Better Pork - December 2002

Consolidation continues apace in the U.S. food retailing industry

Pressure from larger retail operations is squeezing margins for meat packers and processors and demanding suppliers with large enough volume for regional or national distribution

by KEN McEWAN

Just as it has at the producer and processor levels, retail consolidation has been occurring as well. The top three retailers in Canada are estimated to have market share of 60 to 70 per cent, compared to 42 per cent for the top five in the United States. While independent retailers and smaller chains are fast losing ground in the rapidly consolidating food retail market, in 1998 they still accounted for about $70 billion US in sales and held 16 per cent of the food retail market.

However, it must be recognized that food industry consolidation will continue in the United States, driven primarily by Wal-Mart with its aggressive food retailing strategy of everyday-low-pricing and Super center concepts, which apply grow-or-perish pressure on other retailers. Smaller market retailers will continue to face fierce pricing competition.

What are the implications for suppliers? Growing pressure from consolidating retail operations reduces margins for meat packers, processors and others. Processors and handlers report increased competition for markets and say that recent retail consolidations have meant narrower margins in both fresh and processed products as processors compete to meet more stringent retail requirements and narrowed margins. Also, large retail chains will often only consider potential suppliers that are capable of producing the large volume of product necessary for national or regional distribution.

These trends, in turn, step up pressure on processors to increase their volume, while at the same time reducing their costs. And the pressure to reduce costs forces them to search for low-cost livestock supplies. Processors expect that these trends will continue and point to recent trends as evidence.

Trends toward consolidation at the consumer level have been persistent and far-reaching. In just the past few years:

• Kroger acquires Fred Meyers and forms the largest retailer (1999) in the United States.

• Royal Ahold acquires the east coast firm, Giant Foods/Pathmark.

• Wal-Mart, together with Sam's Club, expands very rapidly, becoming the nation's largest retailer by 2000. Wal-Mart's food sales for 2000 are nearly threefold the 1996 level.

• Safeway acquires Dominick's.

Consolidation at the retail level is probably about half done, say trade analysts. The expectation is that the top five retailers will soon account for more than 50 per cent of food sales and that consolidation will continue rapidly in the future. (For a listing of the major U.S. supermarkets and their sales volumes, see Table 1.)

Livestock quality is essential to support trends toward more branded products. Also important is the growing emphasis on new product development, including items more convenient for consumers to use. Enhanced control over quality is essential as packers compete for financing necessary to bring new, more convenient products to market to satisfy ever more insistent consumer demands.

Table 1: Supermarket sales and rankings, 2000

1999 Rank	2000 Rank	Company	Number of stores	Sales billions $	Share %
71	1	Wal-Mart Super centres	862	57.2	11.1
1	2	Kroger Company	2,359	49.0	9.5
2	3	Albertsons's	2,514	36.4	7.1
3	4	Safeway	1,726	32.0	6.2
4	5	Ahold, USA	1,208	27.8	5.4
		Top Five	8,669	202.0	39.3
13	6	Supervalu	457	23.3	4.5
8	7	Publix Super Markets	645	14.6	2.8
17	8	Fleming	164	14.4	2.8
6	9	Winn-Dixie Stores	1,160	13.8	2.7
-	10	Loblaws Cos.	596	13.8	2.7
		Top 10	11,691	282.0	54.8
1 Ranked number 4 when Sam's Club stores are included Source: Supermarket News

Consumers now have the ability to purchase more (and more high-value) meat products. The largest single market for pork today is pork for further processing, representing 37.5 per cent of 1999 sales. These products include branded lunchmeats, further processed products under the processor or retail label, or further processed products going into food service or export markets.

Branded programs by packers, a rapidly growing market segment, make up 18.5 per cent of the current market volume and in the future will represent an even larger share of pork sold. Table 2 shows packer pork sales by retail category. These pork products must carry a higher degree of branded reputation and liability and demand higher standards to consistently satisfy end-user expectations. Within the branded products, there is expected to be a switch from further processing by other companies to one of branded retail and food service pork items by packers.

While most pork is unbranded (except for processed products like sausage, ham and bacon), some new products, like Smithfield Foods Lean Generation brand of lean, fresh pork products, provide brand name quality assurances and consistency for consumers.

