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First-ever study reveals cost of pork concentration in Iowa

By Mychal Wilmes
wilmes@agrinews.com

Date Modified: 03/05/2013 9:14 AM

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DES MOINES — A new study of the Iowa pork industry concludes that marketplace monopoly and fewer, but much larger, hog producers has taken a big toll on the state's economy.

The authors of "The Economic Cost of Food Monopolies'' conclude that Iowa has become a colonial model with regards to hog production with profits obtained by producers leaving the state at the cost of Main Street business activity.

The research study looked at Iowa's hog industry from 1982 to 2007 and covered the 1980s-era farm crisis and the collapse in the hog market early in 1998. The study was done by Food and Water Watch, a non-profit group based in Washington. The lead author is Patrick Woodall, the organization's research director.

He said the first-of-its-kind study was done to better understand the economic impacts packer monopoly and larger and fewer hog operations have had.

"There is an economic downside to losing competition,'' said Woodall. "Most people would agree with that, but few people have the numbers. Among farm advocacy groups there has been an understanding that a reduction in the number of medium-sized farms has a real impact on rural economies.''

Woodall said the study was done to provide a counterweight to bigger-is-better proponents like the American Meat Institute, Iowa State University and others.

"It is not as simple as saying that it will have a measurable economic cost. It has a real impact on the number and scale of farming in Iowa. We want to use the study to add to the discussion. More farms and more opportunities to market livestock will actually improve economic performance for farmers, small businesses. More workers will be hired and create more economic vibrancy.''

The study found that:

• While Iowa hog sales doubled between 1982 and 2007, the real value of hog sales fell. The number of hogs sold went from 24 million in 1982 to 47 million in 2007, but the real value of those sales fell 12 percent from $5.8 billion to $5.1 billion in 2007 in inflation-adjusted dollars.

• Consolidation within the industry nearly doubled the national market share of the top four pork packers. In 1982, the top four slaughtered a third of the hogs. By 2007, the top four slaughtered nearly two-thirds of the hogs.

• After the Smithfield and Tyson mergers, the four largest packed controlled 90 percent of the Iowa slaughter capacity between 2004 and 2011. When packing plants in the surrounding states — Minnesota, Nebraska, northern Missouri and western Illinois — were included, the top four controlled 79 percent of the market.

• The number of Iowa hog farms declined by 80 percent between 1982 and 2007. At the same time, the average number of hogs sold by Iowa farms went from 470 in 1982 to more than 5,000 in 2007, a 10-fold increase.

• The real farmgate hog price fell 55 percent from $241 per head in 1982 to $109 in 2007 in inflation-adjusted dollars. The long-term downward pressure on hog prices has also been considerably more volatile in recent years.

"What's lost is competition,'' said Richard A. Levins, professor emeritus of the University of Minnesota and senior fellow with Food and Water Watch. "The hog industry is bigger than ever.''

But the study results show that as the hog industry grew from 1982 to 2007, the benefits of that growth to Iowa's rural economy began to disappear, Levins said.

"What makes this study so important is the question it asks: 'What has been the economic effect of growth in Iowa's hog industry on the Iowa's local economies?' The word growth is important here," Levins said. "Everyone agrees that economic activity, including hog production, by definition adds economic value. But the natural conclusion that growth in hog production means growth for rural economies does not necessarily follow. That is what this study was about."

The study looked at total personal income and median household income. Both were measured in inflation-adjusted dollars.

During the study time frame, the number of hogs sold in Iowa doubled, but those counties with the highest hog sales and those with the largest hog farms saw declining real personal income. Income in counties with the highest hog sales dropped by 2 percent, from $39.6 billion in 1982 to $38.9 billion in 2007, and income in the counties with the largest hog farms was off 19.1 percent, from $34.4 billion in 1982 to $27.8 billion in 2007. Iowa's real personal income increased by 54 percent, from $73.3 billion to $112.9 billion, during that same time frame.

"The study is so interesting because it measured what is going on at the total economic activity in the counties,'' Woodall said. 'We looked at all 100 counties in Iowa. "What we can say is the economic value of hog production is not staying in the counties where the hogs are produced. It kind of confirms at half-century of academic literature.''

"It is suggestive of the lack of economic activity on Main Street,'' Woodall said. "The largest farms are contributing less to the local economy.''

Farmers and Main Street businesses aren't the only ones suffering.

"As a group, the packing and processing workers are making $134 million less now than they did in 1982 despite doing twice as many hogs,'' Levins said. Once strong packinghouse worker unions have been busted.

"What's going on?" Levins asks rhetorically. "Competition is so compromised in Iowa hog production and processing that out-state corporations have gained too much power. They are using that power to restructure Iowa's hog industry in ways that benefit Iowa less and distant investors more."

There are more hogs in Iowa than ever before, but the supply is so integrated that there's little reason to innovate and little room for independent producers or packers.

"Building a new packing plant in Iowa would be impossible now because it couldn't secure a supply,'' Levins said.

More marketplace competitors would benefit hog producers, he said.

"There is enough room in the middle for farmers to get more for their hogs and for consumers to pay less in the grocery store,'' he said.