Pork Industry: USDA's Reported Prices Have Not Reflected Actual Sales
(Letter Report, 12/14/1999, GAO/RCED-00-26).
Pursuant to a congressional request, GAO reviewed the Department of
Agriculture's (USDA) reports on how the pork industry's sharp decline in
prices does not reflect pork prices at the retail level, focusing on
the: (1) structural changes in the pork industry that have occurred
since the 1980s and their effect on production and marketing; (2)
reasons for the sudden and rapid decline in prices paid to farmers in
late 1998; and (3) extent to which USDA's methods for obtaining and
reporting on prices at the farm and retail level for hogs and pork
products result in accurate estimates of these prices.
GAO noted that: (1) changes in the structure of the U.S. pork industry
are occurring in response to increased efficiencies in hog production
and processing and to consumer preferences for leaner, more consistent
meat products; (2) technological advances, such as improved genetics,
and the growing dominance of very large hog farms have accelerated these
trends; (3) the majority of hogs are no longer sold in the open market;
(4) about 70 percent of hogs are sold through contractual and other
arrangements between packing plants--facilities that slaughter and
process hogs into pork products--and farmers; (5) hog prices plummeted
in late 1998, principally because supply exceeded slaughter capacity;
(6) on the supply side, more hogs came to market because U.S. farmers
had increased production in response to higher hog prices in earlier
years; (7) Canadian hog exports to the United States rose by about
25,000 hogs per week--1 percent of the weekly U.S. hog
slaughter--because a labor strike temporarily closed a Canadian plant;
(8) with respect to domestic slaughter capacity, four plant closures
decreased daily capacity by about 37,000 hogs; (9) because packing
plants were operating near capacity, their ability to absorb an increase
in supply was limited; (10) USDA's methods for obtaining and reporting
hog and retail pork prices have not kept pace with the industry's
changes because of funding priorities and a lack of access to data and
therefore do not accurately reflect these prices; (11) at the farm
level, USDA's reported prices are based on hogs sold through the open
market and thus are not representative of all hog sales; (12) at the
retail level, USDA reports prices that do not reflect actual consumer
purchases; (13) the reported prices reflect an average of selected pork
cuts offered for sale, without regard to the actual amount purchased;
(14) for December 1998, when reported cash prices for hogs fell to their
lowest level in decades, USDA's reported retail price of $2.38 per pound
was 14 cents per pound higher than consumer purchases indicated; (15)
consequently, the differences in the prices received by farmers for
their hogs and the prices paid by consumers for pork products was not as
wide as USDA had reported; (16) legislation enacted in October 1999
requires USDA to obtain and report prices paid by packers for all hogs
purchased, priced, or slaughtered each business day, including prices
for all hogs sold through the open market and most hogs sold through
other marketing agreements; and (17) the legislation also requires USDA
to report retail pork prices on the basis of actual consumer purchases.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-00-26
TITLE: Pork Industry: USDA's Reported Prices Have Not Reflected
Actual Sales
DATE: 12/14/1999
SUBJECT: Swine
Prices and pricing
Agricultural industry
Livestock products
Agricultural production
Price indexes
Reporting requirements
Commodity sales
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Cover
================================================================ COVER
Report to Congressional Requesters
December 1999
PORK INDUSTRY - USDA'S REPORTED
PRICES HAVE NOT REFLECTED ACTUAL
SALES
GAO/RCED-00-26
Reported Pork Prices
(150132)
Abbreviations
=============================================================== ABBREV
AMS - Agricultural Marketing Service
ERS - Economic Research Service
USDA - U.S. Department of Agriculture
Letter
=============================================================== LETTER
B-283838
December 14, 1999
The Honorable Richard G. Lugar
Chairman, Committee on Agriculture,
Nutrition, and Forestry
United States Senate
The Honorable Rod Grams
United States Senate
The Honorable Charles Hagel
United States Senate
In 1998, hog farmers experienced sharp declines in the prices they
received for hogs sold in the open market (spot prices), dropping
from about $0.45 cents per pound in May to below $0.10 cents per
pound by mid-December�a level well below the U.S. Department of
Agriculture's (USDA) estimated cost of $0.35 cents per pound to
produce a hog.\1
USDA also reported that the sharp decline in hog prices was not fully
reflected in pork prices at the retail level. For this period, USDA
reported that the difference between the prices farmers received for
their hogs and the prices consumers paid for pork products was wider
than it had been in decades.
Concerned about the prices farmers are receiving for their hogs and
the lack of comparable declines in the prices consumers pay for pork
products at the retail level, as reported by USDA, you asked us to
examine the (1) structural changes in the pork industry that have
occurred since the 1980s and their effect on production and
marketing, (2) reasons for the sudden and rapid decline in prices
paid to farmers in late 1998, and (3) extent to which USDA's methods
for obtaining and reporting on prices at the farm and retail level
for hogs and pork products result in accurate estimates of these
prices. Accurate prices are important because they provide farmers
with reliable information upon which to base production and marketing
decisions.
--------------------
\1 Excludes noncash expenses such as depreciation.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Changes in the structure of the U.S. pork industry are occurring in
response to increased efficiencies in hog production and processing
and to consumer preferences for leaner, more consistent meat
products. Technological advances, such as improved genetics, and the
growing dominance of very large hog farms have accelerated these
trends. For example, since the late 1980s, the number of U.S. farms
that raise hogs has declined by over two-thirds, while the average
number of hogs raised on each farm has more than tripled. In
addition, the majority of hogs are no longer sold in the open market.
Currently, about 70 percent of hogs are sold through contractual and
other arrangements between packing plants�facilities that slaughter
and process hogs into pork products�and farmers, up from about 5
percent in 1980.
Hog prices plummeted in late 1998, principally because supply
exceeded slaughter capacity. Several factors accounted for this
imbalance. On the supply side, more hogs came to market because U.S.
farmers had increased production in response to higher hog prices in
earlier years. In addition, Canadian hog exports to the United
States rose by about 25,000 hogs per week�1 percent of the weekly
U.S. hog slaughter�because, among other things, a labor strike
temporarily closed a Canadian plant. With respect to domestic
slaughter capacity, four plant closures decreased daily capacity by
about 37,000 hogs, or 9 percent. In addition, because packing plants
were operating near capacity, their ability to absorb an increase in
supply was limited.
USDA's methods for obtaining and reporting hog and retail pork prices
have not kept pace with the industry's changes because of funding
priorities and a lack of access to data and therefore do not
accurately reflect these prices. At the farm level, USDA's reported
prices are based on hogs sold through the open market and thus are
not representative of all hog sales. At the retail level, USDA
reports pork prices that do not reflect actual consumer purchases.
Rather, the reported prices reflect an average of selected pork cuts
offered for sale, without regard to the actual amount purchased. For
December 1998, when reported cash prices for hogs fell to their
lowest level in decades, USDA's reported retail price of $2.38 per
pound was 14 cents per pound higher than consumer purchases
indicated. Consequently, the differences in the prices received by
farmers for their hogs and the prices paid by consumers for pork
products, while considerable, was not as wide as USDA had reported.
