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Cost of Organic Pork Production

by 5m Editor
28 August 2009, at 12:00am

Iowa State University's Ben Larson and Professor James Kliebenstein (Department of Economics) and Associate Professor Mark Honeyman (Department of Animal Science) investigate the cost of organic pork production. Not surprisingly, they found it costs more to produce organic pork than conventional pork. There were also seasonal differences: moving from a seasonal (summer only) farrowing system to continuous farrowing had significant cost implications.

Introduction

Niche markets in the pork industry are still relatively small but are growing in importance. An example of a niche market is the organic pork market, a relatively new and expanding segment of the industry. Market opportunities are expanding as specific consumer preferences are better identified.

One issue, which frequently surfaces in the organic pork production industry is the relatively limited information on production costs. It is well known that cost of organic pork production is greater than traditional pork production due to increased feed costs and decreased swine performance. The industry has dealt with these differences by paying premiums to producers who produce the product.

The objective of this report is to determine the cost of organic pork production. This report addresses the issue by examining the increase of costs involved in expanding a seasonal (summer only farrowing) organic pork production system to continuous production of organic hogs. Both a seasonal and a continuous system of production are used to provide a basis to determine cost differences between the two types of production systems. It is also necessary to examine the production cost differences between summer and winter for the continuous system.

Materials and Methods

Projected costs for two organic pork production systems are provided: a seasonal system and a continuous production system.

The seasonal system has spring and summer only farrowing. Farrowing occurs in April, June/July, and September. One group is farrowed in April and again in September/October, whereas another group is farrowed in June/July. The April and September farrowing are sows retained from the June/July gilt farrowings of the previous year. With continuous farrowing, there are six groups of females farrowed twice per year. Farrowing occurs every month. The seasonal system has two groups of 80 females, whereas the continuous system has six groups of 27 females each. Facility and breeding herd investment levels are determined for each system.

Information in Table 1 shows the investment level for the two organic pork production systems analyzed. Gilt prices were $175, whereas boars were $750.00 When breeding herd investment is adjusted for sow and boar cull values, the net annual investment is $19,681 for the seasonal organic system and $16,970 for the continuous system.

Table 1. Facility, equipment and breeding herd investment for organic pork production
Seasonal System Continuous System
Total ($) Annual ($) Total ($) Annual ($)
Facility and equipment 273,150 48,622 287,012 51,340
Breeding herd 39,894 30,708
Breeding herd-neta 19,681 16,970
aThese values represent adjustment for cull sow and boar sales

Ration costs per pound are as follows: 10.9 cents for the nursery, 9.3 cents for the grower, 8.0 cents for the finishing, 8.8 cents for lactation, and 7.3 cents for gestation. Winter feeding uses 10 per cent more feed to produce a pound of gain. These relationships are what has been shown over time at the Iowa Sate University Rhodes Research/Demonstration Farm on seasonal pork production. The overall feed efficiency used for the seasonal system is 3.89 lbs of feed per pound of gain. It is 4.00 for the continuous system.

Results and Discussion

Information from Table 2 summarises organic pork production costs for the seasonal production system and the continuous production system. Costs from the traditional seasonal outdoor farrowing system were adjusted to reflect the differences between winter and summer farrowing as well as organic production. Costs from an organic budget previously prepared by Becker, Kliebenstein and Honeyman were adjusted for additional costs for winter-farrowed organic hogs such as iron and a decrease in pigs farrowed and marketed. Bedding use was taken, in part, from current research on hoop buildings at the Iowa State University Rhodes Research Farm with bedding costs added for farrowing and increased for winter farrowed groups. Annual repairs were set at 10 per cent of the initial facility price. Record keeping was set at $5,000 per year for each system due to the requirements for maintaining records for organic audits as well as a mandatory one per cent charge on sales revenue for hogs sold organically. Labour was placed at $10.00 per hour and was set at 13 hours per litter for the continuous system (12 in the summer and 14 in the winter) and 10 hours per litter for the seasonal system. This difference is due to increased cleaning required for the floored insulated sheds, smaller batch sizes of feed prepared, increased snow removal and additional winter farrowing care.

The cost of production per hundred pounds was $63.88 for pigs from the continuous system compared with $59.45 for the seasonal system – a difference of $4.43 per hundred pounds or $11.09 per market pig.

Table 2. Organic pork production costs for seasonal and continuous production
Total cost comparison
Continuous farrowing Seasonal (summer farrowing) Differences
Variable costs Total costs Per Head Variable costs Total costs Per Head
Feed $179,490 $86.97 Feed $175,872 $83.71 $3.26
Health costs 1,032 0.50 Health costs 735 0.35 0.15
Bedding 10,319 5.00 Bedding 8,929 4.25 0.75
Repairs 3,842 1.86 Repairs 3,633 1.73 0.13
Record keeping 5,000 2.42 Record keeping 5,000 2.38 0.04
Fuel/utilities 4,128 2.00 Fuel/utilities 3,152 1.50 0.50
Sub-total $203,812 $98,75 Sub-total $197,322 $93,92 $4.84
Interest 10,191 4.94 Interest 9,866 4.70 0.24
Labour 42,120 20.41 Labour 31,500 14.99 5.42
Breeding herd 16,970 8.22 Breeding herd 19,681 9.37 (1.14)
Trucking 5,160 2.50 Trucking 5,253 2.50 0.00
Total variable $278,252 $134.82 Total variable $263,621 $125.47 $9.35
Fixed costs $51,340 $24.88 Fixed costs $48,622 $23.14 $1.73
Total $329,592 $159.70 Total $312,244 $148.61 $11.08
Total hogs sold 2,064 Total hogs sold 2,101
Total weight sold 515,970 Total weight sold 525,263
Production cost/cwt $63.88 Production cost/cwt $59.45
Total production cost difference per hundred pounds $4.43

