Pork Production And Hog And Pork Prices example essay topic

EXECUTIVE SUMMARY The swine industry, although considered relatively more developed than other livestock industries, is still beset with problems affecting its further development. The shortage of supply of hog versus its demand has added up to its marketing inefficiency systems. Hogs, the largest source of meat in the country's livestock industry, constitute about three-quarters of Philippine livestock production. Backyard farms have the largest share (about 77%) of hog inventory in 2001; the rest (23%) came from commercial farms. The share of backyard farms is declining while that of commercial farms is increasing. Increasing scale in swine production is an established trend.

Hog production has posted increases due to the expanding population and incomes. The latter demand driver lifts per capita consumption. Although low by per capita standards of developed countries, per capita consumption has increased from 10.4 kg / year in 1995 to 13.1 kg / year in 2000. Total supply from local production and minimal imports reached a million tons (carcass equivalent) in 2000.

In the year 2000 they found that the major factors in the competitiveness are tariffs and the behaviour of exchange rate. The calculated import parity price ratios for hog (carcass) at different exchange rates and at 30% tariff were greater than one, indicating that local. hog (carcass) was competitive with imports. The high peso per US dollar exchange rate served as a trade protection to the local hog (carcass) prices wherein it increased the imported price of hog (carcass) when sold locally. At zero tariffs, domestic pork is not competitive. The Philippines is the leading swine producer in the ASEAN. The country's total hog production is more than double that of Thailand and Indonesia.

It also produces 26 live pigs for every 100 people compared to about 15 for Thailand and 4 for Indonesia. However, unlike Indonesia and Thailand, the Philippines is not yet competitive as swine exporter. Indonesia exports about 1,500 to 2,000 pigs per day to Singapore. Thai swine exports in 2000 are projected to increase to 6,300 tons worth US$14.25 million.

For the swine industry to prosper, we recommend that the government will give more attention to the present condition of the local hog raisers. At this point in time, meat importation is much prevalent, thus our local hog raisers find it difficult to improve and find better ways in producing their own meat products. Secondly, our local hog raisers should also bear in mind that the success in swine industry also lies in them. With well-equipped facilities and slaughterhouses, quality meat is certainly expected. The government should also give emphasis to the farm-to-market roads for appropriate transport facilities to avoid shrinkage and possible deaths of animals. In this way, the distribution channel of the meat products will be efficient and on time.

TABLE OF CONTENTS Chapter TITLE Page I. Introduction Problem 1 Statement of the Problem 1 Objectives 1 Conceptual / Theoretical Framework 2 Assumption 2 Hypothesis 3 Scope & Limitation 3 Significance of the Study 4 Definition of Key Terms 5 Specific Circumstances of the Study 6 II. Review of Related Literature 7 . Research Method & Procedures 25 IV. Data Analysis & Findings 26 V. Conclusion and Recommendations 31 CHAPTER I INTRODUCTION Problem The swine industry, although considered relatively more developed than other livestock industries, is still beset with problems affecting its further development. Statement of the Problem The study aims to find out the best strategies to implement in order for the industry to resolve the shortage of supply for swine livestock. This study will try to answer questions regarding the shortage of supply of the swine livestock in the local and national market.

This will also strive to resolve to the inefficiency of the marketing system of the industry. CHAPTER II Review of Related Literature Industry Performance Production Hogs, the largest source of meat in the country's livestock industry, constitute about three-quarters of Philippine livestock production. Backyard farms have the largest share (about 77%) of hog inventory at in 2001; the rest (23%) came from commercial farms. For backyard farms, Southern Tagalog ranked first followed by Southern Mindanao.

Many commercial farms, on the other hand, are located in Central Luzon and Southern Tagalog. The location of farms in or near large human population concentration is to be expected. Trade Live swine are imported for breeding purposes. Ideally, genetic stocks must be replaced every 3 to 5 years to maintain optimum performance level. During 1990-2000, live swine importation totalled 23,500 heads. Imports grew at an average of 39% annually, a sign of growing commercial production.