Legislation enacted in October 1999 requires USDA to obtain and
report prices paid by packers for all hogs purchased, priced, or
slaughtered each business day. USDA officials told us that these
prices would include prices for all hogs sold through the open market
and most hogs sold through other marketing arrangements. The
legislation also requires USDA to report retail pork prices on the
basis of actual consumer purchases.
BACKGROUND
------------------------------------------------------------ Letter :2
The United States is one of the world's leading pork-producing
countries and the second largest exporter of pork. In 1998, farmers
sold 101 million hogs, for a total of about $9 billion, producing
about 19 billion pounds of pork. At the retail level, the value of
this pork exceeded $34 billion.
The pork production and marketing system begins at the farm, where
hogs are farrowed (birthed), nursed (fed to about 50 pounds), and
finished (fed to about 250 pounds, or market weight). Hogs are then
sold to packers, which slaughter and process hogs into pork products
that are sold to retailers, including grocery stores, restaurants,
and other outlets.
Two USDA agencies collect and report hog and pork prices. The
Agricultural Marketing Service (AMS) collects and reports daily and
weekly live hog and wholesale pork prices in order to provide current
price and sales information to farmers and packers and to otherwise
assist in the orderly marketing and distribution of hogs and pork
products. Farmers and packers use this information as indicators of
market conditions. The Economic Research Service obtains retail
prices for pork from the Bureau of Labor Statistics and uses these
data and AMS data to calculate the differences between prices
received by farmers, wholesale prices, and prices paid by consumers.
The difference between the prices received by farmers for their hogs
and the prices paid by consumers for pork products is known as the
farm-to-retail price spread. Analysts and others use this
information to show, among other things, the farmer's share of the
consumer's food dollar.
RAPID CHANGES IN PORK INDUSTRY
ARE DRIVEN BY CONSUMER
PREFERENCES AND OTHER FACTORS
------------------------------------------------------------ Letter :3
Changes in the structure of the U.S. pork industry are occurring in
response to increased efficiencies in hog production and processing
and consumer preferences for leaner, more consistent meat products.
Technological advances, such as improved genetics, and the growing
dominance of very large hog farms since the late 1980s have
accelerated these trends. Currently, more than 85 percent of all
hogs are produced in facilities specialized for each stage of
production. In addition, about 70 percent of hogs are now sold
through contractual and other arrangements in which packing plants
and farmers coordinate production methods and delivery schedules, up
from about 5 percent in 1980.
HOG INDUSTRY IS MOVING
TOWARDS FEWER BUT LARGER
OPERATIONS
---------------------------------------------------------- Letter :3.1
Over the past decade, the number of U.S. hog farms declined while
the average number of hogs per farm increased significantly. As
shown in table 1, the number of hog farms declined from about 323,000
in 1988 to 114,000 in 1998 while the average number of hogs on these
farms increased from 172 to 544, or 216 percent. Industry economists
estimate that by the start of 2000, fewer than 100,000 hog farms will
be in business.
Table 1
Number of Farms With Hogs, and Total
Hogs, 1988 Through 1998
(Farms and hogs in thousands)
Average number
Hog Total of hogs per
Year farms hogs farm
---------------------- -------------- -------------- --------------
1988 322.6 55,466 172
1991 247.1 57,649 233
1994 196.0 59,738 305
1997 122.2 61,158 500
1998 114.4 62,206 544
----------------------------------------------------------------------
Source: GAO's analysis of USDA's data.
The decline in the number of hog farms has occurred principally among
smaller farmers; of the farms that have left the industry, nearly all
had fewer than 1,000 hogs. As shown in table 2, operations marketing
fewer than 1,000 hogs annually accounted for a declining share of the
total hog slaughter, from 32 percent in 1988 to 5 percent in 1997,
the most recent year for which data are available. Conversely, farms
that market more than 50,000 hogs annually increased their share from
7 percent of all hogs marketed in 1988 to about 37 percent in 1997.
Table 2
Share of Hogs Marketed by Size of
Operation, 1988 Through 1997
Percent share of hog market
----------------------------------------------
Size of operation by
hogs marketed annually 1988 1991 1994 1997
---------------------- ---------- ---------- ---------- ----------
1 to 99 32 23 17 5
1,000 to 1,999 19 20 17 12
2,000 to 2,999 11 13 12 10
3,000 to 4,999 10 12 12 10
5,000 to 9,999 9 10 12 10
10,000 to 49,999 12 13 13 16
50,000 or more 7 9 17 37
----------------------------------------------------------------------
Source: Production and Marketing Characteristics of U.S. Hog
Producers, 1997-98, Iowa State University, Department of Economics
Staff Paper 311, December 1998.
Just as the production of hogs has become concentrated, so too has
the processing of hogs into pork products (known as the meat-packing
process). In 1988, the 4 largest packing companies slaughtered 34
percent of all U.S. hogs; the 20 largest companies slaughtered about
75 percent of the hogs. In comparison, in 1997, the four largest
companies slaughtered 54 percent of all hogs; only eight companies
slaughtered about 75 percent of all hogs. In 1998, the seven largest
companies represented 75 percent of total daily slaughter capacity,
as shown in table 3.
Table 3
The 10 Largest Hog-Packing Companies,
1998
Daily slaughter Percent of Cumulative
Rank Packing company capacity slaughter capacity percent
--------- ------------------ ------------------ ------------------ ------------------
1 Smithfield Foods, 82,300 19.7 19.7
Inc.
2 IBP Inc. 72,600 17.3 37.0
3 ConAgra, Inc. 39,400 9.4 46.4
(Swift & Co.)
4 Cargill, Inc. 37,800 9.0 55.4
(Excel Corp.)
5 Hormel Foods Corp. 34,700 8.3 63.7
6 Farmland 33,800 8.1 71.8
Industries, Inc.
7 Seaboard Corp. 15,000 3.6 75.4
8 Thorn Apple 14,000 3.3 78.7
Valley\a
9 Indiana Packers 13,000 3.1 81.8
10 Lundy's 8,000 1.9 83.7
Other companies 67,870 16.2 100.0
=========================================================================================
Total 418,470 100.0
-----------------------------------------------------------------------------------------
Note: Totals may not add because of rounding.
\a Thorn Apple Valley closed its slaughter operations in 1998.
Source: GAO's analysis of data from the National Pork Producers
Council.
Along with consolidation into fewer and larger farms, hog production
is migrating into new areas. According to the Census of Agriculture,
from 1992 through 1997, the number of hogs nationwide rose about 6
percent. Much of this growth occurred in areas where the hog
industry was almost nonexistent before, including Colorado,
Mississippi, Oklahoma, Utah, and Wyoming. However, a large portion
of this growth also occurred in a traditional hog-producing
state�North Carolina. Most other traditional hog-producing
states�including Illinois, Indiana, Missouri, and
Nebraska�experienced net declines in hog inventories. Figure 1 shows
the change in hog inventories in each state from 1992 through 1997.