It is also necessary to compare production costs between the winter and summer seasons for the continuous production system. Table 3 provides a total cost comparison of the winter farrowed (October-March) and the summer farrowed hogs (May to September) within the continuous system.

The largest difference between systems is the labor costs with a $5.07 per head difference. The facilities, which differ by an impermeable pad provided for winter farrowing is the second largest cost difference at $4.87/pig due largely to the fact that there is a 0.3 difference in pigs finished per litter.

Winter-farrowed pigs have also $0.89 more in feed costs than the summer-farrowed pigs. This result may, at first, appear as low but the winter-farrowed pigs are in the grow-finish phase during the spring and summer months. The break-even production costs per hundred pounds was $66.92 for the winter-farrowed pigs compared with $61.11 for the summer-farrowed pigs – a difference of $5.81 per hundred pounds or $14.52/ pig.

Table 3. Organic pork production costs for continuous production winter versus summer
Winter Summer Difference
Variable costs Total Per head Variable costs Total Per head
Feed $85,977 $87.43 Feed $93,513 $86.54 $0.89
Health costs 671 0.68 Health costs 361 0.33 0.35
Bedding 5,418 5.51 Bedding 4,902 4.54 0.97
Repairs 1,921 1.95 Repairs 1,921 1.78 0.18
Record keeping 2,500 2.54 Record keeping 2,500 2.31 0.23
Fuel/utilities 2,476.66 2.52 Fuel/utilities 1,651.10 1.53 0.99
Sub-total $98,963 $100.64 Sub-total $104,840 $97.03 $3.61
Interest 4,948 5.03 Interest 5,242 4.85 0.18
Labour 22,680 23.06 Labour 19,440 17.99 5.07
Breeding herd 8,485 8.63 Breeding herd 8,485 7.85 0.78
Trucking 2,458 2.50 Trucking 2,701 2.50 0.00
Total variable $137,535 $139.86 Total Variable $140,718 $130.23 $9.64
Fixed costs $26,970 $27.43 Fixed costs $24,370 $22.55 $4.87
Total $164,505 $167.29 Total $165,088 $152.78 $14.51
Total hogs sold 983 Total hogs sold 1,081
Total weight sold 245,835 Total weight sold 270,135
Production cost/cwt $66.92 Production cost/cwt $61.11
Total production cost difference per hundred pounds $5.81

Table 4 provides a summary of the production costs (break-even prices) of the two systems as well as the break-even values for the summer- and winter-farrowed pigs within the continuous production system.

The lowest cost is with the seasonal system or summer-only farrowing. The highest cost occurs for the winter-farrowed group.

Table 4. Organic pork production cost ($) by system and season
System or season Per pig Per CWT
Seasonal 148.61 59.45
Continuous 159.70 63.88
Winter continuous 167.29 66.92
Summer continuous 152.78 61.11

Summary and Implications

This report has shown that it costs more to produce organic pork than conventional pork. This result has been documented and supported by previous studies as organic feed ingredient costs per unit are higher and feed efficiency for organic pork production is not as good.

This study also provides a seasonal comparison of organic pork production costs. Cost increases incurred by producers in moving from a seasonal (summer only) farrowing system to a continuous farrowing organic production system can be significant. Incentives are needed to encourage producers to shift to continuous production practices that provide a more uniform supply of fresh pork. Cash flow difficulties can be created if premiums do no reflect seasonal differences in production costs.

One of the key questions involved in the relevance of the production cost projections is the scale of production used. The production system that was developed is larger than many of the organic operations that are currently in use. However, the information is on a per pig comparison. Cost of production values can be adjusted to fit alternative sizes of production systems. For example, the system can be reduced to half of the current size with very little added per pig cost by reducing the size of the groups of sows that are being farrowed by 50 per cent in the continuous system and by reducing sow numbers in the seasonal system. These adjustments would not have a significant impact on the difference on costs. The facilities are not capital-intensive and there are not significant economies of size for building construction. Facility costs represent approximately 15 to 16 per cent of production costs.

Organic pork production cost per hundred pounds was projected to be $59.45 for the seasonal system. This cost compared with $63.88 per hundred pounds for the continuous system. The seasonal system had a cost advantage of $4.43 per hundred pounds. When comparing organic pork production costs by season of the year in the continuous system, cost for winter farrowing was $5.80 per hundred pounds over summer farrowing. Production costs for winter farrowing was $66.92 compared with $61.11 for summer farrowing in the continuous system.

This result clearly points out that production costs differ by production system and seasons of the year.

August 2009