Recent changes in the structure of the pork industry echo past
changes in the poultry industry.
How U.S. pork producers and processors
sell and buy hogs has changed significantly since 1990. The use
of long-term contracts has largely
replaced production for the open, or spot, market. Over 70 percent
of hogs are sold under contracts, where producers are required
to deliver a specified number of hogs to the processor at a specified
time. In return, the producer receives the spot price, adjusted
for the size and quality of the hogs.
These developments raise
concerns by some about anticompetitive behavior of large processors
and the demise of small, independent
farmers. Others emphasize how contracts facilitate steady flows
of high-quality farm products for processing, among other benefits.
In
the U.S. poultry industry, contracts and common ownership of production
and processing (called vertical integration)
expanded in the 1950s. By 1977, contracts and vertical integration
accounted for over 85 percent of broiler, turkey, and egg production.
Today, these arrangements account for over 90 percent of production
in each of the three sectors. At the same time, the poultry industry
significantly improved production efficiencies. It also capitalized
on consumers interest in lower fat sources of protein and
responded to their quest for convenience with a wide variety of
processed, branded poultry products. These developments were reflected
in large supplies of poultry products that were priced low relative
to other meats.
The pork industry has also improved production efficiency.
Offspring from a typical breeding hog produced 30 percent more
pork in 1999
than in 1990. The industry is offering more lean, further-processed,
case-ready products. From 1995 to 1999, the number of new pork
items on foodservice menus more than doubled, and the number
of pork mentions on menus exceeded all other meats in 1999, except
for chicken, according to a study by the National Pork Producers
Council.
These efficiencies and expanded product offerings have
led to larger pork supplies that have lowered pork prices and
may have
tempered declines in demand dating back to the 1970s. From 1990
to 2002, pork production increased by 2 percent per year, and
deflated retail pork prices fell by 1 percent per year. From 1980
to 1995,
the demand for pork fell by 34 percent. Since 1995, the demand
for pork has increased by 8 percent.
The pork industry is also
following the lead of poultry in export markets. The U.S. poultry
industry has experienced considerable
growth in exports, as indicated by its status as the worlds
largest exporter of poultry meat. Similarly, reliable supplies
tailored to customer specifications have helped boost U.S. pork
exports fivefold in the 1990s.