Table 2: Supermarket sales and rankings, 2000

Category	Percentage
Retail grocery, no branded	14.2
Branded, value-added products	14.2
Food service, non-branded	7.8
Food service branded, value-added	2.3
Domestic processor for further processing	37.5
Export non-branded commodity sales	6.3
Export branded value-added sales	1.7
Wholesaler or broker	11.7
Other	4.5
Source: Meat Packer Vertical Integration and Contract Linkages in the Beef and Pork Industries: An Economic Perspective , American Meat Institute, May 2000, p. 76

Mainstream U.S. pork production is still commodity-focused despite much publicity about the demand for quality and unique products. This means the business model selected by the larger firms remains high-volume, low-margin and price-competitive. The U.S. pork sector seems to be best described by a big-small model, where extremely large firms control leading positions in most markets and small companies operate in a competitive fringe trying to serve a particular market niche or develop a new idea. BP

Ken McEwan is an economics professor at Ridgetown College, Unversity of Guelph, Ridgetown.

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Better Pork -December 2002

"Buyer beware" is the rule for handling co-products

Confidence in Europe has been shattered by a series of health-related crises in the way food is produced. Some preventive measures to stop it happening to your farm and your industry

by KEN PALEN

In Europe, over the past several years, consumer confidence in government regulations relating to the livestock industry has been shattered by a wide range of problems affecting the way their food is produced. Among them:

• Use of GMO raw materials.

• Mycotoxins in cereal grains.

• Classical swine fever.

• Salmonella in eggs and other animal products.

• BSE (mad cow disease) in cattle.

• Dioxin-contaminated fat put in to feeds.

• Foot-and-mouth disease.

• Waste water incorporated in glucose syrup contaminated with Medroxy-Progesterone Acetate (MPA) that can affect human fertility.

  This combined with other changes has resulted in Britain's sow herd has dropping from 800,000 sows to 450,000 sows over the past few years and it now produces only 40 per cent of the pig meat its people consume. All other livestock and poultry sectors are under similar pressure.

  Currently, co-products are moving through second-party recyclers to farms in Ontario. In some cases these products are being unpackaged, mixed with water and shipped out. In many cases, the original source of these products is either not disclosed or not known and no assurance is given that they are "contaminant free" or even that they have had a product analysis is given to the producer. Nutritionists are asked to formulate rations based on little or no available information.

  What about farm liability in these situations? If the meat or milk was contaminated, you can be sure that everyone involved would be sued for damages. Here are some suggestions to help you protect your assets, your livestock and your industry:

• Obtain a certificate of quality from the original manufacturer of the co-product, indicating that the material is fit for livestock consumption and free of salmonella, BSE, hazardous chemicals, pesticides and viruses.

• Obtain a certificate of analysis of the material that shows the nutrient profile, including the variability in the raw material that can be expected.

• Obtain a certificate of analysis of the material showing mycotoxin contamination, if any.

• Obtain a certificate from the trucker showing that the truck has been cleaned of any hazardous chemicals, pesticides or materials that may be susceptible to salmonella, BSE, virus-causing agents or other harmful agents.

• Review handling and storage requirements needed to maintain the quality of the ingredient before and during feeding, and any cleanout requirements needed before receiving the next load. Some co-products provide excellent media for growth of potentially nasty bacteria, moulds and yeasts.

• Review your mixing equipment to see if the co-product can be added to diets in an accurate manner. Co-products may be high in certain nutrients, such as salt, and may have to be accurately limit-fed to realize a benefit without hurting the livestock.

• Provide all of the above information to your nutritional advisor before purchasing the co-product so he/she may review the quality aspects and economic opportunities.

  Once the co-product arrives on the farm, weigh the load to verify what you bought is what you got. Take a sample and check it for off-odour, visual contamination, moulds and separation. Send a sample for analysis to confirm that the material received is what you expected and retain a sample in the freezer in case problems occur. Keep the retained sample until the livestock have been marketed (six to12 months).

  If the co-product is a liquid, any preservatives or inoculates required should be added at unloading to obtain an even mixing effect. If it is a liquid product, check the dry matter content of the material along with the pH before feeding to verify rations fed will be correct. If the liquid co-product is to be fermented, review the procedures used for this process. Inspect it daily and take pH tests to ensure fermentation is proceeding in the correct manner.

