In the mid-'90s, the rapidly expanding North Carolina pork industry climbed from seventh in the nation in pork production to second — a position they've since held.
In those two decades, the industry transitioned through three basic phases:
Rapid growth/transition: Contract production was adopted on a broad scale from the late '80s to the mid-'90s; many independent producers joined the ranks. The state's breeding herd stabilized at about one million sows, with annual production currently standing at over 18 million pigs. Concerns over lagoon sprayfield manure management systems escalated in the late-'90s, and expansion came to a screeching halt in 1997, when the legislature passed a moratorium on construction of any new hog facilities. The moratorium has been extended several times, the latest to Sept. 1, 2007.
Consolidation/stabilization: From 1998 to about 2000, pig ownership and real estate changed hands; Smithfield Foods' purchase of Murphy Family Farms, Carroll's Foods and Browns of Carolina in 1999 was the most remarkable transaction, making them the largest pork producer in the world, with over 800,000 sows in the United States today.
Refinement/efficiency: This current stage is focused on fine-tuning production methods and the structure of various systems. Some contract production is being reorganized.
Terry Coffey, president of production operations for Murphy-Brown East, was professor and researcher at North Carolina State University (NCSU) during the state's early growth years. He joined Murphy Family Farms in 1991.
“Clearly, in the late '80s — early '90s, the total focus was on growth; it was an emerging industry that really defined the organized and integrated industry in the United States,” he says.
“As we built farms one after another, we had the opportunity to constantly implement the newest technology. We modified farm layouts, changed from having boars on farms to total artificial insemination, improved ventilation systems, and so on,” he recalls. “Today, we're focusing on refining and upgrading our operations and production methods to ensure we remain competitive.”
Coffey and others from various facets of the industry have provided a cross-section of thoughts and predictions about the state of the North Carolina pork industry. Some recurring themes soon become apparent:
Consolidation of some of the state's largest production systems has greatly reduced inefficiencies of crisscrossing feed trucks and pig haulers, and likely improved disease control efforts.
Current sow herd productivity outstrips available finishing space; 3-4 million pigs born in the state are finished elsewhere and much has been learned about moving young pigs long distances.
The state's packing capacity is fully utilized.
The price of corn remains 50-60 cents higher than Midwest prices.
The state's building moratorium has stabilized production and the workforce.
Remodeling and updating is prevalent as the state's infrastructure ages.
Management personnel are chipping away at production inefficiencies and dealing with a couple of pesky diseases.
Concerns about lagoon-sprayfield manure handling technology have calmed down as knowledge about their use and a near-spotless management record is reinforced.
The general public, more importantly the state's political leadership, appears to have gained a greater appreciation for the economic contributions, taxes and jobs the pork industry provides (see sidebar).
A handful of producers are sending more pigs to the Midwest for finishing; a couple will build sow units to help match pork production to the capacity of newly purchased mills.
That's a snapshot of the North Carolina pork industry. But, digging deeper, the following thoughts outline the current status and provide a vision of what's to come.
In hindsight, many in the industry openly admit the building moratorium has been good for the industry.
“When we stopped the period of rapid growth and building new, we had a chance to stabilize other important support aspects of our business,” Coffey acknowledges.
For example, a more experienced and committed workforce is in place. Training programs have been refined and standardized.
If the moratorium were lifted, it is doubtful that any expansion would occur, because hog finishing is effectively aligned with the packing capacity in the state.
Commissioner of Agriculture Steve Troxler agrees. “We probably have the number of hog farms that we're going to have, so we need to concentrate on maintaining that and making sure that it remains a profitable industry,” he says. “We need to keep preaching the economic and job benefits that hogs provide in North Carolina. It's a $2 billion industry, and like agriculture in general, offers one of the biggest multiplier effects you can get in the economy.”
Richard Eason, CEO and president of Cape Fear Farm Credit, headquartered in Fayetteville, concurs. With over $400 million of their loan portfolios dedicated to pork production, Eason says producers are focused on upgrading and remodeling. A few are attempting to expand through acquisition of existing contracts and facilities.
“Without any new buildings, your only growth opportunity is to buy an operation that already exists,” Eason explains. “That's certainly had an impact on the value of facilities.”
“Pork production has been a great, great thing for eastern North Carolina — a region that desperately needed an economic shot in the arm,” he continues. “So many of these farmers were on the edge of bankruptcy, and this industry turned that around.”
The moratorium disrupted the business plan of Maxwell Foods' hog division (previously known as Goldsboro Hog Farms), co-managed by Bob and Ted Ivey.
