Effects of Changes in Vertical Coordination on Pork Production and Prices

The performance of the hog industry under the existing vertical coordination structure is projected from 1973 through 1985. Then, seven alternative situations for the coordination of hog production are introduced into the model, and these results are simulated over the same projection period. The alternatives simulated are: (1) increased output through addition of several "hog factories", (2) production contracts, (3) a shift in industry structure to large production units, (4) the addition of a price incentive to large production units, (5) stop-loss contracts, (6) pricing on the basis of pork values, (7) and a marketing contract for quality production with an appropriate market incentive. The 13-year base-line projection traces out one minor and two major production cycles. Pork production per capita averages near current levels--66 pounds over the 13-year period. None of the simulated forms of alternative coordination schemes alters the three cycles projected. However, with the exception of the addition of hog factories, all of the alternatives tend to restrict output with higher prices. With restricted output, geographic concentration of production would usually increase and relatively more production would occur in the established corn-hog areas