Figure 1: Change in Hog
Inventory, 1992 to 1997
(See figure in printed
edition.)
Source: USDA's 1997 Census of Agriculture.
Restrictions on the pork industry's activities, such as those that
prohibit packers from producing or owning hogs, are guiding the
industry into new production regions. Several midwestern states
(including Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota,
and Wisconsin) have enacted some form of corporate farming law. The
provisions of these laws vary widely, but they generally prohibit
large corporations from engaging in farming activities, including hog
production.
In addition, environmental concerns surrounding large hog operations
are a catalyst for the movement of hog operations from populated
areas in midwestern states to sparsely populated areas in other
states. These concerns have led to restrictions on hog operations'
management of animal wastes to prevent the contamination of surface
and groundwater as well as to controls on the strong odors that come
from the facilities.
HOG PRODUCTION IS
INCREASINGLY SPECIALIZED
---------------------------------------------------------- Letter :3.2
Traditionally, hog production has occurred on small farms that manage
the entire hog production cycle. Increasingly, however, hogs are
produced in specialized operations in which each stage of production
is carried out in a separate facility and tight controls are
maintained over breeding and feeding programs. Currently, according
to industry analysts, more than 85 percent of all hogs are produced
in specialized operations. In most of these facilities, each group
of hogs is moved together to the next production phase, and the
buildings are thoroughly cleaned and disinfected between groups.
This rotation system is designed to minimize or eliminate the
intermingling of hogs from different batches, thereby guarding
against the spread of disease. In addition, large farmers usually
have various genetic lines developed specifically for their breeding
herds in order to maximize production efficiency, quality
characteristics, and their ability to compete in various marketing
niches.
VERTICAL COORDINATION
ARRANGEMENTS ARE INCREASING
TO MEET CONSUMER DEMAND,
CONTROL COSTS, AND REDUCE
RISKS
---------------------------------------------------------- Letter :3.3
The sale of live hogs on the open market is rapidly being replaced by
multiyear contracts between farmers and packers as well as by
vertically integrated operations in which a packer owns the hogs
being produced. Farmers and packers are increasing their use of such
vertical coordination methods as a means of managing their market
risks. For example, through vertical coordination, hog farmers can
lower their risks of investing in large, specialized operations by
ensuring a buyer for their hogs. Also, in some contractual
arrangements, price risks are shared by both the farmer and packer.
Packers see advantages to these arrangements as well. To maximize
the operating efficiencies of modern plants, packers in recent years
have increased their control over the quantity and quality of hogs
coming into their plants. High capital costs and competitive
pressures have forced packers to reduce idle capacity. By
contracting or vertically integrating, packers ensure a large, stable
flow of hogs into their plants, thereby maximizing the utilization of
their facilities and reducing risks and costs. In addition, packers
can reduce their costs by improving the quality of hogs slaughtered.
Quality affects processing time and labor costs as well as the
quantity of high-value fresh meat cuts per hog. For example, each
hog with excessive fat requires more trimming and produces less lean
meat. Conversely, a lean hog takes less time to process and produces
a larger quantity of lean pork. Through marketing contracts, packers
specify the quality characteristics it wants in the hogs it purchases
from producers. Packers are sometimes able to control the choice of
genetic stock, feeding program, and management decisions on the
production of their contracted hogs. This control ensures a
consistent supply of lean, high-quality hogs that meet their
stringent quality specifications, which are dictated by consumers.
The use of marketing contracts and vertical integration has increased
significantly in recent years. As shown in table 4, in 1998, an
estimated 95 percent of hogs from operations with at least 500,000
hogs were produced under marketing contracts and vertical integration
compared with 34 percent from operations producing 1,000 to 1,999
hogs. Overall, in 1998, 64 percent of all hogs were marketed under
such arrangements, up from about 5 percent in 1980. Industry
economists estimate that in 1999 about 70 percent of all hogs will be
produced under marketing contracts and through vertical integration
and that in 2000 such coordination arrangements will represent fully
three-fourths of all hogs slaughtered.\2 In addition, large hog
operations are much more likely to be involved with coordination
arrangements than are small operations.
Table 4
Percentage of Hogs Produced Under
Marketing Contracts and Vertical
Integration, by Size of Operation, 1998
Percentage of hogs under
marketing contracts and
Size of operation vertical integration
---------------------------------------- ----------------------------
1,000-1,999 34
2,000-2,999 38
3,000-4,999 48
5,000-9,999 59
10,000-49,999 62
50,000-499,999 85\a
500,000 or more 95\a
All hogs 64
----------------------------------------------------------------------
\a Estimated.
Source: Production and Marketing Characteristics of U.S. Hog
Producers, 1997-98, Iowa State University Department of Economics
Staff Paper 311, December 1998.
Additionally, as a means of expanding their production capability and
reducing risk, large farmers often contract with other farmers to
grow (finish) hogs to market weight in specialized facilities. The
contractor typically owns and provides most of the inputs�including
the hogs, feed, and veterinary care�to the farmers and pays them a
preestablished fee for their services and the use of their
facilities.
Appendix I provides additional information on production efficiencies
achieved in the hog industry since 1960.
--------------------
\2 This estimate includes the acquisition of Murphy Farms by
Smithfield, Inc., the nation's largest hog farmer.
INCREASED HOG SUPPLY AND
LIMITED SLAUGHTER CAPACITY WERE
KEY FACTORS AFFECTING FARMERS'
PRICES IN 1998
------------------------------------------------------------ Letter :4
Hog prices plummeted in late 1998, principally because supplies
exceeded slaughter capacity. Several factors accounted for this
imbalance. U.S. farmers decided to increase production in response
to higher hog prices in earlier years, and imports from Canada
increased slightly because, among other things, a labor strike
temporarily closed a Canadian plant. In addition, four U.S. plant
closures decreased slaughter capacity by about 37,000 hogs per day�9
percent�and the remaining plants could not readily absorb the
increased supply.
HOG SUPPLIES SET A RECORD IN
1998
---------------------------------------------------------- Letter :4.1
The pork industry experienced record production in 1998. As shown in
table 5, the number of hogs slaughtered increased from about 92
million in 1997 to 101 million in 1998, or 9.8 percent, resulting in
an increase in the total number of pounds of pork produced from 17
billion to almost 19 billion, or 10.1 percent (the largest
year-to-year increase since 1979). Similarly, this record production
placed pressure on the plants' capacity to refrigerate the
slaughtered pork. As a result, the amount of pork under
refrigeration (in cold storage) increased from 378 million pounds at
the end of 1997 to 443 million pounds at the end of 1998, or 17.3
percent.
