Contract Production

     Since we have no studies which tell us this, I leave the question to you:  Is contract production of swine a low variance production method?  Which is to say, given the emerging strategies to control variation in production, will contract production systems be successful in implementing them?

     It is typical now for contract producers to be paid by the pig space instead of on performance.  This trend began a little over 10 years ago and was largely brought about for a couple of important reasons.  The typical payment schemes prior to this had paid on lbs of gain and occasionally a death loss premium and a sort loss bonus (where the grower was actually selecting the animals for harvest).  Some contracts also had a feed efficiency bonus which tried to give the grower a good incentive to adjust feeders.

    Reducing variation requires first an understanding of the source(s) of variation, the likelihood of mitigation strategies to successfully reduce the variation and the cost/benefit trade-off in source mitigation. As we have discussed, the typical farm record systems and the procedures which are considered practical to perform, work against developing the necessary data and anaylysis to gain a clear understanding of the return for variance reduction.

    However, one of the most powerful aspects of variance reduction strategies is that if they are successful, they favorably affect both revenue and cost simultaneously. This results in a double bang for the buck when considering the potential financial outcomes of variance reduction investments.