JOURNAL OF AGRICULTURAL SCIENCE IN FINLAND Maataloustieteellinen Aikakauskirja Vol. 58: 19—25, 1986 Efficiency and profitability in pork production OLLI RANTALA Department of Agricultural Economics, University of Helsinki, SF-00710 HELSINKI 71 factor contributing to successful production. Index words; pork production, efficiency, profitability Introduction During the last two decades, there has been a strong structural change in pork production. The most conspicuous features have been the growth of production and size of enterprises, and the increasing degree of specialization. The production of piglets and pork has be- Abstract. Under prevailing productionrestrictions the profitability of agricultural produc- tion increasingly depends not only on prices of products and inputs, but on how effectively and economically the existing capacity and animal breeds are utilized on farms. The technical efficiency of pork production in Finland is generally high. The average feed conversion rate on farms is only about 16 % lower and daily liveweight gain 20 % less than results from experimental stations. Variation between farms is, however, considerable. The means of technical results between the best and poorest farms differ by 20—30 %. Results also tend to deteriorate and relative deviations increase, especially in large piggeries. The average gross margin percentage was 12 %. Variation in the gross margin per pig was wider between farms than between years. The feed conversion efficiency proved to be the most significant factor contributing to profitability in pork production. Variation in the feed conversion rate accounted for 30 % of total variation in the gross margin. Cost variation was one third larger than the variation of total receipts per pig. The cost of feed varied twice as much as piglet cost. Since the genetic quality of animals in a given region is rather even, variations in produc- tivity depend upon internal factors of piggeries. The large variation in efficiency and profita- bility over farms emphasizes the human factor i.e. the role of the farmer as the most important come channelled into different farms. About two-thirds of piggeries are specialized in only one enterprise and 73 % of pigs for slaughter are now raised from piglets transported from other farms. The application of technical and organizational improvements has been econo- mically well motivated at the farm level due to therelatively good profitability of produc- 19 https://www.c-info.fi/en/info/?token=Kqi6AeD9w0hD8s-c.As2DZBFLIeQ6SeP8PKFi9g.4Yjv-lWhi3DFj--uTPSQbniN1r8VMYhfR2UJS4HQaC-8UJla_sY80w3MRA3Lb32pFpZ89DjBJA9oj_OTo6SEk55XOZkfVlzpxCsV2Os2bEUT5o-FiYODEidPBI66BBAEv2qrhqrhtitFLXeTMNYMZerf92h4XAykWkU tion (Anon. 1984). As well as structural changes, as the increased utilization of pur- chased inputs and improvements in feed quality have also enhanced productivity. The higher productivity of genetically improved animals can have been utilized in practical farming. Agricultural production is characterized by output variations, even with a constant sup- ply of inputs. Variations depend upon fixed and variable production factors, and finally upon random or risk factors. However, it is difficult to assign contributions to the varia- tion, as the proportion and effects of different inputs cannot be precisely measured and the effects of fixed factors on the productivity of variable factors tend to differ from farm to farm. Production disturbances may arise through the combined influence of the genetic quality of animals, management and other production factors. Göransson (1977) has estimated producers’ losses of upto 10—20 % of the gross return in pork production. In practice, these losses become apparent in slow growth, poor feed utilization and a high death rate. Material The efficiency of pork production and its variation were examined on the basis of pig- geryrecords from 49 farms. These farms have specialized in pork production and they be- long to cooperative slaughteries for the re- gions of Sata-Häme (SOT) and Lounais-Suomi Cooperative Slaughtery (LSO). SOT’s records are from 1975—1977 (Rantala 1980) and LSO’s from 1977—1983 (Välimäki 1985). All the farms use piglets raised on other farms, and the fattening process is organized as a batch system. SOT’s records cover 28 and LSO’s 21 piggeries (Table 1.) In the SOT region the piggeries accommo- dated on average of 366, and in the LSO re- gion 309 slaughter pigs. Though the piggeries are large by Finnish standards, all of them are typical family farms. They can also be consi- dered as rather rationally managed farms. In the SOT region the farms were grouped into two classes on the basis of size of the pigge- ry. The limit was 400 pig places. The results were