Industry Trends and Their Impacts on Breeding Companies, Researchers, Research Programs and Other Suppliers of Technology to the US Pork Industry
Dr. Roger Campbell
Trying to predict trends of any type is difficult but there are some trends in the USA pork industry, which have been occurring for a long time and will continue. There are other trends or changes, which are only just beginning to be felt by producers and other stakeholders. These changes could have a far greater impact on breeding companies, researchers and other suppliers to the USA pork industry than the longer-term trends. Alternatively they may accelerate the longer term.
Longer Term Trends -- Consolidation of production and packing
One trend, which is on going and is which will continue, is the consolidation of the production base. It is unlikely that the USA sow population will decline markedly over the next 10 years but ownership of the sow base will.
At present approximately 51% of all pork produced in the USA is controlled by the largest 50 producers. Dr. Tom Stein suggests that this group could control as much as 80% of the sow population by 2005. Whether or not consolidation will occur at this rate will depend largely of pig supply and price over the same time frame but there is no doubting that consolidation will continue.
Consolidation of the production base has and will continue to bring about consolidation in virtually all-supporting business which in turn will affect employment opportunities, the training of new graduates, postgraduate training courses, genetic suppliers and the type of information and technologies required in the future.
The USA Pork industry is a commodity-based industry with emphasis on cost. The latter is not likely to change but the cost structures of the more integrated and independent producers differ. Independent producers have generally been where most “technology” suppliers have achieved their greatest margins. Indeed, this is one of the reasons independent producers have struggled to remain competitive on a cost basis against the more integrated operations. There is no need for this to be the case and genetic companies, feed companies, animals health companies and veterinarians will need to develop more competitive packages/programs for the non integrated (not necessarily small) producers if they are to survive. The trend towards more integrated production and decline in the independent base will also mean the margins of technology suppliers will decline.
These “longer term” trends are almost certain. Those who survive will be those who are adaptable enough to link with the more integrated groups or provide other producers with a competitive advantage. To date the latter has not occurred in the USA because everybody operates in a similar manner and believes success can be achieved by doing the same things better. This doesn’t work and it is one of the reasons the USA industry is struggling to regain its position as a leader in the global pork business.
Other areas where consolidation is occurring is in the packing and retail industries. The latter will have an adverse effect on prices whilst the former may affect the type of product and even production system likely to operate in the future.
Effects on Genetics
Whilst consolidation will affect the number of technology suppliers there will also be changes in the type of information/product required. For genetic companies the product required by integrated and non-integrated companies is likely to differ.
For integrated businesses profit is driven more by growth rate and feed efficiency than lean. In contrast, lean per pig is a major factor determining the price and profitably of independent producers. There are few if any genetic companies in the USA which offer animals or programs which can achieve both goals simultaneously. In part this is due to the fact that the traits are mutually exclusive and difficult to combine with traditional selection techniques/technologies.
Integrated companies and packers will also likely demand real rather than cosmetic changes in lean. There will be a move away from indirect measures toward more direct measures of carcass lean (Autofom and similar technologies). The changes will likely have an impact on the “acceptability” of genetics currently thought to be lean and changes to selection traits for lean.
Short Term Changes - Lean and Nutrition
Changes in the way lean is measured and paid for could also impact nutrition research and the development of nutritional programs. To date nutritional programs have been designed around the whole animal. In the future they may have to be designed around changing particular components of an animal or carcass.
Nutrition research in the USA and else where is not particularly innovative but is extremely repetitive and generic. There is little we do not know about the nutrition of growing pigs. The problem is how to apply the information to specific situations. The latter may involve different genotypes, different sexes and for pigs housed under different circumstances.
The development of a reliable/accurate model can and will provide these answers and Federal and State funds should be directed towards this end and away from basic amino acid response type studies. Genetic companies will also need to better understand their products than they do at present.
National Leadership and teaching
At the National level the USA Pork industry would best be served by the NPPC if the organization concentrates on developing export markets, improving the demand for pork in the USA and representing the industry at the political level. Funds should not be wasted on things such as genetic comparisons but be directed towards projects of national importance and not production type matters change. Unless the National bodies make such changes they are likely to be viewed as unnecessary by the new more integrated industry and this could adversely affect the more independent producers.