Table 5
Pork Production, 1991 Through 1999
(Pounds in millions)
Year-end pounds
Number of hogs Pounds of pork of pork in cold
Year slaughtered produced storage
---------------- ---------------- ---------------- ----------------
1991 88.2 15,948 296.9
1992 94.9 17,184 326.1
1993 93.1 17,029 333.8
1994 95.7 17,659 385.1
1995 96.3 17,810 382.2
1996 92.4 17,084 349.1
1997 92.0 17,245 377.7
1998 101.0 18,981 443.0
1999\a 100.8 18,900 480.0
----------------------------------------------------------------------
\a Estimated.
Source: USDA.
While improved production technology and genetics contributed to
increased production, the higher production in late 1998 also
resulted from cyclical and seasonal factors. According to industry
analysts, the hog price cycle is about 4 years�2 years of rising
prices followed by 2 years of falling prices.\3 When prices are high,
more sows are bred and more hogs are produced. This causes hog
production to increase and prices to fall, creating a price cycle.
Seasonal variation is caused by changes in production efficiency
resulting from variations in the weather�more hogs are born in the
spring and summer than in the fall and winter, and thus more hogs go
to market in the fall and winter. For example, in 1996 and 1997, hog
prices were in the range of $0.45 to $0.60 per pound, and many
farmers constructed large facilities and expanded their breeding
herds in expectation of future profitability. This expansion helped
create a surge of hogs coming to market starting in late 1997, and
hog prices in the open market fell to less than $0.10 per pound in
December 1998.
Imports of live hogs from Canada also contributed to low hog prices
in late 1998. Most of the hogs imported into the United States
originate in Canada. In 1998, Canadian imports reached a record 4.1
million hogs, after steadily rising since 1992. Most of the increase
occurred in the fourth quarter of 1998, when weekly hog imports from
Canada rose by about 25,000�1 percent of the U.S. weekly
slaughter�exacerbating the effect on prices of an already large
supply of domestic hogs. According to USDA economists, the large
volume of Canadian imports occurred because of a strong U.S. dollar
relative to the Canadian dollar, similar hog supply and price
problems in Canada, and a labor dispute at a large Canadian packing
plant that temporarily closed this plant.
--------------------
\3 See app. II for information on the responsiveness of hog prices
to changes in production, and the speed at which these prices are
reflected at the retail level.
SLAUGHTER CAPACITY IS
LIMITED
---------------------------------------------------------- Letter :4.2
Although hog production increased in 1998, plant capacity for
processing the animals into consumer-ready pork products decreased,
creating a bottleneck in the farm-to-retail chain. Following the
closure of four packing plants over the previous 18 months, slaughter
capacity decreased by 9 percent, or 37,000 hogs per day. The
plants�located in Georgia, Iowa, Michigan, and South Dakota�closed
prior to the fall of 1998 because they were older and not
economically viable. Furthermore, unlike a decade ago, when the
majority of pork-packing plants in the United States operated single
shifts, plants today largely operate double shifts. Single-shift
plants could increase weekly slaughter capacity 25 percent or more by
increasing hours or by operating on Saturday. Today, double-shift
facilities are not as able to readily increase slaughter capacity.
Moreover, new packing plants cannot be added quickly because they
require about 3 years and $100 million or more to construct and face
various regulatory hurdles.
USDA'S METHODS FOR REPORTING
FARM AND RETAIL PRICES DO NOT
REFLECT ACTUAL FARM AND RETAIL
SALES
------------------------------------------------------------ Letter :5
USDA's methods for obtaining and reporting hog and retail pork prices
have not kept pace with the industry's changes because of funding
priorities and a lack of access to data and therefore do not
accurately reflect these prices. At the farm level, USDA's reported
prices are based on hogs sold through the open market (generally
referred to as the spot market) and thus are not representative of
all hog sales. At the retail level, USDA reports pork prices that do
not reflect actual purchases by consumers. Thus, the reported
difference between the prices farmers received for their hogs and the
prices consumers paid for pork products, known as the farm-to-retail
price spread, is not always accurate.
LIVE HOG PRICES REPORTED BY
USDA ARE NOT REPRESENTATIVE
OF ALL SALES
---------------------------------------------------------- Letter :5.1
The changing structure of the hog industry may contribute to a gap
between the publicized prices paid for hogs and the average price
received by farmers. Most hogs�about 70 percent�are procured by
packing plants through coordinated arrangements, rather than through
the spot market, and the price is not available to USDA because of
the proprietary nature of the information. However, USDA reports
farm-level prices for live hogs on the basis of hogs sold through the
spot market. In January 1999, USDA revised its methods for reporting
pork price spreads; it now uses an average hog price for 51- to
52-percent lean hogs�which are of higher quality�to better reflect
the current market. However, these prices are still based on hogs
sold in the spot market (see app. III).
During periods of plentiful hog supplies, packers frequently pay a
lower price for hogs procured through the spot market than for hogs
procured through contracts. Spot market hogs are generally of lower
quality, not as lean as hogs sold through contracts, and more
variable in weight. Through contracts, packers can guarantee a
stable flow of lean hogs at consistent weights for their plant and
hence are willing to pay premiums for this certainty. Consequently,
reported prices for live hogs based on the spot market do not
accurately reflect the average price of all hog sales. To help
resolve this situation, the agriculture appropriations act for fiscal
year 2000\4 requires packers to report to USDA and USDA to publish
the prices paid for all hogs purchased, priced, or slaughtered each
business day. USDA officials told us that these prices would include
prices for all hogs sold through the open market as well as most hogs
sold through other marketing arrangements. USDA officials told us
that the Department plans to implement this requirement by July 2000.
However, according to the officials, these plans are contingent upon
congressional funding to carry out this requirement.
--------------------
\4 The Agriculture, Rural Development, Food and Drug Administration,
and Related Agencies Appropriations Act, 2000 (P.L. 106-78, Oct.
22, 1999) amended the Agricultural Marketing Act of 1946 to include
this requirement.
RETAIL PORK PRICES REPORTED
BY USDA DO NOT REFLECT
CONSUMERS' PURCHASES
---------------------------------------------------------- Letter :5.2
USDA's reported retail prices do not reflect actual purchases by
consumers. Rather, the reported prices reflect an average of
selected pork cuts offered for sale, without regard to the amount
purchased. USDA first obtains average pork prices from the Bureau of
Labor Statistics, which collects them to calculate the Consumer Price
Index. The Bureau collects regular and sale prices from grocery
stores and averages these prices, regardless of the amount purchased
at each price. Then, USDA weights these prices by each cut's
proportion of a hog carcass. As a result, USDA does not report
retail prices on the basis of actual consumer purchases of pork
products.
Data from grocery store scanners, which we obtained for our analysis,
reflect actual consumer purchases that occur at both regular and sale
prices. As shown in figure 2, from July 1998 through June 1999,
USDA's reported retail prices for pork generally overstated retail
prices when compared with grocery store sales data, with the greatest
difference occurring in December 1998 and April 1999.
Figure 2: USDA-Reported Retail
Prices for Pork Compared With
Scanner-Based Retail Prices,
July 1998 Through June 1999
(See figure in printed
edition.)