“When the moratorium hit, we had permits for the sow and nursery phases, but we were short permits and contract growers for the finishing phase,” explains Bob Ivey.
Consequently, the firm has been selling 250,000 feeder pigs a year — mostly destined for the Midwest. “We believe it's not a good business plan to be selling feeder pigs, because it's usually less profitable than finishing them,” adds Ted.
“There's no real reason to have a moratorium,” Bob Ivey continues. “The setbacks and rules safeguard where facilities are located. And, no consideration is being given to the innovations that have improved management of the lagoon-sprayfield manure management systems. Water control devices and bowl drinkers, for example, reduce water usage by at least 25-30% over nipple waterers. Most every hog in North Carolina receives phytase in the feed, which reduces phosphorus coming out of the pig by 25%. Most are using more amino acids to reduce nitrogen output significantly. And, all of the standards that the lagoon sprayfields were built upon were basically for a hog with a feed conversion around 3:1, which, industry-wide, has moved down to 2.65-2.70:1.
“The industry should probably do a better job of telling their story and get more credit for the things we have done,” he adds.
Having rounded out production flows from breeding through nursery for Maxwell Foods' 76,000 sows in North Carolina, the Iveys' search to find contract finishers for excess feeder pigs carried them to Indiana, where the governor has made it clear that more livestock production is welcome.
“The people in Indiana were very good to work with; the farmers very progressive,” notes Ivey. “Many of the crop farmers want to diversify with livestock, so they can bring a son or daughter into the farming operation.”
In the interim, Maxwell Foods purchased a 4,000-ton/week feedmill in Hagerstown, IN, with ample capacity to feed the surplus pigs from North Carolina, plus the planned production from an additional 15,000 sows. The newly formed Maxwell Foods of Indiana will take possession of the mill on June 1.
A shortcoming in the moratorium most often mentioned is the inability to relocate comparable production to more appropriate sites.
“In the absence of the moratorium, there would be an opportunity to close out less efficient, more environmentally sensitive farms and build better facilities, in better locations, without increasing overall production,” notes NCSU Swine Extension Specialist Todd See.
“I think the entire U.S. pork industry will be challenged over time, because of restrictions on growth of new facilities,” Coffey says. “We will all have to get better at operating what we have versus having the luxury of building new, pristine facilities, if we are to remain competitive on a worldwide basis.”
When See joined the state Extension staff 14 years ago, the pork industry was a flurry of activity. Smithfield Foods' new packing plant in Bladen County was going full bore. “There were finishing sites opening on a weekly basis; sow farms were going in everywhere; everybody was signing up contract growers and building farms,” he remembers.
“The moratorium helped slow things down, and it's given everybody time to react in a scientific, unbiased and viable manner. After a period of growth, growth, growth, they're focused on making the system work more efficiently, more cost effectively, more profitably. It's really helped everyone focus on their core business and do a better job in all aspects of their business, including the environment,” See says.
“Early on, there was movement of contract growers and employees amongst the companies, especially employees. That's lessened and stabilized as the industry matured,” he adds.
Recent good markets and the expiration of contracts the past couple of years has intensified contract grower activities again.
“With the moratorium, every pig space that's in good shape in this state will get utilized. Contract farmers are still trying to determine their long-range plans,” See explains. “They have to buy or lease existing facilities if they want to grow.”
Smithfield Foods reorganized the Murphy Family Farms-Carroll Foods-Browns of Carolina acquisition under the management umbrella of Murphy-Brown in 2000.
“Some of the impacts have been positive, because it has fostered some coordination,” See says. “Hog production is extremely dense in the eastern part of the state. Companies with feedmills and plants were crisscrossing each other. Through Murphy-Brown, they were able to minimize the overlap. Logistically, it removed some of the inefficiencies in the systems.”
The recently released results of a five-year, $17.3 million study to identify effective waste management alternatives essentially reported that, of the technologies tested, no “economically feasible” alternatives currently exist to lagoon-sprayfield technologies used predominantly in the state. (See “Five Technologies Rise to the Surface,” National Hog Farmer, March 15, 2006).
“Ultimately, the legislature will have to decide (whether to lift the moratorium), but the research shows that the lagoon-sprayfield system is still an environmentally safe and economically feasible system,” See explains.
Don Butler, director of government relations and public affairs at Murphy-Brown, Warsaw, NC, agrees. “If you look at the state's own records, the environmental compliance record of hog farmers is excellent — and it gets better every year.
