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Hog Contracts Signal Producers To Improve Quality

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Nearly 70 percent of hogs in the U.S. are sold to pork slaughter companies (packers) under pre-arranged marketing contracts, up from 11 percent in 1993. Marketing contracts between packers and hog producers typically specify the quantity of hogs to be purchased on specified dates and places, and provide hog producers a secure outlet and specific pricing terms. Many of these contracts awarded price premiums for carcass leanness and weight, providing strong incentives for producers to raise lean hogs needed for the lower fat meats demanded by consumers. From 1992 to 2002, the percentage of lean muscle of a typical pork carcass rose from 49.5 to 55.5 percent.

But this leanness came at a cost. The genetic lines that produced leaner hogs were often carriers of the “stress” gene, which was linked to a condition referred to as “pale, soft, and exudative” (PSE). PSE pork—which is disliked by packers, retailers, and consumers—has a very light color, soft texture, and is subject to fluid loss. Controlling the PSE condition proved to be difficult because packers must be able to measure and reward producers for reducing PSE-related attributes. However, indicators of the PSE condition could not be readily measured at high-speed processing lines that slaughter 1,000 hogs per hour. In addition, by the time PSE problems become apparent (20-24 hours postmortem), the identity of the producer may have been lost.

Packers turned to marketing contracts to maintain incentives for producing leaner hogs and, at the same time, control PSE-related attributes. These marketing contracts strove to limit PSE problems by specifying and monitoring input requirements—most importantly genetic lines. How hogs are handled also influences PSE. For example, minimal force while moving hogs, nonslip loading ramps, and less crowding of hogs while on the way to the packing plant all make for less stressed hogs.

While considerable progress has been made in breeding out the stress gene, two pork quality audits revealed that the PSE condition actually worsened—rising from 10.2 percent of slaughter hogs in 1992 to 15.5 percent in 2002. This suggests hog-handling problems may have become an important contributor to PSE-related problems. Some large pork companies stipulate in their marketing contracts that producers raise hogs in a humane manner or in a way that optimizes pork quality.

This article is drawn from...

Pork Quality and the Role of Market Organization, by Stephen Martinez and Kelly Zering, USDA, Economic Research Service, November 2004

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