3.6.

A STUDY OF HOGS

Many systems tend to oscillate in response to

external disturbances. The national economy, for
example, shows cycles of high and low Gross National
Product and employment. Animal populations (such as
rabbits and lynx) often exhibit oscillations.
In this exercise we will explore an example of
cyclical behaviour - the production and consumption
of pork products in Spain. While the pork example is
interesting in itself, it is also important because it
focuses on some general questions about the nature of
oscillations and the stability of systems in response to
disturbances.
The production and consumption of pork
products involve three groups - farmers, butchers, and
consumers. Butchers buy hogs from farmers, dress the
hogs to obtain pork products, and then sell the pork
products to consumers.
In order to understand the cycles that take place
in the production and consumption of pork products, it
will be helpful to build two models - one focusing on
the process of breeding and fattening hogs on the farm,
and the other focusing on the sale of pork products. The two models can then be combined
to generate cyclical behaviour. It is easier to begin with a model of the sale of pork
products, then turn to the breeding of hogs, and finally combine the two models into one
larger model and analyze the behaviour the combined model generates.
Model 1: The Sale and Consumption of Pork
The main element in the model of the sale of pork is the inventory of pork
maintained by butchers. When hogs are slaughtered on the farm, the pork products that are
produced are added to the inventory kept by butchers. When pork is sold, it is taken from
the inventory. The amount of pork people buy depends on the price of pork. The price of
pork, in turn, depends on the size of the pork inventory. When the inventory is high, prices
fall. When the inventory is low, prices rise.
We will assume that the number of hogs slaughtered each month is a constant -
750,000 per month. Hogs weigh about 100 kilos each, and the dressed yield of pork is
about 80 percent (this means that each hog produces 0.80*100= 80 kilos of pork). Thus a
slaughter rate of 750,000 hogs per month corresponds to a pork production rate of 60
million kilos of pork each month.
On the average, each person in Spain normally consumes about 1.5 kilos of pork
each month. With a population of 40 million people, the total amount of pork normally
consumed each month is 1.5*40 million = 60 million kilos of pork per month. But when
the price is high, relative to the normal price of pork, people usually consume somewhat
less than 1.5 kilos each month. When the price is low, they consume somewhat more.

Juan Martn Garca Theory and Practical Exercises of System Dynamics 103
 The price of pork depends on the price of hogs, and the price of hogs depends on
supply and demand. Assume that butchers try to keep on hand about 2 weeks worth of the
amount of pork products they usually sell to avoid stocks-outs (we use the term coverage
for this). When the available inventory of pork runs low, relative to their normal inventory,
butchers are willing to pay higher prices to get hogs. When the butchers' inventory of pork
is high, butchers are less willing to buy and the price of hogs falls.
Assume that the normal price of hogs at slaughter is 3 euros per kilo and that
butchers charge consumers a 7 euro/kg premium over their price of hogs (3 euros/kg),
resulting in the price of pork to consumers of 10 euros/kg. Now, draw the flow diagram of
the sale and consumption of pork, and write equations for the model. Put the equation of
slaughter rate= 750000 and see if the model is in equilibrium. If it isnt, you have made a
mistake in the equations :-) Once you have obtained a model that runs in equilibrium, try
testing its response to exogenous disturbances. For example, how does the system respond
to a 6 month 10.000 increment in the hog slaughter rate? This can be done using the adding
the function PULSE(6,6)*10000 in the equation of slaughter rate.

Push File New Model and define:

104 Juan Martn Garca Theory and Practical Exercises of System Dynamics
 Initial Time=0, Final Time= 48, Time Step=1, Units=Month

(01) average consumption= population*pork consumed per person normal

Units: kg/Month

(02) consumption rate= population*pork consumed per person

Units: kg/Month

(03) coverage= Pork Inventory/average consumption

Units: Month

(04) desired coverage= 0.5

Units: Month

(05) effect of coverage on price = coverage/desired coverage

Lookup: (0.4,1.5),(0.9,1.2),(1,1),(1.6,0.9),(1.8,0.8),(2,0.5)
Units: Dmnl

(06) effect of price on consumption = relative pork price

Lookup: (0.5,1.5),(1,1),(1.5,0.9),(2,0.75)
Units: Dmnl

(07) hog dressed yield= 0.8

Units: Dmnl

(08) hog price= effect of

coverage on price
*hog price normal
Units: Euro/kg

(09) hog price normal= 3

Units: Euro/kg

(10) hog weight= 100

Units: kg/hog

(11) population= 40000000

Units: person

(12) pork consumed per person= pork consumed per person normal*effect of price on
consumption
Units: kg/(person*Month)

