Have Hog Producers with Production Contracts Maintained an Economic Advantage over Independent Hog Producers in Recent Years?

Preliminary estimates of technical efficiency based on USDA data for 1997 through 2001 indicate that independent operations were significantly more efficient than contract operations. Preliminary estimates also indicate that both types of operations exhibited increasing returns to scale with contract operations appearing to exhibit significantly higher returns to scale than independent operations, but that larger contract and independent operations exhibit roughly comparable returns to scale. Our estimates of excess nutrients that derive from both commercial fertilizer and manure, comparing the performance of production contract operations and independent operations indicate that, in general, levels of excess nutrients per acre of land are significantly higher on contract operations than independent operations. The results suggest that adjusting the performance measures to include excess nutrients as a "bad output" would tend to favor independent producers over contract operations compared to performance measures that ignore pollution.