Economic Fallacies of Industrial Hog Production
John Ikerd
University of Missouri
Expansion
of large-scale, industrial hog operations during the decade of the 1990s has
fundamentally transformed the basic nature of the hog-pork sector of the US
agricultural economy. Large-scale corporately-owned hog operations have gained
a position of dominate market power and seem destined eventually to make it
impossible for independent hog farmers to compete using conventional methods of
production and marketing. It is no longer a question of whether independent hog
farmers can stay competitive in terms of costs of production. The greatest
threat to hog farmers today is loss of access to markets, as the giant
agribusiness corporations move toward complete vertical integration of the
hog-pork industry.
The agricultural establishment – including most
major farm organizations, the USDA, and Land Grant Universities – seem willing
to accept corporatization of the hog-pork sector as an inevitable consequence
of “free market” economics. Virtually all of the positive claims put forth by
the advocates of large-scale confinement feeding operations are economic in
nature. Advocates of industrial hog production claim that consumer will benefit
from higher quality pork and lower prices, family farmers will be able to
remain competitive through contract hog production, and rural communities will
benefit from increased local economic activity. Thus, society in general will
benefit from the economic industrialization of US hog production – so claim the
advocates.
There are elements of truth in each of these
claims. On balance, however, the claims are more fallacy than fact.
Fallacy: Consumers' demands are driving the
trend toward large-scale corporate hog production.
Advocates claim that consumers are concerned
primarily about food costs and quality, and that smaller, family farming
operations simply can’t provide consumers with the consistent quality of pork
they demand at as low a cost as can the large-scale, corporate integrated
system. They may admit that some family hog farms are as efficient as the hog
factories, but claim that corporate operations are more efficient than the
“average” family hog farm. They claim that consumers today are demanding leaner
pork, which requires different genetics, and that consumers don’t want the
variability of quality that is inevitable when hogs of various breeds are
produced under a variety of production systems, and the resulting pork products
are intermingled in the marketing system. Advocates claim that consumers are
driving the current trend toward factory systems of hog production, because
consumers will benefit in the marketplace. However, there are better means of
giving consumers consistency, without sacrificing variety. The meager average
cost advantage for corporate operations may well be more than offset by larger
corporate profits, resulting in higher rather than lower consumer prices from
industrial pork production.
Fact: Corporate profits are the motivation
for industrial hog production.
Corporate hog producers are concerned about consumers only
as a market for their products – profits come before preferences of consumers.
First, from the standpoint of food costs, consumers
have little if anything to gain from lower cost production at the farm level.
Hog producers have received only about 25 cents of each dollar consumers have
spent for pork in recent years. And, it takes a little over two pounds of live
hog to make one pound of pork at retail. So if production costs for live hogs
were two cents per pound less that would amount to four cents per retail pound,
but would still only result in a savings of one cent per pound of pork at
retail. It’s unlikely that any cost efficiency advantage for the larger
operations would be greater than two cents per pound or two dollars per
hundredweight of hogs sold. So the most consumers could possibly save would be
in the range of a penny on the dollar – hardly enough to justify changing a
whole sector of the farm economy. And as indicated before, there are other ways
of achieving more efficient hog production without putting family hog farmers
out of business.
On the question of quality, consumers
want “consistent” quality but they do not necessarily want the “same” quality.
They want to know when they buy the center cut pork chop today that it will be
pretty much the same as the center cut pork chop they bought last week – they
want to know what they are getting for their money. But all consumers don’t
want the “same” quality – people have different tastes and preferences. Some
want their pork chops to be larger and other smaller, some want theirs to be
leaner and others well-marbled, some want theirs darker in color and others
lighter, some like their chops firm and others want theirs to be more moist,
and some don’t want pork from a factory farm while others don’t care. It’s a
fundamental principle of economics that we don’t all value the same things
equally – “quality” means different things to different people.
