Corporate hog operations overshadow family farms

by Paul Schreiber

SBJ Reporter

pschreiber@sbj.net

Somebody may be living high on the hog, but it isn't the southwest Missouri farm family.

"Southwest Missouri and south-central Missouri at one time was one of the major feeder-pig producing areas in the country, but that's basically all been taken over by the large contract-consignment hog operations," said John Ikerd, professor emeritus of agricultural economics at the University of Missouri-Columbia.

Nationwide, between 1968 and 1991, the total number of small, independently owned hog farms with 1,000 head or less dropped by almost 1 million to 114,380, according to a report from Consumers Union.

One of the factors that has enabled this shift is big businesses' deep pockets.

Steve Young, who raised hogs for 25 years on 100 acres in Ozark County, laments the loss of viable independent swine operations in Missouri. His farrow-to-finish farm typically had 200 sows and up to 2,000 pigs at any time. His sales method was to offer his animals for sale among multiple bidders.

The hog market used to be based on supply and demand with many buyers and sellers, Young said. When hogs were plentiful and prices dropped, some farmers held fast, others busted, he said, but those market cycles are gone. Now large corporations continue to expand regardless of pricing, because they want to control the hog market, just like the chicken industry, he added.

A four-year business cycle was the norm in the hog industry, Young said, where a year of profit was followed by a couple of average-return years and then a year of substantial losses. Industrial farms, on the other hand, can weather a succession of low-profit years, remaining buoyant with corporate funding, he added.

Price sends a signal and 1998 was a telltale year, Young said. Prices took a nose dive then down to about $8 a hundred-weight. While farmers could withstand short periods of break-even prices between $30 and $40, that plummet was devastating, he added.

Young, like many small-farm operators, is no longer in the hog business. He is now a financial advisor.

The disappearance of family hog operations has been ongoing for some time.

"There's not been any hogs around here in the last 10 years," said Greg Brown, branch vice president of Farm Credit Services, which makes loans for agriculture and rural community development in Greene, Christian and Polk counties.

Low profit margins require high volume, which means farming on a grand scale. Farmers don't make it now on 500 acres, they need 2,000, Brown said. "The equipment that's required and the volume just to generate the same dollars to generate a living" is prohibitively expensive for most family operations.

But corporate hog operations don't just differ from their family farm predecessors in size. The corporate upsizing of hog operations is part of a larger system known as vertical integration combining multiple functions under one roof.

Integrated activities involve all aspects of hog farming breeding, raising and feeding, but also feed production, butchering and processing, distribution and marketing, the report said.

Today, the hog market is dominated by the giants, Young said. Firms such as Kansas City-based Premium Standard Farms, Smithfield Foods, Tyson Foods, Cargill and ConAgra are involved in vertically integrated operations, he added.

Farmers now raise hogs under contractual agreements with corporations that pay $3 to $4 a head for the finished product, Young said. In these arrangements the corporations provide the animals, feed and veterinary expenses, and the farmer provides the barn. In this situation, the farmer becomes, in effect, an extension of corporate operations.

"We do have 28 contract growers currently in the north-central Missouri area," said Deborah Johnson, director of communications and public affairs with Premium Standard Farms.

Individual farmer selection is based on pork production history, business philosophy, amount of land the farmer has, financial capability to build facilities and even extends down to actual farm management, Johnson said. Also, proximity of the farm to Premium's three feed mills in Lucerne, Coffey and Princeton is considered, she added.

Animals are raised according to Premium's weight specifications, Johnson said, with area service representatives assisting in the coordinating of hog production activities.

Vertical integration drives contract agriculture in the hog industry, Ikerd said, adding that firms want a constant supply of uniform product. "The ultimate objective is to duplicate what they did in the poultry industry. Once you get few enough firms that are controlling the supply of production, then you can regulate the supply so that you can maintain the profitability of that whole food chain."

This is what happened in the poultry industry, said Dr. Arbindra Rimal, assistant professor in agricultural sciences at Southwest Missouri State University. Calling it the "Wal-Mart syndrome" he said many independent operations couldn't survive because they couldn't compete.

Industrial farming can bring some positive benefits to farmers, Rimal said. Sheer size can lead to overall cost efficiencies in production and processing, as well as the development of technological advances that can later spill over to smaller farms.

On the downside is negative environmental impact, Young said, adding that sometimes the number of hogs run on a farm is too large for the earth to sustain.

Chemical and waste runoff into streams and rivers, as well as the leeching of runoff contents into the earth and the water table, are more apt to present a problem in large farms, Rimal said.

There is little light at the end of the tunnel for most traditional family farm hog operations, Young said, unless contract farming is considered.

He said if legislation were enacted that prohibited packers from owning hogs it would open up hog sales for independent farmers and reduce some of the vertical integration.

Industrial farms are most efficient in terms of economics, Ikerd said, but "increasingly, what's driving the system toward industrialization, is the market power of those people that are involved in the food processing and distribution system."

Ultimately, Ikerd doesn't think the industrial system is economically viable over the long run, because it's short-sighted, bottom-line perspective gains "its profitability through mining the soil, exploiting the sources that are there, and its reliance on nonrenewable resources."

Growing up on a family farm near Conway, Ikerd sees farming as more than turning profits. It's "quality of life benefits" like open spaces, clean environment, a place to raise children, and being a part of a rural community that make farm life so appealing, he said.