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THE MONITORING AND ENFORCEMENT OF
ANIMAL HEALTH IN THE MICHIGAN
SLAUGHTER HOG MARKET

BY

George James Galasso

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the Degree of

MASTERS OF SCIENCE

Department of Agricultural Economics

1985

38% 7443

ABSTRACT

THE MONITORING AND ENFORCEMENT OF ANIMAL HEALTH
IN THE MICHIGAN SLAUGHTER HOG MARKET

BY

George James Galasso

Records of the Food Safety and Inspection Service,
USDA, indicate that in 1984, 153 of the barrows and gilts
slaughtered in Michigan exhibited symptoms of clinical
health problems. The purpose of this study is to examine
the incentives and disincentives for marketing diseased
hogs, and to assess how these incentives and disincentives
may be affected by market conditions. The methods of
analysis include interviews with market participants and
the use of the ordinary least squares regression to assess
the role of market factors in explaining variations in
disease rates. The results of the study indicate that the
lack of an animal identification system in the Michigan
slaughter hog market distorts the incentives and
disincentives relating to the production and marketing of
diseased animals in a deleterious manner. Accordingly, it
is suggested that the implementation of animal

identification be considered.

ACKNOWLEDGEMENTS

Without the assistance of a great number of people,
this research could never have been accomplished.

The contribution of Dr. Eileen van Ravenswaay has been
particularly invaluable. Without her patient guidance and
encouragement throughout the course of the research, this
thesis could never have been written. Heartfelt
appreciation is extended to Dr. van Ravenswaay and the
other committee members, Dr. Harold Riley and Dr. Andrew
Thulin, for their direction and sensitivity.

The assistance of fellow graduate students Bill
Rockwell, Shayle Shagam, and Lisa Allison in the design
and implementation of this research is gratefully
acknowledged. The contributions of Dr. Clark Burbee,
Economic Research Service, USDA, and John Spaulding, Food
Safety and Inspection Service, USDA to this research is
also gratefully acknowledged.

Many thanks are extended to the market participants
interviewed in the course of this research for their
generous cooperation and input. In particular, the
author would like to thank the Michigan Livestock
Exchange, Heinold, and the Frederick and Rerruds and Utica
Packing companies for making their operations available
for study.

Finally, thanks Mom and Dad for your unwavering

support and faith in me.

TABLE OF CONTENTS

Page
LIST OF TABLES ........................................... 1
LIST OF FIGURES ............ . ............................ ii
CHAPTER ONE: PROBLEM STATEMENT AND STUDY OBJECTIVES
1.1. The Problem............. ......................... 1
1.2. The Study Objectives ............................. 4
1.3. The Thesis Plan... ............................... 8
CHAPTER TWO: THE CONCEPTUAL APPROACH
2.1. Introduction................ . ................ ..10
2. 2. The Demand for Animal Health.... .. ............. 10
2.2.1. Government Regulatory Agencies .............. 11
2.2. 2. Slaughterers....... ......... .. .............. 12
2. 2. 3. Marketers.... ....... . ......... .. ............ 14
2. 2. 4. Producers.................. ................. 15
2. 2. 5. Summary ................................ 16
2 3. Animal Health and Conditions of Supply
and Demand. ............ ........ . ................ 17
2.3.1. Summary ..................................... 20

CHAPTER THREE: METHODOLOGY
3.1. Introduction. ... ............. ... .......... 21
3.2. Description of the Hog Marketing System
and the Monitoring and Enforcement

of Animal Health ................................ 21

3.3. Market Conditions and Animal Health. ..... .......26
3.3.1. The Dependant Variable ...................... 26
3. 3. 2. The Explanatory Variables.. ................. 31
3. 3. 3. The Statistical Analysis .................... 35

CHAPTER FOUR: THE MONITORING AND ENFORCEMENT
OF ANIMAL HEALTH

4.1. Introduction .................................... 37
4.2. Disease Rate and the F318 ....................... 38
4.3. Slaughterers .................................... 45
4.3.1. Methods of Sale ............................. 47
4. 3. 2. Terms of Sale ............................... 47
4. 3. 3. Monitoring and Enforcing Animal Health ...... 50
4.4. Marketers ....................................... 51
4.4.1. Auction Markets ............................. 52
4.4.1.1. Methods of Sale ......................... 53
4. 4. 1. L Terms of Sale ........................... 54
4.4.1.3. Monitoring and Enforcing Animal Health..57
4.4. 2. Terminal Markets ............................ 59
4.4.2.1. Methods of Sale ......................... 59.
4. 4. 2. 2. Terms of Sale ........................... 60

4.4.2.3 Monitoring and Enforc1ng Animal Health .61
4.4.3. Buying Stations ............ . ................ 62
4.4.3.1 Methods of Sale. ....................... 62
4.4.3.2 Terms of Sale ...................... ..63
4.4.3.3. Monitoring and Enforcing Animal Health. .65
4.5. Producers ................ ... .................... 66
4.6. Conclusion ...................... . ............... 69
CHAPTER FIVE: THE INFLUENCE OF MARKET CONDITIONS
ON ANIMAL HEALTH MONITORING AND
AND ENFORCEMENT
5.1. Introduction. .... .... ....................... 73
5.2. The Interview Results. ... ..................... 73
5.3. The Results of the Statistical Analysis..... ...76
5.3.1. Disease Rate and Quantity Supplied .......... 76
5.3.2. Disease Rate and Prices Received by Farmers.81
5.3.3. Disease Rate and Prices Received by
Slaughterers.......... ...................... 84
5.4. Conclusions............... ...................... 86
CHAPTER SIX: SUMMARY AND RECOMMENDATIONS
6.1. Summary of Findings... ......... . ................ 89
6.2. Recommendations ................................. 91
6.3. Concluding Remarks.. ....... . .................... 96
FOOTNOTES.... ...................... ... .......... . ..... .97
BIBLIOGRAPHY................................... ........ 100
APPENDIX ONE: LIST OF INTERVIEWS AND ON-SITE VISITS....105
APPENDIX TWO: FSIS INSPECTION DISEASE RATES.. .......... 108
APPENDIX THREE: OBSERVATIONS ON ANALYSIS VARIABLES ..... 109

LIST OF TABLES

Page

TABLE 1. Annual Sales Percentages of Michigan-

Produced Hogs by Size of

Production Unit ........................... 67
TABLE 2. Disease Rate and

Quantity Supplied ......................... 78
TABLE 3. Disease Rate and

Prices Received by Slaughterers ........... 82
TABLE 4. Disease Rate and

Prices Received by Farmers ................ 86

(i)

FIGURE

FIGURE

FIGURE

FIGURE

FIGURE

LIST OF FIGURES

MLE and Peoria Prices for

Barrows and Gilts ......................... 34
"DISEASE" Rate ............................ 42
"PASSED" Rate .............................. 43
"RESTRICTED" Rate .......................... 43
"CONDEMNED" Rate ........................... 44

(ii)

CHAPTER ONE: PROBLEM STATEMENT AND STUDY OBJECTIVES

1.1. The Problem

Recent statistics indicate that there may be high
rates of disease in the hogs slaughtered in Michigan.
Inspection data collected by the 0.8. Food Safety and
Inspection Service (FSIS) show that in 1984 approximately
15% of barrows and gilts slaughtered in Michigan
exhibited some symptoms of disease problems [1]. Studies
recently completed by the Elanco research group of Eli
Lilly, with the cooperation of local veterinarians in 12
midwestern states, indicate that 71% of the hogs
slaughtered in the region exhibited signs of atrophic
rhinitis, and 70% displayed signs of pneumonia [2]. The
findings in a 1981 study conducted by the Slaughter Check
Group at Michigan State University for a particular county
in Michigan indicated that 42% of the the hogs examined
exhibited symptoms of atrophic rhinitis, and 58% displayed
pneumonia lung lesions [3].

The high prevalence of disease in slaughtered swine

presents a possible health hazard to the public and may

(2)

cause real economic losses to market participants.
Pathogens may be transmitted from diseased animal products
to the consumer. H. Riemann and E.L. Bryan's Food-Borne
Infections and Intoxications [4] describes several
livestock diseases affecting swine that can be contracted
by humans upon consumption of pork. Nevertheless, it is
emphasized that the risk of contraction is negligible if
proper handling is practiced. A recent study prepared by
the National ResearCh Council [5] concludes that the
pathogens Salmonella, Campylobacter, Clostridium, and
Staphylococcus may be transmitted from animal products to
consumers, and pose a particular hazard in that they are
not readily identifiable at slaughter.

Economic losses may be incurred by market
participants as a result of the disease problem.
Although the subject is often a matter of contention
among veterinary researchers [6], it is commonly believed
that high morbidity is associated with lowered daily rates
of gain and lowered feed gain efficiency. The specifics
behind this association, such as the identity of a given
causative pathogen, and the extent to which any given
pathogen may contribute to decreased performance, are
currently the subject of debate. Studies such as those
conducted by Braude, et., al. [7], Muirhead [8], and

Straw, et., al. [9] & [10] indicate that pneumonia can

(3)

decrease average daily gain as much as 5.6%, and decrease
feed efficiency by as much as 4.6% . However, other
researchers have concluded that pneumonia has an
insignificant effect on the rate of gain [11] & [12].

The ambiguity of the veterinary record with respect
to the effects of specific pathogens upon animal
performance illustrates the complexity of the relationship
between disease and animal performance. This relationship
is contingent upon numerous environmental and pathological
interrelationships. Nonetheless, it is commonly agreed
that morbidity impedes hog performance, necessitating
increased production expenditures for feed, space, and
veterinary care. However, swine producers may be unaware
of this possible effect because disease may be subclinical
and, thus, only observable at slaughter. Only if their
animals identified according to producer at the slaughter
level can the information be returned to them.

Economic losses associated with disease may also be
incurred by any participant in the slaughter hog market as
a result of livestock death and condemnation loss. Hog
deaths which occur in the marketing chain most often
result in absolute losses to the marketer. Furthermore,
animals displaying symptoms of disease may be discounted
or re-routed to 'inferior' markets with lower price

offerings. Due to the lack of identification in the

(4)

Michigan slaughter hog market, direct losses associated
with discounting and ‘re-routing' are often borne by
marketers rather than producers. Marketers may attempt to
regain their losses by decreasing the average price
offered to producers. This practice acts to spread the
costs associated with diseased animals over all producers,
not just those who contribute to the disease problem.
Condemnation losses may result in the loss of an
entire hog, or may consist of partial carcass losses. In
1984, 7223 slaughter hogs were condemned in Michigan's
federally inspected slaughter plants [1],
representing a direct loss of approximately $876,540 [13]
to slaughter plants operators. Only an estimated $722 of
this total could be regained in the form of rendered
products [14] (these figures do not include losses due to
partial condemnations of carcasses). Once again, it is
possible that average prices offered may consequently
decrease as slaughterers attempt to offset costs of
condemnation, or, they might increase prices charged to

the consumer.

1.2. Study Objectives

The high rate of disease in hogs slaughtered in

Michigan raises questions concerning its causes.

(5)

Obviously, production and climatic factors have a central
role in the determination of the level of health in any
given group of slaughter hogs. Proper nutrition,
sanitation, separation of animals into discrete units,
care in the selection of breeding stock, and effective
veterinary care all influence herd health. Climatic
conditions such as temperature and the extent of rainfall
also have an affect upon animal health.

However, market factors may also play an important
part. The market is responsible for generating and
disseminating signals and economic sanctions associated
with market participants' preferences, and if it were
optimally organized, it would act to discourage the
production of diseased stock. Economic theory suggests
that health problems may be in part due to inadequate
signals and economic sanctions between the points of
production and slaughter. It is hypothesized that
preferences concerning disease are not being adequately
communicated among market participants.

This study addresses the manner in which such
preferences are articulated in the Michigan slaughter hog
market. More specifically, the study describes the
process by which information about animal health is
discovered and disseminated in the Michigan slaughter hog

market, and examines how this process may be affected by

(6)

changing market conditions. The primary hypothesis to be
tested is that the economics of the slaughter hog market
frequently discourage selectivity in the hog marketing
process. Essentially, it is alleged that the means by
which the terms of sale, including the health criteria,
are monitored and enforced, become increasingly lax as the
supply of hogs declines. If this is true, inconsistent
signals are being sent to market participants, and the
overall level of animal health may thus be expected to be
lower than it would have been had more consistent signals
been sent.

The specific study objectives are as follows:

(a) Describe the process by which terms of sale relating
to diseased hogs are monitored and enforced throughout

the Michigan slaughter hog market.

(b) Identify how this process may be influenced by
conditions of supply and demand in the Michigan

slaughter hog market.

(c) Offer prescriptions for more effective monitoring and
enforcement of the terms of sale with respect to

diseased hogs.

(7)

This study's emphasis on marketing rather than
production factors affecting animal health reflects the
fact that it is part of a larger project being conducted
at Michigan State University which seeks better
understanding of the nature of violations of FSIS food
safety standards in the livestock industry. Previous
research has addressed the effectiveness of the current
structure of inspection and enforcement, particularly with
respect to residue control [15]. Future research is
intended to illuminate those factors influencing producer
behavior concerning animal health. This study acts as
a link between these two research areas.

This study's focus on Michigan should not be taken to
imply that the problem of disease in slaughter hogs is
greater in Michigan than elsewhere. Rather, the focus
reflects the fact that the research was undertaken at
Michigan State University. It also reflects the
costliness of undertaking a nation-wide investigation of
the hog marketing process.

The potential implications of this study for
improving animal health in the Michigan slaughter hog
market are significant. The outcome of this study will

increase our understanding of the procedures used to

(8)

prevent the marketing of diseased hogs and the potential
role of market factors in the determination of the level
of disease among Michigan's slaughter hogs. The resulting
prescriptions could lead to a more consistent set of
market procedures and incentives for improving animal
health. The implications of this study become even more
important when considered in light of recent legislation
proposed in Congress to ban the subtherapeutic use of
antibiotics in feed [16]. Should the fear expressed by
producers that such a ban would increase losses from
animal disease become a reality, the effectiveness of the
market in discouraging the production and purveyance of

hogs with health problems would gain increased importance.
1.3. Thesis Plan

The study is organized into six chapters. Chapter 2
develops an economic framework for analyzing the process
by which market mechanisms act to monitor and enforce the
terms of sale relating to disease in Michigan slaughter
hogs. Chapter 3 outlines the methods utilized to examine
this monitoring and enforcement process. Chapter 4
offers a description of the Michigan slaughter hog
market, with emphasis upon the mechanisms utilized in the

market to monitor and enforce the terms of sale with

(9)

respect to disease. Chapter Five examines how the
performance of this system may vary with changing market
conditions. Several hypotheses are tested in an attempt
to substantiate the primary hypothesis that market
selectivity, and consequently the level of slaughter hog
health, is contingent upon market conditions. The
concluding chapter summarizes the findings of this study

and offers several suggestions for further research.