The large-scale factory operations are
going to give all consumers the same thing, whether they want it or not. All
pork will be from the same basic genetic stock, feed the same feed in the same
kind of climate controlled facilities, using the same drugs and hormones,
resulting in animals that are all the same age, weight, and size. Some consumers
may be well pleased, but others will not. Those who are not will no longer have
a choice. However, the same level of consistency can be achieved when consumers
buy direct from the same producer, or a small group of producers, time after
time, without eliminating the opportunity for each consumer to choose the type
of pork they prefer. They simply buy from a producer that supplies the type of
pork they prefer.
Once the large corporations gain
control of the pork industry, it is far more likely that the retail pork price
will be higher, rather than lower. Once competition has been weakened, or
destroyed, there will be no incentive to pass any savings in production costs
on to consumers. Corporations are getting into the hog business because they
expect to make money. Their goal is to eliminate competition, not to encourage
it. Higher profit margins will have to come from somewhere. Consumers may find
corporate profits are coming mostly, if not entirely, from higher retail pork
prices. Large-scale corporate hog production will benefit the corporation – not
the consumer.
Fallacy: Contract hog
production is the only means by which family hog farmers
can gain the access to the
capital, management, technology, and markets they will need
to survive.
The
advocates claim that family farmers have no future in hog production unless
they engage in comprehensive production contracts with agribusiness
corporations. They claim that economies of size in hog production are such that
hog operations will have to be far larger than a feasible-sized family hog
operation in order to be cost competitive. By contracting with large-scale
corporate hog operations, family farmers can realize the benefit of an optimum
scale hog operation, in terms of financing, technology, and market access,
while maintaining a “family-sized” production operation. Thus, contracting
allows “family hog farmers” to continue producing hogs for a living. However,
contract production is not the only means by which independent hog producers
compete successfully. In fact, farmers will discover that they have sacrificed
their status as independent hog producers when they sign a comprehensive
production contract.
Fact: Family hog farmers can survive and
prosper by taking advantage of their
unique assets – their willingness to work, their
commitment to farming, and their skills in animal husbandry
and business management.
Management
is more important than the size of the operation in determining the economic
efficiency of a hog operation. Actually farm records collected by various state
universities have consistently indicated that 20-40 percent of family hog farms
are as cost efficient as are the large-scale, corporate hog operations. So even
with current production methods, a well-managed family hog operation can
compete with the large-scale corporate hog operations. Most existing family hog
farmers who sign corporate contracts do so because they are afraid of losing
access to competitive markets, not because they can’t compete on cost of
production.
Common
sense tells us that hog farmers who sign comprehensive production contracts are
not going to get much benefit out of their contract operations. The four basic
factors of production are land, labor, capital, and management. Each of these
factors earns an economic return: land earns rent, labor earns wages, capital
earns interest, and management earns a salary. Profit is a reward for taking
the risk of committing land, labor, capital, and management to an enterprise
without knowing whether the return will be positive or negative.
In
an industrial hog operation, land doesn’t contribute much to total returns.
They can put a lot of hogs in a small space. In a typical contract operation,
the facilities are generally new, built to contract specifications, and most of
the money is borrowed. The contractor either provides the money for the loan or
assists the producer in securing a loan. The contract producer provides nearly
all of the on-site labor in a contract operation. However, these hog operations
are highly mechanized, and all production procedures are highly standardized –
feeding, medication, climate control, etc. The contractor provides all of the production
technology. The on-site labor is basically the work of a janitor or building
supervisor. So the contract producer can’t expect to earn much more than
minimum wage for his or her labor.
All
of the significant management decisions, such as selection of facilities
design, genetic stock, health program, breeding dates, when to place on feed,
feeding system, when to price, when to deliver, these decisions are all made by
the contractor – not the producer. There is no reason for the producer to expect
to earn a return to management or salary. In addition, the contractor takes
most of the production and market risks, so there is little opportunity for the
producer to earn a profit over and above the value of their contract labor.
They may earn a decent return on their capital investment, if they are able to
keep a favorable contract for the useful life of their buildings and equipment,
but by the time everything is paid for, it will likely be worn out.
In summary, the contract producer doesn’t
really contribute much to a contract hog operation, and thus, can’t expect to
get much back in return. The contractor provides the capital, the technology,
the management, the market, and takes most of the risks. So, the contractor is
going to make the money – not the producer.
