FOOD

Pork Processing Highly Concentrated,

Hog Production Vertically Integrated
Fact Sheet • March 2011

O ver the past two decades, independent hog operators that sell their livestock on
open markets have nearly disappeared in the face of massive consolidation in
the pork-processing industry. Two out of three hogs are slaughtered by the four largest
pork processors. These companies not only slaughter and process the hogs, but they
exert tremendous control over farmers through production and marketing contracts.
Pork processors increasingly own the hogs they slaughter. This vertical integration and
control of the hog sector has pushed hog prices down and encouraged hog operators
to get big or get out.

Over the past two decades the number of hog farms

declined by 70 percent, from more than 240,000 in 1992 Number of Hog Operations, 1980-2008
to fewer than 70,000 in 2007.1 Despite the collapse in
the number of farms, the number of hogs remained fairly 800,000
constant as the scale of operations exploded. In 1992,
less than a third of hogs were on farms with more than 700,000
2,000 animals; by 2004, four out of five hogs were on
these giant operations; by 2007, 95 percent of hogs were
on operations with more than 2,000 hogs.2 600,000

Mergers Drive Hyper-Consolidation 500,000

Since the 1990s, a wave of mergers and acquisitions has
significantly increased consolidation in the pork-packing
400,000
industry. The volume of hogs slaughtered increased by
only about a quarter between 1996 and 2006,3 but the
number of hog slaughter plants actually decreased by 300,000
30 percent during the same period.4 In 1995 the top four
pork packers slaughtered less than half of the hogs (46
percent), but by 2006, the top four firms slaughtered two- 200,000
thirds of the hogs.5
100,000
Since the 1990s, Smithfield Foods devoured competi-
tors in both the production and processing industries.
With the 2000 acquisition of Murphy Farms, Smithfield 0
became the largest hog producer in the country. In 2006,
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Smithfield purchased the second-largest hog producer

and sixth-largest pork processor, Premium Standard Source: USDA, NASS
Farms.6 At the time, Smithfield operated packing plants
in seven states, and Premium Standard operated plants in As the pork industry consolidated during the 1990s,
two.7 The merged companies accounted for 20 percent of contract production grew to dominate the hog sector. In
the nation’s hog production (through packer-owned hogs) 1993, almost all of hog sales (87 percent) were negotiated
and 31 percent of hog slaughter — with the companies’ purchases between farmers and pork packers or processors
own hogs accounting for half of the hogs it slaughtered.8 (known as “spot market” sales). By 2006, nearly all of hogs
(90 percent) were controlled by the pork packers either
The merger also reduced the number of pork processors in through packer-owned hogs (20 percent) or production-
the Southeast from two to one, forcing farmers to pay hefty contracted hogs (70 percent).14
prices to ship their hogs hundreds of miles to the next-clos-
est packer in the Midwest.9 Even before the merger, the re-
duction in regional competition had already helped to push Pork Packing Four-Firm Concentration
down the price of hogs by 10 percent in the Southeast.10
The U.S. Department of Justice approved the merger and de-
80%
termined that “the merged firm is not likely to harm compe-
tition, consumers or farmers” because “independent farmers 70%
64% 66%
currently ship, and have the ability to increase shipments of,
market-weight hogs to plants outside” the Southeast.11 60% 57%
Pork Packers Control Farmers 50% 46%
Through Hog Contracting 40%
40%
The pork industry has pushed farmers to produce hogs un- 32%
der contract instead of buying hogs from them on the open 30%
market. Contract proponents contend these arrangements
provide stability for producers and reduce market price 20%
risks, but farmers may merely be exchanging price risk for
other downsides in the terms of the contracts.12 Farmers risk 10%
lower (if more stable) prices, the loss of autonomy, abusive
0
contract terms and the possibility that the buyer will go 1985 1990 1995 2000 2003 2006
out of business. Four pork processors in North Carolina
declared bankruptcy in 2009, which imperiled the contracts Source: USDA, Hendrickson Heffernan
of the farmers that supplied hogs to the processors.13
The use of hog production contracts and packer-owned
hogs depresses the spot price for hogs. Average monthly
hog prices were $75 per hundredweight between 1989-
1993 (in 2009 dollars), when the minority of hog farms
used contract production. During the 2004-2008 period,
average monthly hog prices were $52 per hundredweight, a
31 percent decline.15 A USDA-funded study found that a 1
percent increase in the use of packer ownership or contract
production causes the spot market for hogs to fall by a
nearly the same amount (0.88 percent).16

The terms for hog production contracts can significantly

disadvantage producers. Some contracts provide a strict
management manual for contract growers that eliminates
farmer autonomy.17 Contracts can require farmers to build
or upgrade facilities, which can require significant invest-
ments for farmers. For a typical hog finishing operation, six
1,100-head hog houses typically cost between $600,000
and $900,000.18 In 2005, three out of five hog operators (61
percent) were required to make these capital investments.19

