Published in Agron J 91:883-888 (1999)
© 1999 American Society of Agronomy
677 S. Segoe Rd., Madison, WI 53711 USA
Agronomy Journal 91:883-888 (1999)
© 1999 American Society of Agronomy
FORUM
Contract Hog Production and Environmental Management in the Southern United States
Rick Welsha and
Bryan Hubbellb
a Henry A. Wallace Inst. for Alternative Agriculture, 9200 Edmonston Rd., Ste. 117, Greenbelt, MD 20770-1551 USA
b Innovative Strategies and Economics Group, Office of Air Quality Planning and Standards, USEPA, Durham, NC USA
hawiaa{at}access.digex.net
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ABSTRACT
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The 1980s and 1990s have witnessed substantial changes in the U.S. swine industry. The industry structure has shifted from relatively large numbers of hog (Sus scrofa) farm operators producing for open markets to fewer and larger farm operators raising hogs under contracts for intermediary firms or meatpackers. This shift has resulted in debates over whether the movement from independent to contract hog production has proven beneficial or detrimental for manure management and pollution control. To shed light on these debates, we surveyed by mail independent and contract hog producers in the southern USA and gathered data on the structure of their farms, their opinions on environmental issues in the hog industry, and their manure management strategies. The survey results indicate that contract producers maintain higher animal units per hectare and spread the hog manure over smaller areas than do independents. However, contract producers also realize they are pushing the adsorptive capacity of their farms and adopt ameliorating and monitoring technologies at higher rates than independent producers. We conclude that market structure is an important determinant of farm structure and environmental management regime, and that adoption of pollution control technologies is not equivalent to environmental performance.
Abbreviations: AEU, animal equivalent unit
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INTRODUCTION
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PROFOUND STRUCTURAL CHANGES
have taken place in U.S. agriculture in the 1980s and 1990s. Increasingly, processing firms and production operations are becoming more closely linked. This has happened through vertical integration, where firms own production and processing outright, or through contracting, where processing firms or intermediary buyers contract with growers to grow out products (Welsh, 1996).
Contract production is becoming increasingly common in the hog industry. Current estimates of contract hog production vary. However, many analysts predict that in the near future the hog industry will mirror the poultry industry with the vast majority of production under contract (Smith, 1998). An important issue in regard to increased contract production is the shift in control over decision-making from the farm level to firms that pay farm-level workers to grow products. Producers who enter into production contracts give up some control over the structure of their farms, as well as over the quality of farm inputs and how inputs are used in production (Welsh, 1997). For example, under hog production contract regimes, the contractor often provides animals, feed, veterinary services, and marketing and transport services, as well as technical expertise and supervision of the production process. This means the producer does not control important aspects of production that may influence how that farm performs in a number of areas. One of these areas is environmental performance of the hog operation.
Here we explore the issue of contract vs. independent production in the hog industry and the potential meaning of this dichotomy for environmental management of the farm. We first discuss two opposing viewpoints of contract and independent production regarding environmental performance or pollution control. Then, using data obtained from a mail survey of hog producers in the southern USA, we try to provide some insight into how different production regimes interact with the natural environment in which they operate. Finally, we make some conclusions about determinants of farm-level environmental management, and how we can evaluate such management in future discussions about the changing structure of agriculture and the need for controlling pollution from agricultural operations.
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Is Contract Production Good for the Environment?
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In many cases, the question of whether contract production is good for the environment has been seen as synonymous with "Are large farms good for the environment?" (Hoban et al., 1997a). However, while contract producers are almost exclusively large producers, not all large producers are contract producers. Given current structural trends, the relevant question is: Which leads to less agricultural pollution, retention of control over production decisions at the farm level or moving control toward the contractor? In response to this question, Ervin and Smith (1994) argue that evidence from nonagricultural sectors suggests that more industrialized firms tend to adopt many technologies at a faster rate than less industrialized firms. If industrialized firms see pollution control technologies as profitable, or if sufficient incentives are present, an industrialized structure could lead to an acceptable environmental performance. In addition, if an industrialized structure leads to higher firm profits, then resources will be available to invest in research and development of pollution prevention technologies. However, Ervin and Smith (1994) also suggest that if farm-level environmental performance ultimately depends on control over production decisions and assets, then farm operators may be less able, and less motivated, to take actions to protect environmental quality under contract arrangements. That is, when producers are simultaneously faced with countervailing economic incentives (in particular, little control over prices and inputs received, need to control costs, and the need for adequate cash flow to support debt payments) farmers producing under contract may see little benefit in instituting costly technologies or management techniques that protect environmental quality.