CHAPTER TWO: CONCEPTUAL APPROACH

2.1. Introduction

The task of this chapter is to develop a conceptual
framework for identifying what and how signals and economic
sanctions concerning animal health are being communicated
throughout the Michigan slaughter hog market, and how they
may vary with changing market conditions. The first part
of this task is accomplished by examining the incentive
structures pertaining to the articulation of demand for
physical attributes, with particular attention to animal
health, throughout the slaughter hog market from
inspection at the slaughter level through to farm level
production. The second part of the task is
accomplished by examining how these incentive structures

are influenced by changing market conditions.

2.2. Demand for Animal Health

The demand for animal health, among other attributes
of slaughter hogs, is articulated from consumers to
producers. These consumer demands for disease free pork
are articulated by regulatory agencies. This analysis
begins by looking at regulatory signals and sanctions.

Incentives to slaughterers, marketers, and producers are

(11)

then discussed.

2.2.1. Government Regulatory Agencies

Governmental regulatory agencies are concerned with
ensuring a wholesome food supply, i.e. one not presenting
a health risk to consumers. The agencies demand that the
hog-pork subsector provide wholesome products, inspecting
animals at slaughter and levying sanctions for unwholesome
animals in the form of condemnations. The agencies exist
partially as a result of the high information cost of
animal health discovery. Often disease problems lack
overt symptoms in the live animal, requiring the attention
of veterinarians or costly chemical and/or biological
testing to identify. To a certain extent, animal health
is a public good, and requires some intervention in the
market.

The regulatory agencies act to set a minimal
permissable level of animal health by means of continuous
inspection at the point of slaughter. This minimal demand
level is considered to be constant, and it is enforced by
the condemnation of animals. The costs of condemnation '
are often equivalent to the cost of the condemned hog as
it must be relegated to a rendering process, which yields

a net return of approximately $0.10 per animal [14]. The

(12)

rationale for inspection is that these condemnation costs
will be transmitted through the marketing chain, somehow
sanctioning the producers and the marketers of the
diseased hogs. However, it must be recognized that such
sanctions are contingent upon proper identification of the
animal with its producer [15]. Should proper
identification be lacking, as it is in the Michigan
slaughter hog market, the slaughterer may simply offer
lower average prices for hogs to offset condemnation
losses, therefore spreading costs associated with
unhealthy animals to all market participants, and not just

to those responsible for such animals.

2.2.2. Slaughterers

Slaughterers may demand more rigorous standards than
those set by regulatory agencies. In an effort to avoid
condemnation losses, the economically rational
slaughterer would be likely to purchase from only those
sources providing healthy hogs -- providing lots unlikely
to contain those animals suffering from health problems of
the dimensions to warrant condemnation. Furthermore,
it is likely that conscientious slaughterers would also
wish to avoid unhealthy animals to maintain a good

business reputation, and are likely to have stricter

(13)

standards than merely ‘sick enough to pose a human health
risk'. Also, evidence of disease among slaughter hogs may
slow down inspection, and consequently, the disassembly
process may slow, increasing costs to the slaughterer.

Slaughterers articulate their demand for healthy
animals principally by means of sorting and pricing
practices. Sorting facilitates the culling of live
animals with health problems. These animals may then be
either shipped back to the marketer, with the slaughterer
refusing payment, or they may be discounted in price, or
the animals will be slaughtered subject to inspection,
i.e., identification is mantained and payment is
contingent upon the animal passing inspection. However,
sorting is costly, and the extent to which a slaughterer
pursues sorting is conditioned by such costs. These costs
include sorter wages, ‘handling shrink' (hog weight loss
associated with the stress of being handled), and the
opportunity costs associated with a possible slowing of
animal processing by sorting time requirements, and
possibly, foregoing more inexpensive hogs because of
health problems.

Other means by which slaughterers may articulate
animal health demand include direct and indirect

communication. Slaughterers can specify their health

(14),

demands directly to sellers during negotiation of terms of
sale. With continued business, slaughterers may comment
upon the health of previous shipments from particular
sellers, issuing whatever verbal sanctions or praises are
deemed appropriate. If adequate identification is
available, the slaughterer may even discuss health matters
with producers. Indirect means of communication may
include the simple association of one or more seller's
hogs with specific levels of animal health based upon past

experience.

2.2.3. Marketers

Marketers must provide hogs to the slaughterer which
meet the slaughterer's demand for healthy animals, and
other attributes as well. Theirs is a derived demand, and
one that is driven by a desire to avoid losses associated
with discounts and rejection of their stock. Their
incentive structure with respect to animal health
monitoring and enforcement is similar to that of
slaughterers. Marketers wish to minimize the costs of
sort, including handling shrink, slowed movement of hogs
through the channels, and having to overlook more
inexpensive animals because of certain undesireable

attributes. Yet they must maintain certain standards, and

(15)

have incentive to purchase their animals from more
reliable sources, to avoid the disease related losses, and
damage to their reputations. However, the need to procure
certain quantities may pressure the marketers to procure
from less reliable sources at times, and sort less
carefully. They must weigh the benefits of avoided
rejections and discounts against the costs associated with
sorting and the consequences of operation at lower volumes

and higher per unit costs.

2.2.4. Producers

The incentives a producer faces concerning the
marketing of animals with respect to animal health differ
from those of marketerers and slaughterers. Although,
like the marketers, the producer faces a derived demand
for a certain level of animal health, other considerations
factor into the producer's market decisions. The producer
must market his hogs irrespective of their health. In
fact, marketing may provide an opportunity to cull
diseased animals out of a herd. Given market sort and
discount practices, it may prove economically rational for
a producer to market his hogs with animal health problems
early, thereby reducing the risk of further spread

of contagion, reducing costs of veterinary care, and

(16)

preventing death loss. The costs of doing so may include
discounting, possible re-routing of hogs to inferior
markets, damage to the producer's reputation, and possibly
the costs of transporting rejected animals back to the

farm.

2.2.5. Summary
This discussion of the incentive structures

associated with the monitoring and enforcement of animal
health emphasizes the fact that the extent to which market
participants guard against unhealthy animals is contingent
upon a tradeoff between costs and benefits of sorting.
The focus upon the costs and benefits associated with the
sorting process raises questions concerning the processes
by which animals get from the farm to the slaughter plant:
what are the methods of sale?, how do hogs move through
the market?, who are the participants involved?, and how
are the terms of sale determined and enforced? Before a
discussion of the monitoring and enforcement of animal
health may be pursued, recognition of the organizational
context within which it operates must be made. Those
participants to whom costs and benefits accrue must be
identified, and the nature of those costs and benefits

illuminated. Only then may the process by which animal

(17)

health is influenced by the market be addressed.

2.3. Animal Health and Conditions of Supply and Demand

The level of health realized at the slaughter level
has been hypothesized to be a function of monitoring and
enforcement practices of governmental regulators and
market participants. The major participant groups'
incentive structures behind monitoring and enforcement
have been discussed in terms of the various costs and
benefits associated with animal health. However, the
discussion has been limited in that no mention has been
made concerning how these costs and benefits may vary with
market conditions.

The primary hypothesis to be tested in this study is
that conditions of supply and demand affect the manner in
which the market acts to discourage the purveyance of]
diseased stock. Conditions of supply and demand weigh
heavily upon the incentive structures of market
participants, with the exception of governmental
inspectors as their incentive structure is assumed

constant and not subject to market conditions. The effect

(18)

is to create a situation in which animal health criteria
are monitored and enforced by market participants on an
inconsistent basis. Inconsistency consequently
compromises the market's ability to discourage diseased
animals.

Essentially, as supply conditions change,
corresponding changes in the market participants'
perceived tradeoff between the costs and benefits of
animal health monitoring and enforcement may take place.
During periods of short supply, buyers may find it more
economically rational to lessen the extent to which they
pursue monitoring and enforcement of physical attributes.
including animal health, accepting increased risk of
condemnation, discounting, or rejection losses in an
effort to procure more hogs. Such lessening of standards
acts to increase the number of available hogs in the
premium markets, as hogs previously deemed unacceptable
and relegated to inferior markets may now be purchased at
a price comparable to that of other market hogs.

Slaughterers' demand for hogs during periods of short
supply may take precedence over strict enforcement of
animal health criteria. Slaughterers may decrease their
effective demand for animal health, and face a higher risk

of condemnation losses, in an effort to cover costs.

(l9)

Slaughterers have considerable levels of fixed costs, and
it is conceivable that, at times, the only way to cover
those costs and ensure a reasonable profit is to ensure
that the line operates at a constant, near capacity level.
The lessening of slaughterers' standards is given added
impetus when the product prices received increase. The
assurance of an adequate, stable supply may rely upon lax
animal health monitoring and enforcement.

The decreased slaughterer demand for the animal
health attribute in periods of short supply is reflected
in marketer demand. If the risk of discounts and
rejections at the slaughter level lessen, the marketer's
perceived costs of lax monitoring and enforcement
diminish, and health standards are likely to be reduced.
It then follows that producers' perceived costs associated
with the marketing of unhealthy hogs decreases, and
consequently, the health of slaughter hogs will be lower
than it might have been had more rigid standards been
enforced.

In periods of short supply, as slaughterers diminish
their sorting standards, and marketers respond with
diminished standards of their own, producers may perceive
a decreased risk of discount or rejection losses, and may

market hogs they would have normally held back. Sick

(20)

animals may be marketed when, under conditions of more
ample supply, they may have otherwise been kept for
convalescence, or have been shipped directly to 'inferior
markets'. Also, during periods of short

supply, the price received by producers increases, thus
providing more incentive to market as many animals as
possible. The perceived costs of discounting or
rejections are reduced relative to the perceived benefits

from marketing.

2.3.1. Summary
The above discussion can be summarized in three

hypothetical relationships:

a) As quantity supplied decreases, and/or product prices
received by slaughterers increase, the emphasis upon
health criteria in choosing hogs for slaughter
decreases. ‘

b) The decreased emphasis upon animal health criteria at
the slaughter level will result in corresponding
changes in the emphasis of health criteria by
marketers.

c) Consequently, producers will be induced to market hogs
they would normally hold off the market, particularly
if producer prices rise above the historical average.
Thus, disease rates recorded by Food Safety and
Inspection Service can be expected to be higher during
periods of short supply.

CHAPTER THREE: METHODOLOGY

3.1.Introduction

The research required two major tasks. The first was
to develop a general description of the Michigan
slaughter hog market, including a description of the
terms of sale with relevance to disease and the means by
which those terms are monitored and enforced. The second
task was to determine whether disease-related monitoring
and enforcement in Michigan's slaughter hog market was

influenced by market conditions.

3.2. Description of the Hog Marketing System and the

Monitoring and Enforcement of Animal Health

The description of the Michigan slaughter hog market
was undertaken to Orient the rest of the analysis,
providing a context for discussion and identifying key
market factors influencing the monitoring and enforcement
of the terms of sale with respect to disease.

The methodology of description was guided by the
results of a Michigan slaughter hog market study conducted
in 1975 by Tom Bloomer [17], market descriptions including
J.McCoy's Livestock and Meat_Marketing [18], among others

[19] & [20], and consultation with both members of the

(22)

Michigan State University faculty knowledgeable about
Michigan's slaughter hog market [21] 5 [22], and state
swine extension specialists [23].

Data collection was organized into four parts:
description of (a) market participants, (b) market
channels, (c) methods of sale, and (d) terms of sale.

This approach was used so that benefits and costs of
marketing diseased animals, and how these benefits and
costs might change over time, could be better discussed in
the analysis.

The available literature identified market
participants with respect to market channels. Bloomer's
study [17] provided a detailed description of the market
channels and methods of sale. Agricultural statistics
were used to substantiate and update Bloomer's findings,
particularly those provided in the Packers and Stockyards
Statistical Resume [24]. Unfortunately, only very general
information was available relating to the terms of sale in
the market. Specific information pertaining to the terms
of sale, particularly concerning animal health, was
obtained through interviews and on-site visits.

Interviews and on-site visits were used to build upon
the information provided in Bloomer's study, and to
describe the process of sale, both identifying the terms

of sale and the manner in which the terms are monitored

(23)

and enforced. Interviews were conducted on two different
levels. The first level concerned the organization of the
market, and the second concerned the process of sale. The
first level was oriented by the following questions; (a)
from where and how do you obtain slaughter hogs7, (b) to
whom and how do you sell slaughter hogs?, and (c) what is
the process by which you physically move animals through
your establishment?. The second level of interviewing
consisted of three major questions: (a) how is price
established?, (b) what is the 'type' of hog desired?, i.e.
what are the attributes sorted and/or priced for?, and (d)
how is the sorting performed?

After these questions had been asked, the respondents
were asked whether they considered disease to be a problem
in the market. They were then asked to describe the
manner in which they dealt with diseased animals and
whether or not they distinguished diseased animals from
healthy. If the respondents answered in the affirmative,
they were asked on what basis was such a distinction made,
and what was the subsequent treatment or disposition of
diseased hogs. Finally, with respect to the second
part of the analysis, respondents were asked whether or
not they perceived any changes over time in the
identification and disposition of diseased hogs. This

question was asked to examine the hypothesis that health

(24)

monitoring and enforcement may change as market conditions
change. If an affirmative answer was provided, they were
asked to describe such changes, and answer why they felt
such changes occured.

As a result of the predominance of a relatively small
number of market participants, the availability of market
statistics, and the detailed study by Bloomer, little
attempt was made to design a rigorous sampling strategy.
Instead, each of the major marketing and slaughtering
organizations were subjected to repeated interviews, and
an effort was made to interview representatives with
different roles within each of the major organizations.
Administrators, market managers, plant managers, and
animal sorter/handlers were interviewed from each of the
major organizations. In addition to the interviews
conducted with the major market participants, smaller
market participants were also interviewed. Market
managers from six of Michigan's nineteen livestock auction
markets which deal in slaughter hogs were interviewed.

The six were chosen randomly from a list provided by the
Michigan Department of Agriculture. Several truckers,
involved in the transportation of hogs to the two major
slaughter plants in Michigan, were also interviewed.
Interviews relating to producers' marketing concerns

included the secretary and spokesman for the Michigan Pork

(25)

Producers Council [25], and an interview with a producer

from St. Johns, Michigan [26].

