An economic analysis of the United States swine industry: Capital investment rigidity, food health concerns, generic advertising and processor concentration

This research is concerned with the fluctuations of farm prices and other related variables in the U.S. swine industry. Three submodels pertaining to the swine industry are estimated, including a hog production submodel, a retail pork consumption submodel, and a farm-retail price transmission submodel. The hog production submodel explicitly allows for the implications of asset fixity in the employment of farm quasi-fixed capital inputs. The retail pork consumption submodel is cast within a meat demand system framework and incorporates variables accounting for the implications on demand of food health information (e.g., fat and cholesterol contents) and generic advertising expenditures by the U.S. beef, pork and fish industries. The farm-retail price transmission submodel links the hog production submodel with the retail pork consumption submodel and allows for the potential effect on price spreads of increased vertical and horizontal concentration in the processing as well as grocery subsectors. The three submodels are used to form an overall industry model to simulate the effects on U.S. swine industry equilibrium prices and quantities of farm asset fixity, of processor and grocer concentrations, of generic advertising, and of other demand and supply shifters such as feed costs and farm breeding production technology. In so doing, one identifies factors important to the vicissitude of U.S. hog market prices and related variables.;Empirical results suggest that rigidities in quasi-fixed capital input investment arising from asset fixity have significant effects on hog prices and quantities, and the effects have become more pronounced since 1976. The capital investment demand can be classified into an investment regime, an inaction regime, and a disinvestment regime, in which producers respond differently when facing output and input price changes. The estimation results from the meat demand system indicate that there exists a significant negative cross-advertising effect of beef advertising on pork consumption, while food health information and pork advertising are not important determinants. Finally, the increased horizontal concentration in the pork processing subsector has the effect of narrowing the farm-retail price spread, suggesting that the cost savings from increased concentration may have outweighed any potential anticompetitive effect on prices of the concentration change.