Source: USDA and Information Resources, Inc.
As the figure shows, USDA's reported retail prices for pork were
$0.14 and $0.11 per pound higher than the scanner-based retail prices
in December 1998 and April 1999, respectively, when grocers were
featuring pork.\5 Retail grocery representatives told us that many
grocers featured pork near the end of 1998 in response to the large
supply of pork and the lowest hog prices in decades. According to
weekly scanner data, retail prices declined from $2.39 in
mid-November to $2.14 in late December. Appendix IV lists monthly
USDA-reported retail prices for pork and weekly and monthly
scanner-based retail pork prices.
In addition to not reflecting the actual volume of sales, USDA's
methodology does not account for changes in the mix of products
purchased by consumers throughout the year, such as more hams at
Easter and more pork chops and ribs for grilling in the summer.
Instead, as discussed, USDA calculates an overall average pork price
by weighting a fixed mix of prices for individual pork cuts obtained
from the Bureau of Labor Statistics by each cut's average percentage
of a hog carcass. USDA officials told us that retail pork prices
based on consumer purchases would provide more complete retail market
information and could be obtained at an annual cost of about
$500,000, depending on the level of detail desired. The agriculture
appropriations act for fiscal year 2000 requires that USDA report
prices for pork products that are based on actual retail sales. USDA
officials told us that the Department is studying how to carry out
this requirement but does not currently have a specific date for
implementation.
--------------------
\5 The price relationship shown in fig. 2 could be different for
other time periods.
FARM-TO-RETAIL PRICE SPREADS
ARE INACCURATE AT SPECIFIC
POINTS IN TIME BUT REFLECT
TRENDS OVER TIME
---------------------------------------------------------- Letter :5.3
The purpose of USDA's price spreads is to indicate differences in
values for a consistent quantity and quality of product measured at
the farm, wholesale, and retail levels over time. Although USDA's
farm prices, retail prices, and the spread between them may be
inaccurate at specific points in time, its price spreads do reflect
changes in trends over time.
Over the past two decades, the farm-to-retail price spread for pork
has widened. As shown in figure 3, from 1979 to 1999, average retail
prices rose while wholesale prices and farm-level hog prices declined
slightly, resulting in the widening of the farm-to-retail price
spread.\6
However, when prices are adjusted for inflation, the
farm-to-wholesale portion of the spread actually decreases while the
wholesale-to-retail spread remains essentially unchanged. According
to USDA and industry analysts, the wholesale-to-retail spread may be
wider because more processing is being done; therefore, retail prices
reflect an increasing service component in pork products. A number
of additional processes may increase the value of the product to the
consumer, such as packaging, certification, marination, cooking,
trimming, flavoring, or slicing; in addition, advertising costs are
factored into the wholesale-to-retail price spread.
Figure 3: Annual Pork Prices
as Reported by USDA, 1979
Through 1999 (Nominal dollars)
(See figure in printed
edition.)
Note: 1999 prices are for January through September.
Source: USDA.
--------------------
\6 For purposes of our analysis, we elected to use farm-level hog
prices instead of USDA's net farm value of hogs. See app. III for a
detailed discussion of USDA's methodology for obtaining, verifying,
and reporting farm, wholesale, and retail prices and calculating
farm-to-retail price spreads.
CONCLUSION
------------------------------------------------------------ Letter :6
USDA's methodology for obtaining and reporting price information has
not kept pace with changes in the industry because of funding
priorities and a lack of access to data. Accurate prices are
important because they provide farmers with reliable information upon
which to base production and marketing decisions. At the farm level,
USDA's reported prices are not representative of all hog prices,
while at the retail level, the prices USDA uses do not reflect actual
consumer purchases. Thus, the USDA-reported price spread is not
always accurate and was not as wide as USDA had reported in late
1998. Recent legislation requires USDA to obtain and report prices
paid by packers for all hogs purchased, priced, or slaughtered each
business day. USDA officials told us that these prices would include
prices for all hogs sold through the open market and most hogs sold
through other marketing arrangements. The legislation also requires
USDA to report retail pork prices based on actual consumer purchases.
When fully implemented, this information, coupled with existing
information reported by USDA, will provide a more complete reflection
of market conditions at the farm and retail levels.
AGENCY COMMENTS
------------------------------------------------------------ Letter :7
We provided USDA with a draft of this report for review and comment.
USDA's primary concern was that the report did not recognize the
change the Department made in January 1999 to improve its methods for
reporting the spread between farm and retail pork prices. In
addition, USDA was concerned that the report suggested USDA should
replace its method for reporting retail prices from one that adjusts
the prices to a consistent mix of pork products to one that is based
on actual consumer purchases. We revised our report to acknowledge
the changes that USDA has made to its reporting on spreads in pork
prices and to clarify our conclusion that reporting retail prices
based on actual consumer purchases will, if effectively implemented,
represent a valuable addition to USDA's array of pork price reports.
USDA also made a number of technical comments and suggestions, which
we incorporated into our report as appropriate. USDA's comments and
our responses are presented in detail in appendix V.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8
To examine how structural changes in the pork industry have affected
production and marketing and to identify the reasons for the sudden
and rapid decline in prices paid to farmers in late 1998, we reviewed
studies by USDA and by industry and academic experts. We examined
hog industry statistics, including hog supply, slaughter capacity,
and consumer demand. We interviewed agency officials at USDA's
headquarters in Washington, D.C., and key field offices in Des
Moines, Iowa. Officials contacted were from the Economic Research
Service, the Agricultural Marketing Service, and the Grain
Inspection, Packers, and Stockyards Administration. We also
interviewed industry representatives, including the National Pork
Producers Council, the American Meat Institute, the Food Marketing
Institute, as well as major packers and retailers. In addition, we
met with pork industry experts at Iowa State University, the
University of Missouri, Kansas State University, and North Carolina
State University.
To determine the extent to which USDA's methods for obtaining,
reporting, and verifying pork prices result in accurate price
estimates, we reviewed USDA's processes and procedures for collecting
and disseminating data in its reports for live hogs and pork cuts.
Our analysis included discussions with USDA as well as officials at
the Bureau of Labor Statistics and economists at Iowa State
University, the University of Missouri, Kansas State University, and
North Carolina State University.
Specifically, to compare USDA's reported retail prices, for July 1998
through June 1999, we examined scanner-based data on retail pork
prices purchased from a data collection company. According to the
data collection company, these scanner data represent at least 40
percent of total U.S. grocery sales of pork (including fresh and
branded loins, bacon, hams, and sausage), at over 7,000 stores in
approximately 100 metropolitan areas. As part of its data collection
process, the company reported that it conducts several quality
control tests on scanner sales data received from retailers,
including item count, item rank, and department total tests, as well
as comparisons against shipment documents of goods purchased by
grocery stores.
We conducted our review from April 1999 through November 1999 in
accordance with generally accepted government auditing standards.