Interviews were followed up by several visits to
Michigan slaughter hog facilities. Production, market,
and slaughter facilities were visited in the course of
research. One production unit located in St.Johns,
Michigan was visited, whereupon the farm owner was
interviewed informally about his marketing concerns [26].
A buying station in Pewamo, Michigan was also visited
[27], as was an auction market in Howell, Michigan [28].
In addition to the marketplaces, the two largest slaughter
facilities, Frederick and Herruds, Detroit, and Utica
Packing, Utica, Michigan, were also visited. Sorting and
pricing techniques were observed first hand at the
marketplaces and slaughter facilities, and facility
personnel were interviewed informally concerning the
manner in which they ‘controlled' for diseased animals.
Food Safety and Inspection Service ante- and post-mortem
inspections were also observed at the slaughter
facilities. The veterinarian on-duty at Frederick and
Herruds was interviewed briefly, and was asked to describe

the post-mortem inspection.

(26)

3.3 Market Conditions and Animal Health

In addition to interview data, statistical methods
were used to test the hypothesis that market conditions
affect the level of animal health in the Michigan
slaughter market. As described in Chapter 2, market
conditions may affect market participants' behavior, and
consequently have repercussions for the general level of
health in the hogs marketed. Market conditions may
encourage inconsistencies in the processes by which terms
of sale relating to disease are monitored and enforced.
These inconsistencies are expected to consist of varying
degrees of selectivity in the sorting process.
Specifically, when supply of slaughter hogs declines,
selectivity on the part of slaughterers in the sorting
process diminishes, bringing about a more lax sort
throughout the marketing system, thus resulting in an
increased incidence of health problems in slaughter hogs.
This hypothesis is tested using statistical techniques to
determine whether disease rate, as indicated by FSIS
inspection records, is correlated with conditions of
supply and demand.

3.3.1. The Dependent Variable

The principle dependent variable in the analysis was

animal health at slaughter. Animal health was proxied by

the rate of disease, including parasitic infestation,

(27)

found in Michigan slaughtered hogs. Although animal
health is a general term, which includes factors other
than disease, such as drug and chemical contamination, the
analysis was restricted to disease rates because of
limitations in the available data. Although the FSIS
pursues a monitoring program for chemical contaminants on
a national level, the data is not available on a state by
state basis. However, the FSIS maintains records of
disease rates at the individual slaughter plant level, and
made the records for Michigan plants in 1984 available for
this study. Unfourtunately, the FSIS data does not
include sub-clinical disease rates, i.e. those not readily
indicated during ante- and post-mortem inspection.

A disease rate was determined for two of the major
slaughter facilities processing grade #1 and #2 barrows
and gilts on the basis of the results of FSIS continuous
inspection records. Together, the two plants slaughtered
94% [29] of the state's federally inspected slaughter of
barrows and gilts. The numbers of hogs receiving FSIS
CONDEMNED, RESTRICTED, and PASSED categorization on the
basis of disease problems were summed on a weekly basis,
and divided by the number of animals slaughtered weekly by
the two facilities. The FSIS recognizes four different
groups of animals; those that display no symptoms of

disease, or those receiving any of the three

(28)

categorizations mentioned above. CONDEMNED refers to
those animals deemed by a FSIS veterinarian to present a
health risk to consumers, and are subsequently destroyed
or otherwise precluded from human consumption. RESTRICTED
refers to those animals deemed by the FSIS veterinarian to
present a potential health threat to consumers unless
processed in a specific manner, i.e. those animals
exhibiting symptoms of tuberculosis restricted to
processing involving cooking. PASSED refers to those
animals exhibiting symptoms of disease or parasite
problems, but not of the type nor extent to which the FSIS
veterinarian feels a human health risk is being presented
[30].

The CONDEMNED, RESTRICTED, and PASSED categories were
aggregated into a single variable, DISEASE, in the
analysis. The PASSED rate is of principle importance
herein as it represents the proportion of animals
exhibiting outward symptoms of health problems
ante-mortem, or post-mortem yet before evisceration, and
only later deemed fit for human consumption. This
category consequently relates most directly to the theory
presented in Chapter 2 about the slaughterer's sorting
decisions. The slaughterers' decisions concerning the
disposition of animals held to be of suspicious animal

health, yet not certain to be condemned, are those that

(29)

are most likely to result in the changes in the rate of
disease. These 'borderline' cases of animal health
problems are likely to be refused during periods of high
supply, yet accepted during periods of short supply,
thereby altering the disease rates indicated by FSIS
inspection.

The topic of interest is the general level of hog
health, and for the purposes of this study, there is
little analytical value to disaggregation according to the
FSIS categorizations. The decisions on the part of the
FSIS concerning whether a particular hog health problem
poses a direct threat to human consumers is only
indirectly of importance to this study, what is important
is the overall incidence of health problems in the hog
subsector. Furthermore, disaggregation would yield only
inconclusive results as there was not be enough variation
in either the CONDEMNED or RESTRICTED categories alone for
any conclusive correlations. In 1984, only about(.14%) of
the Michigan slaughtered hogs were CONDEMNED, and only
about (.01864%) were RESTRICTED, whereas approximately
(15.58%) were PASSED [1].

The health statistics obtained were considered
representative of the Michigan slaughter as 94% of the
state's federally inspected barrow and gilt slaughter was

performed by the two plants from which the FSIS statistics

(30)

were derived. It should be noted, however, that this
variable represents the level of health in those hogs
slaughtered in Michigan, and cannot be interpreted as
indicative of the level of health in hogs produced in
Michigan per se. This is a limitation, particularly since
approximately 85% [31] of hogs slaughtered in Michigan are
derived from out-of-state sources, and constrains the
analysis. The problem of changing proportions of in-state
to out-of-state hog procurement for Michigan slaughter
facilities may compromise the analysis. Should the
proportion of animals procured by Michigan slaughterers
from out-of-state be correlated with the quantity
supplied, and if out-of-state hogs have different levels
of health than in—state hogs, the testing of the
hypothetical relationships discussed in Chapter 2 may be
biased. Although an attempt was made to determine if
changes do in fact take place in the proportion of
out-of-state to in-state animals, and to what extent over
what period of time, it was found that the data base
simply is not disaggregated sufficiently for such an
analysis. Nevertheless, this study is intended to draw
relationships between market practices and conditions, and
animal health in Michigan, not between Michigan production

conditions and animal health.

(31)

3.3.2. Explanatory Variables
The explanatory variables used in the analysis
include quantity supplied, product prices received by
slaughterers, prices received by hog producers, and
season. The significance of these variables, and the
relationships between them and the dependant variable are

discussed below.
Quantity of hogs supplied represents a measure of

the extent to which Michigan slaughterers were under
pressure to procure hogs. Quantity supplied consists of
the quantity of barrows and gilts supplied by producers to
slaughterers in Michigan, and in neighboring states from
which Michigan slaughterers procured hogs, on a weekly
basis for 1984. The rationale for this variable is based
upon the fact that the slaughterers' profit margins are
relatively small, and they must maintain high capacity
production to cover fixed costs. Therefore, slaughterers'
compete actively with one another to obtain the available
supplies. Consequently, during conditions of short
supply, competition among slaughterers is most intense.
and they may lessen the 'selectivity' of their sorting
process, and are more likely to accept the increased risk
associated with animals of questionable health.
Consequently, producers may market animals that might
otherwise have held back from the marketing process. and
disease rates reflected in FSIS inspection at slaughter

may increase. The weekly quantity supplied data for 1984

(32)

was obtained from LivestockI Meat, Wool Market News [32],

and was proxied by the federally inspected slaughter of
barrows and gilts in the region encompassing Michigan,
Ohio, Indiana, Illinois, Wisconsin, and Minnesota. This

proxy variable was called Supply in the analysis. The
limitation of the use of Supply is that it is an indirect

measure of the extent to which slaughterers are under
pressure to obtain hogs. A more direct measure is product
prices obtained by slaughterers.

Product prices received by slaughterers is also
intended to proxy the extent to which slaughterers compete
with one another to obtain available supplies of hogs. As
product prices rise, the net return slaughters may receive
on each animal may also rise. Their competition for
supply intensifies, and their sorting standards may ease,
resulting in higher disease rates as recorded by the FSIS.
Sorting standards may ease with respect to animal health
in an effort to procure more hogs, and also because the
perceived benefits of buying an animal of 'borderline'
health may offset the percieved risk of added costs from
condemnation. Product prices received by slaughterers
consisted of the average weekly wholesale prices received
by slaughterers for their products. The proxy variable

chosen to represent such prices, Pork Price was the

(33)

average weekly price of loins/cwt., Central 0.5., FOB
Omaha. The prices were obtained from the Livestock, MeatI
Wises.-

Prices received by producers, i.e., those that are
paid out by slaughterers, also indicate the degree of

competition between slaughterers, with the same
implications as discussed above. Additionally, changes in
prices received may alter producer's perceived
relationship between the benefits and costs of marketing
diseased animals. Higher prices, praticularly when
combined with eased sorting standards, may prompt
producers to market animals of questionable health which
they would have held back under historical average prices
and sorting standards. Accordingly, higher disease rates
can be expected when prices received by producers are
higher.

Prices received by producers were estimated using
average weekly prices received by Michigan producers for
grade #1 barrows and gilts ranging from 230 to 245 pounds.
This variable consisted of data obtained from the
Michigan Livestock Ma;ket_§etter [33]. The data was
derived from each of the MLE's four major auction markets
through the weekly selection of one to two
'representative' sale lots of grade #1 barrows and gilts,
chosen by the market manager to be indicative of the sales

occuring during each week. The prices obtained for the

(34)

lots were then averaged to obtain Hog Price. Although the
price data was limited to #1 hogs, Figure 1 indicates that

Hog Price behaves in a similar manner to Peoria prices
estimated for #1 and #2 grade hogs.

FIGURE 1: Prices of Barrows and Gilts

35?.5

chigan Auction Prices. ALE

55.0
52.5
50.0

47.5

 

1 ' users 1984 52
December

(35)

The Season variable represents a series of three'
dummy variables, each representing a different season.
The fourth season is considered by default. The dummy
variables allow for the seasonal factors influencing
animal health to be separated out in the regression

analysis.

3.3.3. The Statistical Analysis

The statistical analysis consisted of the estimation
of regression coefficients, or measures of the extent to
which two or more variables vary together. The
statistical package 'micro TSP' was utilized in the
estimation of the coefficients. The package calculated
Ordinary Least Squares.

As the regression coefficients could only measure the
extent to which two or more variables varied together,
the above hypothesized relationships were used to determine
the causal relationships between variables. The

relationships are summarized below.

Expected Relationship Sign of the Coefficient

a) Disease - f(Season, Supply) (-)
b) Disease = f(Season, Hog Price) (+)

c) Disease = f(Season, Pork Price) (+)

(36)

To reiterate, these relationships are used to test
the primary hypothesis that disease problems in the
Michigan slaughter hog market are influenced by market

conditions.

CHAPTER FOUR: THE MONITORING AND ENFORCEMENT

OF ANIMAL HEALTH

4.1. Introduction

This section describes how animal health is monitored
and enforced in the Michigan slaughter hog market. The
chapter begins with a discussion of meat inspection and
the disease data. In turn, each of the major market
participants are addressed with respect to the means by
which each monitor and enforce animal health. However,
before each of these means are discussed, the setting, or
context in which each operate is described. The
participants are first described, then the manner in which
they transfer ownership of hogs is discussed, followed by
an examination of the general terms of sale and the manner
in which those terms are ensured by market participants.
Once this background information has been presented,
animal health monitoring and enforcement is then
discussed. The section is concluded by a discussion of
the incentives and disincentives to market animals with

disease in Michigan.

(38)

4.2. Disease Rate and the FSIS

The Food Safety and Inspection Service sets the
minimum level of acceptible animal health at the slaughter
plants. The FSIS serves to both monitor and enforce
animal health at the slaughter plant level, ensuring that
slaughterers have an incentive to maintain certain
standards of animal health, as will be discussed below.
The primary function of the inspection service is to
prevent hazardous products, i.e., those which pose a
public health risk, from reaching the consumer.

The responsibilities of the inspection service are
outlined in the Federal Meat Inspection Act of 1967 (21
U.S.C. 601 et. seq.). The Act requires the Secretary of
Agriculture to ensure, at the plant level: (a) sanitary
production conditions, (b) product wholesomeness, (c)
product free of adulteration, and (d) 'proper' marking,
labeling, and packaging of product. The requirement of
this Act with the most relevancy to this study is (b).
Wholesomeness is an elusive term, but may be addressed in
terms of the FSIS condemnation and restriction guidelines.
Wholesomeness is the quality of being free from
indications of 'metabolic, toxic, nervous, or circulatory

disturbances, nutritional imbalances, or infectious or

(39)

parasitic diseases'(Code of Federal Regulations 1985,
9:107), and being free of signs of putrifaction.
Adulteration is defined as the quality of bearing any
'poisonous or deleterious substance which may render it
injurious to health'(Code of Federal Regulations 1985,
9:82).

The Act specifies that both ante-mortem and
post-mortem inspection of slaughter hogs must be pursued
at the slaughter plant level. Both inspection activities
consist of the organoleptic examination of animals and
carcasses, respectively. Organoleptic examination
consists of the examination of an animal or carcass,
through the senses of sight, touch, and smell, for
indications of health problems.

The ante-mortem inspection includes such an
examination for indications of disease, contamination, and
other abnormalities. Rashes, localized and generalized
infections, tumors, swollen glands, body conformation,
respiratory problems, lameness, stupor, and injection
sites (indicative of possible drug violations), etc. are
sought out. Should an inspector detect symptoms of'
clinical illness, contamination, or other signs of
abnormality, the animal exhibiting such signs is isolated,
held in a U.S. SUSPECT pen, until it may be examined by

the circuit veterinarian who may then make the final

(40)

decision as to the disposition of the animal.

Post—mortem inspection involves the examination of
the carcass for similar signs of illness as ante—mortem,
but is more exhaustive. The carcass is examined from the
initial preparation to the point of evisceration. The
range of symptoms presented to the inspectors is much
greater than in the live animal. Greater efficiency is
enabled as individual organs may be inspected directly for
parasitic infestation, cancer, signs of infection, etc.
(after Shriver 1984 [15]). For a more detailed discussion
of inspection practices and regulations, see the Code of
Federal Regulations 1985, #9:Part 309-10.

On the basis of the inspection results, a SUSPECT
animal may be labled one of three different FSIS
classifications: (a) PASSED, (b) RESTRICTED, or (c)
CONDEMNED. PASSED refers to those animals/carcasses
possessing symptoms of disease, parasite, or chemical
problems, but deemed by a FSIS veterinarian to present no
potential threat to human health, and may consequently be
processed with the rest of the slaughter. RESTRICTED
refers to those animals/carcasses determined to be of
potential hazard, yet of such dimensions as to avert any
danger upon specified processing; ex. tuberculosis
infected animals must be cooked before marketing.