“There are several reasons for that good record,” he continues. “Everyone understands how important it is. If you screw up, it can cost you personally, but it's also a black eye to the industry.
“Since 2002, there have been a total of 60 discharges from the 2,400 permitted livestock operations in the state. By comparison, the 1,400 permitted, non-agricultural operations (municipalities, other industrial systems) have had over 6,000 spills. That's a hundred times more spills and discharges, according to the state's own records,” Butler explains.
“The public doesn't understand that the more mechanical a system is, the more opportunity and risk there is that something will break or fail,” he continues. “I think farmers in this state will continue to use lagoons and sprayfields, and they will find ways to improve them.”
“Even over the course of the moratorium, the lagoon-sprayfield type of system has been heralded as a big benefit to our small towns and communities, which have installed these types of systems because they can't afford a sewage treatment plant. There's a double standard here,” adds See.
Bob Ivey reinforces the irony: “The city of Mt. Olive condemned the facilities of one of our growers so they could use it for sprayfield application from their sewage processing system.”
Non-residents of North Carolina may be surprised to learn the degree of cooperation that exists among the state's pork producers.
As production grew, the stages of production, pig flow and siting were coordinated. Producers consulted with packers to ensure shackle space was available.
Butler, who joined Carroll's Foods in 1991, offers this example: “I know the major players in the region got together and agreed, voluntarily, on a set of siting setback requirements before there were state rules. They said, ‘it's in all of our best interests not to site a sow farm within a mile of another sow farm, or a finishing barn within a half mile of another finishing barn.’ It may not have the force of law, but they all signed it. I've seen it,” he declares.
“Some of our guys who are expanding in the Midwest are taking the same model to packers and others, because their commitments help ensure their growth,” See says.
“I would describe us as friendly competitors. When we face a common challenge, we work on it together,” says Butler. “There's a spirit of camaraderie and jointly held responsibility.”
The cooperative spirit has served producers with disease management, although the concentration of pigs in a few counties is both a curse and a blessing.
“One of our greatest obstacles is the herd health challenge,” says R.B. “Butch” Baker, DVM, at NCSU's College of Veterinary Medicine. “But one of our greatest advantages is that we have a relatively small number of decision makers who can make major decisions. We have the opportunity to make very decisive, quick decisions, and then have a unified effort in implementing them,” Baker continues.
“Yes, we're a competitive industry,” agrees See. “But they will pull together pretty quickly on these issues for the common good. We experienced that with pseudorabies. When everybody decided it was time to clean it up, it got cleaned up.”
Given a little technological help, Baker believes porcine reproductive and respiratory syndrome (PRRS) may be the next eradication candidate. The disease has been difficult to control, partially because pig density and constant pig movement increases the odds of biosecurity breakdowns. Nonetheless, he says: “I think we will see North Carolina become the first state where PRRS will be eradicated.”
Less certain is the means to check outbreaks of the puzzling porcine circovirus-associated disease (PCVAD). Outbreaks have been spotty, with no apparent rhyme or reason.
“Certainly, any kind of emerging disease hits the radar screen pretty quickly in North Carolina, because we've got large numbers of pigs to watch it go through. That's particularly true of the circovirus-related syndromes we're seeing now,” Baker says.
“It's still in a relatively small number of herds and finishing sites. It's unusual in that pigs are affected or unaffected — even in the same pens. A lot of pigs don't get sick or show clinical signs, but those that do are gravely ill,” he adds.
Baker suspects PCVAD is a multi-factorial disease with several viruses or bacterial infections associated with a “switch-like” effect seen in finishing barns. “The big questions are — how fast will it spread, will the vaccines work and how much is this disease going to affect industry productivity?” he says.
Commissioner Troxler acknowledges the state's negative balance for corn and soybean meal, but he reminds: “We've been in the deficit situation for a long time, and yet the hog industry has thrived. Looking at the United States and world supply of grains, we've evidently been very efficient at moving these stocks where they need to be.”
Troxler doesn't see the expansion of ethanol or biodiesel production as a huge threat to feedstocks. “If we get into renewable fuels in a big way, we will achieve a balance because we're not at full (crop) production capacity in this country,” he says. “If the price of corn and soybeans does rise, I think we will see more planting of those crops. I think the market will take care of that very nicely.”
