COST OF ORGANIC PORK PRODUCTION: A SEASONAL ANALYSIS AND NEEDED PRICE PREMIUM FOR CONTINUOUS PRODUCTION
James B. Kliebenstein,
Sean P. Hurley,
Ben Larson and
No 20415, 2004 Annual meeting, August 1-4, Denver, CO from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)
Niche markets of agricultural products are experiencing rapid growth. One such market is organic pork. Organic production typically demands specific production conditions that can be cost increasing. This study evaluates the cost of organic pork production, seasonal differences in costs, and premiums necessary to induce continuous organic pork production. In the past few years, niche marketing has been a rapidly growing phenomenon in agriculture. One area that has experienced dramatic growth is the production of organic products. Organic production typically brings with it specific conditions on how the product is produced. These can impact the cost structure of the business and in turn, needed premiums for economic production. One of these niche markets that are growing rapidly is the market for organic pork. A major issue in organic pork production is the differing cost structures across the seasons of the year which relates, in part, to the types of production systems allowed or disallowed. Studies have shown that consumers are very conscientious of product price, freshness, and availability. In the production of organic pork, we are able to demonstrate that there are cost savings to the producer by producing a seasonal product over a continuous product. While this allows for a lower cost for the producer, it causes an uneven pig flow problem throughout the vertical chain which affects packers, marketers, and consumers. The packers are affected by having their plants at full capacity only part of the year. For the consumer, there are certain times of the year when the product is in surplus and other times when it is in shortage causing prices to fluctuate greatly. This implies that both the consumer and the packer may have an incentive to induce the producer to provide a continuous supply of organic pork to the market. This study has two objectives. The first is to provide a detailed analysis of the producer's cost of producing organic pork in a seasonal and continuous production system. The second objective is to develop a premium structure that could induce a producer to adopt a continuous production system. The study 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. Production costs differ by production system and season of the year. Organic pork production cost per hundred pounds is projected to be $59.45 for the seasonal system. The seasonal system consists of farrowing in the summer time only. This cost can be compared to a continuous system of organic pork production with a cost of $63.88 per hundred pounds. The continuous system has farrowing occurring in both the winter and summer seasons. With the current premium structures for organic pork, there are more hogs being produced using summer farrowing than by winter farrowing. Consumers prefer a more uniform supply of fresh pork. To foster a more uniform supply of fresh organic pork throughout the year, premiums received by producers need to reflect the seasonal production costs differences. Our results show that if the producer is paid the continuous system's cost of production of $63.88, the producer would have an incentive to produce only seasonal hogs. To induce the producer to provide a continuous flow of hogs, a minimum premium of $7.47 beyond the seasonal price must be paid to the producer for producing hogs in the winter, and a premium of $1.66 must be paid in the summer. An alternative is that the producer would receive no premium for summer production and a premium of $9.13 per hundred pounds over the seasonal production costs to induce the producer to produce a continuous supply of hogs.
Keywords: Marketing (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea04:20415
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