CONDEMNED refers to those animals/carcasses determined to

(41)

be of unavoidable hazard to the consumer, and are
therefore destroyed, or rendered for non-food purposes
[30].

The FSIS disseminates the results of plant—specific
monitoring and enforcement only to the particular plant
inspected, and to the agency's central office. Each plant
is given an account of all its violations. However, the
accounting is not released to the public, nor is any given
to other market participants unless the plant itself
provides such an account. Frederick and Herrud was the
only plant in the state found to reveal FSIS data to its
clients. Yet, the data it communicated, by way of a
computer print-out sent only to the larger marketers (MLE
and Heinold), included only market weight and number of
condemnations. Although it does not release
plant-specific data, the FSIS does publish the national
condemnation rates in its annual report entitled "Federal

Meat and Poultry Inspection".

The results of the FSIS continuous inspection in
Michigan for 1984 were used to estimate the variable
Disease. Disease is the primary dependant variable in
this analysis. It is indicative of the disease rate in
barrows and gilts slaughtered in Michigan, and not

simply those hogs produced in the state. The

(42)

specific diseases considered in the FSIS inspection, those
that are aggregated to determine the disease rate, are
listed in Appendix 4. The rate ranges from 12.38% to
19.67%, with a mean of 15.58%. As can be seen in Figure
2. the rate fluctuates systematically. A pattern

of oscillation, of alternating increases and decreases, is
evident. When this variable is disaggregated into its
_three separate components, PASSED (Figure 3), RESTRICTED
(Figure 4), and CONDEMNED (Figure 5), the pattern of
sub-monthly, alternating increases and decreases are still

apparent.

FIGURE 2. DISEASE Rate

 

‘28 I I

 

19$
18%
17‘)
15“
15"
141
13

12

v

 

 

 

lJanuary flecks 1984 . December 52

(43)

FIGURE 3. PASSED Rate

 

19:)
19“
174
1%“
15‘

r

v

 

l3

 

 

1 ' weeks 1904 ' 53

FIGURE 4. RESTRICTED Rate

1 9.95 ‘

 

 

9.92)

0.31"

 

 

 

 

(44)

FIGURE 5. CONDEMNED Rate

 

 

z IMF —~
8.35:
0.38:
0.25:
0.23'
0.134
lil
0.25

 

 

 

 

 

 

Heck: 1984.

(45)

Although the patterns of fluctuation in the rates are
similar, they do differ in magnitude across seasons. The
PASSED rate exhibits a steady upward trend from January to
December. The RESTRICTED rate suggests higher rates in the
winter and summer, with lower rates in the spring and
fall. The CONDEMNED rate indicates a sudden increase in
mid-summer. The Disease rate is dominated by the PASSED
rate, which averages around 15%, of total slaughter, and
consequently exhibits no clear seasonal patterning.
However, the reader must be cautioned in the
interpretation of these generalizations about rates as the
data covers only one year, and does not provide an
adequate statistical basis for any conclusive arguments.
Furthermore, the RESTRICTED and CONDEMNED rates are based
upon a limited range of fluctuation; between (.O13%) and
(.021%) of the total Michigan slaughter for the former,

and (.O78%) and (.357%) for the latter.

4.3. Slaughterers

Slaughterers consist of individuals engaged
in the slaughter and processing of slaughter hogs. They
interact with both producers and marketers in the

procurement of livestock. Michigan slaughter is dominated

(46)

by two companies, Frederick and Herruds, and Utica
Packing. Together, these two slaughterers account for
approximately 94% of the Michigan slaughter. Michigan
slaughterers procure at least 85% of their animals from
out-of-state according to the slaughter buyers and swine
extension specialists interviewed. Interviews with
slaughterer representatives from both Frederick and
Herruds and Utica indicated that the bulk of these animals
came from Ohio, Illinois, and Indiana.

Michigan slaughterers procure their animals from
three major marketing channels; terminal markets, auction
markets and buying stations. Approximately 34.9% of the
hogs slaughtered in Michigan were obtained from terminal
markets, 16.3% from auction markets, and 48.8% from buying
stations [24].

Interviews with various market participants and one
regulatory official, distinguished between two basic types of
slaughterers. They insisted that both 'quality' and
'price' buyers existed. The quality buyers purchased only
those animals they believed to be grade #1 or #2, and to
be healthy. These buyers most often sold pork cuts or
carcasses. On the other hand, the price buyers sought
to purchase animals solely on the basis of price,
accepting animals of questionable health, and accepted the

consequent condemnations on the part of the FSIS. These

(47)

buyers generally sold processed pork products such as
sausage or frozen dinners. Two Michigan-based price
buyers and seven others which were based outside of
Michigan, but purchased Michigan hogs, were identified by
the market participants interviewed. These price buyers
account for only a small proportion of the total buyers of
hogs.
4.3.1. Methods of Sale

Michigan slaughterers purchase on a liveweight basis,
with indirect sales predominating. Animals are delivered
to the plants, they are sorting and weighed, though not
necessarily in that order, and payment is then offered
immediately. Payment is most commonly performed by means
of a billing process: claims are made by the major
marketers against the slaughterer's account.
Slaughterer's rarely purchase directly from producers,
although a few exceptions are made. In such instances,
the producer receives a check from the plant.

4.3.2. Terms of Sale

Slaughterers negotiate terms of sale with marketers
over the telephone. In Michigan, the slaughterers
generally negotiate prices and quantities with either
Heinold's or MLE's central offices on a daily basis.
Prices are generally in accordance with those quoted for

Peoria, with probable adjustments for transportation costs

(48)

as the prices received by the marketing organizations
float above the Peoria prices (see Figure 1, p.36). The
specific physical attributes desired by the plants are not
usually mentioned during such negotiations. As the three
parties have daily contact, an implicit understanding
exists between them concerning the type of animal desired
by the plants. However, disputes do arise, as will be
discussed below.

At the slaughter plant, the animals are unloaded and
sorted. Federal law requires an FSIS inspector to conduct
ante-mortem inspection, and this procedure is performed as
the animals are being off-loaded and sorted. The sorting
culls are then loaded back onto the truck, and the
remaining animals are purchased by the plant by means of a
receipt/billing to account process. The sorting process
which ensures that the physical specifications of the
terms of sale (weight, body conformation, leaness, and
health) mirrors that described below for buying
stations, with two major exceptions. Hogs arriving at the
plant are sorted only once; no other buyers are considered
in the sorting process. Furthermore, as the hogs are
unloaded, they are hammer tatooed at Frederick and Herruds
to identify each shipment. On-site observation of the
process indicated that animals not meeting the plant's

attribute specifications are re-routed back onto the

(49)

vehicle from which they arrived, unless the animals suffer
from acute health problems. In such instances, these
animals are supposed to be labeled U.S. SUSPECT by the
FSIS ante-mortem inspector, and they are slaughtered
accordingly, with negligible payment to the marketer
should the animal be condemned. However, should an animal
only be condemned post-mortem, only Frederick and Herruds,
with its tatooing system, may discount marketers' bills
for the amount of loss.

The tatooing system also enables Frederick and
Herruds to operate a computerized system whereby marketers
receive a print-out specifying the number of their animals
condemned by FSIS, as well as weight data and the price
received for their animals. Unfortunately, the print-out
provides no details concerning the condemnations, and does
not include partial condemnation losses or listings of
disease problems not requiring condemnation.

Interviews revealed that the sort performed by the
slaughterers is often contested by marketers.
Approximately half of the marketers interviewed who
negotiated directly with slaughterers commented on how
they felt it was necessary to argue with slaughterers
during sales negotiations concerning the sort their
animals received at the slaughter facilities. They felt

that the slaughterers were not consistent in their sort.

(50)

Several of the marketers suggested that animals that would
normally be accepted, would sometimes be rejected when
supply was long. This matter will be addressed in more
depth in the following chapter. I

4.3.3. Monitoring and Enforcing Animal Health

Interviews and on-site visits revealed the live
sorting process to be the major mechanism of animal health
monitoring and enforcement. In terms of the live animal,
both plant sorters and FSIS inspectors attempt to cull
animals exhibiting the signs of health problems discussed
above. The plant sorters have an incentive to sort
against sick animals before payment is made and the
animals enter the slaughter process. However, they must
weigh the potential costs of such condemnations against
the costs associated with a slowed disassemly line. The
on-site visits indicated that the sorting process is
accomplished very quickly, essentially while the hogs are
on the run. Slaughterers are extremely concerned with
line speed; maintaining a rapid kill rate is viewed as
essential to the maintenance of net profits.

Should the sorters detect suspect animals, they may
refuse purchase, and return the animals to the vehicle
from which they came, thus avoiding condemnation losses.
However, should the sick animals be brought to the

attention of the inspector on duty, and should s/he

(51)

determine that the problem may be serious enough to
warrant slaughter/destruction, the animal must be
slaughtered U.S. SUSPECT at plant expense. The sorters
therefore have an incentive to cull the suspect animals
before the inspector does so.

If the suspect animal is identified with a particular
marketer, and should that animal be condemned, the
marketer will often not receive payment for that animal.
In the case of the hog that gets past the sorting and
initial inspection process, only to be condemned
post-mortem, the loss is incurred by the slaughterer,
unless the animal can be identified by tatoo. Tatooing
serves to transfer the potential losses associated with
condemnation from the slaughterer to the marketer.
However, the slaughterer may still incur a cost from
having to process the animal, and then only obtain the
equivalent of $5.00 gross return per animal in rendered

products [14].
4.4. Marketers

Marketers consist of agents who facilitate the
exchange of livestock between producers and slaughterers.
Many different types of marketers exist in the slaughter

hog subsector. They may be associated with terminal

(52)

markets, auction markets, buying stations, marketing
cooperatives, or may be self-employed. Furthermore,
slaughter houses may employ marketers to purchase
livestock from any available market. Marketers may take
ownership title to hogs, or may operate on a commission
basis. Michigan marketers are dominated by two interests,
.the Michigan Livestock Exchange, a cooperative marketing
organization, and Heinold, a subsidiary of DeKalb which
operates numerous buying stations throughout the state.

Michigan slaughterers procure their hogs from
essentially three basic types of marketers; those
associated with auction markets, terminal markets, and
buying stations.

4.4.1. Auction Markets

An auction is a private or cooperatively owned market
point where producers bring consignments of animals to be
bid upon in response to an auctioneer's chant, generally
by slaughterer representatives. The auction may offer the
service of aggregation and sorting, or seller consignments
may be bid upon directly without any sort or commingling.
In Michigan, the auction market rarely takes title to the
animals: ownership is transferred from producer to
slaughterer. Approximately 16.3% of the hogs slaughtered
in Michigan were obtained through auction markets [24],

although only 5.8% of the total slaughter was obtained

(53)

from Michigan auctions [34].

Auction markets in Michigan can be broken down into
two major groups: the autonomous, privately owned market,
and that owned and operated by MLE, the marketing
cooperative. Both types of auction markets generally
market numerous species of livestock in addition to hogs.
In 1983, slaughter hogs comprised anywhere from 4% to 55%
of the annual livestock volume in various Michigan auction
markets, with an average of 25% of all species marketed
in Michigan auctions [34].

4.4.1.1. Methods of Sale

In most cases, the auctions serve as conduits of
exchange between producers and slaughterers; no title of
ownership is taken by auction market representatives.
Auctions most commonly involve the issuance of a
‘consignment ticket' to the producer. Consignment tickets
specify number of head, an average weight determined by
weighing the entire consignment and dividing by number of
head, and a general description. The animals are then
sorted and commingled irrespective of the identity, or
producer affiliation. However, sort usually corresponds
to the consignment ticket description. Once all animals
have been bought, the producer may 'cash in' the
consignment ticket.

Auctions take place one, sometimes two times a week

(54)

in Michigan, and are generally attended by two or three
slaughter hog buyers who place bids for specific
slaughterers. The buyers are commonly order buyers who
operate on a commission basis. They purchase in the name
of a specific slaughterer, receiving renumeration
on a commission basis, and generally do not take title
to the animal.

4.4.1.2. Terms of Sale

Terms of sale consist of the specification of
slaughter hog weight, body conformation, leaness, health,
price, and date of delivery in negotiated agreements.
Ultimately, the buyer must rely upon visual inspection of
the animals to ensure the physical attributes match those
demanded by the slaughterer. Price is directly negotiated
in the auctioning process, and the buyer must transport
his hogs upon purchase; Michigan auctions generally do not
perform a holding service.

The buyer is often assisted by a sorting and
aggregation service provided by Michigan auctions.
Although some auctions put a particular seller's hogs on
the block without any further sorting, most of the larger
auctions sort hogs irrespective of producer identity.
Sorting provides the primary mechanism for monitoring the
terms of sale. It consists of disaggregating animals into

more homogeneous groupings with respect to physical

(55)

attributes. The attributes sorted for in the Michigan
market at any given date are (a) weight, (b) 'leaness',
(c) body conformation, and (d) health.

Upon arrival at the auction market, a
producer's/seller's hogs are subjected to an initial sort
as they are unloaded. This sort is accomplished by
channeling the producer's/seller's hogs into a chute
through which no more than one or two animals may pass at
a single time, and routing those animals displaying
attributes in accordance with buyer demand onto a scale,
and an average weight is determined. Interviews with
auction market personnel indicated that this initial
sorting process is conducted rapidly, sometimes with hogs
passing through the chutes at a rate of 30 animals a
minute. Those animals exhibiting attributes at odds with
buyer demand are culled from the rest, and processed
separately. The producer/seller is then given a
consignment ticket with a summary description of his hogs,
based on the aforementioned attributes. Further sorting
may take place after the animals have been weighed, in an
effort to ‘fine tune'the sort.' After the hogs have been
sold, the seller may then cash in the consignment ticket
for the amount obtained in the sale for animals matching
the consignment description, less the commission charge

levied by the auction market for its services. The

(56)

identification of animals is commonly lost in the process
of re-sorting.

Sorting attribute categories are determined by the
specific requirements of the slaughterer to which the
animal is likely to be sent; i.e. the particular
combination of specifications for each of the attributes
demanded by the purchasing slaughter facility.
Essentially, auction markets rely upon a knowledge of the
specific attribute combinations sought by each slaughterer
to guide the sorting process. For example, Utica Packing
desires a 230-245 1b., long, straight-bellied hog with big
loins, approximately a U.S. Grade #1 hog. The weight
range of hogs desired by Frederick and Herruds is greater,
220-260 lbs., with heavier hogs preferred. Frederick and
Herruds also desire at least 1/2 " of backfat, and make no
distinction between what they consider to be an U.S. Grade
#1 or #2 equivalent hog. Like Utica, Frederick and
Herruds seeks a well muscled animal. The sorters at the
auction markets must make estimations as to expected
quantities of equivalent grade #1 hogs and grade #2 hogs,
weigh the estimations against expected sales , and sort
accordingly.