On the other hand, there was also a growing trend of carcass imports: from only 38 tons in 1997 to 533 tons in 2000. Meanwhile, import of frozen cuts dramatically increased at an annual growth of 148% from 1995 to 2000. Meat processors mostly use frozen pork. The highest advance was posted in 1996 when the FMD outbreak bloated pork imports by more than 250% from only 2,000 tons (carcass equivalent) in 1995 to 7,000 tons in 1996. Imports further went up in later years following the lifting of import restrictions. Tariff on pork products is 30% at in-quota volume and 60% at out-quota volume in 2001, down from 30% and 100% in 1995.

Tariffs will converge at 30% in 2004. From 1990 to 1994 (pre-GATT period) the average growth rate of total hog imports was -7%. This increased to 134% during the post-GATT period of 1995 to 2000. The major sources of frozen pork (carcasses / half carcasses, hams, shoulders and cuts) were Denmark, Canada, United States, Korea and Australia.

This means that strategically, the swine industry must address the threat of imports. Supply and Demand Hog production has posted increases due to the expanding population and incomes. Prices During 1990-2000, pork prices increased at the rate of 8% per annum on the average. However, the FMD outbreak in 1995 in Luzon caused farm gate prices to plunge below the cost of production especially in Luzon. Cost Structure According to Gonzales (2000), feed cost is the major component in hog production and accounts for about 44% of the production cost.

A summary of the per unit cost of hog production by scale of operation can vary significantly. COST STRUCTURE OF HOG PRODUCTION BY SCALE OF OPERATION, PHILIPPINES, 2000 In Pesos per kilo unless otherwise stated COST COMPONENT Farm 1 Farm 2 Farm 3 Price Output Farm gate, live 53.50 53.50 53.50 Wholesale Manila, carcass 81.36 81.36 81.36 Costs: Fixed Cost Land Acquisition and Development 1.22 0.65 0.19 Building Structures 0.49 0.69 0.31 Breeders 1.91 2.13 0.29 Machinery and Equipment 0.08 0.20 0.18 Direct Production Cost Cost of Fatteners 18.18 7.74 13.25 Feeds 21.35 23.44 11.17 Medicine 0.93 2.07 0.68 Labor 0.94 0.67 0.61 Overhead 0.76 0.68 0.64 Total Farm Cost 45.88 38.18 31.31 Marketing and Processing Cost Transport and Handling to Manila 4.43 4.43 4.43 Processing Slaughtering 2.00 2.00 2.00 Cold Storage 3.00 3.00 3.00 Shrinkage 3.00 3.00 3.00 (Value of byproducts) Na Na Na Ex-Plant Manila (Carcass) 58.30 50.60 43.73 Transport and Handling 0.50 0.50 0.50 Trading Costs and Margins 0.40 0.40 0.40 Wholesale Cost, Manila 62.80 55.10 48.23 Memo Items Net Farm Income (P / Kg) 7.62 15.32 22.19 Net Wholesale Income (P / Kg) 18.56 26.26 33.13 Note: Farm 1: 2-8 sow operation Farm 2: 9-20 sow operation Farm 3: 600 sow operation Competitiveness Analysis In the year 2000 they found that the major factors in the competitiveness are tariffs and the behaviour of exchange rate. PRICE COMPETITIVENESS OF HOG (CARCASS) IMPORT AT DIFFERENT EXCHANGE RATES, PHILIPPINES, 2000 At Different Exchange Rates $1: P 45 $1: P 50 $1: P 55 Price FOB (US$ per kg), US Port, Carcass 1.22 1.22 1.22 + Freight and Insurance 0.45 0.45 0.45 = CIF Manila 1.67 1.67 1.67 x Foreign Exchange Rate 45 = CIF Manila 75.15 83.50 91.85 + Tariff rate (30%) 22.55 25.05 27.56 + Handling distribution cost 0.50 0.50 0.50 + Trading cost / margins 4.00 4.00 4.00 Derived Wholesale Import Parity Price (P / kg) 120.20 113.05 123.91 Domestic Wholesale Price (P / kg) 81.36 81.36 81.36 Import Parity / Domestic Wholesale Price (a) 1.26 1.39 1.52 Note: (a) Competitiveness exists if import parity / domestic wholesale price is greater than 1. Cross Country Comparisons The Philippines is the leading swine producer in the ASEAN.