Critics of contract production also argue that farm-level workers are the most qualified to make decisions that would prevent or minimize environmental problems in agriculture, because they are part of a labor process in which they continuously interact with local ecological, social, and economic conditions. This interaction provides them with knowledge and understanding that managers and owners of intermediary or processing firms cannot obtain (Kloppenburg, 1991). In addition, owners of independent operations can act on personal stewardship goals in ways that contract producers cannot. Independent operators can be flexible regarding farm structure and making changes in production regimes. This flexibility can be beneficial to the environment. For example, independent livestock producers may keep an operation small so there is less manure to store and apply. Also, independent producers are able to switch to low-input systems with proven environmental benefits such as pasture-based systems. Contract producers can be subject to directives of large bureaucratic organizations operating at a national or even global level that have little contact or concern with local environmental conditions in which the contract producer operates (Ervin and Smith, 1994).
On the other hand, proponents of contract hog production argue that vertically coordinated production is better able to control agricultural pollution because producers are linked to large, highly capitalized firms that can bring substantial monetary, as well as the latest scientific and technical, resources to bear on pollution issues. Independent producers, large or small, do not have the information or financial links to compete with contract production regarding pollution control or environmental management (Hoban et al., 1997b). The scale and concentration of production resulting from contracting also have potential environmental benefits. Notably, (i) scale economies can result in more efficient production of commodities, resulting in lower input use and reduced total output of agricultural pollution (Chen, 1995), and (ii) concentrated, coordinated agricultural production can lead to a shift from nonpoint-source to point-source pollution management. Large-scale concentrated agricultural operations present easily identifiable sources of waste generation, as opposed to geographically dispersed independent farms. This shift can potentially lead to more targeted effective environmental public policy (Ervin and Smith, 1994).
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Empirical Evidence
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Contract production leads to larger-scale more highly concentrated production as contractors prefer to deal with fewer and larger producers (Bell, 1996). Those types of operations tend to be concentrated within limited geographic areas (Hubbell and Welsh, 1998). Areas where hog production has concentrated have seen environmental degradation from manure spills and leakage from large manure storage lagoons (Nowlin and Boyd, 1997). Also, residents of areas containing concentrated hog production have complained about nauseating odors emanating from these facilities, as well as other health effects (Thu, 1996). In a number of states in which concentrated and coordinated production has increased, legislatures are considering, or have passed, restrictive regulations on livestock operations, especially hog production (Marbery, 1997).
On the other hand, a study by Hoban and colleagues (1997a) found that contract hog producers tend to adopt pollution control technologies more often than their independent counterparts. They conclude that large-scale corporate livestock operations do a better job of managing manure than smaller-scale independent producers, and that public opinion is being shaped by a relatively few operations that are not taking adequate measures to protect the environment (Hoban et al., 1997b).
However, the interaction between structural change and environmental management in the hog industry may not always be most accurately described as an either–or outcome. Rather, it may be more helpful to discern what conditions lead to environmental problems and to ask, how can individuals and firms act to forestall such problems or alleviate them? Also, what could constrain producers from acting to protect the environment and what types of public policies might be appropriate for different production regimes?
In this paper we investigate how market structure (contract or independent) influences several factors critical to environmental management of a hog operation. These factors include operation structure, adoption of pollution control technologies, opinions about whether hog production is a danger to the environment, whether alternatives to traditional manure management practices are used, and how farm structure interacts with manure management to potentially decrease or increase the likelihood of environmental degradation from hog operations.
We take this approach because we believe that all farm operations have the potential to pollute, and that a key for protecting the environment is the ability of producers to make changes, adopt technology, or create a production regime less likely to require particular manure management technologies. Also, different levels of decision-making control can lead to divergent pollution control strategies. Different market structures could lead to different environmental management plans, not just different environmental outcomes. Discerning sets of manure management approaches, if they exist, could improve public policy development. In this way, overly broad environmental policy can be avoided.
