Better Pork - June 2007

Cover Story

Group Benchmarking
The friendly competition that drives productivity

By joining up with others and sharing sometimes sensitive production data, some Ontario producers are finding new ways to cut their costs and improve their margins

by KATE PROCTER

In all facets of life, people put themselves to the test to see how they compare with others. Whether they race, take exams or enter competitions, all are forms of benchmarking – a tool which helps people discover their strengths and weaknesses in order to get better.

Benchmarking has been used extensively in the dairy industry and several Ontario pork producers agree that it has helped them become more competitive in an industry with shrinking margins.

“When we shared production information, it clearly illustrated what some of my shortcomings were,” says Bev Hill, who operates Hill & Hill Farms Ltd. near Varna. He joined the Comparative Information Process for Hog Enterprise Reporting (CIPHER) group in 2001. This benchmarking group originated with eight different pork production operations in Ontario which now range from 500 sows to more than 25,000. Hill was surprised to learn that, while he thought he was probably average or above with respect to productivity, within the CIPHER group he was a high-cost producer. “And then things got worse,” he adds.  In a comparison from January 2002 to June 2005, Hill had a cost disadvantage of $16.09 per weaned pig over the CIPHER group average. 

This disadvantage was driven by a number of factors. He found that he was weaning 2.8 fewer pigs per inventory female than the group average. He also spent $1.45 per weaned pig more on health in the sow barn, $1.96 more on health in the nursery and $1.98 per market pig more on health in the finishing barn. His average daily gain in the finishing barn was 10 per cent lower than the group average.

“We knew we had health issues. What we didn’t know was how much we could improve our productivity if we improved health,” says Hill. While the herd never had a PRRS outbreak, Hill suspects the virus was slightly affecting the herd without causing a major disease challenge.  

They were also seriously challenged by Actinobacillus pleuropneumoniae (APP). Hill says they would have been forced to make the decision to depopulate and repopulate their barn without involvement in CIPHER. But making that leap was much easier when he was able to see production numbers from herds that did not have the same health challenges.  “It gave us the confidence that we would improve productivity,” he adds.
Hill weaned the last pigs from the original herd in September 2005 and farrowed the first new pigs three months later. Barn staff, genetics, buildings and nutrition programs remain the same, but they have enjoyed a $32.60 per market pig improvement on their bottom line. 

One of the biggest differences came from the number of pigs weaned per inventoried female. They went from an average of 20.1 to 26.4, resulting in an $11.55 difference per sow. They also improved feed conversion from 3.14 to 2.73, on their market pigs, a measure of the number of kilograms of feed required to produce a kilogram of weight gain, which worked out to $7.79.

Hill says they spent $6.18 less per pig on health in the finishing barn and $5.20 less in the nursery after they depopulated. They weaned slightly over 27 pigs per sow per year in the quarter ending at the end of February.

Hill & Hill Farms went from being one of the lowest producers to being one of the highest. “One of the things that happens is some friendly competition,” says Hill, adding that the people involved in his group are pretty innovative. “But I don’t think we’ll ever get to the point where we’ve learned everything.”

Reliable data

One of the big advantages of belonging to a group like CIPHER is that all the members are producers. “The hog farm community has access to more data than we have ever had before,” says Hill. “A lot of it is provided by sales people selling feed or genetics. There is always a concern that some of the presenters may lack objectivity.”

In this group, he is totally comfortable with the integrity of the data. The group  makes sure that the key indicators they are using provide useful information and they review  the numbers twice a year to make sure that the formulas are telling the story they want to hear. 

Rob McDougall, director of operations for Elite Swine in Ontario, has been a CIPHER member for around five years. He points out that the mandate of the group is to focus on key production drivers and costs. It gives producers a good measure of their strengths, opportunities and room for improvement, he adds.

One of the numbers that the group has focused on is pigs per sow per year, a measure that is used as a base figure across North America and around the world. This number can be calculated in many different ways, so the CIPHER group has taken time to develop its own definition. It uses the total number of pigs weaned in a system for a six-month period. This number is multiplied by two, to represent the entire year, then divided by every sow that is eating feed in the barn. “It is a real number,” stresses McDougall.  