If family hog operations are to survive and
prosper in the future, it will be with systems that require high levels of
skill in animal husbandry and all aspects of production management. Successful
family hog operations also are going to have to break away from the highly
integrated production and marketing systems – independent producers are quickly
losing access to traditional markets. Family hog farmers of the future must
have their own direct “linkage” with their customers – either individually or
through joint ventures with other independent producers. Many producers are
already developing such systems. They may produce hogs on pasture, as does Greg
Gunthrop in Illinois, or in deep-bedded dry-waste systems, including hoop
houses, as does Tom Franzen in Iowa. They may sell direct to their customers
through personal contacts, farmers markets, or cooperative ventures – such as
Patchwork Family Farms in Columbia, MO – or through farmers’ agents – such as
Niman Ranch, a national supplier of upscale restaurants out of San Francisco.
The bottom line is that contract production is
not a sensible alternative for the future of family hog farms. Instead, it
means that farmers will become contract laborers, janitor or building
supervisors, on their own farms. There are better alternatives for the future
of family hog farms, but they will require a different kind of management.
Contract hog operations benefit the contractor, not the family hog farmer.
Fallacy: Rural communities in agricultural
areas will benefit from large-scale
corporate hog operations.
The advocates claim that large-scale corporate hog
operations are a logical economic development strategy for rural communities in
agricultural areas. These operations will help keep local families employed on
their farms and, if enough operations become large enough, they will create
badly needed local jobs in pork slaughter and processing and in supplying feed
and other services. Corporate hog production can also add significantly to the
local tax base, particularly if feed and meat processing facilities are located
in the area. Many rural agricultural communities are losing both population and
tax base. They need people to support local retail businesses, local schools, and
local churches, and they need local tax dollars to support local government and
other social services. Many rural communities have a history of relying on
agriculture and the local people are accustomed to working in agricultural
operations. Corporations are looking for a hospitable place to locate their
facilities. So corporate agriculture would seem to be a natural a fit – a
win-win situation for both rural communities and corporate agriculture.
However, rural communities have better alternatives for economic development.
Industrial hog production destroys the most valuable resources rural
communities have for building a sustainable future.
Fact: Rural people must learn to rely on
their own resources – their land, local
investment, and local people – to sustain their
communities over the long run.
The corporations who are investing in large-scale
hog production are not in the business of community development. They are
looking for someplace where they can do business as profitably as possible.
They are looking for a cheap source of labor and somewhere to get rid of a huge
quantity of smelly waste with the least hassle from local residents. They are
looking for people who are desperate to stay on the farm – to be their contract
producers. They are looking for people who are desperate for work of any kind –
to work in feed mills and slaughter plants. However, they expect to bring in
workers from other countries for the most intolerable jobs, regardless of where
they locate. And they are looking for local town officials who want to bring
jobs to their community now, regardless of the long run consequences.
Hog production and processing are dirty
businesses – they are inherently threatening to the natural environment. The
basic problem in large-scale hog production is concentration – putting too many
hogs in one place. When hogs are dispersed across the land, their waste is
likewise dispersed and diluted. Hogs on pastures, or even small confinement
operations on diversified farms, do not represent a significant environmental
or health risk. Their waste goes back to the fields where the feed grains were
grown to be recycled for future production. But when tens and hundreds of
thousands are concentrated in one place, the waste has to be collected,
processed, and carefully distributed to prevent serious environmental and
health problems. More waste is concentrated in a given geographic area than
nature can assimilate. Any disruption in the waste treatment process means
potential serious contamination of surface or ground water and potentially
serious risks to human health.
The corporate operations defend
themselves against environmental accusations by promising to build and maintain
the most effective waste disposable systems technically possible. However, such
promises have been followed by a persistent pattern of repeated environmental
catastrophes in states such as North Carolina, Missouri, and Iowa, where many
of the largest corporate operations are located.
