The Changing Economics of U.S. Hog Production
by Nigel Key
and William McBride
Economic Research Report No. (ERR-52) 45 pp, December 2007
The increasing size and specialization of hog operations reflect
significant structural change in U.S. swine production during the
past two decades. Once dominated by small operations that practiced
crop and hog farming, the industry has become increasingly
concentrated among large operations that produce hogs on several
different sites. Further, large operations that specialize in a
single phase of production have replaced farrow-to-finish
operations that performed all phases of production. Organizational
change in hog production, particularly the widespread use of
contracting, has enabled individual producers to grow by
specializing in a single phase of production. Technological
innovation has also been a driving force behind the changes and has
contributed to substantial increases in farm productivity.
What Is the Issue?
As the industry has changed, hog producers have had to adjust
the size, organizational structure, and technological base of their
operations, or cease production. The effects of the changes have
extended beyond the industry, as restructuring has heightened
environmental risks and nuisance impacts, raised concerns about the
integrity of rural communities in farming-dependent areas,
precipitated controversy over animal welfare, and lowered pork
prices for consumers. By providing information about changing
structural characteristics and economic relationships in hog
production, and what these suggest for the future of hog farms,
this report provides context for these broader issues as well.
What Did the Study Find?
Scale and organization - The number of hog farms fell
by more than 70 percent between 1992 and 2004, whereas the hog
inventory remained stable. The average hog operation grew from 945
head in 1992 to 2,589 head in 1998 and to 4,646 head in 2004. The
share of the hog inventory on operations with 2,000 or more head
increased from less than 30 percent to nearly 80 percent.
Operations with 5,000 or more head held more than 50 percent of the
hog inventory in 2004.
Traditional farrow-to-finish production has given way to
operations specializing in a single phase of production.
Specialized finishing operations increased their share of output
from 22 to 77 percent during 1992-2004, whereas the share of
production from farrow-to-finish operations fell from 65 to 18
percent. Hog operations organized under production contracts grew
from 3 percent of operations in 1992 to 28 percent in 2004 and
accounted for more than two-thirds of hog production (sales and
removals) in 2004. Operations producing under contract were larger
than independent operations and were more likely to specialize in a
single production phase.
Regional trends - The rapid growth of hog operations
along the East Coast of the United States during 1992-98 slowed in
subsequent years partly because the North Carolina State
legislature placed a moratorium on expanded hog production in the
State (a leading hog producer) in response to environmental
concerns. In contrast, the size of hog operations increased more
rapidly in Midwestern hog-production States during 1998-2004 as
contract production expanded in those areas.
Productivity gains - Structural change in the industry
coincided with substantial efficiency gains for hog farms,
particularly on specialized hog-finishing operations.
Feeder-to-finish operations had annual reductions in the amount of
feed and labor used per unit of output of 4.7 percent and 13.8
percent, respectively, between 1992 and 2004, while their real, or
inflation-adjusted, production costs per hundredweight of gain
declined at an average annual rate of 4.7
For feeder-to-finish farms, total factor productivity increased
at an average annual rate of 6.4 percent from 1992 to 1998 and 6.3
percent from 1998 to 2004. Most of these productivity gains were
attributable to increases in the scale of production (scale
efficiency) and technological innovation. Increases in the size of
production operations helped account for almost half of the total
increase in farm productivity. Further increases in scale
efficiency likely will be limited for large farms. However, there
is greater scope for efficiency gains in the sector as a whole from
further increases in scale.
Trends in farm productivity in two major hog-producing regions,
the Southeast and the Heartland, mirrored trends in farm output:
productivity increased more in the Southeast between 1992 and 1998
and increased more in the Heartland between 1998 and 2004. Growth
in average farm size and the resulting improvements in scale
efficiency accounted for most of the differences in productivity
growth between the Heartland and Southeast since 1992. Farms
in both regions had similar rates of technical advance over the
The use of production contracts continues to be associated with
higher farm productivity. The estimates of productivity gains
associated with contracting suggest that these productivity
advantages helped encourage the recent growth in contracting in the
hog industry. Increases in hog farm productivity benefit society
through lower food prices for consumers. Productivity gains
contributed to about a 30-percent reduction in the price of hogs at
the farm gate.
How Was the Study Conducted?
Data used in this report come from USDA surveys of U.S. hog
producers conducted for 1992, 1998, and 2004. ERS used a regression
analysis to measure hog farm total factor productivity growth
between 1992 and 2004 and decompose it into changes in four
components: (1) technical change, the increase in the maximum
output produced from a given level of inputs; (2) technical
efficiency, the farm's ability to achieve maximum output given its
set of inputs; (3) scale efficiency, the degree to which a firm
optimizes the scale of its operations; and (4) allocative
efficiency, a farm's ability to select levels of inputs such that
input price ratios equal the ratios of the corresponding marginal
products. The study examined variation in economies of scale by
farm size, analyzed how increases in scale contributed to
productivity growth, and investigated whether scale economies have
increased over time. The analysis took advantage of differences in
regional growth rates of farm size to examine how limits on the
scale of production can affect productivity change. ERS also
estimated potential increases in retail pork prices had there been
no change in farm productivity.