sold)  were  nearly 
equal  in  the  Southeast  and  North  Central 
regions  (table  1).  This  concurs  with a  study 
by  Sullivan  (2)  in  uhlch he  found  no  signifi- 
cant  difference  in prices  received  for  hogs 
between  Iowa  and  the Southeast. 
Apparently.  off-setting  forces  tend  to 
equalize  prices  received  for hogs  in  the  North Central  and  Southeast  Regions.  The  concentra- 
tion of  hogs  in the Nodh Central  Region wlth 
attendant  economies  of  size  in slaughter  and 
lover  assembly  cost  exert  an  upward  pressure 
on  hog  prices.  Conversely.  the  large  surplus 
of  pork  in  the  North  Central  Reglon  requires 
substantial  transportation  costs  to move  pork 
to ultimate consumer  markets.  This  relatively 
hlgh  dlstrlbution  cost  exerts  a  dovnward 
pnssure on  prices received for hogs. 
The  Southeast  Region  has  an  advantage  in 
proximity  to  consumer  markets  which  lowers 
distribution  costs  and  exerts  an  upward 
pressure  on  prices  nceived for  hogs.  Vari- 
able  and  sparse  supplies  of  slaughter  hogs  in 
the  Southeast,  in  consort  with  a  loose  vertt- 
cal  infrastructure,  contributes  to relatively 
high ass&ly  and  slaughter  costs.  The  higher 
costs  exeit  a  darnward  pressure  on  prices 
received for slaughter hogs. 
A  cmprehensive  econmic  analysis  of  the 
Southeast  Hog-Pork  Industry  was  completed  by 
Rohdy  (3)  for  the  1960  and  1970  (projected) 
base  years.  This  study  developed  optimal 
location patterns  of  hog slaughter  and  obtain- 
ed  flm  patterns  for  hogs  and  pork  through 
slaughter  to  designated  consuming  areas. 
Under  optimal  patterns,  hogs  move  southward 
for  slaughter  due  to lowar  labor  and  energy 
costs.  Subsequently,  under  optimal  conditions 
pork  flows  northeastward,  southeastward.  and 
southwstuard to consuming markets. 
~egiwl  Costs  Incurred in  Hog  Prod~tlon 
The  North  Central  Region  holds  an  advan- 
tage  in hog  production  through  lcuer  unit 
costs  (1)  --  su~wdarlzed  in  table 2.  Cost  per 
hundredweight  of  output  an  about  $2  (1982-83 
prices)  lower  in the  North  Central  Region 
cmpared with the Southeast  Region.  This  cost 
difference  Is  attributed  largely  to  higher 
feed  costs  in  the Southeast  --  especially the 
energy  (corn)  conponent  of  feed.  The  Sullivan 
(2)  study  also revealed lcuer feed  cost  in  the 
North  Central  Region -  especially  the  energy 
(corn)  cnponent  of the diet. 
hick and  Purcell  (4)  concluded  that  feed 
efficiency  (feedlcwt  galnj  in hog  production 
is  optimal  between  55  and  65'~,  with 
efficiency decreasing  rapidly wlth  both  lcuer 
and  hlgher  tqerature.  Based  on  data  from 
selected  swine  evaluation  stations  in  the 
Southeast  and  North  Central  Regions  and 
climatological  records  of  the  United  States 
Weather  Bureau.  hick  and  Purcell  (5)  derived 
cost  estimates  for  swine  production  by  loca- 
tion.  Although  the North  Central  Region  holds 
an  annual  average  advantage  in lower  unlt 
costs  of  hog  production,  their  advantage  was 
much  smller  during  the  winter  season.  The 
Southeast  Region  also holds  a  slight advantage 
in lover  labor,  energy  (excluding  feed)  and 
building costs. 
Regional  Net Returns to Hq  Production 
Estimates  derived  frm  tho  Van  Arsdall- 
*> '  -<. 