Contract operators are also responsible for securing per-

vmits for disposing of hog manure and the environmental
liability associated with any manure disposal.20 Hog opera-
tors that rely on a steady contract relationship with a packer
or processor are unable to complain about shoddy treat-
ment or unfair terms for fear of retaliation that could end
their business.21 Some contracts even have a provision that
allows the pork packer to evict farmers from their own hog
barns and force them to hire company-selected managers
to finish the hogs if the packer decides that the farmer was
not properly caring for the livestock.22

Real Farmgate Hog Prices, 1989-2008

120

100
Price per hundredweight, in 2009 dollars

80

60

40

20

0
Nov-08
Jan-01
Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Source: USDA
What You Can Do
USDA, the Department of Justice and Congress allowed
concentrated agribusiness power to reach these unprec-
edented levels. They can take concrete actions to curb
market power that harms consumers and farmers.
Tell your member of Congress to support a ban on packer
and processor ownership of livestock and reform the rules
for using captive supply contracts, practices that let meat
companies manipulate the prices paid to farmers for their
livestock. They can start by cosponsoring the Livestock
Marketing Fairness Act.
Tell the U.S. Department of Justice to re-examine the major
agricultural mergers that have been approved in the past
decade to determine what effect the mergers had on the
marketplace, farmers and consumers. The U.S. Department
of Justice should also place a moratorium on any proposed
agricultural and food company mergers by the top four
firms in any subsector.
To learn more about how to restore competition in agricul-
ture and our food system, go to www.foodandwaterwatch.
org/fairfarmbill.
Endnotes
1 Key, Nigel and William McBride. USDA ERS. “The Chang-
ing Economics of U.S. Hog Production.” Economic Research
Report 52. December 2007 at 5; USDA, NASSS 2007 Census
of Agriculture. 2009 at Table 21.
2 Key and McBride (2007) at 5; USDA NASS. 2007 Census of
Agriculture. 2009 at Table 20.
3 USDA Grain Inspection, Packers and Stockyards Administra-
tion. “Assessment of the Livestock and Poultry Industries:
Fiscal Year 2007 Report.” May 2008 at 10.
4 USDA Grain Inspection, Packers and Stockyards Administra-
tion. “Assessment of the Livestock and Poultry Industries:
Fiscal Year 2007 Report.” May 2008 at 11.
5 MacDonald, James M. and William D. McBride. USDA ERS.
“The Transformation of U.S. Livestock Agriculture: Scale, Effi-
ciency, and Risks.” EIB-43. January 2009 at 25; Hendrickson,
Mary and Bill Heffernan. Department of Rural Sociology,
University of Missouri-Columbia. “Concentration of Agricul-
tural Markets.” April 2007.
6 Martinez, Steve W. USDA Economic Research Service. “The
U.S. Food Marketing System: Recent Developments 1997-
2006.” Economic Research Report Number 42. May 2007 at
28.
7 U.S. Department of Justice. Press release. “Statement of the
Department of Justice Antitrust Division on its Decision to
Close Its Investigation of Smithfield Inc.’s Acquisition of Pre-
mium Standard Farms Inc.” May 4, 2007 at 2.
8 Martinez (2007) at 28.
9 American Antitrust Institute’s Transition Report on Competi-
tion Policy: Chapter 8 Food. 2008 at 292.
10 American Antitrust Institute (2008) at 292.
11 U.S. Department of Justice. (2007) at 1-2.
12 U.S. Department of Justice. (2007) at 1.
13 Ovaska, Sarah. “Hog farmers reel as buyers go bankrupt.”
Raleigh News-Observer. November 20, 2009.
14 Martinez (2007) at 27.
15 USDA NASS. Agricultural Prices Annual Summaries. 1990-
2009.
16 RTI International. Prepared for GIPSA. “GIPSA Livestock
and Meat Marketing Study: Volume 1: Executive Summary
and Overview – Final Report.” January 2007 at ES-10.
17 Hayes, Lynn A. Farmers’ Legal Action Group, Inc. (FLAG).
Testimony before the Senate Committee on Agriculture, Nu-
trition, and Forestry. April 18, 2007 at 3.
18 MacDonald and McBride (2009) at 10.
19 MacDonald, James and Penni Korb. USDA ERS. “Agricultural
Contracting Update, 2005.” Economic Information Bulleting
No. 35. April 2008 at 17.
20 Moeller, David. Farmers’ Legal Action Group, Inc. (FLAG).
“Livestock Production Contracts: Risks for Family Farmers.”
March 22, 2003 at 4.
21 Domina, David and C. Robert Taylor. Organization for Com-
petitive Markets. “The Debilitating Effects of Concentration
in Markets Affecting Agriculture.” September 2009 at 65.
22 Hayes (2007) at 3.
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