Monday, February 24, 2003

The USDA reports on vertical integration in the hog industry. They find that productivity is greatly increased, but they aren't so sure why:
There is substantial variation in production costs that cannot be attributed to size of operation. The distribution of costs by size of operation indicates that, despite higher average costs among small and medium-sized operations, many of these operations can produce hogs at a cost that is competitive with larger operations....

These findings paint a picture of an industry increasingly concentrated among fewer and larger farms, and becoming more economically efficient. However, these changes have not come without problems. Concerns about the increasing market control and power concentrated among packers and large hog operations, and from the manure management problem posed by the increasing concentration of hog manure on fewer operations, are paramount.

Addressing these concerns through regulation would likely impose economic costs that could be passed on to consumers. In addition, the relative mobility of the hog industry means that regulations could result in changes in the location of hog production facilities, with ripple effects in local economies. Balancing environmental and economic interests appears to be a major challenge for policymakers dealing with the implications of structural change in U.S. hog production.

A lot of attention is devoted to the manure problem.

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