---------------------------------------------------------- Letter :8.1
We are sending copies of this report to Senator Tom Harkin, Ranking
Minority Member, Senate Committee on Agriculture, Nutrition, and
Forestry; Representative Larry Combest, Chairman, and Representative
Charles W. Stenholm, Ranking Minority Member, House Committee on
Agriculture; and to other appropriate congressional committees. We
are also sending copies of this report to the Honorable Dan Glickman,
Secretary of Agriculture; and the Honorable Jacob Lew, Director of
the Office of Management and Budget; and other interested parties.
We will also make copies of this report available to others upon
request.
If you or your staff have any questions about this report, please
contact me at (202) 512-5138. Key contributors to this report were
Robert C. Summers, Thomas M. Cook, Ruth Anne Decker, and Mary C.
Kenney.
Lawrence J. Dyckman
Director, Food and
Agriculture Issues
PRODUCTIVITY GAINS IN THE HOG
INDUSTRY
=========================================================== Appendix I
In the past several decades, the hog industry has experienced
significant gains in productivity. As shown in table I.1, the number
of pigs per litter, farrowings per sow, pigs born per sow per year,
and the amount of pork produced per sow have increased since 1960.
Table I.1
Production Efficiency Gains, 1960
Through 1998
Pork
Pigs per production
Pigs per Farrowings sow per sow
Year litter per sow per year (pounds)
-------------- ------------ ------------ ------------ ------------
1960 6.99 1.68 11.71 1,442
1970 7.27 1.73 12.56 1,636
1980 7.22 1.64 11.83 1,912
1990 7.87 1.86 14.62 2,480
1998 8.71 1.95 16.94 3,062
----------------------------------------------------------------------
Source: University of Missouri's analysis of the U.S. Department of
Agriculture's data.
Large and more specialized production operations are particularly
contributing to these dramatic improvements. A number of factors
have contributed to the shift to fewer but larger hog operations,
including lower costs of production. According to economists at Iowa
State University and Purdue University, costs of production vary
widely among farmers. Generally, however, large hog operations have
costs of production that are lower than those of smaller hog
operations. Large specialized farms have total costs of production
that are about 10 percent lower than those of smaller
farrow-to-finish farms. Some analysts believe that the range in
production costs between the most efficient one-third of all farmers
and the least efficient one-third is as much as $0.10 to $0.12 per
pound.
Pork production involves many inputs--feed grains such as corn,
high-protein feed ingredients, vitamins, minerals, water,
medications, and labor--to convert live hogs into pork and pork
products. Feed is the major production input for raising hogs,
usually accounting for over 65 percent of all production expenses.
In the early 1990s, hog costs of production for farrow-to-finish
operations averaged $0.40 to $0.45 per pound of live animal. In 1996
and 1997, when feed costs rose significantly, hog costs of production
increased to about $0.50 per pound. In the last year, feed costs
have decreased, reducing costs of production to about $0.35 per
pound.
RESPONSIVENESS OF HOG PRICES TO
CHANGES IN PRODUCTION AND THE
SPEED AT WHICH THESE PRICE CHANGES
ARE REFLECTED IN RETAIL PRICES
========================================================== Appendix II
During the 1997 through 1998 expansion phase of the hog production
cycle, prices declined to a greater extent than in earlier expansion
phases. As shown in table II.1, during 1978 through 1979, the
largest expansion phase in the last two decades, production increased
about 16 percent while prices declined 24 percent. In contrast,
during the expansion phase of 1997 through 1998, production increased
about 10 percent, but prices declined 40 percent.
Table II.1
Effect of Changes in Hog Production on
Hog Prices During Expansion and
Liquidation Phases, 1978 Through 1998
Ratio of
Percent Percent change in
change in change in hog prices
hog deflated hog to change in
Year production prices production
---------------------------- ------------ ------------ ------------
Expansion phase
----------------------------------------------------------------------
1978-79 +15.6 -23.7 1.52
1982-83 + 7.1 -16.5 2.32
1987-88 +9.2 -19.9 2.16
1991-92 +7.7 -16.4 2.13
1993-94 +3.7 -15.4 4.16
1997-98 +10.1 -39.7 3.93
Liquidation phase
----------------------------------------------------------------------
1974-75 -16.7 +28.8 1.72
1981-82 -10.2 +18.4 1.80
1985-86 -4.9 +11.9 2.43
1989-90 -2.9 +18.1 6.24
1992-93 -1.0 +4.4 4.40
1995-96 -4.1 +24.8 6.05
----------------------------------------------------------------------
Notes: An expansion phase occurs when production increases, and a
liquidation phase occurs when production decreases. Also, other
factors in addition to changes in production affect changes in hog
prices, such as decreased slaughter capacity in 1998.
Source: Glen Grimes, University of Missouri.
While hog prices react immediately to changes in hog production,
retail pork prices react slowly to changes in hog prices. According
to U.S. Department of Agriculture (USDA) economists, the delay in
changes between farm and retail prices is often attributed to the
time it takes to move products from farms to retail outlets, so that
the prices of products currently in stores reflect earlier farm
prices. In addition, retailers set prices for advertising purposes a
week or more ahead, thus limiting rapid adjustment to sudden price
changes. As a result, price spreads frequently narrow when farm
prices increase and widen when farm prices decrease. Retail prices
more quickly reflect farm price increases than decreases. In
addition, changes in farm prices have little effect on retail prices
in the month they occur. USDA research indicates that, on average,
it takes about 3 months for farm price increases to be fully passed
on to consumers, while it takes over a year for the retail price to
fully adjust to farm price decreases. Furthermore, retailers
recognize that consumers react negatively to frequent price changes.
USDA'S METHODOLOGY FOR OBTAINING,
VERIFYING, AND REPORTING LIVE HOG
AND PORK PRODUCT PRICES AND FOR
CALCULATING FARM-TO-RETAIL SPREADS
========================================================= Appendix III
This appendix provides a detailed discussion of USDA's methods for
collecting and reporting pork prices at the farm, wholesale, and
retail segments of the marketing chain as well as its methods for
calculating and reporting farm-to-retail pork price spreads. Two
USDA agencies are involved in this process.
LIVE HOG PRICES
------------------------------------------------------- Appendix III:1
USDA's Agricultural Marketing Service (AMS) collects and reports
current hog price and sales information�for hogs sold in the spot
market�to assist in the orderly marketing and distribution of hogs
and pork products. Reports include information on prices, volume,
quality, condition, and other market data for specific markets and
marketing areas. AMS market reporters collect and disseminate
reports intended to provide buyers and sellers with the information
necessary for making intelligent, informed marketing decisions, thus
placing everyone in the marketing system on a more equal bargaining
basis. These reporters cover direct sales and collect information by
telephone--talking with buyers, farmers, and packers.