In addition, concentration of too many
hogs in one place results in noxious odors that can sometimes be smelled for
miles around. A growing body of scientific literature has documented that odor
problems are more than just a nuisance to those living nearby. Hog odors also
reduce surrounding property values, and most important, odors can represent
serious health risks for people living within miles of some of these large hog
factories. Some counties have passed local health ordinances to protect their
people from exposure to large-scale confinement animal feeding operations.
The negative environmental impacts of
large hog operations also tend to degrade the quality of civic life in the
local communities. The people who are downwind or downstream from these
large-scale operations tend to be determinedly opposed to the corporate
operations while those who work for the operations are thankful for their jobs.
Consequently, these operations pit neighbor against neighbor, and in many cases
have split communities apart, making it difficulty for the community to come
together around any common cause.
So large-scale corporate hog operations destroy
the very resources that rural communities must depend on for their long run
viability and prosperity. They trade potentially productive, entrepreneurial
opportunities on independent farming operations for low-skilled, low-paying
jobs, which tend to contribute relatively little to the local community or the
local economy. They often bring in workers from outside the community who have
no commitment to the local community and may well add more to the cost of
social services than corporations add to the local tax base. They risk
degrading the natural environment by polluting streams and groundwater and
filling the air with noxious odors. And, they can tear the social fabric of a
community apart.
When the corporations find some other place
where people will work even harder for less money, and who care even less about
their natural environment, the corporations will move on, leaving the
communities with the mess to clean up. The most valuable assets that most rural
communities have to ensure their long run survival and prosperity are open
spaces, a clean environment, and a strong sense of community. Some communities
have sacrificed all of these things for a few low-paying jobs in corporate hog
factories. This just doesn’t make common sense. The corporations benefit from
large-scale hog production, not the local community.
Fallacy: Large-scale corporate hog
operations will benefit society in general.
Advocates claim that the trend toward
large-scale corporate hog operations is simply a consequence of the free
market. It’s simply a matter of economics. Corporate hog operations are more
cost efficient than family hog farms, if only by a couple of cents per pound.
In highly competitive export markets, a couple of cents per pound can be
critical to being competitive. Society overall will benefit from having the
most efficient production possible – those who are less efficient, the family
hog farmers, will simply have to find something else to do.
The advocates claim that consumers will have a
choice concerning whether lower retail prices are more important than having
variety in the supermarket. It’s simply a matter of free market economics.
Retail poultry prices dropped and poultry consumption increased as the poultry
production moved from family operations to industrial production systems.
Consumers chose low prices over variety, so they must be better off. Now, they
will have a similar choice with pork.
Rural communities are simply choosing the best
economic alternatives available. Right now, their options may not be too good,
but society in general benefits when natural and human resources are put to
their highest and best use, no matter how meager the economic benefits may be.
It’s simply a matter of economic reality.
However, our “free market” economy no longer
ensures that individual economic decisions, based on short-run self interests,
will best serve the long-run interests of society in general. People must
make thoughtful, purposeful decisions to take care of each other and to take
care of the natural environment if we are to build a sustainable economy and
society.
Fact: Corporate greed is not magically
transformed into societal good, no matter
what economists might lead us to believe.
None of the necessary economic assumptions
underlying the proposition that the pursuit of corporate profit will serve the
public good hold in the economy of today. The concept of an “invisible hand”
that transforms greed into good was developed some 200 years ago by a British
economist by the name of Adam Smith, based on observations of the world of the
late 1700s.The capitalistic transformation of self-interests into societal
interests requires that markets be economically competitive. Competition, in
economics, means that markets must have so many buyers and sellers that no one
buyer or seller can influence overall supplies or prices. Competition means
that it has to be easy to get into profitably businesses and easy to get out of
unprofitable ones. Competition requires that consumers have perfect information
concerning quality attributes of products, and that there be no superficial
product differentiation. Competition also requires that consumer tastes and
preferences be taken as given – that the consumer is sovereign.
None of these necessary assumptions hold in the
corporately dominated economy of today. The corporations are huge and the
number of sellers of practically everything, including pork, is small and
declining every day. It is not easy to get into or out of these large corporate
operations – the investments are huge, everything is patented, and liquidation
of a large, specialized operation is virtually impossible. Consumers do not have
perfect information – billions of dollars are spend on advertising to promote
superficial differentiation and disinformation. The “consumer is no longer
king,” or queen – not since advertising firms started hiring psychologists to
“create” consumer “wants and needs” that did not previously exist.