  Obtain the proper nutritional package in advance (i.e. premix with lower salt levels) in order to be prepared to feed properly fortified, balanced rations.

  Finally, as you prepare to feed the co-product check all mixing equipment, formulations and dry matter to be sure the animals receive the diet you and your nutritional advisor expect. Monitor feed intake, manure consistency and visual appearance of the animals over the next several days to ensure the quality of material and the performance anticipated. Record the dates for starting co-product feeding for future reviews of economics and performance. If growing animals, a test pen could be used to check gains and feed conversion weekly.

  What happened elsewhere in the world must not be allowed to happen in Ontario and so jeopardize both our industry or our own businesses. BP
  

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  Better Pork -December 2002

  How growth models can be used to develop management and feeding strategies

  Models have many practical applications in commercial pig production -- as an educational tool, as a means of developing realistic production goals or as a way of developing "what if" scenarios that might apply to your operation

  by JANICE MURPHY

  In the real world, it is a challenge to figure out the best feeding or management strategy for individual grower-finisher operations. Many factors influence this strategy, including pig performance potentials, physical farm layout, feed intake, environmental conditions, potential feed ingredients, feed processing and payment systems. To complicate things even further, the best strategy may change over time as environmental or economic conditions change within the industry.

  A pig growth model can integrate all the existing knowledge of nutrient utilization for growth and animal-environment interactions into a single computer program. In this way, models can be effective tools for identifying the most appropriate strategy for individual grower-finisher units by simulating alternative management and feeding strategies and assessing how they measure up.

  Over the past 15 years, a model has been developed by the International Pig Growth Modeling Group, a collaboration between researchers at the University of Guelph, Massey University in New Zealand, Wageningen Agricultural University in the Netherlands and Agribrands International. A recent paper in the Canadian Journal of Animal Science described the principles involved in the development and application of computerized pig growth models for commercial pork production.

  According to researchers, the majority of pig growth models used in the industry today are based on energy and amino acid utilization. This makes sense since the efficiency of pork production hinges on these factors and feed is the single greatest cost in raising pigs -- energy and amino acids account for more than 80 per cent of the nutrient cost in practical pig diets.

  In order to predict economically important production traits, the specifics of an operation need to be reflected accurately within the framework of the model. To accomplish this, the program needs to incorporate information on initial and final body weights, available nutrient levels in feed ingredients and diets, number of rations fed, physical layout of the operation, carcass evaluation and payment systems, prices of products and resources and production goals. Other information that is important to ensure the accuracy of the growth model, but more difficult to quantify, includes protein deposition rates and the amount of feed consumed at various stages of growth.

  One of the greatest challenges facing growth modelers is the prediction of feed intake at various stages of growth, or the establishment of the feed intake curve. Feed intake is influenced by many things, including the animal itself (body weight, sex, health status), the feed being consumed (form, quality and composition), the surrounding environment (environmental temperature, water quality and availability, feeder and pen design) and by interactions between these factors.

  Estimates of feed intake help nutritionists formulate the right level of dietary nutrients once the daily nutrient requirements have been established. Feed intake is also closely related to growth rate, feed conversion, carcass value and, ultimately, profitability. Independent data have shown that there is a large variation in feed intake on commercial farms in Canada, supporting the need to track feed intake continuously at different stages of growth.

  There are many practical applications of models in commercial pig production. They can be used as an educational tool to demonstrate the basic principles of nutrient utilization for growth in pigs. More in-depth knowledge of the interactions between factors helps a nutritionist understand why groups of animals, managed under varying conditions, may respond differently to similar diets and why different diets are necessary under various conditions.

  Models can also be used to develop realistic production goals. If actual performance differs greatly from predicted performance, then models can be used to evaluate systematically why these differences are occurring. Models can be useful in answering basic questions and examining "what if" scenarios that may apply to many different facilities. For example, the effects of changes in the carcass-grading system on the optimum shipping strategy can be measured. A nutritionist can use a growth model to make general feeding recommendations based on a limited number of observations, such as maximum protein deposition and observed levels of feed intake in grower-finisher pigs.

  Growth models can be used to assess an infinite number of management and feeding strategies to decide on the most profitable strategy for an individual operation. In order to accomplish this, the various steps involved include:

  • Establishing accurate feed intake curves and maximum protein deposition.