It also produces 26 live pigs for every lOO people compared to about 15 for Thailand and 4 for Indonesia. SWINE SUPPLY AND DEMAND COMPARISON, 2001 In Thousand Heads ITEM PHILIPPINES THAILAND INDONESIA Beginning Stocks 11,715 6,780 Na Sows Beginning Stocks 1,920 740 Na Production (Pig Crop) 21,000 9,469 9,500 Imports 1 1 Na Total Supply 32,716 16,990 Na Exports 1 15 520 Sow Slaughter 1 160 Na Other Slaughter 19,000 9,304 Na Total Slaughter 19,000 9.464 Na Loss 1,900 5 Na Ending Inventory 11,816 7,506 Na Total Distribution 32,716 16,990 Na A closer look at hog production costs and returns help to explain the Philippines' lack of export competitiveness. These figures may also indicate that high pork prices and I costs are limiting domestic pork demand. Compared to Thailand, Philippine hog producers have higher costs of production.

Several factors contribute to these high costs, foremost are marketing and processing ~ costs. Transport, handling, cold storage, shrinkage, and trading costs are all far more than those incurred by Thai swine producers. All of these cost factors contribute to total I' -ex-wholesale costs that are 1.38 (large producers) to 1.70 (small producers) times higher than in Thailand (Gonzales, 2001) Despite this high cost structure, Philippine hog producers and wholesalers, on the average, enjoy higher net incomes than their counterparts in Thailand. Net incomes for large producers and wholesalers are far more generous. Even small producers and wholesalers enjoy net returns that are 1.44 and 2.66 times, respectively, more than Thailand RATIO OF PHILIPPINE SWINE COSTS AND RETURNS WITH THAILAND BY SCALE OF OPERATION, 2000 ITEM PHILIPPINES / THAILAND SCALE OF OPERATION Small Medium Large Price of Output Farm gate 1.44 1.44 1.44 Wholesale 1.85 1.85 1.85 Fixed Costs Land Acquisition & Development 46.04 25.11 8.29 Building structures 1.45 1.95 0.92 Breeders 3.25 3.71 0.54 Machinery & equipment 4.68 5.75 10.67 Production Fatteners 2.26 1.01 1.78 Feeds 0.98 1.12 0.55 Medicine 1.42 2.90 0.95 Labor 2.06 1.52 1.45 Overhead 13.94 12.92 81.83 Total Farm Cost 1.44 1.24 1.04 Marketing & Processing Costs Transport & Handling 8.20 8.20 8.20 Processing Slaughtering 1.30 1.30 1.30 Cold Storage 5.06 5.06 5.06 Shrinkage 4.07 4.07 4.07 (Value of byproducts) na na Na Ex-Abattoir (Carcass) 1.65 1.48 1.31 Transport and Handling 2.15 2.15 2.15 Trading Costs and Margins 2.96 2.96 2.96 Total Costs (Ex-Wholesale) 1.70 1.54 1.38 Memo Items: NET INCOME Farm gate 1.44 2.39 3.09 Wholesale 2.66 3.23 3.73 BENCHMARKING PORK CONSUMPTION In Thousand Tons, unless otherwise stated Country Production Imports Export Apparent Consumption Per Capita (Kg) Per Capita Income ($) China 41,600 150 110 41,630 33.0 110 United States 8,596 439 592 8,449 30.7 30,600 Taiwan 895 56-951 42.6 South Korea 1,005 174 30 1,057 22.3 8,490 Philippines 1,008 15 - 1,025 13.1 1,020 With the country's accession to WTO in 1995, the quantitative restriction was lifted which led to the institution of quota and quota tariffs. In the case of pork, the quota (minimum access volume) would increase from 32,500 tons in 1995 to 54,200 tons in 2004.

The in-quota duty was fixed at 30% while the out-quota duty would be phased down from 100% in 1995 to 30% in 2004. As a result imports rose from 2,000 tons in 1995 to 15,000 tons in 2001. CHAPTER IV DATA ANALYSIS AND FINDINGS The demand prospect for pork is bright. Based on a regression analysis of pork consumption and PCE (a proxy of income), demand for pork is highly responsive to income changes, Econometric results shows that for every 1% change in PCE, there is a corresponding 1.27% change in demand for pork. The coefficient of determination (adjusted R-squared) is 99%, meaning that 99% variations in demand for pork is explained by the variations in income, assuming all other things constant. The analysis has not d welled into price elasticity of demand, which can be a subject or further study in future.