At the college level we might predict a decline in the number of students enrolling in agricultural type courses and a change in the type of courses offered. The latter will reflect a decline in demand by the “new” industry for “traditional” animal scientists and increasing demand for skills in the more advanced areas of animal science and agri business.
I also see a need for more interactions between the larger production companies and colleges for the training of students within the business environment. However, there will always be a need for basic research and colleges should concentrate more on this area of training and research than on production research. The latter will be done by businesses either directly associated with pork production or other businesses which use this, as a means of linking with the more integrated operators. Production type research at the college level will have little applicability to the new USA production industry.
Animal health is probably the single biggest competitive disadvantage faced by the USA industry and an area where research funds and effort should be directed. The larger operators are likely to direct funds to this area of research and to nutrient management since this is becoming an increasingly bigger constraint on competitiveness, sustainability and expansion. Again we know how to reduce nutrient output. It is really a matter of cost and further improvement/reductions in nutrient output will depend largely on how costly it becomes to manage the output and/or the price of the fourth and fifth most limiting amino acids in corn-soybean type diets.
Meat quality has become a bigger issue in the USA but this is not surprising given that most of the improvement in lean over the last 10 years was achieved by the introduction of sire lines know to have poor to terrible meat quality because of factors such as the Hal and Rn genes. The latter reflects the opportunistic nature of suppliers to the “old” industry particularly since the same genes/factors were associated with relatively slow and even inefficient growth. Suppliers to the new industry will need to better understand how the biology and business of pig production interact to affect profitability and to offer more complete packages than was the case in the past.
Availability of New Technologies
The increasing availability of technologies from molecular biology will likely add flexibility to the USA production industry but at the same time could or should affect the development of genetic lines. The most rapidly advancing area of agriculture is without doubt plant breeding. New varieties of corn seen to become available almost monthly. Advances in this area is more likely to affect factors such as nutrient availability, nutrient output and even pig health than anything animal “breeders” are likely to do. These new technologies need to be taken into account when deciding on breeding objectives because we have proven time and time again that animal breeding is slow and cannot provide the answers to all the problems faced by pork producers.
Similarly the availability of products such as Paylean and PST mean it is relatively easy to manipulate carcass composition (lean). Again future-breeding objectives should take these factors into account. The bottom line is that these technologies are likely to become available at an increasing rate and the traditional selection techniques and traits will not necessarily be those which generate the greatest margin or provide the flexibility which will be required to help ensure success in an industry with potentially lower margins.
The USA pork industry continues its transformation from a means of “adding value” to corn and soybeans to an independent business. Consolidation will continue and the larger more integrated business will expand at the expense of smaller and larger independent producers. The rate of future consolidation will be determined by pig supply and price. Those with a cost of production above 36 cents and/or without some Packer alliance will likely be the next group to exit. The latter probably includes some of the larger corporate type players. However, the fact that the larger players often have a relatively high cost of production may slow down future consolidation since the average pig price reflects the average not the lowest cost of production. If price remains in the high 30’s to low 40’s there would seem little financial incentive for increased production.
Other factors that have changed since the rapid expansion of the early to mid 90’s are the attitudes of lenders, environmental issues and a general reluctance by legislators and the community in general to support the pork industry. All of these will affect the rate of expansion and to a lesser extent the rate of consolidation likely to occur over the next five years.
All suppliers to the industry need to be aware of the changes likely to occur and to adapt their business and business strategies accordingly. I see no place in the new USA industry for genetic or any other companies, which do not offer their customers a competitive advantage. Our customer base has and will continue to change. Factors thought important by integrated business are different from those sold to independent producers. The former are largely cost driven and want the differentiate themselves. The latter tend to be consultant/sales driven and often inadvertently add cost to their business.
There is no need for despair. You only have to look at the Australian industry which has enjoyed record profitability over the last 24 months to see how successful all players can be in the new industry. There is however, a need for change at all levels of the supporting “industry” if future success is to be enjoyed by current producers.