Nelson  (1)  study  for the  base  years  1982  and 
1983  indicate net returns  in  1982  ranged  from 
-314  to $12.27  by  slze  unlt and  averaged 
$5.24/cwt  of  output  in  the Southeastern Region 
(table  2).  In the  North  Central  Region  Oet 
returns  ranged  frcin  (62.82)  for  the  smllast 
unit  to  $14.59  for  the  largest  unit  and 
averaged $6.64. 
Only  the  10.000  head  unlt  in the  North 
Central  Region  realized  a  positive  return 
($1.67/cwt)  in 1983.  Losses  in the  South- 
eastern  Region  in 1983  ranged  from  (-$11.27) 
for  the  smallest  unit  to  (-$1.58)  for  the 
largest  unit and  averaged  (48.54).  Losses  in 
the  North  Central  Region  ranged frm (-$17.98) 
for  the  smllest  unit  to  (40.64)  for  the 
3.000  head  unit and  averaged (36.65). 
SWRV AND  IMPLICATIOYS 
Except  for  cyclical  variation,  pork 
production  and  consunption  in  the  United 
States  were  rather  static,  and  near  balance 
for  the  1970-85  era.  However,  the  sharp 
upward  trend  in net  imports  of  pork,  during 
1980-85,  portends  a  declining  cmpetitive 
position  of  the  United  States  in  world  mar- 
kets.  Net  inports  of  pork  were  relatively 
small  in  1985 -- accounting for only M  of  the 
doinestlc  mrket.  but  this  was  a  substantial 
increase frm the 1% to 2% for years  prior to 
1980.  The  underlying  causes  of  thls  upward 
trend  in pork  inports  deserves  careful  anal- 
ysis  beyond  the  scope  of  thls paper.  Appar- 
ently  the  declining  value  of  the  Canadian 
dollar  relative  to  the  U.S.  dollar  was  a 
factor  underlying the  increase  In  pork  Imports 
from  Canada. 
The  Worth  Central  Reglon  dominates  hog- 
pork  production  in the  United  States.  Hw- 
ever,  anas  of  minor  concentrations  of  pork 
production  include  the  South  Atlantic  coastal 
area  extending  frm  Virginia  southuard  into 
north  Florida  and  southeast  Alabama.  and  the 
western  half  of  Kentucky and  Tennessee. 
The  Southeast  Region  of  the  U.S.  has  some 
advantages  in hog-pork  production  including: 
1)  proximity  to growth  mrltets.  2)  a  winter 
season  advantage  in feed  conversion,  and  S) 
slightly  lover  building  and  nonfeed  enemy 
costs.  However,  the  Southeast  Region  has 
substantially higher  feed  costs -  msp~lally, 
the  energy  (corn)  coqonent  of  the diet.  This 
disadvantage  in feed  costs  more  than  off-sets- 
other  advantages,  resulting in  grass  cost  per 
unit  of  output  about  $2/cwt  hlgher  than  the 
North  Central  Region  in  the mid 1980s.  Prices 
received  for slaughter  hogs  an  near  equal  in 
the North Central and  Southern areas. 
Due  to economies  of  size.  hog  prcduct4011 
in the  United  States  is expected  to trend  to 
larger  and  more  specialized  enterprises. 
Also.  the hlgh degree of  price variability and 
risk portends  closer  vertical  coordination  sf 
hog  production,  slaughter-processing.  ad 
narchandlslng  in  the  future.  Large  vertically 
coordinated  hog  producing  units can  contribute to a  uniform flow  of  high quality product  at 
costs  more  competitive  14th  the  highly  inte- 
grated  poultry industry.  Under  a  scenario  of 
increasing  capital  costs,  less  capttal  inten- 
stve  open-field  production  techniques  nay  be 
economically  viable  in the  Southeast.  This 
wuld improve  the cmpetittve position of  hog 
producers  in the  Southeast.  However.  addi- 
tional research is  needed  in  this area. 