TOTAL PORK DEMAND REGRESSIONS VARIABLE LOGARITHMIC Intercept -4.13 (7.19) Loge PCE 1.27 (31.24) R 2 99% Durbin-Watson 1.74 Note: The dependent variable is Loge PORK = apparent consumption (mt). Absolute values of t-statistics are given in parenthesis and significant at 5% level. Based on long-term projections of PCE, demand for pork will increase from 1.24 million tons in 2000 to almost double at 1.96 million tons to 2.21 million tons in 2012. PROJECTIONS OF APPARENT PORK CONSUMPTION ITEM 2004 2007 2012 Low High Low High Low High Total Consumption (1000 mt) 666 689 793 857 1,076 1,266 Average Growth Rates (p. a.) 5.2 6.1 6 7.5 6.3 8.1 Per Capita Consumption (kg / yr ) 7.95 8.23 8.89 9.61 10.97 12.91 Trends (Actual and Projections) of Pork Consumption, 1991-2012 Key Demand Drivers Demand is projected to improve because of rising incomes resulting to higher purchasing power. Urbanization will lead to increasing demand for meats but lesser areas for production purposes (both for grains and animal raising). Logistics is a major demand driver thru the improvement of the distribution system and lowering of transport -costs.

The retail sector plays a major role in increasing the demand for meat by making it available to consumers. The wet markets supply about 90% of the demand, the rest are thru the supermarkets. Meat retailing is improving with the increasing number and growth of supermarkets and hyper marts. Among the supportive trends include: better genetics (better meat); improving management policies; better disease control; and modernized slaughter facilities HOG MARKET CYCLE Hog industry has historically been characterized by cyclical variations in hog inventories, pork production, and hog and pork prices.

A cycle is defined as a production or price movement that tends to last a certain number of years and repeats that pattern over a long period of years. Inventory cycles typically experience periods of increasing numbers called accumulation phases and periods of declining numbers called liquidation phases. Price cycles are typified by periods of increasing prices called increasing phases and decreasing prices called decreasing phases. Price cycles tend to be the opposite of production cycles, but turning points may not occur at identical times. Hog cycles are caused by factors that occur both within and outside the industry. Underlying reasons include the reproductive biology of hogs and time lags in the adjustment of production levels to price changes.

Modifying factors include variations in feed grain production, supplies of competitive meats, and economic, social, and political factors that affect the demand for pork. Conceptual / Theoretical Framework Independent Variable Marketing Strategies (Recommended) o Cost Leadership - mass production of swine livestock. o Product Development - increase R&D to develop new breeding system. Dependent Variable The shortage of swine livestock will be lessened. o Supply will meet demand. o Production of livestock will increase. Assumption An essential input to a master plan is an analysis of market trends as well as market forecast. Pork demand posted an average growth of 4.6% annually during 1990-2000 from 825,000 tons to 1.2 million tons on slaughtered weight basis. On per capita basis, this is an increase from 13.41 kgs. in 1990 to 16.29 kgs. in 2000.

During the period, real gross domestic product (GDP) and personal consumption expenditures (PCE) grew at an average of 3.3% p. a. and 3.7% p. a., respectively. By far, pork accounts for about 60% of total meat demand in the Philippines. Most of these are supplied from domestic producers, however, pork consumption is still low by international standards in part due to low income, there appears, to be a strong correlation between meat consumption and income. Hypothesis: Null and Alternation The swine industry will not succeed due to lack of cooperation between the government and the local hog raisers. The swine industry will succeed given all the strategies that will be applied and if the government will give support to our local hog raisers. Scope and Limitation The respondents of the study of swine industry are limited in the city of Davao.

We had gathered data from different government departments associated in the industry to come up with relevant information. Access to Internet had also helped us to have realistic and practical information. The scope of the study was all about the factors affecting the inefficiency of the systems and structures of the swine industry and to resolve the shortage in supply of hog livestock. Significance of the study The swine industry is considered as well developed than other livestock. The importance of the study is that we will be able to give information to resolve the existing shortage in supply of hog livestock and its inefficient marketing system. This study will convey to those who are interested to become hog raiser.

