ABSTRACT
Introduction It is widely known that the pig market displays cyclical behaviour. Prices follow a pattern called the pig (or ‘hog’) cycle, which was first noted in the United States during the 1930s. Data from the mid nineteenth century to the present indicate that the pig cycle, measured from peak to peak or low to low, lasts an average of four years (Spenser, 1978; Piccinini and Loseby, 2001). The Mexican market has shown cyclical behaviour since its borders were opened to the international market and the cyclical behaviour of the American market, in particular, is transmitted to the Mexican market through imports. At the National Congress of Hog Producers, it was concluded that ‘In the face of increased imports of pork, hogs and their by-products, the price of domestic pork has been mainly influenced by the prices of the United States market with regards not only to live animals, but also to primary cuts that have little value in the original market due to a lesser appreciation of the consumer’ (Cerdos Tecnología Internacional, 2002: 17). An earlier economic outlook for Mexican pig farms by Sagarnaga et al. (1999) found that ‘Price predictions for the domestic price of pork demonstrate a cyclical behaviour with a tendency towards growth. The period of 1995-2004 holds two cycles. In the first cycle, the price of pork reached its highest level in 1997 and ended in 1998, when the nominal price reached its observed minimum. The second price cycle reached its maximum level in 2001 and the minimum in 2003.’ Sagarnaga et al. (1999: 38)concluded, ‘If the utilized predictions adequately reflect the reality of hog production in Mexico, it is possible to say that in 1998 Mexican hog production will face the most critical conditions of the present market cycle. A better economic situation than the existing is expected for the farms during the period of 2000-2002 only to later face a new depression during 2003.’ Those predictions proved to be very accurate. Prices have shown a tendency to decrease
from their peak in 2001. The average price for early 2003 was 15 per cent lower than in 2002. Fluctuations in price can be very damaging to producers, depending on their production costs. According to the Secretaria de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación (SAGARPA-CEA, 2003), the average production cost per kilo of live pigs in 2002 in high technology farms was $10.97 Mexican pesos, while intermediate technology farms had unit production costs of $15.51 Mexican pesos. This means that falling prices cause serious problems for some pork producers, particularly those with less technologically based farms. Objectives and Methodology The main goal of this chapter is to evaluate pig farms’ competitiveness in the Mexican state of Guanajuato, one of the main pork producing states in Mexico. A secondary objective is to analyse the impact of certain technical and economic strategies on the competitiveness of those farms. This chapter illustrates how the chosen methodology can be used to assess the outlook for future performance in a particular sector, which is of interest from a European policy perspective. The sensitivity of the Mexican swine sector to the domestic and foreign economic environment makes the analyses of the future financial viability of pig production difficult if traditional methods are used. The application of simulation techniques, however, allows the economic and financial performance of pig production under different scenarios to be assessed ex ante with relative ease. The whole farm simulation model, FLIPSIM, is used in this analysis to model the financial performance of pig operations. FLIPSIM is an excellent tool for analysing the economics of farms operations where indicators of future economic performance are needed in advance to assess the effects of adoption of a specific technology or the effects at the farm level of applying changes in government policy to a country’s agriculture sector. The representative farm panel process has been successfully utilized in analysing the farm level impacts of agriculture policies (Richardson and Nixon, 2000). Simulation techniques used in conjunction with data from a panel of representative farms have proved widely successful in farm level analyses. Simulation modelling techniques using representative farms have been applied in the study of agriculture and ranching in the USA, for example, and in determining the financial and economic viability of livestock and dairy farms in Mexico (Ochoa et al., 1998). By applying these techniques to pig production in Mexico, it should be possible to give the producers, as well as legislators and public policy makers, the necessary information for decision making. This would have direct benefits for the country, commercial producers and their partners and for consumers in general. This work includes data for six Mexican pig panels. These pig panels were selected to allow analysis of the main Mexican productive systems. Panellists were chosen with the support of the Unión Ganadera Regional de Porcicultores de
Guanajuato (UGRPG), which is the main pig producer association of the Mexican state of Guanajuato. At least five representative pig producers participated in each panel. The panels generated information about three representative integrated farms (small, medium, and large scale, LEON60, IRA300 and IRA1200 respectively), two grower farms (small and large scale, CORT300 and CORT400 respectively) and one breeding farm (small scale JARAL50), located in Guanajuato. For the purpose of this study, the farms were listed according to their location and scale. Thus JARAL50 is a farm with 50 sows located in the Municipality of Jaral. The same scheme was followed in coding the remaining farms. The complete cycle integrated farms analysed were LEON60, IRA300, and ANA1200. JARAL50 is a breeding farm specializing in selling young pigs to be raised on other farms. CORT300 and CORT4000 buy young pigs and wean them to market weight. Information generated by the panel was used to represent the current situation of pig farms in 2002 and to project their competitiveness for the planning horizon 2003-2009. Projections of economic viability were made applying price projections (pork and sorghum) and macroeconomic indicators (inflation and exchange rate) from the Food and Agricultural Policy Research Institute (FAPRI). The following economic indicators were estimated in order to project the competitiveness of pig farms – production costs, net cash income, the ratio of cost to income, the rate of return on investments, the return on capital, adjusted net income, capital net worth and the annual change in net capital. Predictions The predictions initially present an unfavourable panorama for pig production since the accumulated increase of GDP is estimated to be 48.18 per cent in the period 2002-2009 and the exchange rate is expected to appreciate by 32.8 per cent, while the pig prices increase only 9 per cent over the same period (Table 13.1). This indicates that farms’ production costs will grow at a faster rate than income, diminishing farm profits.