also examined in classes grouped on the basis of the main type offeed. Most of LSO’s piggeries have less than 300 pig places and they use purchased feed mixture. LSO’s farms were grouped into two classes on the basis of feed- ing method: farms which used trough feeding and those which used floor feeding. Input-output relationships, technical effi- ciency and some financial results and their variation were examined on the basis of farm records and data collected in the slaughteries. Economy of production was measured by gross margins computed by batches. Variable production costs were divided into feed, pig- let and miscellaneous variable costs. Miscel- laneous costs consist of veterinary, electric, heating and cleaning costs together with the interest on animal and working capital. Gross margin represents the returns to fixed costs i.e. buildings and equipments used in pork pro- duction, and also to family labour. Over a short period, existing fixed costs in an enterprise are constant. For these costs to be offset, the fixed factors of production should be utilized as effectively as possible. With fixed factors constant, the greater the Table I. Number of piggeries, batches and slaughtered pigs. Region/ Piggeries Batches Average Number Year size of pigs SOT region 1975 16 34 366 12229 1976 22 51 367 19109 1977 27 57 365 20274 Total 28 142 366 52612 LSO region 1977 3 10 415 4615 1978 7 20 394 8457 1979 6 17 408 7069 1980 5 15 355 5388 1981 9 21 394 8352 1982 16 38 316 11747 1983 16 22 297 9082 Total 21 153 309 54710 20 gross margin the more profitable is the pro- duction. Financial results were calculated for those batches in which the data could be adjusted to enable calculation on a consistent basis. In the SOT region there were 18 such farms with a total of 96 batches and in the LSO region 19 farms with 120 batches. The gross margin was calculated per pig and per pig place. The gross margin percentage was also calculated, i.e. the gross margin expressed as a percentage of the gross return. Results Technical efficiency The efficiency ofpork production is usual- ly measured by the feed conversion rate i.e. the quantity of feed (f.u.) consumed per unit of liveweight gain. As well as the genetic quality of the animals, the production envi- ronment and feeding regime affect the feed conversion efficiency, too. In the SOT region the average feed conversion rate was 3.35 f.u./kg over the weight range from 24.4 kg of live weight to 70.4 kg of carcasss weight (Table 2). Two-thirds of the farms attained a result between 3.18 and 3.46 f.u./kg. In pig- geries with less than 400 pig places, the feed conversion rate was 0.15 f.u./kg better than in larger piggeries. This difference is statisti- cally significant (P < 0.05). There was no dif- ference between farms which used a commer- cial feed mixture and farms which used home- produced grain and purchased protein con- centrate. In the LSO region, the average feed con- version rate was 3.11 f.u./kg over the weight range from 25.4 kg to 72.4 kg. With trough feeding the feed conversion rate was 0.15 f.u./kg better (P < 0.05) than with floor feed- ing. The average daily liveweight gain of batches in the SOT region was 616 g, and two-thirds of the farms attained a result between 590 and 643 g. In the LSO region, the daily growth was 714 g. With trough feeding the growth was 26 g higher (P < 0.05) than with floor feeding. The daily liveweight gain is an index of the average utilization of growth capacity of the pigs in each piggery. The rate of growth in- fluences the length of the feeding period, since a higher throughput of fast growing pigs can be achieved per place and thus the fixed pro- duction capacity will be utilized more effi- ciently. The average number of feeding days in the SOT region was 124 days, and two-thirds of the farms attained a result between 118 and 129 days. The rotation time, which is calcu- lated by adding to the feeding period the time spent on filling, empting and cleaning the pig- gery, was 137 days, and two-thirds of the farms attained a result between 128 and 146 days. Thus on average 2.7 batches were raised per year. Only in piggeries with more than 500 pig places did the yearly number of batches significantly decrease. In the LSO region, the feeding period and rotation time were about two weeks shorter than in the SOT region. The average death rate in the SOT pigge- ries was 1.7 °7o of the number of purchased piglets and the rate clearly increased in large Table 2. Technical efficiency and variation. SOT region LSO region Mean sd Range Mean sd Range Feed conversion rate, f.u./kg 3.35 (0.16) 3.06—3.83 3.11 (0.20) 2.40—3.72 Daily liveweight gain, g 616 (29) 674—553 714 (60) 872—567 Feeding days 124 ( 6) 116—139 109 ( 8) 