The Missouri Swine Audit: |
The Missouri Swine Audit: |
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3 MISSOURI SWINE INDUSTRY’S COMPETITIVE POSITION 3.1 Production Missouri is the sixth largest state in the U.S. in hog and pig production and the economic impact of these farms on the rural economy is substantial. There is little reason to believe that Missouri producers, on average, are any less competitive than producers in other regions of the U.S. in terms of production efficiency. The crisis that occurred in the late 1990’s has winnowed out most operations that either had poor financial structure or were below average in terms of production efficiency. However, Missouri hog producers do face structural challenges that are associated with their geographic locations that do weigh on their financial efficiency. One major challenge is that Missouri producers face is higher feed costs than other major hog producing regions. This is particularly the case in relation to the Iowa-Southern Minnesota region where corn prices are significantly cheaper in most years. Many Missouri producers face a corn market that is up to $0.25 per bushel higher than in other corn surplus regions. This translates into a cost per hundredweight at least $1.25 higher than in other areas of the U.S. While a policy discussion beyond this analysis, the establishment of numerous ethanol plants in Northern Missouri, will exacerbate this disadvantage in the future. Unless corn yields increase and/or acreage expands, the increase in the welfare of corn producers from ethanol plants will undoubtedly, to some extent, come at the expense of a welfare loss by hog producers. Historically, hog producers were corn producers, but with increasing scale of hog production and specialization, this is no longer a valid assumption. 3.2 Marketing Because of the lack of commercial slaughter plants in Missouri, hog producers in the state sell into the exact same markets as producers in Nebraska, Kansas, Iowa, Illinois and Minnesota. Many if not most of Missouri hog producers face a $0.50 to $1.00 per hundredweight disadvantage to producers in neighboring states due to increased marketing costs associated with higher transportation rates. This will continue to be a challenge for the foreseeable future. A new Triumph Pork facility was opened in St. Joseph with the ability to process 4 million head of pork a year on a single-shift production line, however the pork supply is coming from the 50 producer-owners. The net benefits to Missouri producers and the industry will be positive. 3.3 Summary of Missouri’s Swine Industry Current Competitive Position The Missouri swine industry will be an economic engine in the rural economy for years to come. But long term, an increasing effort will be required to maintain its importance and stature in Missouri agriculture. In many ways, Missouri producers will always need to be at the cutting edge of management and technology to maintain its position in the U.S. swine industry. Because of certain structural issues, Missouri producers will always need to be “above average” in terms of production efficiency and management in order to overcome certain cost disadvantages. How well Missouri swine producers can succeed in its unavoidable challenge of superior performance depends on several factors. A number of these factors are beyond the control of individual producers. Examples include the forces in U.S. and global feed grain and protein markets and overall supply and demand situations in the meat and poultry markets. However, there are actions and strategies that involve producers, the industry, government and public institutions that are pivotal to the industry’s success. Individual Producers: Clearly the mission of superior performance starts at the farm. The efforts of all interested and sympathetic individuals, groups and institutions beyond the farm can not offset a lack of commitment at the farm level. This is not news to producers but execution is the key. Perhaps the greatest challenge will be for those producers that represent the future of the industry to be able to “step back” from the everyday activities long enough to individually or with other producers and Extension personnel to identify aspect of the business that can be improved and then follow through with a related strategy. With increasing intensity individual producers should work together to exchange ideas, solutions and management techniques. The biggest threat to the industry in terms of individual farm efficiency is the fact there are serious horizon issues at the farm level. This reality can not be ignored. Many hog and pig producers in the state are nearing retirement and have extremely difficult decisions related to investment in, the sale/dissolution of the business or facilitating intergenerational transfer. Swine Industry: The organizations and institutions within the swine industry are instrumental in providing a voice for the producers as a group. The strengthening of these organizations is essential for a centralized advocate for the industry on issues and policy that impact the industry. The industry organizations also have the leadership and experience to facilitate better communication between producers themselves, with