Most hogs are valued after slaughter according to the weight and
leanness of the carcass. Packers determine leanness by, for example,
measuring the amount of backfat present and identifying the muscling
characteristics of the carcass. Each packer has developed a matrix
of different carcass weight and leanness combinations. This matrix
indicates the premiums and discounts the packer is offering from its
base price. Packers provide their base price and their matrix to
AMS. While packers' base prices change often�sometimes a couple of
times a day, the premiums and discounts offered from this base price
may change only 1 or 2 times per year. Using these matrixes and base
prices, AMS reports daily, weighted-average base prices as well as
ranges of prices offered by packers for different carcass weight and
leanness combinations.
USDA's Economic Research Service (ERS) recently revised its basis for
determining the farm-level hog price series of the pork price spread,
switching from a live hog basis to a carcass basis. In January 1999,
ERS began obtaining carcass prices from the �National Base Lean Hog
Carcass Slaughter Cost Report,� which is published by AMS for use in
developing its pork price spreads. This daily report provides
information on packers' costs, on a carcass basis, for the previous
day's slaughter. This report provides cost data from about 25
percent of packers that voluntarily provide their previous day's
slaughter cost information. The cost information provided by these
packers includes the prices of hogs purchased through negotiated
sales as well as through formula contracts. The cost data provided
does not include packer-owned hogs or hogs purchased through fixed
contracts (such as window and ledger contracts). AMS reports the
cost data for various carcass leanness values. To develop the
farm-level hog price series for its pork price spreads, ERS converts
the 51- to 52-percent lean carcass costs from this report to an
equivalent live hog price.
WHOLESALE PORK PRICES
------------------------------------------------------- Appendix III:2
AMS reports sales of fresh pork cuts from, for example, packers to
retailers, packers to processors, and packers to exporters. AMS
reports the price range for the day as well as the daily average
price weighted by the number of sales that occurred at each price for
each cut. In 1998, AMS revised its reporting of wholesale pork
prices to reflect the prevalence of closer trimmed and film-wrapped
cuts. AMS also adjusted its reported wholesale prices back through
1979 on the basis of these revisions.
Information is reported only on products for which the price is
established through negotiation between buyer and seller.
Transactions based on formula pricing are not used. AMS market
reporters confirm as many trades as necessary to ensure accurate
representation of the market. Confirmation is normally attained
through direct communication with the buyer and the seller and also
with any brokers or other middle persons involved in the transaction.
Reporters are not required to use a trade if confirmation cannot be
obtained.
RETAIL PORK PRICES
------------------------------------------------------- Appendix III:3
ERS reports retail prices for pork. ERS obtains retail pork prices
for six major pork cuts from the Bureau of Labor Statistics. ERS
calculates an overall average pork price by weighting the individual
pork cut prices by the average percentage each cut constitutes of a
hog carcass.
The Bureau of Labor Statistics collects retail pork prices as part of
its derivation of the overall Consumer Price Index. The Bureau
collects regular and sale prices from grocery stores and averages
these prices, regardless of the amount of sales that may have
occurred at each price. It collects retail pork prices from various
stores during the first 3 weeks of each month and analyzes the data
collected during the fourth week. Prices for both branded and
nonbranded pork products are collected but deli items are not
included in the analysis. The Bureau of Labor Statistics weights the
prices it collects by the percentage of the market basket that
accounts for that particular pork item and the relative population of
the geographic area compared with other areas.
FARM-TO-RETAIL PORK PRICE
SPREADS
------------------------------------------------------- Appendix III:4
Price spreads do not represent margins, profits, or losses for
individual firms or groups of firms. Rather, they provide a
perspective, over time, on differences in prices at various levels in
the marketing and distribution system. Specifically, price spreads
measure differences in calculated values for a consistent equivalent
quantity and quality of product as it is successively measured at the
farm, wholesale, and retail levels.
To ensure the measurement of a consistent quantity of product, ERS
calculates pork price spreads on the basis of one pound of pork
purchased at retail. For example, ERS adjusts live hog prices
received by farmers to (1) convert them to the quantity of live
animal equivalent to 1 pound of retail cuts and (2) remove the value
contributed by by-products (such as the head and offal). Thus, the
farm-to-retail price spread for pork is the difference between the
average retail price per pound and the farm value of the quantity of
live animals equivalent to 1 pound of retail cuts. According to ERS,
1.87 pounds of live hog are required for 1 pound of retail pork.
Therefore, ERS adjusts monthly live hog prices�multiplies them by
1.87 then removes the value contributed by by-products�to determine a
�net farm value� for purposes of calculating price spreads.
To ensure that a consistent quality of pork is measured, ERS
calculates price spreads to show differences between market levels
for a �standard� hog versus an �average� hog. Consistent means that
the same product (for example, a 51- to 52-percent lean hog with 0.80
to 0.99 inches of backfat) is measured each month and at each
marketing level. Consistently calculated price spreads provide an
estimate of the distribution of final retail dollars among the farm,
wholesale, and retail segments of the marketing chain and show
changes in the distribution over time. Therefore, price spreads
provide an analysis of the share of the consumer food dollar that
goes to the farmer and the shares that go to other segments in the
marketing system for a specific product. Thus, the purpose of ERS'
price spreads is to show the value differences between market levels
at a specific point in time and over long periods of time for the
�standard� hog with 51 to 52 percent leanness and 0.80 to 0.99 inches
of backfat. Estimates and comparisons do not necessarily represent
an average live hog or hog carcass (which would change over time),
nor do they represent the particular mix of pork cuts a retailer may
sell at a given time. According to ERS, price spreads would not be
meaningful if the product measured were not consistent.
ERS does not adjust its prices for the lag between the time the hog
is slaughtered, processed, and merchandised. ERS uses prices at each
level for the same time period.
In 1999, ERS revised its methods for reporting pork price spreads to
reflect higher-quality (leaner) hogs and more closely trimmed pork
products. As a result of this revision, ERS adjusted its prices back
through 1979 to maintain historical consistency in reported spreads.
The adjusted prices show an increase at all levels�farm, wholesale,
and retail�over previously reported prices.
PORK RETAIL SALES, JULY 1998
THROUGH JUNE 1999
========================================================== Appendix IV
The tables in this appendix show retail prices for pork as reported
by USDA and as indicated by supermarket scanner data obtained from
Information Resources, Inc. for July 1998 through June 1999. Table
IV.1 shows monthly retail prices for pork reported by USDA. Table
IV.2 shows monthly dollars of pork sales, pounds sold, and average
price per pound, according to supermarket scanner data. Table IV.2
also shows the number of supermarkets from which the data were
obtained and the percent of U.S. grocery sales these stores
represent. Table IV.3 shows grocery sales information by week.
Table IV.1
Monthly Pork Prices, as Reported by
USDA, July 1998 Through June 1999
Month Average price per pound
---------------------------------------- ----------------------------
July 1998 $2.45
August 1998 2.45
September 1998 2.45
October 1998 2.42
November 1998 2.41
December 1998 2.38
January 1999 2.33
February 1999 2.37
March 1999 2.37
April 1999 2.35
May 1999 2.39
June 1999 2.41
----------------------------------------------------------------------
Source: USDA.