One auction manager described the situation as posing
a dilemma. Although one slaughterer may not pay any more

for grade #1 hogs than #2 hogs, the auction market cannot

(57)

separate out all of the #1's in the sort exclusively for
the other slaughterer as the market must maintain sales to
both interests to remain in business.

4.4.1.3. Animal Health Monitoring and Enforcement

Hogs exhibiting overt symptoms of serious health
problems, such as staggering, stupor, acute respiratory
difficulty, extreme skin conditions or rashes, or other
indications of severe illness, are separated out from
healthier animals in the sorting process, and are either
refused and returned to the seller, or are penned with
other animals in similar condition for special bidding by
‘price buyers', or shipment to specific slaughter
facilities specializing in such animals. The consignment
tickets note the presence of such animals, and in the case
of shipment to specialized slaughterers, indicate their
value.

State inspectors employed by the State Veterinarian's
office of the Michigan Department of Agriculture are
generally present at auction sales, and are instructed by
state law to assist in the identification and labeling of
hogs exhibiting health ‘abnormalities' such as those
listed above, and ensure that such animals are not sold
for human consumption. The inspectors may also label hogs
as SUSPECT, or CONDEMNED, and in the case of either

categorization, it is required that identification be maintained

(59)

4.4.2. Terminal Markets
Terminal markets, also known as public markets, are
a form of auction market. The two major terminal markets
serving Michigan slaughter houses are the Peoria and
Joliet markets. Approximately 34.9% of the hogs
slaughtered in Michigan were derived from terminal
markets [24]. However, interviews with representatives from
these markets indicated that few, if any,
Michigan—produced hogs were passed through terminal
markets. These markets differ somewhat in both scale and
organization from typical auction markets. More than two
to three bidders compete for consignments, and the volume
of animals bid upon is far greater. The terminal market
participants include the market personnel, commission
agents, and order buyers. Market personnel are
responsible for the handling of the animals, and the
bidding process. Commission agents, or firms, operate as
professional selling representatives for producers. Order
buyers operate as buying representatives for slaughterers.
4.4.2.1. Methods of Sale
The methods of sale in the terminal market differ
little from those described for Michigan auction markets.

A sorting service is performed, in a similar manner to

'(60)

that described above, and consignment tickets are issued.
Hogs are then openly bid upon, and the holders of the
consignment,tickets are renumerated after the animals have
been purchased. However, unlike the Michigan auctions,
often no central ring exists, and bids may be offered by
order buyers on the basis of description alone, without
visual inspection. Furthermore, commission agents are
often responsible for the sort that is performed.
4.4.2.2. Terms of Sale

The terms of sale in the terminal markets differ from
those at Michigan auctions primarily in that producers
must commission marketing agents to sell their animals,
and these commission agents then attempt to achieve the
highest price from order buyers representing slaughterers.
Neither the commission agents nor the order buyers take
title to the animals. Instead, the commission agent holds
consignment tickets in the name of producers, paying the
producers the amount obtained in the bidding process for
animals matching the consignment description, deducting a
commission charge as determined by the Packers and
Stockyards Administration, USDA. Additionally, the order
buyer acts on behalf of a slaughterer, and is enabled
to purchase animals against a slaughterer's account.

As was the case in the Michigan auctions, the sorting

process serves as the primary means by which the terms of

(61)

sale are monitored and enforced. The sort is performed as
it is described above. The difference is that the market
representatives do not perform the sort, but allow
commission agents to do the sorting.
4.4.2.3. Animal Health Monitoring and Enforcement

Like the auction markets, the animals determined to
be unhealthy in the sorting process are generally
relegated to an inferior bidding unit, or are shipped to a
price-buying slaughterer at a drastically reduced price.
Additionally, like the auction markets, the terminal
markets are subject to state inspection. However, unlike
the auction markets, the costs associated with the labling
of an animal as SUSPECT or CONDEMED may be borne by the
the commission firms performing the sort. Should an
animal in a commission firm's possession be found to be
condemned by an inspector, the commission firm deducts the
cost of the animal from the producer's consignment ticket,
providing that identification is available. Interviews
with two different terminal market managers revealed that
if the animal is merely labled SUSPECT, the commission
firm generally does not pursue such deductions, but
accepts the risk of condemnation at slaughter.

Should a disease problem only be discovered after an
animal has been purchased by an order buyer, the order

buyer may contest the purchase with the commission agent,

(62)

who may or may not refund the purchase price.

4.4.3. Buying Stations

The buying stations operate autonomously, purchasing
consignments from producers and selling to slaughterers in
an effort to maximize price spreads. Buying stations take
ownership title to the animals transacted. In Michigan,
buying stations are operated by either Heinold or MLE.
Together, they market 48.8% of the hogs slaughtered in
Michigan [24]. Heinold operates five markets across Michigan,
and MLE operates seven. In all buying stations,
individual market managers are given approximate price
ranges and quantity ranges from a central office, yet must
operate under the constraints set by the local markets,
and are consequently allowed a wide margin of discretion.
Upon sorting and weighing, buying station personnel pay
the producer and take title to hogs. The animals are then
re-sorted and transported to the slaughter plant.

4.4.3.1. Method of Sale

The method of sale at the buying stations differs
very little between Heinold and MLE. Producers bring
their hogs to the markets where a daily price is quoted.
The markets must take all comers at the quoted price, less
any discounts. Upon arrival at the buying station, the

animals are unloaded through a chute. As they pass

(63)

through the chute, hogs not meeting the attribute
requirements of the market are culled, and isolated into a
pen. Those meeting the range of attribute criteria are
gathered by the truckload onto a scale, and weighed. The
total weight is divided by the number of head, and the
producer is paid on the basis of the average weight. The
producers' hogs are discounted if they are above or below
a specified weight range. As was the case for the
Michigan auction markets, the attribute criteria are set
by the slaughterer to receive the hogs, and the same
tradeoffs apply.

The purchased hogs are then sorted according to
the intended slaughterer to whom they will be sold.
Identification is often lost at this point, although
several of the buying station personnel interviewed
stated that they could sometimes associate their hogs with
specific producers, particularly if the producers supply
a distinctive breed. The animals are then loaded into
trucks contracted by the buying station organizations, and
transported to the slaughter houses. The slaughterer is
then billed to an account for the hogs received.

4.4.3.2. Terms of Sale

The terms of sale at the buying station are generally

dictated by the demand being faced by the station

operators. As was the case with the other markets,

(64)

sorting provides the primary mechanism of monitoring and
enforcing the terms of sale; weight, body conformation,
leaness, and health factor into the sort. The specific
attribute bundles the buying station personnel use as
criteria in their sort are determined by the slaughterer
to whom they intend to sell. For instance, if they expect
to obtain some grade #1 hogs, but not enough to send a
full trailer load to Utica, they will sell to Frederick
and Herruds, and offer no premium for grade #1 hogs.
However, should they expect to procure a full load of
grade #1 hogs, they will offer a premium for such hogs.
Price offered by the buying station, in both the
privately and cooperatively owned enterprises, is based
upon a daily quotation received by a central office. This
price represents the highest negotiated price obtainable
from buyers and, in the case of the privately operated
stations, the lowest possible offer price required to
procure the estimated demands. In the case of the
cooperatively operated station, they are acting as agents
for the producer, and accordingly do not try to minimize
the price paid to the producer. In both station types,
central office buyers call numerous packers daily, and
determine what prices are being offered at Peoria and
Joliet to 'get a feel for the market', then negotiate over

the phone with slaughterers and establish verbal contracts

(65)

for delivery to various packers. The buying station
central office buyers consequently instruct local station
buyers of packer demands, and the station manager is
entrusted with the local offer price determination,
quantity adjustments, and that the animals shipped not be
unacceptable to the slaughterers. Should the animals be
deemed by the purchasing slaughterer as unacceptable, for
health problems or any other reason, the buying station
must transport the animals to other potential customers.
4.4.3.3. Animal Health Monitoring and Enforcement

The monitoring and enforcement of animal health is
accomplished primarily by means of the sorting process.
As was the case with the auction markets, only those hogs
with the more extreme health problems are sorted out.
Essentially two categories are recognized: normal and
abnormal enough to warrant condemnation or rejection at
the plant level. Although state inspectors have the same
jurisdiction over the buying stations as they do the
auction markets, limitations in inspection resources
preclude them from systematic and intensive efforts
directed at discouraging the marketing of unhealthy
animals [35].

When buying station sorters cull ‘abnormal' animals
from sellers' lots, the animals are either refused and

loaded back onto the vehicle from whence they came, or are

(66)

purchased at decidedly lower prices, and penned apart from
the other animals. The prices offered for such animals
range considerably, and can be as low as $1.00 according
to one marketer, although several marketers put the price
around 1/2 of that offered for healthy animals. These
abnormal animals are generally aggregated in a separate
pen at each market until a truck specified for such a
purpose collects these animals from the markets. Such
trucks often visit the markets more than once a week,
delivering the hogs to ‘price buyer' slaughter

facilities.

4.5. Producers

Producers are defined herein as those individuals who
raise hogs to maturity and then attempt to either sell
them on the open market, or deliver them to fulfill a
forward contract. Approximately 8,500 hog producers
operate in Michigan. Together, they produced 1,250,000
slaughter hogs in 1983 [31]. The proportion of Michigan
production coming from various size farms is summarized in

Table 1.

(67)

Table 1. Annual Sales of Michigan-produced
Hogs and Pigs, by Size of Operation, 1978
(Source: [19])

Farm Size (# Head on-farm at any given time)

-9 0- 99 -499 - 99 000- 00 0-499 00+
12.9% 9.6% 19.3% 18.3% 19.2% 13.9% 6.9%

% of Total Michigan Annual Production Sales

As previously stated, approximately 85% of the hogs
produced in Michigan are marketed and slaughtered in
state. Michigan producers bring their hogs to either
auction markets or buying stations for sale. No terminal
markets exist in Michigan, and interviews with managers
from terminal markets in neighboring states indicated that
a negligible number of Michigan producers used the markets
[36] & [37]. Local traders, on-farm slaughter, and custom
slaughter are relatively insignificant in the Michigan
slaughter hog market, capturing only 1—2% of total
production [24] 8 [31]. Forward contracting is extremely
rare in the state, with only one contract being identified
in the course of the interviews. Furthermore, direct

sales between producers and slaughterers are limited to

(68)

less than one percent of the total slaughter in Michigan
according to Michigan slaughterers.

The monitoring and enforcement of animal health faced
by producers upon marketing their animals may influence
their marketing decisions. Although interview data
suggests that no statements can be made concerning the
relative 'selectivity' of sort between market channels,
practices concerning diseased animals do differ between
market channels. Marketers unanimously suggested that the
proportion of animals they cull for disease ranges from
1-10% of the total number of animals they process.

The marketing decisions faced by the producer who is
attempting to sell 'sick' animals are tempered by both the
relative liklihood that the animals will be culled, and
the subsequent treatment of the animals. Although
producers enjoy a certain degree of anonymity once their
animals have been initially sorted and re-sorted,
irrespective of the market (i.e., identification measures
are not systematically practiced at any of the markets),
the disposition of diseased animals differs between the

different market channels. While the price obtained for
'sick' animals may be determined by competetive bidding in

the auction markets, the price obtained at buying stations
is set non-competitively by the station manager, if,

indeed, the animals are not rejected outright. The

(69)

producer who is attempting to market diseased animals must
also weigh the chances of having his animals condemned by
inspectors. Buying stations are regulated far less
extensively than auction markets, as discussed previously.
A tradeoff exists for the producer attempting to market
sick animals: whether to market where the prices are
competitively bid upon, or market where the animals are

less likely to be condemned.

4.6. Conclusion

The sorting process has been identified as the
predominant mechanism of monitoring and enforcing disease
problem standards. The demand for animal health may be
perceived as originating at slaughter, at the point where
hogs are subjected to post—mortem inspection. Post-mortem
inspection is more comprehensive than ante-mortem
inspection and is consequently the critical factor
determining slaughterer demand for animal health. The
slaughterer attempts to select out the animals with
questionable health before the slaughtering process in an

attempt to avoid condemnation costs. In doing so, the

(70)

slaughterer may reject a marketer's animals or discount
them severely. The cost of condemnation is therefore
carried forward into the marketing system. In the case of
actual condemnations, the slaughterer is enabled to
transfer such costs only if marketer identity is
maintained. At only one plant, where a tatooing process
is practiced, can animals be identified post-mortem.

As the slaughterer transfers the costs of FSIS
regulation by identifying the condemned animal with a
specific marketer, and then deducting the cost of that
animal from the marketer's bill, the demand for animal
health is carried through to the marketer. Consequently,
the marketer demands a sufficient degree of animal health
from the producer in an effort to avoid such losses. The
marketer is given incentive to sort with attention to
animal health, rejecting or discounting any animals of
questionable health. The marketers also desire to avoid
animals with animal health problems as they are sometimes
subjected to state inspection, and may suffer losses due
to condemnation.

The driving force behind the monitoring and
enforcement of animal health is the FSIS inspection
process. FSIS inspection sets the standards for animal
health, and ultimately drives the sorting process

throughout the market. However, interviews and on-site

(71)

visits revealed that market participants are only given
incentives to control those health problems of such
severity as to warrant condemnation, and no concerted
efforts are made to control sub-clinical health problems,
or even those problems which do not warrant condemnation.
In fact, the market participants were found to actually
have disincentives to control such problems.

The disincentives for controlling health problems
differ between participants. Slaughterers rely upon rapid
slaughter rates for a margin of profit, and the careful
sorting required for animal health would slow the kill
line. Additionally, individual slaughterers may find it
desirable under certain circumstances to increase their
quantity supplied by easing their sort standards somewhat,
and accept the increased risk of condemnations.

At times, marketers are also under pressure to
process large numbers of animals rapidly. Marketers have
another disincentive to control for animal health in that
they compete for producers' hogs, and if any one marketer
takes it upon himself to discourage the marketing of
diseased hogs, producers may take their animals elsewhere.
Both marketers and slaughterers indicated during
interviews that they were concerned about the implications
of rigid enforcement of sorting standards as they

sometimes showed favor to particular purveyors of hogs by

(72)

letting some questionable animals slip through.
Furthermore, interviews revealed that they are very much
concerned about handling shrink, and thus have a
disincentive to sort extensively for disease.