consumers and policy makers. Public Institutions: Missouri’s Land Grant University missions of Research and Outreach are critical to the competitive position of the swine industry in the state. Historically, individual and teams of animal scientists, engineers, economists and veterinarians at the University of Missouri have discovered, tested, improved and delivered technology, genetics and management practices to swine producers. Some of the most effective efforts on the part of research and extension personnel have been those that involve close collaboration with producers. There is a continuous loop of success involving research and extension personnel and Missouri’s swine producers. A strong industry justifies a high level of Research and Extension effort and a well supported Land Gant Mission supports the industry. However, these relationships are not maintained automatically. Swine producers and industry groups need to recognize the importance of having their voices heard in terms of their demands for strong presence in swine related research and extension. As public servants, these individuals and teams of researchers who focus on and support the industry are competing for an ever shrinking pie of public resources directed towards traditional production agriculture. State Government: Perhaps the most obvious benefits that could accrue to the swine industry and improve the competitive situation therein would be a streamlining and improvement in regulatory approach toward the industry. Few farmers fail to recognize that their operations have the potential to affect the environment and similarly few have any less interest in a quality environment than other citizens. But historically, government regulations have focused on “one size fits all” regulations that may minimize cost to government but maximize costs to farmers. All stakeholders need to recognize that certain regulations are “untouchable” but that others may simply increase costs, reduce economic activity and produce no benefit in terms of improved environmental quality. Efforts to streamline regulatory processes and recognize local characteristics and practices that mitigate environmental risks (that in turn should reduce regulatory burden) should be explored. The extent to which Missouri can be progressive in its approach to regulation, the more likely livestock producers and the rural economy of Missouri might benefit from a more positive physical and economic environment. Industry and Producer Alliance: Missouri has a tradition of producers working together. At times in the history of the state’s agricultural sector, farmers have operated from a defensive posture with respect to agribusiness firms associated with input supply or the marketing and utilization of farm outputs. But that era is largely past. The economic environment of agriculture will continue to trend toward increased coordination. Most swine producers recognize the conceptual benefits from closer cooperation but similarly recognize, and may have experienced, the elusiveness of these benefits. But producers will increasingly have little choice but to work closely with each other in coordinating their efforts on both the cost side and revenue side of their business. Key to these efforts will be leadership, organization and building on strengths and accomplishments in the industry. 3.4 Global Pork Production The U.S. plays an integral role in the world pork industry. The following tables sum the production/consumption and imports/exports of the world’s leading countries. The U.S. increased the pork production from the year 2000 to 2006 by almost 1 million metric tons (Table 9). Following the same trend is the increase in production by foreign producers. The top producer of the world’s pork is China, producing 47 million metric tons in 2004, followed by the European Union and the U.S.
Table 9. World Pork Production in Leading Countries 36
(P) Preliminary data. (F) Forecasted data. In 2004, consumption increased to more than 90 million metric tons in the U.S. (Table 10). The world consumption increased by 10 million metric tons from 2000-2005. China being the largest pork producing country was also the largest consumer the most pork, followed by the European Union and the U.S.
Table 10. World Pork Consumption in Leading Countries 37
(P) Preliminary data. (F) Forecasted data. The top importers of pork in the world are Japan, followed by the Russian Federation and the U.S. (Table 11). The U.S. increased pork imports to 447 thousand metric tons in 2005, whereas Japan imported 1.2 million metric tons of pork.
Table 11. World Pork Imports in Leading Countries38
The top exporters of pork in the world are the European Union, followed by Canada and the U.S. (Table 12). The U.S. increased pork exports by over 500,000 metric tons from 2001-2005. Table 12. World Pork Exports in Leading Countries 39
* Data includes 25 member states for all years. (P) Preliminary data. (F) Forecasted data.
36 Foreign Agriculture Service, Circular Series, March 2005 and November 2005 37 Foreign Agriculture Service, Circular Series, March 2005 and November 2005 38 Foreign Agriculture Service, Circular Series, March 2005 and November 2005
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