As recent history of the U.S. swine industry has evidenced, survival in today’s uncertain economic times depends upon a pig production business having either (1) marketing agreements that provide complete price protection against prolonged declines in both carcass and meat prices or (2) competitively low costs of production along with a marketing agreement that at least dampens declines in market prices. These proceedings offer one view on how cost management can be addressed in a contemporary pork production operation. Our ideas are offered as one approach for how costs can be managed. We do not believe that our method is the only, let alone the best, approach for managing costs. There are, no doubt, numerous approaches being used across the industry today to lower costs, as we all struggle to identify ways of surviving. Our approach has worked in one company, New Fashion Pork, Inc., dropping its costs by nearly $3.00/CWT liveweight over the last 3 years or so; so we know it works. Perhaps, there is something in our approach that will work for you.

Cost management occurs at two levels. The first level involves the control of the purchase price of inputs. The price of some inputs is established, often for long periods of time into the future, when the business structure is established; for example, whether barns are owned or contracted. The price of other inputs is established through the day-to-day purchasing practices of the company. Input purchasing is typically centralized, with responsibility being seated at the level of senior management or staff officers hired specifically to purchase the inputs used by the farms. The farm staff typically has no influence over the cost of the inputs that their farms consume. The second level of responsibility occurs at the farm level, where farm staff controls how many units of an input are consumed, called “unit use.” Office staff has little influence on the rate of use of inputs, unless they restrict how many units of an input are delivered to a farm. While it may seem intuitive, low production costs not only require that inputs be purchased competitively BUT ALSO that they be used sparingly. Because cost management occurs at two levels, the office and the farm must work in concert to drive out costs: the office working to purchase inputs as cheaply as possible, the farm staff working to use as few inputs as they can. If either group fails in their responsibility, cost creep occurs.