(13) pork consumed per person normal= 1.5

Units: kg/person/Month

Juan Martn Garca Theory and Practical Exercises of System Dynamics 105
(14) Pork Inventory= +production rate-consumption rate
Initial value: 30000000
Units: kg

(15) pork price= SMOOTH(hog price+surcharge,time of

delay)
Units: Euro/kg

(16) pork price normal= 10

Units: Euro/kg

(17) production rate= slaughter rate*hog weight*hog dressed yield

Units: kg/Month

(18) relative pork price= pork price/pork price normal

Units: Dmnl

(19) slaughter rate= 750000+PULSE(6,6)*10000

Units: hog/Month

(20) surcharge= 7
Units: Euro/kg

(21) time of delay= 3

Units: Month

Take a look to the PULSE and SMOOTH functions in the Annex chapter.

Save the model as Pork1.

Model 2: The Breeding and Maturation of Hogs

In Model 1, we assumed the hog slaughter rate was an exogenous constant. Now let
us develop a model of the breeding and maturation of hogs to simulate the slaughter rate.
For this model, we will assume that the price of hogs is an exogenous constant. In Model 3,
we will combine the two models to simulate both the hog price and the slaughter rate.
Farmers distinguish between two kinds of hogs - hogs for market and hogs for
breeding stock. Hogs for market (which can be either male or female) are fattened for
about 6 months after they are born, and then they are slaughtered. Females intended for
market are not bred. Females to be bred (called sows) are raised separately as breeding
stock, and they are used entirely for breeding. We will assume that they are not
slaughtered for pork.

106 Juan Martn Garca Theory and Practical Exercises of System Dynamics
 Farmers change the size of their hog herd by adjusting the number of sows in their
breeding stock. When the price of hogs is higher than normal, farmers increase the size of
the breeding stock, and when the price of hogs is lower than normal, they decrease the size
of the breeding stock.

Draw the flow diagram and write the equations for the model of the breeding and
maturation of hogs. Assume that each sow gives birth to 18 hogs per year (1.5 per month).
Also, assume that hogs must be fattened for 6 months before they are ready for market.
The most difficult part of the model is the breeding stock adjustment rate. We will
formulate this using a desired breeding stock size as a function of hog price. This
adjustment can be expressed most easily as a percentage of the actual breeding stock size.
The breeding stock adjustment rate can then be formulated as the difference between the
desired size and the actual size, divided by an adjustment time. Set the hog price at 3
euros/kilo. We will choose values for the breeding stock and for number of hogs that will
produce an equilibrium slaughter rate of 750,000 hogs per month (the value we assumed in
Model 1.)

Push File New Model and define:

Initial Time=0, Final Time= 48, Time Step=1, Units=Month

(01) adjustment rate=(desired breeding stock size-Breeding Stock)/adjustment time

Units: hog/Month
We like to simulate that in every period the farmer compares how many breeding
stock he has, and how many he wants, and he don't make immediately an
adjustment equal to this difference. He makes a progressive adjustment. To
simulate this adjustment we use the adjustment time.

Juan Martn Garca Theory and Practical Exercises of System Dynamics 107
(02) adjustment time= 3
Units: Month

(03) births= Breeding Stock*fertility

Units: hog/Month

(04) Breeding Stock= adjustment rate

Initial value: 500000
Units: hog

(05) desired breeding stock size= normal breeding stock*price effect

Units: hog

(06) feeding time= 6

Units: Month

(07) fertility= 1.5

Units: 1/Month

(08) hog price= 3

Units: Euro/kg

(09) hog price normal= 3

Units: Euro/kg

(10) Hogs for market=births-slaughter rate

Initial value: 4500000
Units: hog

(11) normal breeding stock= 500000

Units: hog

(12) price effect = hog price/hog price normal

Lookup: (0,0.2),(0.3,0.4),(1,1),(2,1.2),(3,1.8)
Units: Dmnl

(13) slaughter rate=(Hogs for market/feeding time)

Units: hog/Month

Save the model as Pork2.