This market research will be realistic and practical information for future purposes. Definition of the Key Terms in the Study Swine - the domesticated hog or pig; any omnivorous mammal of the family Sundae, having a stout body and long movable snout. Slaughterhouse - a place or establishment in which animals are butchered for the market; an abattoir. Hog - a swine specially an adult domesticated swine raised for slaughter; a pig, boar and other family. Livestock - domestic animals, as cattle's and hogs, bred or kept on a farm for use and capital profit. Pig - a young swine or either sex; broadly, any swine or hog, wild or domestic; the flesh of swine, used for food; pork Carcasses - the dead body of an animal or (now only in the contempt) of a human being; a living body, now chiefly in contempt Sow - the female of the swine Price - the sum or amount of money or its equivalent for which anything bought, sold, or offered for sale.

-The New Grolier Webster International Dictionary Specific Circumstances Surrounding the Study Market Related Problems include in the following o Lack of sanitary slaughterhouses, processing plants, and storage facilities particularly pigs from independent raisers. o Lack of appropriate transport facilities and poor road conditions resulting in high shrinkage and death losses in live animals and quality deterioration and spoilage in animal carcasses. o Wide variations / fluctuations in the prices of market hogs and pork due to fluctuations in the supply of the breeder stocks and inefficient market price information system; and o Poor grading and standardization systems in both live pigs and carcasses. News Articles Davao hog raisers push for meat shipments ban The recent announcement of the Department of Agriculture, through the Bureau of Animal Industry, on the suspension of ban on meat shipment to Visayas and Mindanao is totally shocking and unbelievable especially at this time when all of us Filipinos whether we are in the Visayas or in Mindanao have to bind together and work hard to be more productive and competitive even with our meager resources. Those who are in Luzon must be thankful that we have at least a part of our country that can qualify and is able to export meat products to other countries because of its being an FMD-Free zone. Even if we cannot be given the status throughout the country it will be much less of a trouble to work out for the said status only for Luzon.

Bringing meat from Luzon to Visayas and Mindanao will surely be posing a threat to the said zones that have already earned the much jeweled status of being FMD-Free. We therefore urge the Bureau of Animal Industry and the Secretary of Agriculture in particular to instead strictly impose the ban on meat shipment to Visayas and Mindanao to preserve this much valued honor of being FMD-Free. To work out for Luzon's FMD-Free status may just take a few more strides but exposing Mindanao and Visayas to the threat of the most dreadful virus will surely lead to the collapse of the whole industry and will therefore mean killing the goose that lays the golden egg for your country, considering the pork industry is presently one of the sectors of agriculture that contributed to the 4 per cent growth of our economy and is one of the highest job employment generators of our country. The shortage of meat as alleged by the meat processors is very much unfounded. We have been continuously shipping hogs to the Visayas and Manila and in fact we have been getting a lower price now because of a higher supply than the demand. The claim that some food chains are not getting enough is totally false.

In fact, they have never soured out their meat from local producers. It is in fact, very sad to think that what they are getting from our citizenry is not plowed back to our country. Imports kill local industry, says hog raisers Hog raisers in Southern Mindanao decry the growing dependency of the government on meat imports, which is draining the country's "very limited dollars". Teresina Pascual, president of the Davao Hog Farmers Cooperative (DHFA), said that they can fulfill the requirements for meat in Metro Manila and other provinces but the meat processors based in Metro Manila have stopped buying from them because of the imports. As a result, some 10,000 hogs are "on a standby" in Davao City alone because they have stopped shipping hogs to Manila since June of this year. She said that the organized hog farmers have 20,000 sows which can produce about 20 slaughtered pigs each year or a little over 30,000 heads per month.

"These commercial farms comprise only 30 percent of the total hog production of the city, the bulk of the produce or 70 percent are from the backyard raisers located at the less urban and countryside areas", she said. Pascual said they used to supply the bigger meat processors like Monterey, Pure foods, or Swift based in Metro Manila but has since stopped the delivery after the Department of Agriculture imported meat from other countries. According to the Bureau of Animal Industry, the country has imported 5,085,038 (about 80,000 heads) kilos of pork in April alone but that number was reduced to just 2,995,935 (40,000 heads) kilos of pork in May. The DA is also reportedly scouting Southern American countries like Argentina, Uruguay, Brazil and Chile for meat source. Pascual said that the meat produce of Southern Mindanao for this year have increased from 90,000 heads in the year 2001 to 60,000 heads for the first half of this year. "Why is the Department of Agriculture planning to go as far as South America to scout for meat.