The producer's disincentive to control animal health
from a marketing standpoint is that the animals must be
sold, and there is always the possibility that failure to
notify marketers of health problems will result in animals
receiving full price in contrast to a discount or
rejection, provided that the animal can 'slip through' the
first stage of marketing. The lack of a producer
identification system in the Michigan slaughter hog market
permits a producer to be little concerned about marketings

beyond the first stage.

CHAPTER FIVE: THE INFLUENCE OF MARKET CONDITIONS

ON ANIMAL HEALTH MONITORING AND ENFORCEMENT

5.1. Introduction

This chapter presents the results of interviews and
quantitative data analysis directed at the examination of
the relationship between disease rates and market
conditions in the Michigan slaughter hog market. The
interviewing was used to determine whether the
'selectivity' of the sorting process, particularly with
respect to animal health, varied over time. Since the
interviews suggested that 'selectivity' with respect to
animal health actually varied over time, an attempt was
then made to determine whether this phenomena could be
associated with market conditions of supply and demand.
The variability in the disease rate, as discussed in the
previous chapter, was compared with supply and demand
conditions using linear, least squares regression

techniques.

5.2. The Interview Results

Eighteen market participants were interviewed in an
effort to examine the relationship between the primary
means of animal health monitoring and enforcement, the
sorting process, and conditions of supply and demand.
Seven buying station operators, four from MLE and three

from Heinold, nine auction market managers, five from MLE

(74)

and four from private auctions, and terminal market
managers from both Peoria and Joliet were asked whether
they perceived any changes in the general sorting process
over time. None of the respondents admitted that their
own sorting process was subject to inconsistency. They
unanimously contended that their sorting standards and
practices, including those relating to animal health, were
not subject to change.

However, of the respondents who must face
slaughterers' sorting practices, namely the buying station
personnel who sell directly to the slaughter facilities,
five out of seven contended that they faced
inconsistencies in the sort their animals experienced at
the slaughter plant. They suggested that animals which
would normally pass the sort practiced at the slaughter
plant, would be rejected at times, sometimes on the basis
of what the marketers considered to be exaggerated animal
health problems. Three of the buying station personnel
stated without any prompting that they noticed a pattern
in the practice: most contested rejections would occur
during periods of abundant supply. Two other buying
station personnel, upon being asked if they noticed any
pattern in the sorting inconsistencies they faced, stated
that they did, and repeated the observation that

rejections were related to supply conditions. One of the

(75)

buying station operators was very specific in his
response. He contended that at one particular plant to
which he sold, two sorters operated on different shifts,
and that while one gave his animals a relatively
consistent sort, the other, whom the operator suggested
knew very little about hogs, would sort very
inconsistently. The inconsistent sorter would take into
consideration the number of hogs coming into the plant on
any given day, and sort accordingly.

Slaughterer representatives from three slaughter
houses were also questioned concerning the consistency of
sort. Ten slaughter personnel were interviewed: two plant
managers, one company administrator, three buyers, three
sorters, and one 'quality control' employee. They all
claimed that their sort was consistent. However, they did
complain that the hogs sent to them by marketers would be
more poorly sorted during conditions of low supply. They
suggested that marketers would deliver more 'junk'
animals, which they contended to have higher rates of
disease, in periods of short supply.

In the course of the interviews, the question was
asked, 'Do you believe there is a health problem in the MI
slaughter hog market?'. Respondents unanimously denied
that any serious problem existed. However, most agreed

that a few sellers would invariably attempt to 'slip in a

(76)

few' animals with health problems. None of the
interviewed marketers admitted to recognizing any
patterning in this practice, and all suggested that their
sorting procedures prevented most of the 'sick' animals
from being marketed. However, sorters from the two
largest slaughter facilities admitted that 'sick' animals
sometimes got past them, and noted that higher proportions
of 'sick' animals were encountered in mid-summer and

mid-winter.
5.3. Results of the Statistical Analysis

The crux of the statistical testing is to determine
whether a relationship exists between market conditions of
supply and demand, and the rate of disease observed in
barrows and gilts slaughtered in Michigan. The testing
results associated with each of the hypothetical
relationships developed in Chapter 2 will be presented
accordingly.

5.3.1. Disease Rate and Quantity Supplied

The analysis indicated a statistically significant
relationship between the disease rate and the quantity
of barrows and gilts supplied to Michigan slaughterers.
However, the relationship was suggested to be contrary to

that hypothesized. Instead of the expected negative

(77)

relationship, a positive one was indicated. The results
indicated that as quantity supplied increases, the disease
rate increases.

The correlation of Disease with Supply yielded a
correlation coefficient of 0.34 . The regression of
Disease on Supply, dummy variables for season, and a.
constant yielded an F-statistic of 18.17, significant at
the 95% confidence level. The t-statistic for Supply was
estimated at 1.73, significant at the 90% confidence
level. The regression results indicated two weaknesses.
The Durbin-Watson statistic suggested a measure of serial
correlation at 1.32, and the adjusted R-squared statistic,
indicative of the variation in the dependant variable
'explained' by the variation in the independant variables,

was relatively low at .57 . See Table 2.

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(78)

 

 

 

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(79)

Possible explanations for a positive relationship
between disease rate and quantity supplied include
seasonal effects, changing procurement areas, and,
perhaps, sorting constraints. If disease rate should peak
in mid—winter and mid-summer, decreasing in spring and
fall, due to seasonal factors, and coincidental increases
and decreases in supply follow the pattern, a problem of
intercorrelation would be indicated. The effects of.
season could be confused with the influence of supply
conditions in the determination of the disease rate.

The regression results showed that the relationship
between season and disease was positive and significant at
the 95% confidence level. The regression coefficients of
the season variables increase in both size and statistical
significance over time, indicating a cumulative influence
of seasonal factors on disease rate as recorded by the
FSIS at Michigan slaughter plants. The DISEASE graph,
Fig. 2, supports the cumulative effect interpretation,
indicating an upward trend in the disease rate from
January to December. Thus, seasonal factors appear to be
important in explaining disease rates, however, the
overall effect cannot be determined here since the data

covers only one year.
Assuming that hogs from different areas may exhibit

different rates of disease, changes in the procurement

(80)

areas could affect the rate of disease evidenced at
Michigan slaughter facilities. It is possible that the
proportion of in-state to out-of-state hogs procured by
Michigan slaughterers varies throughout the year.
Although insufficient data exists for determining the
proportions of in-state to out-of-state hogs slaughtered
in Michigan throughout any given year, a case may be made
for changes in such proportions. The proportion of
seasonal pasture to year-round confinement production
operations is relatively high in Michigan: approximately
80% are pasture operations according to those market
participants and hog specialists who hazarded a guess.
Accordingly, the proportion of Michigan-produced hogs is
likely to vary significantly with season. As described
above, the effect of seasonally changing variables on
disease rates was found to be significant. Consequently,
the statistical results suggest that the phenomena of
changing proportions of inshipments into Michigan should
be examined further.

Sorting may also factor into the explanation for the
positive correlation of disease rate and supply. On-site
visits to marketing facilities and slaughter plants
revealed that the speed at which hogs flow through the
sorting chutes is variable. When the quantity supplied is

high, it is likely that the rate at which animals pass

(81)

through the chutes increases. An increase in the speed of
sorting is likely to result in less careful sorting,
increasing the likelihood that proportionately more
animals with disease problems get through without being
culled. The problem with this interpretation is that the
opportunity cost associated with sorting is lowest during
conditions of high supply. In a relative sense, the
market participants have more of an incentive to be
selective.

5.3.2. Disease Rate and Prices Received by Producers

The testing of the relationship between the disease
rates and the prices received by farmers indicated a
statistically significant correlation. However, the
correlation was contrary to that hypothesized. The
analysis suggests that a negative correlation exists. As
prices rise, disease rates decrease. This relationship is
theoretically consistent with that previously discussed;
as quantity decreases, prices rise, and disease rate
decreases. The results did not support the hypothesis
that producers were inclined to market hogs they would
normally hold off, in an effort to obtain a higher price.
Once again, Season was found to be significant, following
the same pattern as that previously discussed.
The correlation of Disease on Hog Price yielded a

correlation coefficient of -O.17 . The regression of

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Disease on Hog Price, dummy variables for season, and a

constant yielded an F-statistic of 19.28, significant at

the 95% confidence level. A t-statistic of -2.2 was

estimated for Hog Price, significant at the 95% confidence

level. The Durbin-Watson statistic, estimated at 1.33,

indicated a low level of serial correlation, and the

adjusted R-squared statitic indicated a relatively poor
.62 See Table 3.

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(83)

One possible explanation for the indicated negative
relationship between price and animal health violations is
that slaughterers are indeed paying more for healthy

animals. However, the results of the interviews and
on-site visits do not support this conclusion.

Slaughterers and marketers both expressed a marked
preference for the rejection of unhealthy animals over
their discounting, as both market participants distrusted
the other's judgement in the matter. The marketers did
not want to allow the slaughterer to discount with
impunity, which would be the case as shipments are sorted
and discounted at the plant without the marketer, or a
third party, present. Consequently, animals were only
infrequently discounted by slaughterers on the basis of
health.

A more likely explanation for the negative
correlation between prices and animal health violations is
that as prices change, procurement areas may also change,
and such changes in procurement areas may be associated
with the changes in disease rates. It is quite likely
that as prices of slaughter hogs increases, higher
proportions of hogs are shipped in from more distant
sources. More inshipments of hogs from other states may
occur. First of all, high prices may indicate increased

effective demand, or decreased local supplies, and since

(84)

Michigan producers alone do not meet the slaughterers'
demand, increased inshipments are required to keep
slaughterers at some minimal level of capacity.
Additionally, since the prices of local hogs are largely
based upon those offered by the terminal markets (see
Figure 1.), when the prices received by producers rise,
the cost of transportation is reduced in a relative sense,
making the procurement of out-of-state hogs by
slaughterers more economically rational.

If proportionately more inshipments are occuring
during periods of high prices, the negative relationship
between prices and health violations may also indicate
that transportation stress is not as important a factor as
other factors such as production practices in determining
hog health violations. However, it should be remembered
that the majority of hogs slaughtered in Michigan are from
out of state.

5.3.3. Disease Rate and Prices Received by
Slaughterers

The analysis indicated a statistically significant
correlation between the disease rate and prices received
by slaughterers for their products. However, as in the
case of the correlation between disease and prices
received by producers, the relationship was contrary to
expectations. As prices rise, the disease rate decreases.

The explanation of this phenomena has been discussed

(85)

above. Economic theory suggests that prices received by
slaughterers are highly correlated with those received by
producers, and consequently, the correlation of producer
prices and disease rates can be explained accordingly. As
was the case in the first two regressions, seasonal
variables proved to be significant, and the same
interpretation of seasonal influence applies here as was
discussed above.

The correlation of Disease with Pork Price yielded a
correlation coefficient of -O.39. The regression of
Disease on Pork Price, dummy variables for season, and a
constant yielded an F-statistic of 23.65, significant at
the 95% confidence level. A t-statistic of -3.48 was
obtained for Pork Price, significant at the 95% confidence
level. The Durbin-Watson statistic was estimated at 1.36,
indicating a small degree of serial correlation. See

Table 4.

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more 'picky' during periods of long supply. Although no
market participants admitted to sorting inconsistently
themselves, the majority accused their sellers and/or
buyers of such inconsistencies. The marketers accused
slaughterers of inconsistency with respect to sorting for
animal health, while slaughterers accused marketers of the
same.

The statistical analysis failed to provide strong
correlative relationships between market conditions and
disease rates as indicated by FSIS inspection. The
adjusted R-squared statistics ranged from .57 to .63, and
the Durbin-Watson statistic ranged from 1.32 to 1.36
Furthermore, the results contradicted the findings of the
interviews and the hypothesized relationships. The
inability to control for the effects of changing
proportions of in-state to out-of-state animals at
Michigan slaughter plants constitutes a major flaw in the
analysis.

The conclusions that can be drawn from the analysis
are limited. Due to the contradictions between the
interview results and those of the statistical analysis,
no strong statements may be generated from these results
concerning the relationship between the extent to which
disease is monitored and enforced in the Michigan

slaughter hog market and market conditions of supply and

(88).

demand. It can only be surmised that market conditions
have no influence upon disease rates as recorded by FSIS
inspection at slaughter.

However, a number of the interviews did suggest that
the extent to which market participants contest the sort
they face varies under different market conditions.
Specifically, slaughterers claimed that marketers provided
them with proportionately more 'junk' hogs during periods
of low supply than at other times, and they contended that
'junk' hogs were associated with a higher liklihood of
disease than other hogs. Consequently, relationships
between the incidence of disease problems and market

conditions should not be ruled out.

 

CHAPTER SIX: SUMMARY AND RECOMMENDATIONS

6.1. Summary of Findings

The examination of the means by which animal health
is monitored and enforced in the Michigan slaughter hog
market indicated that both disincentives and incentives
existed for the marketing of diseased animals. The
disincentives were derived directly, or indirectly, from
regulatory inspection, principally through condemnation of
animals by the Food Safety and Inspection Service at the
plant level. However, the study results indicate that
insufficient identification of hogs exists in the Michigan
slaughter hog market for disincentives generated at the
slaughter plant level to be communicated directly to the
production level. Consequently, it is unlikely that
individual producers of diseased animals will be directly
affected by such disincentives. Nevertheless, the study
results do indicate that disincentives are transmitted
indirectly through the marketing system; slaughterers
demand a minimal level of animal health from marketers,
using discounting and rejection to articulate their
demand, and marketers, using similar means, consequently

demand a minimal level of animal health from producers.

 

(90)

The incentives associated with the marketing of
diseased animals may be viewed in terms of the costs of
ensuring that diseased animals are not marketed. First of
all, animal health has been associated with high
information costs. Furthermore, high standards of animal
health result in high opportunity costs. From a
slaughterer's standpoint, maintaining a rapid line speed
is of paramount importance, and a comprehensive sort
against health problems is very time consuming.
Additionally, a rigidly comprehensive sort with respect to
animal health would impede an individual slaughterer from
using variation in sorting standards to dampen supply
shocks. From the marketer's perspective, added sorting
measures to ensure that diseased animals are selected out
might result in additional handling shrink losses, and
added labor costs for more sorting personnel. From the
producer's perspective, the costs of not marketing
diseased animals include added veterinary bills and the
costs of keeping an animal on-feed beyond the point where
it is usually marketed.