Table IV.2
Monthly Pork Sales Information, July
1998 Through June 1999
Sales coverage
------------------------------
Percent of
Volume sold Average price Number U.S. grocery
Month Pork sales (in pounds) per pound of stores sales
--------- -------------- -------------- -------------- -------------- --------------
July 1998 $838,741,354 345,438,973 $2.43 7,100 41.5
August 667,080,437 274,627,280 2.43 7,100 41.5
1998
September 675,633,388 280,780,867 2.41 7,100 41.5
1998
October 829,146,838 347,172,924 2.39 7,100 41.5
1998
November 681,347,323 288,670,936 2.36 7,100 41.5
1998
December 806,550,747 360,474,365 2.24 8,100 48.0
1998
January 918,693,696 391,797,768 2.34 8,100 48.0
1999
February 652,056,549 277,386,435 2.35 8,100 48.0
1999
March 666,502,105 285,661,355 2.33 8,100 48.0
1999
April 876,848,041 391,469,277 2.24 8,100 48.0
1999
May 1999 656,290,798 275,280,645 2.38 8,100 48.0
June 1999 684,759,107 283,921,132 2.41 8,100 48.0
=========================================================================================
Total $8,953,650,384 3,802,681,957 $2.35
-----------------------------------------------------------------------------------------
Source: Information Resources, Inc.
Table IV.3
Weekly Pork Sales Information, July 1998
Through June 1999
Sales coverage
------------------------------
Percent of
Week Volume sold Average price Number U.S. grocery
ending Pork sales (in pounds) per pound of stores sales
--------- -------------- -------------- -------------- -------------- --------------
07/05/98 $184,012,644 76,599,302 $2.40 7,100 41.5
07/12/98 169,295,898 69,203,714 2.45 7,100 41.5
07/19/98 161,309,395 66,896,102 2.41 7,100 41.5
07/26/98 156,957,374 64,555,671 2.43 7,100 41.5
08/02/98 167,166,041 68,184,185 2.45 7,100 41.5
08/09/98 170,427,757 70,196,043 2.43 7,100 41.5
08/16/98 168,608,624 69,415,578 2.43 7,100 41.5
08/23/98 165,427,885 67,911,713 2.44 7,100 41.5
08/30/98 162,616,170 67,103,946 2.42 7,100 41.5
09/06/98 170,943,643 70,843,948 2.41 7,100 41.5
09/13/98 172,633,551 71,947,885 2.40 7,100 41.5
09/20/98 162,646,874 67,918,635 2.39 7,100 41.5
09/27/98 169,409,320 70,070,398 2.42 7,100 41.5
10/04/98 169,991,483 70,939,337 2.40 7,100 41.5
10/11/98 173,945,183 73,220,230 2.38 7,100 41.5
10/18/98 166,266,162 69,065,605 2.41 7,100 41.5
10/25/98 160,448,739 67,155,177 2.39 7,100 41.5
11/01/98 158,495,272 66,792,575 2.37 7,100 41.5
11/08/98 163,281,370 68,389,831 2.39 7,100 41.5
11/15/98 165,193,474 68,977,641 2.39 7,100 41.5
11/22/98 183,850,274 78,575,078 2.34 7,100 41.5
11/29/98 169,022,206 72,728,386 2.32 7,100 41.5
12/06/98 176,345,282 75,813,652 2.33 8,100 48.0
12/13/98 178,268,295 76,479,646 2.33 8,100 48.0
12/20/98 222,069,710 100,910,921 2.20 8,100 48.0
12/27/98 229,867,460 107,270,146 2.14 8,100 48.0
01/03/99 197,406,198 84,392,531 2.34 8,100 48.0
01/10/99 173,383,249 71,098,553 2.44 8,100 48.0
01/17/99 188,095,922 81,369,338 2.31 8,100 48.0
01/24/99 175,132,425 74,746,446 2.34 8,100 48.0
01/31/99 184,675,901 80,190,899 2.30 8,100 48.0
02/07/99 167,199,062 71,067,317 2.35 8,100 48.0
02/14/99 158,870,502 67,490,080 2.35 8,100 48.0
02/21/99 161,630,150 68,666,397 2.35 8,100 48.0
02/28/99 164,356,835 70,162,641 2.34 8,100 48.0
03/07/99 169,601,382 73,718,223 2.30 8,100 48.0
03/14/99 163,617,195 70,649,583 2.32 8,100 48.0
03/21/99 163,769,662 68,744,015 2.38 8,100 48.0
03/28/99 169,513,866 72,549,535 2.34 8,100 48.0
04/04/99 229,635,131 116,811,854 1.97 8,100 48.0
04/11/99 159,537,657 69,696,818 2.29 8,100 48.0
04/18/99 167,038,346 68,918,936 2.42 8,100 48.0
04/25/99 158,843,955 66,830,770 2.38 8,100 48.0
05/02/99 161,792,951 69,210,900 2.34 8,100 48.0
05/09/99 167,712,672 71,679,279 2.34 8,100 48.0
05/16/99 166,275,551 69,108,155 2.41 8,100 48.0
05/23/99 161,977,448 66,677,843 2.43 8,100 48.0
05/30/99 160,325,126 67,815,369 2.36 8,100 48.0
06/06/99 175,752,331 72,698,802 2.42 8,100 48.0
06/13/99 176,636,691 74,442,447 2.37 8,100 48.0
06/20/99 166,022,634 68,885,787 2.41 8,100 48.0
06/27/99 166,347,452 67,894,095 2.45 8,100 48.0
=========================================================================================
Total $8,953,650,384 3,802,681,957 $2.35
-----------------------------------------------------------------------------------------
Source: Information Resources, Inc.
(See figure in printed edition.)Appendix V
COMMENTS FROM THE U.S. DEPARTMENT
OF AGRICULTURE
========================================================== Appendix IV
the references to page numbers refer to GAO's draft report. When
useful, we have updated the page numbers in the margin.
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
GAO'S COMMENTS
-------------------------------------------------------- Appendix IV:1
1. We agree and have revised our report to recognize that in January
1999 USDA revised its methods to develop pork price spreads using
prices for leaner hogs. Leaner hogs sell for a higher price in the
marketplace, thus having the effect of narrowing the spread between
hog prices and retail pork prices.
2. We agree. The final report was revised to reflect USDA's
comment, as appropriate.
3. We are not suggesting that USDA discontinue its current method of
reporting pork price spreads. Rather, we believe that the recent
legislative requirements to include prices based on most hog sales
and actual consumer purchases, coupled with existing information
reported by USDA, would provide a more accurate portrayal of the
farm-to-retail pork price spread at a given point in time.
4. We agree that retail prices did not fall in proportion to the
decline in hog prices. However, pork retail prices are composed of
various value-added services, such as processing, transportation, and
marketing, in addition to the cost of the hog. Therefore, even if
the entire decline in hog prices were passed on at the retail level,
the decline in percentage terms would be smaller.
*** End of document. ***