108 Juan Martn Garca Theory and Practical Exercises of System Dynamics
 Graphs shows constant values for all the variables.

You can test if the units are correct following this path:

Model 3:
Combining
the Two Models
Now let us merge the models developed.
If you have the model Pork2 in the screen, save it and push Select All Copy, later
File Open model, and choose the Pork 1 model. Push Edit Paste and move to the right
(with the paste icon activated) the added elements. Save the new model as Pork3.
Now you must use the hog price from model 1 in place of the hog price in model 2,
and the slaughter rate from model 2 in place of the slaughter rate in model 1.
Run the model and examine the results. If you use the same initial values as those
you chose in Models 1 and 2 (with slaughter rate= 750000), the model should be in
equilibrium.
Once you have obtained an equilibrium run, you can test the model's response to
external disturbances. For example, activate the test as you did in model 1. What happens?
Can you explain why the cycles occur?
Two features of cyclical behaviour are particularly important - period and damping.
The period of a cycle is the time that elapses from one peak to the next. Damping refers to
the degree to which oscillations fade away over time. For the parameter values we have
chosen, the hog model produces stable oscillations.

Based on a book of Dennis L. Meadows, Dynamics of Commodity Production Cycles (Cambridge, Mass.:
MIT Press).

Juan Martn Garca Theory and Practical Exercises of System Dynamics 109
110 Juan Martn Garca Theory and Practical Exercises of System Dynamics
(01) adjustment rate=(desired breeding stock size-Breeding Stock)/adjustment time
Units: hog/Month

(02) adjustment time=3

Units: Month

(03) average consumption=population*pork consumed per person normal

Units: kg/Month

(04) births= Breeding Stock*fertility

Units: hog/Month

(05) Breeding Stock= adjustment rate

Initial value: 500000
Units: hog

(06) consumption rate= population*pork consumed per person

Units: kg/Month

(07) coverage= Pork Inventory/average consumption

Units: Month

(08) desired breeding stock size= normal breeding stock*price effect

Units: hog

(09) desired coverage= 0.5

Units: Month

(10) effect of coverage on price = coverage/desired coverage

Lookup: (0.4,1.5),(0.9,1.2),(1,1),(1.6,0.9),(1.8,0.8),(2,0.5)
Units: Dmnl

(11) effect of price on consumption = relative pork price

Lookup: (0.5,1.5),(1,1),(1.5,0.9),(2,0.75)
Units: Dmnl

(12) feeding time= 6

Units: Month

(13) fertility= 1.5

Units: 1/Month

(14) hog dressed yield= 0.8

Units: Dmnl

(15) hog price=effect of coverage on price*hog price normal

Units: Euro/kg

Juan Martn Garca Theory and Practical Exercises of System Dynamics 111
(16) hog price normal=3
Units: Euro/kg

(17) hog weight=100

Units: kg/hog

(18) Hogs for market= births-slaughter rate

Initial value: 4500000
Units: hog

(19) normal breeding stock= 500000

Units: hog

(20) population= 40000000

Units: person

(21) pork consumed per person= pork consumed per person normal*effect of price on
consumption
Units: kg/(person*Month)

(22) pork consumed per person normal= 1.5

Units: kg/person/Month

(23) Pork Inventory= +production rate-consumption rate

Initial value : 30000000
Units: kg

(24) pork price=SMOOTH(hog price+surcharge,time of delay)

Units: Euro/kg

(25) pork price normal= 10

Units: Euro/kg

(26) price effect = hog price/hog price normal

Lookup: (0,0.2),(0.3,0.4),(1,1),(2,1.2),(3,1.8)
Units: Dmnl

(27) production rate= slaughter rate*hog weight*hog dressed yield

Units: kg/Month

(28) relative pork price= pork price/pork price normal

Units: Dmnl

(29) slaughter rate= (Hogs for market/feeding time)+ PULSE(6,6)*10000

Units: hog/Month

112 Juan Martn Garca Theory and Practical Exercises of System Dynamics
(30) surcharge= 7
Units: Euro/kg

(31) time of delay= 3

Units: Month

Juan Martn Garca Theory and Practical Exercises of System Dynamics 113