84—130 Rotation time, days 137 (11) 123—165 121 ( 9) 97—143 Batches per annum 2.7 3.0—2.2 3.0 (0.2) 3.6—2.6 Output, kg/pigplace./a 187 (14) 206—157 223 (27) 299—67 Death rate, Vo 1.7 (0.7) 0.2—3.0 1.2 (1.1) 0—5.3 21 piggeries. In the LSO region the average death rate was slightly lower. Also the variation of the death rate between farms was consider- able. The quantity of pork produced per year and per pig place is used as a measure of out- put. The output is an index of the efficiency with which the capacity of the piggery is utilized and depends significantly on daily liveweight gain. According to the analyses, the average output can be increased by shortening the feeding period, reducing the death rate and increasing slightly the sale weight of pigs (Ta- ble 3). Financial results The average gross margin in SOT farms was 68 Fmk per pig and the gross margin per- centage 11.5 % in 1975—1977 (Table 4). In piggeries with less than 400 pig places, the gross margin was twice that of larger piggeries Table 3. Coefficients of linear output functions. Parameter (Table 5). The faster rotation in smaller pig- geries still increases the difference in margin per pig place between groups. The variation in margins also tends to widen in larger pig- geries. In the LSO region the gross margin var- ied yearly from 83 to 124 Fmk per pig and the average margin percentage was 12.5 %. The variation in margin between years clearly re- flects the price index of pork and the most im- portant inputs (Fig. 1). Feeding days The gross margin per pig varied signifi- cantly between farms and also between batches on the same farm. The feed conversion rate was the most important factor accounting for the variation in gross margin per pig between farms. The correlation between them was —0.553 (Fig. 2). In the SOT region improving the feed conversion rate by 0.1 f.u./kg en- hances the gross margin by 8.20Fmk per pig, or by 12.5 %. The variationcoefficient of the gross return between farms was 4.6 %, of the Weight of piglets, kg Carcass weight, kg Death rate, % SOT region Estimate Stnd. error 1.21* * Statistically significant (P < 0.05) 0.75 2.04* LSO region —2.67» R 2 = 0.82 Estimate Stnd. error 0.08 0.80 0.29 0.70 1.29* 0.81 2.17* 0.20 0.83 —0.13 0.51 R 2 = 0.56 Interc. =229 0.15 Table 4. Gross margin and variation in pork production. Interc. = 188 Region/year Gross margin Fmk/pig Gross margin Range Fmk/pig Range place % SOT region 1975 94 29—176 250 17.5 5.2—30.5 1976 52 —s 94 139 9.1 —0.9—15.7 1977 66 16—105 180 10.5 2.6—16.3 LSO region 1977 84 62—125 265 13.4 10.3—18.9 1978 83 38—114 247 15.0 5.8—26.7 1979 107 81—133 328 15.6 12.4—18.1 1980 111 74—140 324 14.9 10.1 19.2 1981 105 61—172 317 12.3 7.5—18.6 1982 88 18—183 274 9.4 2.2—18.2 1983 124 58—193 394 12.4 6.1—19.2 22 variable production costs 6.3 % and of the margin 42.7 %. The variation in feed costs was twice as large as the variation in piglet cost. The gross margin was negative in 3 % of all batches i.e. receipts did not even cover all the variable costs. More than half of the farms had batches in which the margin percentage was below 5.0 %. On farms with more than 400 pig places every other batch had a margin percentage below 5.0 %. In the LSO region, within year variations of margin between farms were also considerably greater than var- iation between years. The average variation in margin between farms was 28 %. On the best farms the margin was more than three times greater than on the poorest ones. Table 5. Gross margin in pork production in the SOT’s region in 1975—1977. Group Gross margin Gross Range Fmk/pig Range margin •VO 1 II VT TR Size of the piggery I = < 400 pigs II = > 400 pigs Type of the feed VT = Grain +purchased protein concentrate TR=Commercial feed mixture Conclusions On average pig farms are managed quite ef- ficiently. The difference in feed conversion rate between practical and experimental rear- ing is 0.4—0.5 f.u./kg and the difference in daily liveweight gain 140—210 g. The feed conversion efficiency is thus 16 % poorer and daily growth 20 % lower in practical farming than in optimal experimental environments. The variation between farms is considerable. In extreme cases means differ over a range of 20—30 %. Results also tend to deteriorate and their variation widens in larger piggeries. As the genetic quality of animals is rather even within a limited region, the production envi- ronment and feeding are of great importance. Particularly in large piggeries, well regulated feeding and an adapted environment are un- dispensable conditions for the economic uti- lization of commercial feed mixtures. The lower the feed input per unit of live- weight gain, the more efficient is the techni- cal feed conversion. The feed conversion