Brings Higher Income, Lower Prices

THIS is the beginning of a revolution in swine raising," said Kansas City, Mo. Packer Arthur B. Maurer last week. The revolution: a new way of raising hogs called contract farming. Contract farming, though new to the pork industry, is not new to U.S. agriculture; it was started in the canning industry years ago. But its rapid spread in recent years to other sections of the farm economy has caused some enthusiasts to feel that it may go a long way toward solving the farm problem, since its aim is to increase the income of farmers by cutting their costs, improving their products and widening the market by lowering prices to the housewife. Under the contract, the packing company makes a deal with a farmer to buy all his hogs at a set premium (as much as 50-c- per cwt.) over the delivery day's average market price. The packer can pay this premium because under the contract the farmer follows expert advice on breeding and feeding, gets leaner pork, which brings higher retail prices and competes better with beef. With marketing risks removed, farmers can deliver more pork-on-the-hoof. Packers have shown hog-raisers how to take a unit of 33 breed sows, breed eleven of them every two months and over a year deliver 500 hogs to market in six marketings as opposed to the old rate of two per year. Thus, they smooth out seasonal peaks, and avoid gluts that have caused the Government to step in from time to time and buy up pork.

Three packers--Kansas City's Maurer-Neuer, East St. Louis' Hunter Packing and Omaha's Cudahy Packing --have already signed more than 100 contracts with farmers. Swift is reportedly planning to start a contract-farming program in Georgia. Feed companies are also promoting contract farming, since it increases the market for their products. One of the pioneer promoters of the plan in the pork industry is Kansas City's aggressive Staley Milling Co., which supplies feed to contractors of all three packers using the plan, has sent its men around to boost it at farmers' meetings.

The packers hope that the system will, do for hogs what it has done for poultry. Ten years ago broilers were raised mostly by Midwestern farmers as a sideline. Then the feed companies began making contracts to raise chickens, concentrating on less successful farmers, many in the South. The feedmen supplied broiler raisers with chicks, feed and a guaranteed purchase price, usually 2-c- per Ib. With the new methods, Southern farmers cut the broiler cycle from 15 weeks to 9, upped production 1,620% in Alabama, 1,454% in Mississippi in a decade.

The effect was to create a whole new industry. Overall poultry production climbed 334% nationally in ten years, while prices to the housewife dropped more than 30% as the market broadened and the quality of chickens improved. In 1947 the U.S. per capita consumption of chicken was 18.1 Ibs.; last year it was 25.3 Ibs. Success in broilers encouraged turkey breeders to try contract farming. Originally a holiday bird, turkeys are now year-round fare; production is up, and as prices dropped, per capita consumption almost doubled to 5.8 Ibs.

No one thinks contract farming is a panacea for all farm problems. But farm experts think that it can be extended to many more products. Moreover, it is well designed to help the poorer farmers, who have trouble getting the necessary loans to improve their output because they have so little to put up for collateral. It is now being tried out by egg and milk producers and cattle feedlot operators.

So far, there have been few attempts to spread it to grain crops, largely because grain farmers see little value in it for them. They usually have comparatively big farms and can raise what money they need with the land as collateral. More important, the Government support program, in effect, provides them with contracts to buy. The American Farm Bureau Federation objects to contract farming on the ground that the farmer loses his traditional individuality and becomes a mere employee of the packer. The Bureau campaigns to have farmers do their own integrating by setting up cooperatives to handle everything from the field to the retailer. Says Earl F. Grouse, Vice President of the Doane Agricultural Service, a top farm management and agricultural research outfit: "As a whole, agriculture stands alone as the only major industry that still clings to its glorious past and holds out for a 'free price.' "

To Packer Maurer, the contract system simply applies the lessons of integration long since learned by other segments of U.S. business. By working with corporations, farmers can develop better products that will have a growing market. Says he: "Integration of agriculture and business is growing. A standard product, an assured source and an assured market are the beginning of a new era in farming. Individualism has outlived its usefulness in agriculture."

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