Why is our government so eager to spend our very limited dollars? Why are they not looking around at our farmers' produce?" Pascual said. Engr. Severin o Mercado, President of Davao Hog Farmers Association (DHFA), said the commercial farms in the city can supply Metro Manila's daily meat requirement of 8,000 heads per day for three days and General Santos can meet the supply needs for one week.

He said that because the meat processors in Metro Manila have stopped their orders, they have shipped their produce to Leyte, Cebu, Samar Bu tuan, and Surigao. "But these are very minimal market compared to the meat processors", he said. In a letter addressed to Agriculture Secretary Leonardo Monte mayor, DHFA claimed that the million jobs created in the hog industry is very much "under threat" if this "buying spree" of the DA will continue. The letter stated that commercial farms in the city are employing 2,000 workers in addition to the "chain of industries like corn planters, coconut workers, and those in trading activities and in the utilization of by products of rice mills, fish plants and other crop by-products". The produce of the farmers are already dumped in the local market which further reduced the "cost to produce" of the hogs.

Pascual said that prices for the live pigs now are sold at P 45-48 per kilo compared to three months ago where the prices of live pigs per kilo were sold at P 50-60 per kilo. She said that most of the farmers are funded by Land Bank of the Philippines, Development Bank of the Philippines and Philippine National Bank. "How could these farmers pay the banks if their produce cannot be sold because the government is importing meat from other countries at the time when these produce are abundant in our country?" she said. CHAPTER Research Method and Procedures We had used the Descriptive design research method; the study had focused at the present condition of the hog industry in the Philippines. In Descriptive research, the researchers were able to describe the marketing problems, history and other relevant information regarding swine industry. The researchers gathered secondary data from quite a lot of government agencies, the library, newspapers, encyclopedias and the internet.

There were also personal interviews conducted to Mr. Jerry Tan of the Golden Agri farm Corporation for the researchers to have a bird's eye view of the industry, status quo, prices and distribution of hogs in Davao City. The researchers were able to see their piggery and the breeding system. The secondary data was able to present the problems affecting the swine industry. After gathering the all the data, the researchers evaluated the information prudently to make certain if it is relevant and considered necessary for the marketing research.

The researchers also see to it that the data were accurate which means that it is reliably collected and reported. All the information collected was up-to-date to ensure the results will be viable for the current situation of the industry. CHAPTER V Conclusion The swine industry indeed has a great opportunity to produce sufficient and high quality meat products. o Applying the two recommended strategies, Cost Leadership and Product Development, will surely lessen the shortage of supply in swine products. o A sure domestic market for swine products. o An increasing demand for pork associated with the growing human population. o Swine being one of the fastest and most efficient converters of feed materials into high-value animal protein food products. o Swine having a shorter production cycle compared with other livestock species, thus allowing investment returns in a shorter period of time. o Available technologies and other inputs for increased productivity and efficiency. Recommendation The hog industry is one of the lucrative businesses in the Philippines. But as its demand had increased the supply had fluctuated due to many circumstances that arise. One of this is the shortage of supply of hog livestock.

If the two strategies will be applied, surely the existing problem will be lessened. Product development through research and development of ways to have new breeding system in order to have fast production of hog will enable us to have a mass production of hog, Cost Leadership will realized eventually. The slaughtering of livestock particularly for pork meat must be done in duly accredited slaughterhouses, except when the meat is for family use. Meat must be wholesome, clean and free of dirt, dung and heavy load of microorganisms.

Practice hygiene and sanitation at all times. Defects, diseases and abnormalities must be detected through an efficient meat inspection system. Meat produced in the slaughterhouse must be suited for a variety of preparations, including preservation processes. Efficient management aims to elicit better productivity from available resources such as hog stocks, feeds, facilities and equipment.

Farm helpers' know-how and cooperation significantly affect production results. Marketing is the last job done on growing - finishing pigs. When a large number of hogs are to be marketed, the producer must observe proper shipment and transport handling to minimize losses due to shrinkage, bruises, injuries and possible death.