rate does not necessarily indicate the most eco- nomic intensity of feeding, as the latter also depends on the length of the feeding period, sale weight and whether the production is in- termittent or continuous. The economic op- timum is based on marginal criteria while the feed conversion rate on average criteria as- suming, that the lowest point of the average Fig. I. Price changes of barley, piglet and commercial feed mixture in relation to the producer price of pork. Fig. 2. Correlation between gross margin per pig and feed conversion rate. 83 54—115 14.1 9.8—19.4 48 25 87 8.2 4.3—14.5 91 65—115 15.4 11.4—19.4 44 26 74 7.6 4.3—12.1 23 feed cost curve is also economically optimal. An increase in the feed conversion rate also improves profitability, as in most cases the production process is not technically at its most efficient level. A shift towards the op- timal feed-product relationship leads to im- proved feed utilization and profit. Of the variation in feed utilization of pigs, the contribution of heredity is 30—40 %, so that selection of genetically superious animals is decisive condition of economic production. The remaining 60—70 °7o of the variation is mainly attributable to feeding and environ- ment. These factors are under the farmers control. The large variation in efficiency over farms emphasizes the ability and experience of the farmer as the most important factor contributing to successful! production. In raising pigs to a carcass weight of 72 kg, an improvement of 0.1 f.u./kg in the feed conversion rate leads to a 7.5 kg reduction in feed consumption during the fattening period. If the price of feed is 2.13 Fmk/kg, the feed References Anon. 1984. Ajankohtaista maatalousekonomiaa. Eri tuo- tantosuuntaa harjoittavien kirjanpitotilojen tuloksia. Maatal.tai.tutk.lait. tiedonantoja No. 104. Göransson, B. 1977. Djurhälsa och livsmedelshygien nägra kostnadsaspekter pä productionstörningar. Svensk Veterinärtidning 17: 671 —678. Rantala, O. 1980. Riskfactors in pork production and SELOSTUS Tuotannon tehokkuus ja kannattavuus sianlihantuotannossa Olli Rantala Maalalousekonomian laitos, Helsingin Yliopisto, 00710 Helsinki Tuotantorajoitusten ollessa voimassa tuotannon kan- nattavuus riippuu yhä enemmän paitsi tuotteiden ja tuo- tantopanosten hinnoista myös siitä, miten tehokkaasti ja cost will decrease by 16 Fmk per pig. This means that in a piggery with 300 places the gross margin will increase by 17 Fmk per pig and 15300 Fmk per year. In many cases, an improvement in feed conversion of this mag- nitude can quite easily be achieved. Pork production is capital intensive. The structure of the production costs is of con- siderable significance if one examines the con- sequences to farm operations of altering the contributions of different factors. The main part of the cost of pork production consists of feed and piglet cost, whose additional pro- portion of production cost is 85—88 °7o. Feed may partly or completely consist of a commer- cial feed mixture, so that purchased supplies constitute the main part of production costs. On the other hand, returns to the farmers own labour and capital per unit of output is small, thus the range within which prices and input- output relationships can vary without jeopar- dizing profitability is extremely small. result variation on some family farms. M.A. thesis, Dep. of Agr. Econ. University of Helsinki. 65 p. Välimäki, K. 1985, Efficiency and profit variation in pork and piglet production. M.A. thesis, Dep. of Agr. Econ. University of Helsinki. 73 p. Ms received November 7, 1985 taloudellisesti olemassa olevaa kapasiteettia ja eläinainesta tiloilla käytetään hyväksi. Sianlihantuotannon tehokkuus on Suomessa keskimäärin varsin korkealla tasolla. Re- 24 hun hyväksikäyttö on vain 16 % heikompi ja päiväkas- vu 20 % heikompi kuin kantakokeissa. Sikaloiden väli- nen tulosten variaatio on kuitenkin huomattavan suuri. Keskiarvot parhaimpien ja huonoimpien välillä poik- keavat 20—30 % toisistaan. Tulokset heikkenevät ja nii- den suhteellinen hajonta suurenee sikalakoon kasvaessa. Rehun hyväksikäyttö on merkittävin tuotannon kan- nattavuuteenvaikuttava tekijä, Rehuhyötysuhteen vaih- telu tiloilla selittää runsaat 30 % lihasian katetuoton vaih- telusta. Sianlihantuotannossa kustannusten vaihtelu on kolmanneksen suurempi kuin tuoton vaihtelu. Rehukus- tannuksen vaihtelu on kaksinkertainen porsaskustannuk- sen vaihteluun verrattuna. Kun eläinaines rajatulla alueella on varsin tasaista joh- tuu tuotantotulosten vaihtelu sikaloiden sisäisistä tekijöis- tä. Tiloilla esiintyvä suuri variaatio tuotannon tehokkuu- dessa jakannattavuudessa korostaa inhimillisen tekijän, viljelijän henkilökohtaisen panoksen osuutta tuotannon tuloksellisuuden ratkaisijana. 25