The fact that market-oriented incentives and
disincentives concerning the marketing of diseased animals
were found to exist indicates that marketing

considerations factor into the determination of animal

(91)

health. Additionally, the findings of this study indicate
that animal identification is a key to the overall effect
of such incentives and disincentives upon animal health.
The production farm is generally the locus of disease
origin. The slaughter plant is the most likely point of
disease detection, and the primary point where
condemnations occur. This study determined that
condemnations serve as the predominant disincentive to
purvey diseased animals. Accordingly, should hogs at
slaughter not be identified by producer, the disincentives
to producers, those most responsible for disease
conditions, are weakened. Consequently, the relatively
high proportions of indirect marketing in Michigan
undoubtedly contributes to the state's slaughter hog
disease rates.

The analysis failed to conclusively
associate changing market conditions with variations in
the rate of disease indicated at Michigan slaughter
plants. Nevertheless, the conclusions drawn in Chapter
Five do not rule out the possibility of such a

relationship.

6.2. Recommendations

The recommendations that may be derived from this

(92)

study are limited. The relatively inconclusive nature of
the statistical findings, the analysis of only one year of
data, the failure to adequately survey producer marketing
strategies, and the inability to adequately control for
extra—regional inshipments of hogs compromise the
prescriptive value of the analysis. The restriction of
one year of data casts suspicion upon the claim that
seasonal influences have a cumulative influence upon the
relationship between disease rates and market conditions
as statistically estimated in the analysis. The failure
to adequately survey producers narrows the analysis and
resulted in an inability to assess the impact of drug use
in the marketing process. It is possible that producers
use drugs to mask the symptoms of disease in their market
hogs in an effort to avoid rejections, lower prices, or
condemnations of their animals. This possibility is
important as it may result in biased analysis; the Disease
variable measurements could be distorted by changes in
drug use through the year. Furthermore, the failure to
control for inshipments may have also biased the
statistical testing.

Another limitation of the study for general
prescriptive purposes is the fact that the Michigan

slaughter hog market is relatively unique in the North

(93)

Central region in that the majority of its hog slaughter
is composed of hogs shipped in from other states.
Furthermore, while the proportions of hogs marketed
through the various marketing channels in the North
Central region have been estimated at 81% for direct
marketings ( including buying station marketings ), 13%
for terminal markets, and 6% for auction markets, the
market channel proportions of hogs slaughtered in Michigan
are 49% for 'direct' marketings (Packers and Stockyards
Administration category including buying stations), 35%
for terminal markets, and 16% for auction markets [26].

In contrast to the rest of the North Central region,
Michigan relies heavily upon indirect marketing.
Accordingly, inadequate identification may not be as
pronounced in surrounding states as it is in Michigan, and
consequently, the trade-offs between the incentives and
disincentives associated with animal health may differ
between Michigan's slaughter hog market and those of other
states.

Inclight of the above limitations, it must be
concluded that the hypotheses tested in Chapter Five
require more and better data. Nevertheless, despite the
limitations, the subjective findings derived from

interviews provide a sufficient basis for recommending

(94)

that the implementation of animal identification be
considered. The difficulty with which hogs are identified
with producers at the slaughter plant level was found to
severely impede the extension of sanctions and signals to
producers. Furthermore, it was found that virtually no
slaughter information is passed from slaughterers to
producers. Consequently, producers may be unaware of.
animal health problems which only show up at the slaughter
plant. Thus, the lack of animal identification
compromises producers' ability to address animal health

problems.

Further research is recommeded because of the
important ramifications of this study. Should market
conditions be found to actually affect the variation in
the disease rate, inspection resources could be more
effectively allocated. For example, if violations of
health standards were found to increase during periods of
low supply, more inspectors could be employed during such
periods, and, perhaps, fewer may need be employed during
periods of long supply. Also, additional sanctions
might be found to be necessary during periods of short
supply to ensure animal health.

Recommendations for continued research based upon

(95)

this study include inquiry into producer marketing
strategies and drug use, a more detailed analysis of the
effect of animal identification upon animal health, and an
extension of the data sampled to several years and to
encompass regional or national levels. More detailed
analysis of the role of identification with respect to
animal health can be pursued using comparative analysis.
Areas with relatively high proportions of direct sale
marketing, particularly those with high proportions of
grade and yield purchases, may be compared with those
areas having higher proportions of indirect marketings.
Based upon the findings of this study, it is expected that
such a comparison would indicate fewer violations of FSIS
health standards in those areas of direct marketing
predominance. Identification would be facilitated by
direct marketing, and disincentives for producing a sick
animal could thus be better targeted at the producers at
fault. Producers selling grade and yield would also be
far more likely to get slaughterer feedback on the state
of the slaughter animals' health, than those selling in an
indirect market. Comparative analysis, however, would
necessitate controls for differences in weather/climatic
factors and production practices impinging upon animal

health.

(96)

Analysis of several years worth of data would enable
more reliable assessments of potential seasonal
influences. Regional or national level analysis would
avoid biases resultant from changing proportions of

inshipments.

6.3. Concluding Remarks

In conclusion, this study has illustrated the
importance of market behavior in the explanation of
animal health problems recognized at slaughter. The
incentives and disincentives associated with the marketing
of diseased animals have been discussed. The study's
findings indicate that the lack of animal identification
in the Michigan slaughter hog market is a significant
problem. Disincentives associated the marketing of
diseased animals only indirectly filter through the market
structure. Consequently, this study indicates that the
implementation of an animal identification system be

considered for the Michigan slaughter hog market.

FOOTNOTES

1. 1984 FSIS continuous inspection records
concerning diseased hogs recognized in Michigan slaughter
plants. Obtained April, 1985.

2. Feedstuffs, January 7,1985. p.8 and p.25.

3. Data provided by Jerry Shurson, MSU Slaughter
Check Coordinator, Febuary 6, 1985.

4. Riemann, H. and F.L. Bryan. Food-Borne
Infections and Intoxications. Second Edition, Academic

Press, N.Y.. 1979.

5. National Research Council. "Meat and Poultry
Inspection: The Scientific Basis of the Nation's Program".
Committee on the Scientific Basis of the Nation's Meat
and Poultry Inspection Program, Food and Nutrition Board,
Commission on Life Sciences. National Academy Press,
Washington, D.C.. 1985

6. Personal correspondence, Brad Thacker, DVM,
Large Animal Clinical Science, MSU, April 1985.

7. Brands, R. and S. Plonka, " Effect of Enzootic
Pneumonia on the Performance of Growing Pigs, Veterinary
Record. 1975, Vol.96. pp. 359-360.

8. Muirhead, R.B., "Respiratory Diseases of Pigs".
British Veterinary Journal, 1979, Vol. 135, pp. 496—508.

9. Straw, B.E., E.J.Burge, H.D.Hilley, A.D.Leman
"Pneumonia and Atrophic Rhinitis in Pigs from a Test

Station", Journal of the American Veterinary Medical
Association, Vol. 182. pp. 607-611. 1983.

10. Straw, B.E., A.D. Leman, R.A.Robinson, "A
Follow-Up Study". Journal of the American Veterinary

Medical Association, Vol. 185. pp. 1544-1546. 1984.

11. Jerico,K.W.F., S.H.Done, R.W.Saunders,
"Pneumonia and efficiency of pig production".Canadian

Veterinary Journal, Vol.16, Pp. 44-49. 1975.

12. Zimmerman,D.R., D.P.Conway, D.H.Bliss,
D.D.Farrington, H.J.Barnes, "Effects of Carbadox and
Pyrantel Tartrate on Performance and Indices of Mycoplasma
hyopneumoniae and Ascaris suum Infections in Pigs",

(98)

Journal of Animal Science, Vol.55, pp.733-740. 1982.

13. Avg. 1984 Price [34]/cwt.' 2.4 ' # MI
Condemnations [1].

14. Estimate based upon #CONDEMNATIONs in 1984 [1] f
a $0.10/head net value in rendering offered by rendering
manager, Frederick and Herruds. Bob Alexander of Globe
Engineering Co., a Chicago-based rendering equiptment
supplier, stated that in 1984, a rendered 240 lb. hog
could be expected to gross only $5.00. With this
estimate, Michigan slaughterers were likely to have
regained only $2835 (7223'5)-(2 rendering employees *
$8.00/hr. * 4O hrs/wk ‘ 52)-$2835. $2835/7223 =
SO.40/head net.

15. Shriver, Ann, ”Enforcement of Federal Standards
for Chemical Residues in Meat: An Evaluation", Masters
Thesis, Michigan State University, 1984.

16. Weaver, Howard, Matsui, Heftel, Fish, and Mrazek.
H6370. Congressional Index Vol.1, 1983-4. 98th Congress,
House of Representatives. Commerce Clearing House, Inc.,
Chicago.

17. Bloomer, Tom. "Hog Marketing Channels in
Michigan: Structure and Performance Implications." Plan B
Paper, Michigan State University. 1975.

18. McCoy, J.. "Livestock and Meat Marketing."
Second Edition. Avi Publishing Company, Inc.. Westport.

Connecticut. 1981.

19. VanArsdall, R. and K.Nelson. "U.S. Hog
Industry." n.d.

20. Raikes, R., G.Ladd, and J.M.Skadberg.
"Conditions and Trends in Hog-Pork Production and
Marketing." 1976.

21. Drs. Gerald Schwab, John Ferris, and Jim Hilker.
Department of Agricultural Economics, MSU.

22. Dr. Maynard Hogberg. Department of Animal
Science, MSU. October 1, 1984.

23. Dale Brown, Dale Purkheiser, and Jerry Shurson.

(99)

24. U.S. Department of Agriculture, Packers and
Stockyards Administration. Packers and Stockyards
Statistical Resume. Reporting Years 1981-1982.
Statistical Report #84-1. 1984.

25. Richard Larsen. Michigan Pork Producers Council.
Lansing, Michigan. October 9 & 23, 1984.

26. Washburn, Kim. Hog farmer. St. Johns, Michigan.
September 15, 1984.

27. Mike Fowler. Sorter/buyer, Heinold. Pewamo,
Michigan. November 15, 1984.

28. Larry Sheridan. Auction manager, Howell Livestock
Auction. Howell, Michigan. January 23, 1985.

29. Packers and Stockyards Administration. Annual
Report of Packers, PS&A 125, Section 5.5 and 7. 1984.

30. Personal correspondence with John Spaulding.
May, 1985.

31. Michigan Department of Agriculture. "Michigan
Agricultural Statistics." Michigan Agricultural Reporting
Service. 1984.

32. USDA. "Livestock, Meat, Wool Market News."
Livestock, Meat, Grain, and Seed Division, Agricultural
Marketing Service, USDA. 1984.

33. Michigan Livestock Exchange. "MLE Livestock
Market Letter." 1984.

34. Michigan Department of Agriculture. "Auction
Market Annual Report." 1982-3.

35. Personal Correspondence with Dr.Dominquez,
Michigan state verterinarian's office. July 26, 1985.

36. Steve Smith. Market manager, Joliet Terminal
Market. April 25, 1985.

37. Peoria Terminal Market manager. April 24, 1985.

BIBLIOGRAPHY

Bloomer, Tom. "Hog Marketing Channels in Michigan:
Structure and Performance Implications." Master's
‘Plan B Paper. Michigan State University, 1975.

Booz, Allen, and Hamilton, Inc. "Study of the Federal
Meat and Poultry Inspection System." Unpublished
Study Commissioned by U.S. Department of Agriculture,
July 1977.

Braude, R. and S. Plonka. "Effect of Enzootic Pneumonia
on the Performance of Growing Pigs." Veterinary
Record. Vol. 96:359-360, 1975.

 

Cramer, C.. "Why the Early Week Market?" North Central
Regional Publication #91. 1952.

Feedstuffs. "Largest Slaughter Check Ever Finds
Respiratory Disease to be Widespread." January 7,
1985.

Fleming, Bill. "Task Force: Pay for Lean - Not Fat."

National Hog Farmer. September 15, 1982. pp 18-23.

Fleming, Bill. "New Hog Grades Proposed". National Hog__
Farmer. May 15, 1984. pp23-27.

General Services Administration. "Code ovaederal

Regplations, 9 CFR Ch.III (1-1-85 Edition), Animgls

and Animal Products, Food Safety and Inspection
Service." 1985.

 

Gnatzig, Bill. "Let Prices Dictate Best Market Weight."
National Hog Farmer. September 15, 1982.

Holmberg, S., M. Osterman, X.A. Senger, and M. Cohen.
"Drug-Resistant Salmonella from Animals Fed
Antimicrobials." New England Journal of Medicine.
Vol. 10:617-622. September 6, 1984.

Hubbard, E. and S. Fletcher. "First Stage Marketing of
Swine Raised in Georgia." University of Geopgia

Experimental Station Research Report #374. 1981.

Jerico, X.W.F., S.H. Done, and R.W. Saunders. "Pneumonia
and Efficiency of Pig Production." Canediap Veterinary
Journal. Vol. 16:44-49. 1975.

Kaneene, J.B., and E.C. Mather. "Cost Benefits of Food
Animal Health. W.K. Kellogg Foundation, Michigan
State University. 1982.

Kauffman, D.E.. "A Pork Contract Market." PhD

(101)

Dissertation. Michigan State University, 1983.

Kohls, R.. "Marketing of Agricultural Products." 3rd
Edition, MacMillan Company, New York. 1967.

Kramer, C.. "An Economic Analysis of Food Safety
Regulation: The Case of Sulfa and the Swine
Subsector." PhD Dissertation. Michigan State
University, 1982.

Lancaster, K.J.. "A New Approach to Consumer Theory."

The Joupnal of Political Economy. Vol. 74, No.
2:132-157. 1966.

McCoy, J.. "Livestock and Meat Marketing." Third Edition.
AVI Publishing Company, New York. 1979.

Michigan Department of Agriculture. " Michigan
Agricultural Statistics". Michigan Agricultural
Reporting Service. Lansing, Michigan. 1984.

Michigan Livestock Exchange. "Livestock Market Letter."
Manchester, Michigan. 1984.

Michigan State University. "Swine Evaluation Live and
Carcass Estimations Worksheet." Teaching material,
Department of Animal Science. 1985.

Michigan State University. "Slaughter Checks - An Aid to
Better Herd Health." Pork Industry Handbookj
Extension Bulletin #E1788, Cooperative Extension Service.
July, 1984.

Michigan State University. "Management to Prevent Drug
Residue Problems in Pork." Pork Ipdustry Handbook.
Extension Bulletin #E1749, Cooperative Extension
Service. October, 1983.

Muirhead, R.B.. "Respiratory Diseases of Pigs." British
Veterinary Jgprnal_Vol.135. pp.496-508. 1979.

National Association of Federal Veterinarians.
"Proceedings of AAVPM Seminar: Every You Wanted to
Know About Residues, But Didn't Know Who to Ask."
American Academy of Veterinary Medicine. Las Vegas.
October 1983.