Swine nutritionist David Funderburke, with Cape Fear Consulting, Warsaw, NC, sees the feed supply similarly. Within his North Carolina client base, several operations in the 20,000 to 30,000-sow range purchase much of their yearly grain needs locally at harvest, store it and then truck it to their mills as needed. “This practice makes them as cost-effective as the larger systems that rely on rail delivery,” he notes.
Funderburke agrees that renewable fuels will compete for corn, but it doesn't concern him greatly. “As long as government support programs stay in place, there should be plenty of corn.”
The nutritionist says one of the biggest nutritional challenges on any given day may simply be “getting the right feed, delivered to the right tank, put in front of the right animal, for each stage of production.”
Deborah Johnson, CEO of the North Carolina Pork Council (NCPC), says “dynamic” describes the industry in her state.
“If you look what the producers in this state have done, you see a progressive, innovative group of people. That's not going to change because of the moratorium or if we can't use lagoon-sprayfields someday. I don't think you could replicate what we've got in North Carolina somewhere else.”
The lagoon-sprayfield issue may not go away, but management and compliance rates have improved markedly in the past five years, according to Tommy Stevens, NCPC director of environmental services and retired director of the state's division of water quality.
“Producers don't want to change just for the sake of changing,” he says. “They wonder if the environment will really be better off if they switch to other manure management technologies. Whenever the hurricane season opens up, concerns rise. It's something that we will always have to deal with.”
See agrees: “Even though it's been discussed for over a decade, some people still don't understand that the lagoon-sprayfield technology is a contained treatment system that can only be land-applied in an agronomic fashion.”
If a better technology is found, See says producers will jump on board. “You can look at anything in the industry in this state; technology adoption happens when it's beneficial and economically feasible.”
Momentarily setting aside a decision on lagoon-sprayfields, animal welfare tops most lists of future challenges.
“The issues that concern me most, going forward, are other kinds of threats to the industry — like the animal rights/animal welfare issue. It's huge,” says Butler. “Not just for North Carolina, but for agriculture in general, and livestock production in particular.”
Most production systems are beginning to study various housing and management alternatives. “The remodeling and upgrading will be a gradual process,” he notes.
Baker agrees: “It's an issue that might have bigger, long-term effects on how we do business than all others.” The newest buildings in the state are 8-9 years old, while some are 20-25 years old.
“Our infrastructure is not worn out, so it's not time to start over,” says Baker. “But, a lot of our buildings are ready to be remodeled. If we just knew which direction to go, it would make the transition a little easier. We might be positioned to alter our infrastructure a little better than the Midwest in that regard,” he adds.
“There's more than one business model, and all of them can work,” Butler adds. “I think there's enough room in this business for everyone — but you have to be good, efficient and a good businessperson to survive. If you are all of those things, you can still do OK in this business.”
The impact of pork production, packing and processing on the economy of North Carolina is substantial, according to a report released by Kelly Zering, agricultural economist at North Carolina State University. Citing data from the North Carolina Department of Agriculture & Consumer Services for 2004, the most recent available, he offered these highlights:
18,633,000 pigs marketed, (about one-fourth of all farm receipts) which represents about 19% of pigs produced in the United States, valued at $2,078,800,000.
8,283 full-time jobs in hog production.
$808 million in value-added income for pork producers annually (Value-added estimate is calculated by multiplying the 1993 value ($398 million) by 2.03. The 2004 figure represents a 103% increase in value of production.)
$500 million in current asset value in hog buildings and equipment (est. $1,400/sow). More than $1 billion invested in hog buildings and equipment since 1988.
$3.7 million in property tax revenue annually (estimated, 2005).
$633 million in value-added income (Indirect effects of hog production in 2004 were calculated by multiplying the changes in direct income and employment by their respective multipliers minus 1, and adding those impacts to the 1993 indirect values).
16,374 full-time jobs in wholesale and retail, services, other agricultural manufacturing, transportation, etc.
$420 million in direct, value-added income (Packing and processing direct impacts are calculated as 1993 impacts multiplied by 1.8678, reflecting the 86.78% increase in pounds slaughtered).
10,910 fulltime jobs; direct effects.
$355 million in indirect and induced value-added income (Indirect effects of pork packing and processing in 2004 were calculated by multiplying the changes in direct income and employment by their respective multipliers minus 1, and adding those impacts to 1993 indirect values).
10,847 fulltime jobs in North Carolina wholesale and retail trade, services, other agriculture, manufacturing and transportation.
$6.7 billion in sales.
$2.21 billion in value-added income (Value-added income refers to payroll (wages, salaries), profits, return on capital invested and taxes).
46,414 full-time jobs.