Characteristics of Competitiveness are Changing in the Meat Complex

     Just as the landscape is changing on a global economic front as outlined in my previous blog, so then are the characteristics of competitiveness as we look out into the next five year horizon.  Many years ago, responding to the advent of scale in animal production, veterinary science in production agriculture moved from a focus on individual animal treatment to something widely referred to as herd health.  The change signaled a move from diagnosing and treating individual animals to defining the conditions within which the herd would be best served and proscribed culling for individuals that did not conform or adapt to the generalized conditions.  Defining the conditions best for the herd meant creating SOPs for bio-security, ventilation, average temperature at each day of age, average nutrition and a set of standard vaccinations as examples.  Not every individual animal prefers the average or thrives in the average conditions and the response in general was to allow it find a niche in the group or be culled.

     This trend in focusing on the conditions of the group allowed scale to develop and simplified the operational functions from the farm to the feed mill to the records kept and care duties of the production people.  This is why almost all of our metrics like ADG and FCR etc. are averages for the group, since the group systems in place cannot measure individual animal performance.  In fact, in almost every farm regardless of size, an individual pig is not weighed or measured in any significant way until it is slaughtered.  Granted, in the farrowing house, while the animals are clustered in small groups and are small in size, various individual animal treatments such as vaccinations routinely take place but that is largely it.  Not until the animal reaches slaughter does it get throughly examined for outcome and that is because another party is buying it and demands to know exactly what they are buying.

     The movement to group functions, group health protocols and group SOPs and records etc. while advantageous and cost lowering in powerful ways hide incredible amounts of information from producers which will become increasingly valuable to know in the coming competitive environment.  For instance, even though there are notable exceptions, becoming larger has meant that costs of production have fallen, sometimes dramatically, both in fixed asset use and in variable costs.  However, under conditions where the opportunity lies in individual animal focus, smaller scale farms, if they are attentive to the right factors have big advantages.  Unfortunately, many if not most smaller farms use low knowledge systems of production and keep limited records (and when they do keep records they often use the same systems employed by larger scale farms, focusing on the group).  Therefore, they fail to execute their inherent advantages. 

     For instance, we now know that there are tremendous opportunities in reducing individual animal weight variance at the end of the production process.  Not only do the animals price better in the typical packer matrix but the profit optimal weight of the group is higher and the feed and other costs are less per lb. of gain when standard deviation of finished weights is reduced.  In a typical large scale system, one person may manage the marketing of 50,000 or more head of pigs on feed and if it is their full time job, sometimes thousands more (not sales per week but inventory in finishing).   On a smaller scale farm, the ratio of person to pig is a lot less which allows better observation and the potential for tighter group marketings.  This can be offset by the size of load costs in transportation etc. but the point is, where advantages accrue to individual animal attention, smaller scale farms have much higher potential advantages.  Conversely, larger scale farms have much greater advantages with factors affecting group economics since scale drives their per unit cost down.

     I am going to suggest in the next few blogs that a premium is going to begin shifting to individual animal attention (not just for disease control and medication delivery but be sure examples exist there too as has been recently popularized).  The coming age is going to be focused on intensive production vs. industrial production, a distinction I will explain later.  As a hint, the crop guys are way ahead of animal production when they can load a field soil type and elevation map in their GPS driven fertilization, chemical delivery and seed density delivery software on the tractor and differentially meter, on the fly, the perscribed amount of inputs for each soil and elevation configuration as it passes below the applicator or planter.  In addition, the combine produces a harvest map which precisely differentiates the outcome within an acre in output.  The big advantage is there is no intermediary between the producer and the information (so for instance, they do not have to rely as meat producers do on the selective information sharing provided by the slaugherhouse to discover their results).  This level of detail and the immediacy of information allows the development of highly efficient and intensive production processes vs. more "herd health" oriented approaches which by analogy would be proscribing average levels of inputs and measuring only output results per acre or per field.

     Innovation in a age of restricted access to resources and government policy actions which thwart the execution of market based comparative advantage will tilt the playing field to those who can drive intensive processes in an optimally sized production environment.