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Materials and methods
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A survey was constructed which queried hog producers about their farm structure, manure management practices, and opinions on whether their operations, and the hog industry in general, posed a threat to the environment, including the health of their family members. Using the U.S. Department of Commerce 1992 Census of Agriculture, the top ten hog-producing counties in the states of North Carolina, Georgia, Arkansas, Virginia, and Kentucky were identified. For each state, either county-level cooperative extension agents provided lists of hog producers or distributed the survey to hog producers, or a commodity group representative provided lists of producers. We found this method necessary, since we wished to stay independent of hog processing firms to protect the integrity of our survey and because the number of hog producers declined significantly after 1992, rendering lists from state departments of agriculture less accurate. Surveys were mailed in the spring of 1997. We mailed out reminder cards after 3 weeks and followed with another survey after another 3 weeks. Budget constraints prevented additional contacts.
The effective response rate was 12%. Out of 1100 surveys mailed, 125 surveys were returned by individuals who were no longer raising hogs, and 115 completed and useable surveys were returned. We attribute this low response rate to the possible inadequacies of the lists provided, the precipitous drops in hog farm numbers in the last few years, and probably also to the highly charged and controversial nature of the subject matter of the surveys. That is, environmental challenges arising from hog production have recently been reported by the media. This could have led to the reluctance of producers to give out information about their operations. Due to the low response rate, we cannot extrapolate our findings beyond our surveyed population. Rather, we hope to inform other researchers in their attempts to collect information on the link between livestock production regimes and market structure and environmental performance. However, comparing the surveyed population with the 1992 Census of Agriculture, we find that the average surveyed producer tended to run a larger operation than the average hog producer in the Census. Larger producers seemed to be more likely to return the survey, or there might be more large producers in the general farm population than there were when the 1992 Census was taken.
Producers who indicated that they produced under a production contract were designated as contract producers. Also, those producers who indicated that they operated under marketing contracts and who received a production input from the contractor were designated as contract producers. Receiving an input from a contractor is often cited as an indication of shifting production control away from the point of production (Frank and Henderson, 1992). Efforts were made to identify and remove respondents who act primarily as contractors and not as producers. The final data set contained 73 contract producers and 42 independents. For analyzing differences between contract and independent producers, a P-value of 0.05 or less indicates that two figures are significantly different.
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Results and discussion
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Table 1
provides comparisons of structural and financial characteristics of independent and contract producers. In general, independent producers have been producing hogs for about 15 years longer than contract producers. Independents on average produce a higher percentage of finished hogs and lower percentage of feeder pigs than contract producers. Independents also operate larger farms in terms of hectares: 310 ha average for independents and 122 ha average for contract producers. Contract producers earn higher rates of return (31% vs. 16%) and carry higher average debt levels: 40% debt for contract producers, 24% debt for independents. In addition, contractees maintain a greater number of animal equivalent units (AEU). An animal equivalent unit is 450 kg (1000 pounds). Of the farms surveyed, almost 91% of contractees had at least 240 AEUs on their farms; only 57% of independents had that many on their farms.
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Table 1 Structural characteristics of contract and independent hog producers in the U.S. South for calendar year 1996.
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The types of inputs supplied by contractors and the percentage of contractees receiving each type of input from the contractor are presented in Table 2
. More than 80% of contractees received feed, veterinary services, and transport of pigs from the contractor. About half of the contractees received feeder pigs and breeding stock. Few of the contractees received equipment for required production practices or waste handling equipment or services. In general, contract producers were responsible for providing capital investments and not responsible for the variable production inputs.
Table 3
indicates the amount of input contractees felt they had in determining various contract components. About half of the contractees indicated that they had a great deal of input into production and management practices, very few felt they had a great deal of input into the quality of inputs provided by the supplier. In addition, large majorities of contract farmers indicated they had very little input into prices received or the length of their contracts. Regarding grower input into equipment and building design, about 40% felt they had very little input, the same percentage believed they had some input, and the remainder indicated they had a great deal of input. There seems to be some diversity among contracts in this respect.
Table 4
presents opinions held by contract producers and independents on the relationship between hog operations and water pollution. Differences between the two types of producers were found regarding whether water pollution constitutes an important issue for their particular operation and whether hog producers should be required to use production practices that reduce the risks of water pollution. Contract producers were more likely than independents to agree that water pollution from hog manure is an important issue regarding their operation, and contract producers were more likely to agree that producers should be required to adopt pollution control practices. The latter result may reflect our finding that contract growers were more likely to adopt a practice because they were required to by a regulatory body (result not presented in tables). All producers tended to agree that manure management is an important issue in general, that neighbors had not complained about their operations, and that their family's health was not threatened by their hog operation. Manure handling and monitoring practices are presented in Table 5
; manure and runoff management practices are presented in Table 6
. Independents were more likely to spread manure from their hogs over a larger area and rotationally graze their hogs as compared to contract producers. Independents, on average, tested their soils about once every two years, while contract producers tested their soils about once per year. Contract producers were also more likely to vary manure application rates according to soil type and slope, test manure for nutrient content, locate manure storage at least 45 m from wells, divert runoff from manure storage, have a sediment or settling basin, and have a nutrient management plan. No differences were found between the two types of producers regarding locating manure storage downslope from water supplies, diverting surface water from the animal lot, having temporary storage ponds, planting vegetative filter strips, manure composting, and digging monitoring wells.
