Contract and Exit Decisions in Finisher Hog Production
AbstractFinisher hog production in North America has seen a shift toward larger production units and contract-organized production since circa 1990. Given the efficiency gains and conversion costs associated with contract production, growers may have to choose between long term commitment through investments and atrophy with intent to exit in the intermediate term. A model is developed to show that growers with any of three efficiency attributes (lower innate hazard of exit, variable costs, or fixed contract adoption costs) are not only more likely to contract but will also produce more and expend more on lowering business survival risks. Using the 2004 U.S. Agricultural Resource Management Survey for hogs, a recursive bivariate probit model is estimated in which exit is affected directly, and also indirectly through the contract decision. It is confirmed that contracting producers are less likely to exit. Greater specialization and regional effects are important in increasing the probability of contracting. More education, having non-farm income and older production facilities are significant in increasing the expected rate of exit. The findings suggest further exits by non-contract producers.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49343.
Date of creation: 2009
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agricultural industrialization; hog production; occupation choice; production contracts; recursive bivariate probit; relationship-specific investments; sector dynamics.; Agricultural and Food Policy; Demand and Price Analysis; Production Economics; D23; Q12; J26; J43.;
Other versions of this item:
- Fengxia Dong & David A. Hennessy & Helen H. Jensen, 2010. "Contract and Exit Decisions in Finisher Hog Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 667-684.
- Fengxia Dong & David A. Hennessy & Helen H. Jensen, 2008. "Contract and Exit Decisions in Finisher Hog Production," Center for Agricultural and Rural Development (CARD) Publications 08-wp469, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- Dong, Fengxia & Hennessy, David A. & Jensen, Helen H., 2010. "Contract and Exit Decisions in Finisher Hog Production," Staff General Research Papers 31302, Iowa State University, Department of Economics.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
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- Kuo-Liang Chang & George Langelett & Andrew Waugh, 2011. "Health, Health Insurance, and Decision to Exit from Farming," Journal of Family and Economic Issues, Springer, vol. 32(2), pages 356-372, June.
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