  • Comparing current observed levels of animal performance to what the model predicted, in order to fine-tune the system.

  • Clearly identifying the feeding and management strategies to be considered.

  • Identifying production goals.

  • Zeroing in on the best solution by using the model to generate performance predictions for each management and feeding strategy and determining how well they measure up.

  • Double-checking that the suggested changes to the management or feeding strategy do result in real-world changes in animal and economic performance.

  • Conducting regular reviews of potential feeding and management strategies as pig conditions, environmental conditions or economic conditions change.

  Regardless of the model being used, say the researchers, effective communication with the producer is paramount in establishing the production goals of the operation. The best feeding and management strategy will depend on whether the goal is to maximize lean growth potential (for breeders), income per pig (for producers with a limited supply of weaner pigs), or income per pig place per year (when space is the limiting factor).BP

  Janice Murphy is Swine Nutritionist with the Ontario Ministry of Agriculture and Food in Fergus. E-mail janice.murphy@omaf.gov.on.ca

  Source: de Lange, C. F. M., Marty, B. J., Birkett, S., Morel, P. and Szkotnicki, B. 2001. Application of pig growth models in commercial pork production. Can. J. Anim. Sci. 81: 1-8.

  
  

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  Better Pork - December 2002

  Ways to control those ammonia gases in your swine buildings

  Ammonia gas can slow growth rates, reduce feed conversion and increase the chances of respitory infection. But research offers some help in controlling this aspect of your operation

  By MARK ARMSTRONG and RON MACDONALD

  Ammonia in swine buildings is produced by the microbial degradation of urea and undigested proteins in the animal faeces. Research has shown that up to 70 per cent of the feed protein is discharged in the urine and faeces (Rom, Hans Benny, Dahl, Preben J., 1997). Of this total nitrogen excretion, approximately two-thirds is in the urine and one-third is in the faeces (Rom et al. 1997).

  Urine that remains on the solid portion of the slatted floor causes evaporation of the ammonia into the room air. Urine that falls into the slurry is mixed with the old slurry on the surface, generating ammonia and causing evaporation from the slurry surface into the air. Faeces excreted into the pit causes the slow generation of organic ammonia, which diffuses towards the surface and is evaporated as ammonia into the air. Up to 17 per cent of the excreted nitrogen from a finisher pig is lost as ammonia gas to the surrounding air in a fully slatted finisher facility (Rom et al. 1997).

  Once ammonia is produced through microbial degradation of the urine and faeces, a balance is then established between soluble ammonia in the slurry and gaseous ammonia in the airspace. Several conditions influence and change both the production and transfer of soluble ammonia to ammonia gases into the room air. Two of the main factors include slurry pH and temperature.

  Slurry pH. The effect of pH is twofold. First, the pH affects the microbial degradation of uric acid to ammonia. The greatest breakdown to ammonia occurs at a pH of approximately 9.0 and decreases to about one-fifth of the maximum ammonia production at a pH of 6.0 (Elliot, Collins, 1982). Secondly, the pH changes the soluble ammonia holding capacity of the manure. Lowering the pH by one unit causes the manure to increase the soluble ammonia holding capacity by tenfold (Elliot et al. 1982). Research of poultry facilities has indicated that very little ammonia gas was released for a litter pH < 7 but rapidly released with a pH > 8 (Elliot et al. 1982).

  Recommended pH levels for swine slurry are about 6.5 to 7.0. Too low a pH value can start to increase levels of volatile fatty acids and sulfides.

  Temperature. Temperature also affects both the microbial ammonia production from uric acid and the change of soluble to gaseous ammonia. As temperature rises, both processes speed up and cause ammonia levels to increase. Room temperatures should be kept at levels for animal comfort.

  Control of ammonia levels. A combination of several management practices should be used to keep ammonia levels under control and at a safe level for both humans and animals.

  • Proper operation of the ventilation system is essential in maintaining a suitable indoor environment for the animal by controlling manure gases, relative humidity, carbon dioxide, carbon monoxide, and temperature.

    Cold weather minimum ventilation of swine housing should be set to maintain relative humidity of between 50 and 70 per cent. This will usually provide enough ventilation to control manure gases and carbon dioxide. Be careful, though, as some facilities will require additional ventilation depending on the method of manure holding and type of heating system used.

