IATP Hog Report - Institute for Agriculture and Trade Policy

Section 1
carcass size, leanness, and number of hogs delivered, no "extra credit" is
given for the way in which hogs are produced (for example, whether the
farmer is a good steward of the land or maintains his animals in a high
state of welfare). The buyer (packer) decides how much the hog is worth.
The packer, processor, further processors, and retailers or exporters reap
the benefits of adding value to the farmers' raw product. Effectively
selling their outputs wholesale while paying the retail cost of inputs caught
between increasingly oligopsonistic buyers and increasingly oligopolistic
sellers independent farmers continue to be squeezed in the middle.
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By December 1998, hog prices had dropped to record lows. 29 For farmers
selling independently, on open (cash or spot) markets, prices dipped as
low as eight to 10 cents per pound, 20 to 30 cents below costs of
production. Adjusted for inflation, these prices were lower than hog prices
during the Great Depression. Some farmers gave their hogs away.
Analysts predicted that as many as one-fifth of the nation's remaining hog
farmers would leave the business by mid-year 1999. 30 Farmers most likely
to leave the business voluntarily were the small to mid-size independent
farmers for whom hog production was not the sole enterprise. These farms
may survive without hog production and may be able to get back in the
hog market at some future time, especially if they can serve a special niche.
Of great concern are the independent farmers who bought into the factory
technologies but did not produce on a sufficient scale to cover costs of
production. A Wall Street Journal reporter interviewed an Iowa farmer
who spent his life savings to erect four "state-of-the-art" buildings. 31 In
1998, his partnership lost half a million dollars. He closed down, laid off
his seven employees, and sold his breeding herd. But he still did not have
the money to pay construction loans totaling hundreds of thousands of
dollars.
The Journal reported on another Iowa farmer selling 40 hogs to a
meatpacker that day. He expected to lose $44 per hog. 32 He had to shoot a
sow because he could not afford to pay for a routine veterinary procedure.
Related to the price crisis is the difficulty small and mid-sized independent
farmers have in obtaining credit to begin and renovate hog operations. 33
The emphasis on the factory mode of production that prevails in the
industry and within land grant universities lends greater apparent
legitimacy to factory methods than to more traditional methods of raising
hogs. Creditors can be reluctant to lend to independent farmers who
propose production plans that do not meet the corporate mold or who are
not contracting with a larger, corporate entity, even if the plans are within
the farmers' financial and managerial capabilities. 34 One farmer reported:
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