He believes that there are real benefits in belonging to a group like this for a sustained period. It is a relationship builder and it “kind of gives you a snapshot of what is going on in the rest of the world,” he says. It is easy to get so focused on what is happening within a system, it is good to have a chance to look outward and compare notes.

Ontario producers often hear about the advantages of raising pigs in the United States or in Manitoba. The CIPHER group invited a producer from Ohio and one from Manitoba to join them in order to determine if there was any truth to this. The herds they selected are above-average producers and they found that there are definite competitive advantages to raising pigs in both locations.

In Ohio and Manitoba, feed costs and utility costs were lower, but Ontario had a cost advantage on artificial insemination costs. However, while productivity numbers were similar in all three areas, Ohio’s significant feed cost advantage appears to be declining, if not disappearing altogether, notes Hill.

A variety of different numbers are reviewed, including born alive, weaned, farrowing rate, utilities and labour. The comparison doesn’t measure capital costs or all of the cash costs and leaves out depreciation, while looking at total revenue and margin after feed costs. 

Labour costs vary quite a bit and there are some significant differences between operations – as much as 40 to 50 per cent, says Hill. The operation with the lowest labour costs also has the highest productivity. The producers involved do not use family labour, other than in management roles, and all of them already included their own time in the cost of labour calculation.

Labour costs too high

Gilbert Vanden Heuvel, employs 15 full-time staff and one part-time on his 2,000-head sow operation located near Goderich, in Huron County. He has been involved with a different benchmarking group that started three years ago. This group has 200-head to 2,000-head herds represented.

Vanden Heuvel has had a stable work force on his farm, which has lots of experience, but he found that his labour costs were higher when compared to the rest of the group. As a result of what he learned, Vanden Heuvel reduced the amount of time spent in the finishing barn.   

This group meets twice a year for regular benchmarking sessions, but has a further meeting time where one group member is chosen to have his operation dissected by the other members of the group. “It can get a little sensitive – you think that you are doing the best that you can and then someone tells you it is wrong,” says Vanden Heuvel.
 
Vanden Heuvel agrees that there are benefits to being involved over a long period of time. “We’ve opened up more and provide more dollar numbers and personal numbers,” he says, and there is more in-depth discussion. For example,  they discovered that one operation had a utility bill that  was 50 per cent higher than the others and  they wanted  to know why. After some discussion, it became apparent that one person was buying propane differently than  the others. Vanden Heuvel says he has found that his energy bills are consistently higher than those in the rest of the group and he has worked hard at trying to solve this problem, but has not managed to yet.

Over the three years since the group began, some things have shown improvement, but some have not. Health challenges have hit a lot of producers hard and Vanden Heuvel notes that feed conversion, growth rate and morality numbers have all worsened since the group started.

Vanden Heuvel feeds homegrown high-moisture corn on his operation. He notes that there is always debate about whether to use the opportunity cost of corn or the cost of production in evaluating efficiency. While the group has agreed to use the current market price of corn, “with the price of corn going up, I am going to track both cost of production and opportunity cost,” he says.

If there is any disadvantage to belonging to a group like this, it is that everyone has eventually to come to a consensus in order for the group to work efficiently. Vanden Heuvel uses a four-week weaning interval and would love to know how this compares with other operations. Since he is the only one doing it, though, no one else wants to talk about it, he says. 

He points out that change often involves hard work. Vanden Heuvel learned that his finishing facility is not as energy efficient as some. It can get discouraging, he says, when you work hard at taking $0.25 or $.50 per pig off the energy cost and then the dollar shifts and the change in the bottom line disappears.

Ken McEwan and Randy Duffy at Ridgetown College actually take care of the numbers for both groups, provide a booklet for each meeting and do some analysis. “Ken has learned from us and we have learned from him,” says Vanden Heuvel. 

Vanden Heuvel agrees that the group provides a great learning experience and is valuable to his operation. “I have changed the way I farm because of it,” he says. “I would encourage others to get into a group because it really helps.”

As members of the group gain trust in each other, they share more and learn more. “At the first couple of meetings, we didn’t talk about dollars, we mostly stuck to production numbers. It didn’t help much until we talked about numbers,” says Vanden Heuvel.

“You can’t go through life with catchers’ mitts on both hands,” he concludes. “You have to give back.” BP