    Effects of Ammonia on Human and Animal Health (McFarlane, Jim)
    Exposure concentration	Effect on people and pigs
    25 ppm	Eye irritations (people)
    50 ppm	Headaches (people) ADG reduced 12 per cent (hogs) Increased lung problems
    100 ppm	Irritation of nose and throat (people) ADG reduced 30 per cent (hogs) FI reduced 9 per cent

    Warm weather ventilation is dependent on temperature control. Most ventilation controllers operate on a temperature basis. Ventilation for temperature control will normally be enough to satisfy other air quality problems. However, there are situations that can require more ventilation than is provided for by temperature control (agitation of a deep pit, for example).

  • Swine facilities with manure holding within the animal space should adjust the manure pH to between 6.5 and 7.0 to minimize gaseous ammonia production. This can be done using mild acid solutions or commercially available pH adjusters.

  • Temperature should be maintained for animal comfort.

  • Swine facilities with deep pits or pull plugs are susceptible to solids buildup within the pit/gutter in corners and below feeders. Solids left over in the pit are still producing ammonia even before the new crop of pigs enters the room. This can increase ammonia levels above normal production from new manure. It is very important to minimize any solids buildup, clean the pit/gutter as much as possible and add water to the pit/gutter before the new crop. Add enough water to the cleaned pits to cover the entire pit/gutter floor and any remaining solids. This can be as much water added to provide a depth of six inches or more.

    Some areas of the pit/gutter may even form a crust on the top of the slurry. The creation of this crust can increase ammonia gases in the airspace due to moisture evaporation and, as a result, ammonia evaporation.

    It is important for all methods including ventilation, pH, temperature, and minimize solids buildup be used as the primary attempt of controlling ammonia gases. Several options are available if ammonia gases remain at unacceptable levels.

  • Commercially marketed feed additives are available which help stabilize the nitrogen remaining in the manure after excretion. These additives may only need to be used during certain periods of the pig's growth (i.e., during cold weather with large pigs). Your feed company can provide recommended rations and prices.

  • Stabilization of ammonia in the storage area can be done using a chemical additive in the slurry. Several chemicals are commercially available. Check the uses, application and limitations of the chemicals before choosing the correct type of chemical that will work for your facility.

  • Several forms of bacteria or enzymes are available to aid in the microbial degradation of the manure slurry. Bacteria and enzymes may require a minimal amount of time to work as designed. This may limit the use in short-term storages, such as pull-plug gutters, but may be effective in longer-term storages, such as pits and outdoor storages. Temperatures may also determine the effectiveness of the bacteria or enzyme used. Do your research on these products to determine the environment in which they will work.

  Recommended limits. Ammonia gas can slow growth rate and reduce feed-conversion efficiency. It also hinders the lungs' normal ability to remove or destroy airborne disease organisms that are inhaled, increasing the chances of respiratory infection. The recommended maximum exposure limit to ammonia is 20 ppm for pigs and 7-10 ppm for humans. Ammonia gas should be monitored on a continuous basis throughout cold weather ventilation. BP

  
  Ron MacDonald, P.Eng., and Mark Armstrong, P.Eng., are agricultural engineers with Agviro Inc. in Guelph.

  
  
  

  References

  Elliott, H.A., Collins, N.E., "Factors Affecting Ammonia Release in Broiler Houses", Transactions of the ASAE, 1982.
  Rom, Hans Benny, Dahl, Preben J., "Quantification of the Ammonia Balance in Fattening Pig Units with Totally Slatted Floors," Proceedings of the Fifth International Symposium, Livestock Environment V, Volume I, p. 71, Bloomington, Minnesota, May 29-31, 1997.
  McFarlane, Jim, personal research.
  Arogo, L. "Evaluation of Mass Transfer Coefficient of Ammonia from Liquid Swine Manure," Proceedings of the International Conference on Air Pollution from Agricultural Operations, p. 111, Kansas City, Missouri, Feb.7-9, 1996.
  Verdoes, N. "Possibilities of Ammonia Reduction on Sow Farms," Proceedings of the International Conference on Air Pollution from Agricultural Operations, p. 111, Kansas City, Missouri, Feb.7-9, 1996.

  
  

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