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Table 4 Producer opinions on the relationship between hog operations and water pollution. Lower scores indicate greater agreement with the statements.
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Based on the results of the survey, we argue that the difference in market structure between contract and independent producers is associated with differences in farm structure and consequently in manure management regimes. Contract producers put more total animal units on smaller land holdings. They agree that their operations may be linked to water pollution, probably because of high AEU rates per hectare, and consequently try to prevent potential pollution by adopting ameliorating and monitoring technologies and strategies at higher rates than independent producers. Lack of control over prices received and length of contract, coupled with the higher debt levels of contract growers, provides support for the argument that contract producers may feel pressures to control costs to ensure adequate revenues to meet debt obligations. Since they cannot affect prices received, the only opportunity to increase profits is by reducing costs of production. Since purchasing or renting additional land for manure applications increases costs without increasing revenues, contract producers may view such a practice as too costly, and instead rely on monitoring and ameliorative approaches to manure management.
Independents take advantage of their larger land bases to spread the manure across a larger area than contractees. They are less worried about moving beyond their farm's adsorptive capacity and do not adopt amelioration and monitoring technologies as often as contractees, though for a number of technologies there is no difference between the two types of producers.
Regarding competing views of contract production and environmental performance, there is evidence supporting each side of the debate. Contract production is associated with concentrated production. Contract producers have AEU per hectare rates almost three times those of independents and, although very few producers rotationally graze their hogs, the vast majority who do are independents. (However, even independents have high AEU per hectare rates. For example, the state of Pennsylvania requires nutrient management plans for AEUs greater than 5 per hectare or 2 per acre.) If rotational grazing becomes as well known and popular in hog production as it is in dairy, it may well be independents who show the highest adoption rates.
On the other hand, consistent with the findings of Hoban and colleagues (1997b), contract producers have higher adoption rates of manure management technologies and monitor the nutrient levels of their soils and hog manure more often than independents. This is due, at least in part, to the fact that contract producers are more likely to be required by regulations to adopt particular practices. But also, perhaps being more closely linked to highly capitalized firms results in contract producers realizing the need for highly concentrated operations to vigorously adopt waste management and monitoring technologies.
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Conclusions
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It is clear from evidence that producers' adoption of particular waste management practices is not the same as environmental performance. That is, technology use is meaningful only when understood in the context of whole farm systems, and how those systems put pressure on natural systems. It is possible to concentrate so much manure in an area that most waste management technologies would be overwhelmed, resulting in agricultural pollution.
What cannot be shown in this paper is the efficacy of the two divergent pollution control strategies. Does a larger land base and fewer AEU per hectare result in less runoff or leaching than pushing the adsorptive capacity of the farm and relying on monitoring and amelioration strategies? This question can only be answered by gathering data on nutrient loading of ground and surface water traceable to hog production for those areas dominated by the two production systems. Also, what types of farms are more often cited by local, state, and federal governmental agencies for noncompliance with environmental regulations? Answers to these questions would greatly help policymakers develop targeted policy that could help move us toward productive and environmentally sustainable hog production systems. As Ervin and Smith (1994) argue, the key to whether the industrialization of agriculture will degrade or improve environmental quality is the interaction of structural forces with pollution processes, technology innovation and adoption, and environmental regulation.
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ACKNOWLEDGMENTS
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The authors wish to acknowledge the helpful comments of three anonymous reviewers, the Editor, and David Ervin. This research was supported by the Henry A. Wallace Institute for Alternative Agriculture in Greenbelt, MD, and the Department of Agricultural and Applied Economics at the University of Georgia in Athens, GA.
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NOTES
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Opinions expressed are those of the authors and not necessarily of the USEPA.
Received for publication March 16, 1999.
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ABSTRACT
INTRODUCTION
