Vertical Coordination in Hog Production
Long-term hog production and marketing arrangements are of growing importance. The researchers on this project surveyed the 20 largest pork packing companies, 45 largest hog producers, and 21 largest feed companies regarding their use of, and expectations about, the use of vertical coordination arrangements in the pork industry.
The researchers found that contracting in hog production and marketing in 1993 was small enough to have little impact on the competitive environment in hog production and marketing. However, the importance of contracts is growing rapidly, led by some of the largest hog producers. The seven largest producers in 1993 sold most of their hogs through long term marketing contracts. Contracting appears to offer economic advantages to both buyers and sellers. Packers gain an opportunity to improve hog quality and assure a steady supply of preferred types of hogs. Producers gain an opportunity to have an assured market for their hogs and assurance of payment based on quality. Contracts also provide an opportunity for some new producers to gain the expertise, financing, and other economic assistance needed to gain a foothold in the industry. Most of the respondents in this study expect contracting to increase rapidly through the end of the 1990's and become a major marketing and production tool.