National Pork Producers Council. "Pork Value Task Force

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Handbook." Des Moines, Iowa. 1982

National Research Council. "Meat and Poultry Inspection:
The Scientific Basis of the Nation's Program."
Prepared by the Committee on the Scientific Basis of
the Nation's Meat and Poultry Inspection Program.
Food and Nutrition Board, Commission on Life
Sciences. 1985

Purdue University, Department of Agricultural Economics.
"Carcass-Based Marketing of Cattle and Hogs."
Agricultural Experiment Station Bulletin #300.
November, 1980.

Raikes, R., Ladd, 6., and J.M. Skadberg. "Conditions and
Trends in Hog-Pork Production and Marketing:
Marketing Systems and Farm Prices. Economic Report

Series #7. Department of Economics, Iowa State
University. 1976.

Riemann, H. and F.L. Bryan. "Food-Borne Infections and
Intoxications." Second Edition. Academic Press, New
York. 1979.

Schwabe, Calvin W.. "Veterinary Medicine and Human
Health." Third Edition. Williams and Wilkins,
Baltimore. 1985.

Shriver, Ann. " Enforcement of Federal Standards for
Chemical Residues in Meat: An Evaluation." Masters
Thesis, Department of Agricultural Economics,
Michigan State University. 1984.

Smith, Mike. "The Final Word on Slaughter Checks (Why)."
Pork '85. Febuary, 1985. pp.10-11.

Straw, Barb. "The Practical Value of Slaughter Checks."
Pig American. January, 1985. pp.20-25.

Straw, B., E. Burge, H. Hilley, A. Leman. "Pneumonia and
Atrophic Rhinitis in Pigs from a Test Station."
Journal of the American Veterinary Medical Association
Vol.182. pp.607-611. 1983.

Straw, 8., A. Leman, and R. Robinson. "A Follow—Up
Study." Journal of theggperican Veterinary Medical
Associgtion Vol.185, pp.1544-1546. 1984.

Switzky, D.. "Heavy Hogs: Producer and Packer Can Both

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Benefit." National Hog Farmer June 15, 1982.
pp.14-23.

U.S. Congress. "Code of Federal Regulations 1985, #9:Part
309-310.

U.S. Congress, General Accounting Office. "Monitoring and
Enforcing Food Safety: An Overview of Past Studies."
Study by the Staff of the General Accounting Office.
GAO/RCED 83-153. 1983.

U.S. Congress, General Accounting Office. "Problems in
Preventing the Marketing of Raw Meat and Poultry
Containing Harmful Residues." Comptroller General,
Report to Congress. April 17, 1979.

USDA, Food Safety and Inspection Service. "An Analysis of
Exemption Provisions of the Meat and Poultry Inspection
Laws." 1983.

USDA, Food Safety and Inspection Service. "Meat and

Poultry Inspection Fee-For-Service Study." Policy
Analysis Office, Policy and Program Planning.
September, 1982.

USDA, Food Safety and Inspection Service. "Objectives for
Swine Inspection." Swine Inspection Training Module.

USDA. "Report to the Secretary's Meat Pricing Task Force."
June 15, 1979.

USDA, Agricultural Marketing Service. "Livestock, MeatLi_
and Wooi Megket News." Livestock, Meat, Grain, and
Seed Division. 1984

USDA, Packers and Stockyards Administration. "Packers and
Stockyards Statistical Resume. Reporting Years
1981-82." tatistical Report #84-1. 1984.

VanArsdall, R. and K.Nelson. "U.S. Hog Industry." USDA,
Economic Research Service, Agricultural Economics

Report # 511.

 

 

Vansickle, Joe. "Plans to Made to Pursue: Mandatory Hog
Identification." Nationei Hog Farmer. May 15, 1984.
p. 18.

Vansickle, Joe. "Pig Identification Program Starts."

NetionaifiHog Farmer. August 15, 1983. pp24-32.

(104)

Vansickle, Joe. "Mandatory Identification Bill Posed
Serious Problems for Livestock Producers." National Hog
Farmer. August 15, 1983. p32.

Williams, W. and J. Clower. "How and Where is Price
Established?" Pork Industry Handbook, Cooperative
Extension Service. Extension Bulletin E-1255. 1981.

APPENDIX 1: MAJOR INTERVIEWS AND ON-SITE VISITS

Allis, Bill. MLE market manager, Sturgis, Michigan.
October 22, 1984.

Allis, Gene. MLE administrator and market negotiator.
October 22, 1984.

Bickford, Art. MLE market manager, Battle Creek,
Michigan. November 1, 1984.

Booren, Al. Professor, Food Science Department, Michigan
State University. October 15, 1984.

Brown, Dale. Hog Specialist, Michigan Cooperative
Extension Service. October 1, 1984.

Burbee, Clark. Administrator, Economic Research Service,
United State Department of Agriculture.

Connaughton, Harold. FSIS Regional Supervisor, Michigan.
September 24, 1984.

Dieter, Ron. Heinold central office representative.
October 31, 1984.

Dominguez, DVM. State Veterinarian, Michigan Department
of Agriculture. April, 30, 1985.

Ellis, David, DVM. Professor, Large Animal Clinical
Science, Michigan State University. January 31,
1985.

Ferris, John. Professor, Department of Agricultural
Economics, Michigan State University.

Foster, James. Professor, Department of Animal Science,
Purdue University. September 24, 1984 and October 2,

1984.

Fowler, Mike. Sorter/buyer, Heinold, Pewamo, Michigan.
November 15, 1984. Interviewed at Pewamo buying
station.

Hansen, John. Hog market analyst, MLE, Lansing.
November 1, 1984.

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Hari, Marc. Heinold buying station manager, Jones,
Michigan.

Haste, Ron. Heinold buying station manager, Pewamo,
Michigan. October 30, 1984.

Heselschwerdt, Dale. Market manager, Napoleon Livestock
Co.. Napoleon, Michigan. October 29, 1984.

Hilker, James. Professor, Department of Agricultural
Economics, Michigan State University.

Hogberg, Maynard. Professor, Department of Animal
Science, Michigan State University. October 1, 1984.

Jorneca, Dale. Heinold sales representative. October 22,
1984.

Larsen, Richard. Michigan Pork Producer's Council
secretary and spokesman. October 9 and 23, 1984.

Lochsmiller, Neil. Statistician, Livestock Division,
Michigan Agricultural Reporting Service, Michigan
Department of Agriculture. January 31, 1985.

Merrillot, Sam. Buyer, Dinner Bell. October, 30, 1984.

O'Conner, William. Market manager, Croswell Auction
Market. Croswell, Michigan. October 29, 1984.

Ovendale, Duane. MLE market manager, St.Louis, Michigan.
October 30, 1984.

Peoria terminal market. Market manager. April 24,
1985.

Purkheiser, Dale. Hog specialist, Michigan Cooperative
Extension Service. October 1, 1984.

Reck, Thomas. Market Manager, St.Johns Auction. St.
Johns, Michigan. October 28, 1984.

Richardson, Jim. Buyer, Frederick and Herruds, Detroit,
Michigan. April 22, 1985.

Ruff, Gene. Statistician, Michigan Agricultural Reporting
Service, Michigan Department of Agriculture. October
9, 1984.

(107)

Sanderson, Wayne, DVM. Veterinarian for the state of
Michigan. October 12, 1984.

Schrader, Craig. Goldwater Auction Market manager, Coldwater,
Michigan. October 29, 1984

Schwab, Gerald. Professor, Department of Agricultural
Economics, Michigan State University.

Shurson, Jerry. Assistant Extension Swine Specialist,
Michigan Cooperative Extension Service.

Sheridan, Larry. Howell Livestock Auction manager,
Howell, Michigan January 23, 1985 interview, on-site
visit.

Smight, Dave. Pork marketer, Frederick and Herruds,
Detroit. January 1, 1985.

Smith, Steve. Hog market manager, Joliet terminal market.
April 25, 1985.

Spaulding, John. Director, Residue Evaluation and
Planning Division, Food Safety and Inspection
Service, Science Program, U.S.D.A..

Van Zandt, Larry. Market manager, Shipshewanna Auction
Market, Indiana. October 30, 1984.

Ward, Kent. Buyer, Utica Packing Company, Utica,
Michigan. Febuary 2, 1985 interview, on—site visit.

Washburn, Kam. Hog producer, St.Johns, Michigan.
On-site visit, September 15, 1984.

Weiss, Jim. Sorter, Frederick and Herruds, Detroit.
Interviewed, on-site visit January 23, 1985.

(108)

APPENDIX 2: P813 INSPECTION RATES FOR TWO MAJOR
PLANTS IN MICHIGAN. (S of Total Plant Slaughter)
WEEKLY RATES PROM 1/1/84 - 12/31/84.

 

 

obs RESTRICTED CONDEMNED PASSED TOTAL
1 0.034084 0.112300 13.08999 13.21834
2 0.018207 0.184300 13.88881 14.04932
3 0.009890 0.197200 13.91874 14.12883
4 0.013818 0.120300 12.48787 12.80188
8 0.012822 0.130000 12.24048 12.38308
8 0.014408 0.144800 13.08889 13.21790
7 0.011780 0.139700 14.78229 14.91378
8 0.011100 0.188000 14.74040 14.90880
9 0.010841 0.171400 14.71880 14.90044
10 0.021171 0.128300 18.14974 18.29921
11 0.008917 0.147100 14.84297 14.79898
12 0.013803 0.140300 14.90829 18.08039
13 0.012828 0.098800 13.81974 13.93117
14 0.003008 0.181800 12.81082 12.89812
18 0.010901 0.130000 18.81487 18.98878
18 0.032378 0.123300 18.77840 18.93108
17 0.017917 0.132800 14.88110 18.03182
18 0.022424 0.127200 14.72472 14.87438
19 0.034088 0.088800 14.84387 14.98484
20 0.011174 0.170400 12.94101 13.12288
21 0.020137 0.113800 14.84844 14.87907
22 0.042334 0.129800 18.29291 18.48484
23 0.040987 0.238000 18.17289 18.44988
24 0.014880 0.188800 18.48998 18.84130
28 0.030817 0.188400 18.41877 18.80899
28 0.034988 0.104800 14.87200 18.01188
27 0.032921 0.197800 18.81804 18.84878
28 0.022782 0.387100 18.13288 18.81283
29 0.013838 0.108000 18.20088 18.32288
30 0.011181 0.114400 13.98841 14.11200
31 0.012180 0.188800 12.80819 12.80398
32 0.013018 0.188200 14.29112 14.48034
33 0.013173 0.121900 17.04830 17.18137
34 0.024780 0.098300 18.84493 18.88801
38 0.008087 0.183800 18.78398 18.93381
38 0.008483 0.110800 17.13283 17.28189
37 0.008289 0.147100 18.47279 18.82818
38 0.013278 0.093800 18.22888 18.33383
39 0.023040 0.138100 18.78198 18.91112
40 0.017128 0.098000 17.38881 17.48174
41 0.018887 0.122300 17.74388 17.88174
42 0.018893 0.128000 17.88801 17.89771
43 0.018724 0.088800 17.09082 17.19814
44 0.009238 0.111800 17.88499 17.80873
48 0.018393 0.118100 17.42188 17.88804
48 0.018204 0.090800 18.13910 18.24811
47 0.011789 0.107700 18.72983 18.84930
48 0.017783 0.123300 19.83394 19.87499
49 0.019201 0.098700 17.78828 17.90118
80 0.011991 0.098800 17.34830 17.48889
81 0.018148 0.098800 18.18311 18.29488
82 0.023188 0.078200 18.41488 18.81804

 

(109)

. fiPP‘NDIX 3: CBS RVATIONS 0N VARIABLES USED IN THE
EG ESSION ANAL 8

 

 

 

SIS. wzzxnv OBSERVATIONS FOR 19 4.
obs avowr SUPPLY Hoe PRICE PoxxPnzcz
1 242.0000 403.5000 50.79000 106.7500
2 238.0000 490.3000 52.26000 106.4000
3 244.0000 470.0000 61.55000 104.9600
4 240.0000 463.6000 62.30000 99.31000
5 241.0000 449.5000 61.25000 96.10000
8 242.0000 471.7000 80.14000 97.17000
7 243.0000 454.6000 47.66000 94.60000
8 240.0000 480.1000 48.24000 94.19000
9 240.0000 444.7000 48.19000 89.42000
10 242.0000 529.1000 46.52000 87.94000
11 243.0000 801.2000 47.47000 88.88000
12 241.0000 802.9000 49.29000 90.80000
13 241.0000 520.7000 49.98000 90.90000
14 244.0000 808.3000 49.82000 90.28000
15 246.0000 510.1000 49.54000 91.50000
16 237.0000 460.1000 49.18000 93.15000
17 238.0000 452.7000 49.02000 92.55000
18 240.0000 800.8000 48.88000 90.80000
19 239.0000 814.4000 80.01000 94.70000
20 241.0000 484.2000 81.04000 98.89000
21 242.0000 452.5000 49.60000 94.88000
22 242.0000 411.4000 49.72000 97.80000
23 239.0000 481.8000 81.98000 99.80000
24 239.0000 465.9000 62.48000 96.71000
28 238.0000 448.9000 83.93000 93.83000
28 237.0000 448.2000 84.82000 100.3300
27 236.0000 349.0000 56.30000 111.1700
28 238.0000 448.7000 88.89000 119.3800
29 233.0000 424.8000 56.42000 119.3100
30 236.0000 405.4000 56.62000 109.8300
31 234.0000 428.5000 64.19000 109.0000
32 235.0000 449.3000 55.09000 106.3300
33 237.0000 448.5000 54.44000 100.0000
34 238.0000 478.4000 83.88000 99.88000
35 239.0000 466.1000 51.36000 96.83000
36 236.0000 446.5000 50.96000 100.3100
37 238.0000 803.7000 49.81000 101.3300
38 236.0000 522.6000 48.98000 100.0500
39 234.0000 510.3000 46.88000 86.60000
40 238.0000 631.6000 46.71000 89.67000
41 243.0000 526.9000 45.72000 66.50000
42 244.0000 543.3000 45.63000 84.94000
43 242.0000 538.0000 46.16000 86.05000
44 239.0000 531.9000 47.02000 63.17000
45 246.0000 529.7000 49.16000 65.92000
46 244.0000 499.7000 50.01000 67.41000
47 241.0000 432.8000 51.50000 56.67000
49 235.0000 542.1000 51.60000 57.35000
60 239.0000 618.0000 51.57000 92.50000
61 240.0000 512.1000 51.23000 96.60000
52 240.0000 386.2000 60.90000 103.1700

Lbs/Head 1.000 Head SIth. SIth.

\a‘.

I)

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