The increasing size and specialization of hog operations reflect structural change in U.S. swine production during the past 15 years. The number of farms with hogs has declined by over 70%, as hog enterprises have grown larger. Large operations that specialize in a single phase of production have replaced farrow-to-finish operations that performed all phases of production. The use of production contracts has increased. Operations producing under contract are larger than independent operations and are more likely to specialize in a single phase of production. These structural changes have coincided with substantial gains in efficiency for hog farms and lower production costs. Most of these productivity gains are attributable to increases in the scale of production and technological innovation. Productivity gains likely contributed to a 30% reduction in the price of hogs at the farm gate. [Abstract excerpted from website]

Major Study Findings:

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.

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 percent.

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 study period.
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. [Excerpted from report]