Cost Structures of Pork Slaughter and Processing Firms: Behavioral and Performance Implications

A survey of selected large pork slaughter and processing firms was conducted. Single- and double-shift plant effects, varying capacity utilization effects, and multiple plant effects on fixed and variable costs are estimated. Two dollar per head reductions in operating costs were found for two-shift versus single-shift plants. Fixed plant and equipment costs declined $3/head for double- versus single-shift plants. Capacity utilization rates can greatly affect variable costs per head and pricing behavior in the market for hogs, since approximately 60%–70% of variable costs in the medium run is essentially fixed within the first four days of the week. Increased market concentration seems likely in response to the economies of size in plants and in multiplant operations. Stronger long-term vertical linkages between packer and hog producer (or vertical integration) will continue to increase in importance. Overall efficiency is likely to be enhanced, but market power issues will become more frequently raised.