The “stuff” being produced today may well be
produced at a lower cost than would be possible if the same “stuff” was
produced by smaller firms in a competitive industry. However, there is
absolutely no assurance that the “stuff” being produced today would be produced
at all, that this same “stuff” would be chosen by consumers, in a truly
competitive market place. The large corporations today don’t serve consumers.
Consumers serve the corporations.
In fact, we no longer have a capitalistic
economy in the United States. The foundation for any capitalistic economy must
be individuals making their own independent decisions, in an environment where
they are not bribed, coerced or persuaded to make short run decisions that may
not be in their own long run best interests. Today, we have a corporatist
economy rather than a capitalistic economy. We have separated decision making
from ownership and from responsibility. A corporatist economy may be capable of
achieving greater economics of scale than would a capitalistic economy. But,
there is absolutely nothing in economic theory to ensure that society will
realize maximum benefits from a corporatist economy – in terms of prices paid
by consumers, choices available to consumers, salaries or wages paid to
workers, or opportunities for people to make a decent living. A corporatist
economy will ensure maximum returns to corporate investors – even at the
expense of society in general.
The fact of the matter is that the big corporations
will benefit from industrial hog production – not consumers, not farmers, not
rural communities, and not society in general, but the corporations.
Corporations are neither “bad nor good,” at least in the sense that people are
“bad or good.” Corporations have no heart and they have no souls. Neither do
they have friends, communities, or citizenship. All they are designed to do,
and thus, all they are capable of doing, is making profits and growing. The
people who work for corporations may be good people, but they may feel that
they have no choice but to help the corporation make profits and grow – even at
the expense of other people. It simply doesn’t make any sense to turn our
economy and our society over to a bunch of non-human beings.
Sustainable
agriculture: A better alternative.
Regardless
of the nature of our economy, there are better alternatives than industrial hog
production. Independently-owned, modest-sized, family-operated hog farms can
still be commercially competitive with industrial operations if farmers are
willing to rethink what hog farming is all about. Independent hog farmers can
no longer compete with the giant corporations in using industrial technologies
to produce basic commodities for mass marketing and distribution systems, but
there are other alternatives. A new paradigm for farming arising under the
conceptual umbrella of sustainable agriculture balances the need for economic
viability with ecological integrity and social responsibility to meet the needs
of the present without compromising opportunities for the future. Independent
farmers have a comparative advantage in sustainable production, because
industrial hog operations, quite simply, are not sustainable.
In sustainable
farming, production costs are minimized through more intensive management of
on-farm resources within more diversified, individualized farming systems.
Pasture-based and deep-bedded systems for hogs are but two examples. These
smaller scale, less confining, solid waste systems minimize risks to the
natural environment and maintain a humane living environment for both hogs and
people around them. In sustainable farming, product value is maximized by
giving specific consumers the products that they prefer and by establishing
more direct relationships between producers and customers – as with Patchwork
Family Farm and Niman Ranch. Sustainable systems treat customers as people
rather than as markets.
Greater
reliance on intensive management and direct marketing creates more quality
employment opportunities in rural areas by enhancing the productivity of people
rather than replacing people with capital investments and large-scale,
mass-production technologies. Larger numbers of successful farming families
contribute far more than just more jobs and income to the communities in which
they live. People are more effective, efficient, and successful because they
use their unique abilities and pursue their own dreams rather than carry out
someone else’s orders. The empowerment of people to be productive is the
foundation upon which the new paradigm of sustainable agriculture must be
built.
The
claims that industrial hog production will benefit consumers, farmers, rural
communities and society are false. The fact is that consumers, farmers,
communities, and society will all benefit as we move beyond the current
preoccupation with short-run, economic self-interest and begin to support and
promote systems that will be economically viable over the long run, because
they are also ecologically sound and socially responsible. The interests of
people will be better served as we begin to support and promote a more
sustainable agriculture.