Abstract

We estimate the economies of scale for a sample of pork packing plants and use these estimates together with two other performance measures (EBIT and gross margin) to examine whether the alternative procurement methods for live hogs are complementary. The results indicate that all procurement arrangements portfolios improve plant performance relative to the simple spot market purchases, but the portfolio coefficients in performance equations do not always monotonically increase with the portfolio order. However, looking at the price packers pay to procure their hogs, the results indicate that plants that use a combination of higher-order procurement arrangements on average pay lower prices relative to plants that use the spot market only. Comparing the magnitudes of the portfolio effects with the magnitudes of the individual procurement arrangement effects shows that individual practices have minimal additional impact on the procurement price, indicating that the procurement methods may be complementary.

Submitted: February 5, 2009 · Accepted: March 17, 2009 · Published: March 31, 2009

Recommended Citation

Vukina, Tomislav; Shin, Changmok; and Zheng, Xiaoyong (2009) "Complementarity among Alternative Procurement Arrangements in the Pork Packing Industry," Journal of Agricultural & Food Industrial Organization: Vol. 7 : Iss. 1, Article 3.
DOI: 10.2202/1542-0485.1252
Available at: http://www.bepress.com/jafio/vol7/iss1/art3