Joseph  C.  Purcell ts professor and  head  of  the 
Department  of  Agricultural  Econmlcs.  Georgia 
Experiment  station.  University  of  Georgia 
College  of  Agriculture.  Gene  D.  Sullivan  is 
~conomist  Research  Departnent.  Federal  Reserve 
Bank  of Atlanta.  Georgia. 
NOTES  MD REFERENCES 
(2)  Sullivan,  6ene  D.  1981.  Southeastern 
Pork  Production:  A  Clue  to  Future  Food 
Price  Changes?  Federal  Reserve  Bank  of 
Atlanta.  Economic  Revlw.  Dec.  1981  .pp 
24-28. 
(3)  Rohdy.  D.  D.  19M.  Southeast  Hog-Pork 
Industry:  A  National  Market  Competitor. 
Southern  Cooperative  Series  Bulletin No. 
89. 
(4)  hick,  R.  3.  and  3.  C.  Purcell.  1964. 
Temperature  and  Feed  Conversion  by  Sulne. 
Jour.  Of  FaRI.  Econ.  vol.  46.  No.  8.  pp 
1227-1231. 
(5)  hick,  R.  J.  and  3.  C.  Purcell.  1966. 
Costs  and  Returns  In Finishing Sulne.  6a. 
Agr.  Exp.  Sta.  8111.  N.S.  162. 
(1)Van  Arsdall.  Roy  N.  and  Kenneth  E. 
Nelson.  1985.  Economics  of  Size  in Hog 
Production.  Econ.  Res.  Serv..  U.S. 
Department of Agr.  Tech.  8ul.  No.  1712. 
Table 1.  Pork  production.  trade and  consumption,  carcassweight.  U.S..  1970-1985 
Consumtion 
Year  Production  Iwrts  Ex~orts  Total  Per  casl  ta  - - - - - - - - - -dl  lb - - - - - - - - - -  ------lb-------- 
1970  14.699  491  194  14,661  72.6 
1971  16.006  496  198  16.127  78.7 
1972  14.422  538  236  14.712  70.9 
1973  13,223  533  279  13,298  63.5 
1974  14,331  488  204  14,493  68.5 
1975  11.779  439  31  7  11.852  55.4 
1976  12.688  469  31  6  12.667  58.6 
1977  13.248  440  294  13,202  60.5 
1978  13,393  495  288  13.293  60.3 
1979  15.450  499  291  15.353  68.8 
1980  16.616  550  252  16,574  73.5 
1981  15.872  541  307  15,927  69.9 
1982  14,229  61  2  21  4  14.425  62.7 
1983  15.199  702  21  9  15.369  66.2 
1984  14.812  954  164  15.396  65.7 
1985  14.555  1.100  120  15.547  65.7 
Source:  1970-83 - Livestock and  Meat Statistics.  1983 USDA  ERS  Stat.  Bull.  No.  715. 
1984-85 - Livestock and  Poultry Outlook Situation Report  USOA-ERS-LPS  18 Oct.  1985. 
1985 - Preliminary. Table  2.  Farrow-to-finish  hog  production  costs  and  returns,  per  cvt of  sales.  North  Central  and 
Southeast  regions.  1982 and  1983. 
Annual  sales 
(head)  ~eturns  Cost  netC  Returns  costC  netc  -------------------  $/M------------------- 
.-  Southeast  Region.  ;'  " 
North Central  ~epionb 
Source:  Van  Arrdall.  Roy  N,  and  Kenneth  E.  Nelson.  Econmles  of  size  in hw production. 
Technical  Bulletin No.  1712.  Econmlc  Research Service.  U.S.  Departnmnt of  Agriculture.  ''.  ,  --  - 
'  '  Wuwlp(Lmld, 1978 
1 dot r 15.m  nws end pig8  v ,,-,- 
L."- 

Interregional and International Competition in the Pork Industry

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