Iowa State University

Inside Iowa State
May 3, 1996

Pork trends put squeeze on independents

by Steve Jones
Pork industry changes have made decision-making for farmers and others in the business as easy as, well, catching a greased pig.

The shift toward larger confinement operations, growing concerns over odors and wastes, and demands for leaner meat products are some of the issues changing the way industry does business. Pork associations would like to know where the industry is headed, and agricultural economist Jim Kliebenstein has been trying to provide answers.

"In the past 10 years, the swine industry has undergone as dramatic a change as any agricultural industry," said Kliebenstein.

For that reason, it's not unusual for Kliebenstein to be a frequent visitor at the Clive offices of the Iowa Pork Producers Association and the National Pork Producers Association.

Kliebenstein, who grew up on a southwestern Wisconsin farm that two brothers now operate, studies the structure of the pork industry. He sees the industry eventually dominated by two organizational structures -- vertical integration and networks.

A completely vertically integrated structure is one in which a company mills its own feed, raises and butchers its own pigs, and sometimes even markets its own brand of pork products.

Networks consist of independently owned and operated companies linked together by contracts or other agreements.

"In the future, I think we'll see this structure also through to the grocery store," said Kliebenstein, who has been at Iowa State for nearly 10 years.

Both structures allow for greater organization and control over the entire hog production operation. Greater efficiencies result, putting an economic squeeze on a third structure -- independent producers and other firms operating independently. Kliebenstein said it's becoming more difficult for independent producers not aligned with others to compete with effective networks.

Iowa leads the nation in pork production. According to ISU economist John Lawrence, the value of hogs sold in Iowa each year is $2.7 billion. With the multiplier effect, the Iowa pork industry generates $12 billion annually in economic activity and creates 94,000 jobs.

"Jim has been a good supporter of the Iowa Pork Producers Association and a really good resource for us," said Rich Degner, associate executive director for the association. "He's responsive to our needs when issues come up. When we're considering pork industry initiatives, Jim is more than willing to attend our meetings and give insights to our producer-leaders."

Degner said Kliebenstein played an important role in the development of an Iowa Pork Producers Association information program on establishing a pork production contract. The important "model contract" used throughout the United States shows producers, bank officers and others what to include in an agreement.

Kliebenstein currently is involved in a research project with both the Iowa and national pork associations to study the economic factors and establish the prevalence of a swine parasite, toxoplasma gondii. He hopes to determine the cost of reducing the level of the parasite in a herd. Toxoplasma gondii can be transferred to humans and has caused birth defects.

Another research interest of Kliebenstein's is society's willingness to pay for safer food. Kliebenstein and other economists have conducted tests to learn how much consumers would bid for a guaranteed safe meat sandwich. The safer sandwiches were irradiated (scanned with electron particles) at ISU's Linear Accelerator Facility to kill all bacteria.

In the test, consumers were given money and asked to either eat a free sandwich described as having a normal chance of being contaminated, or bid on and eat a rigorously screened, pathogen-free sandwich.

"Some participants had an aversion to the (irradiation) technology," Kliebenstein noted. "They didn't feel the treated food products were safe. A majority, however, said they believed the technology was safe."

On average, participants in an early study were willing to pay 70 cents for the safer sandwich. Some were willing to pay as much as $2. The 70-cents-per-meal bid indicates a significant willingness of Americans to pay for guaranteed safe food, he said.

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