Benchmark Perspectives for The Ontario Swine Industry

Transcription

1 Benchmark Perspectives for The Ontario Swine Industry Prepared for Ontario Pork Producers Marketing Board Etobicoke, Ontario By Lynn Marchand and Ken McEwan Fall, 1999

2 Acknowledgements This study was made possible through the generous support and contributions made by the Ontario Pork Producers Marketing Board. This project was partially funded through the Canada-Ontario Research and Development Program funded by Agriculture and Agri-Food Canada and the Ontario Ministry of Agriculture, Food, and Rural Affairs and was administered by the Agricultural Adaptation Council. Special thanks are extended to the thousands of individuals who took the time to complete all or part of the survey instrument. By providing benchmarks on the swine industry s size, scale, and production capabilities, producers have helped advance the knowledge known about the structural changes and trends occurring in the production sector. A number of people assisted with this study and deserve recognition. These individuals include Kyla Reid, Sue Larsh, Brenda Chisholm, Linda Ross, Lynn Theander, Lisa Bates, Randy Duffy, Carolyn Lucio who helped with telephone calls and/or data entry. Further, Tom Button contributed to the project by writing the first draft of this document. Finally, appreciation is extended to any others who assisted with this project in some way.

3 Executive Summary Benchmark Perspectives for The Ontario Swine Industry This study was undertaken to provide a detailed picture of Ontario s pork production by asking producers of all farm types to participate. A survey was mailed to 6,600 individuals identified as pig producers. There were 3,563 respondents who said they owned pigs at the time the survey was completed. A significant number of people (15%) would not participate in the study at all or chose not to respond by mail or telephone despite several requests for participation. This study attempts to describe the various individuals and production segments that comprise Ontario's pork production sector. Specifically, the objectives of the study were to: 1. Develop a database of basic industry descriptive statistics including producer numbers, type of production, animal inventory levels, farrowing intentions, and expansion or contraction plans. 2. Identify and quantify indicators of future change and develop benchmark statistics to enable the monitoring of producer and industry trends for a range of categories of producers and production systems. The survey form along with a return envelope, was sent to most individuals with the Ontario Pork monthly newsletter which contained an explanatory notice about the study. The remainder were mailed separately with a letter of explanation and a return envelope. A reminder letter followed this last group one week later. One month later a telephone campaign began to contact those individuals who had not returned a completed survey form. Telephone numbers were not provided for every producer, thus additional letters were mailed requesting the completion of the questionnaire. Results from the study showed that there are notable differences between: 1) Young Farmers vs Older Farmers - About 8.9% of the producers were classified as young i.e. less than 30 years old, which is one third of the number of operations owned by farmers aged 50 or older. This group of young farmers reported a higher frequency of profitability when compared to producers greater than 50 years old. Also, these young farmers carried more debt and were more likely to invest in the future of their operation. One fifth (19.8%) of the producers surveyed were older than 55 and thus are most likely to retire in the foreseeable future. 2) Type of Ownership - The business type of sole proprietorships dominated the survey responses (55.8%) and these operations were generally smaller and less profitable. Corporations (family and business - 17%) reported the highest profitability and the most commitment to the future of the industry. Large farms are much more likely than small or medium sized farms to be owned by family or business corporations. Only 0.2% of the operations reported a co-operative business structure. 3) Large vs Small Operations - Large operations (> $500,000 in total farm sales) are more profitable, carry more debt and plan to invest more in the industry as they continue to expand their operations. Smaller farms (< $100,000) currently comprise the bulk of producers, however, this group produces only a fraction of the provincial inventory. Many operations are specialized: 24.8% of producers

4 generate over 80% of their gross farm sales through swine operations; another 42% earn at least 60% of their gross sales from swine. 4) Age of Buildings - Almost 50% of the buildings used to rear pigs are more than 20 years old. 11.6% of the buildings have been built within the past five years. 5) Profitability and Debt - Profitability was not necessarily tied to debt level since some larger farms with relatively high debt levels were reporting good profitability. It is unclear the exact reasons why larger producers with higher debt levels are reporting better profits. This connection between profitability and size would suggest possible benefits from economies of scale however, previous financial management studies have not displayed much evidence of this being a factor in Ontario. In total, 55.8% of the producers reported low debt loads. 6) Production Types - The frequency of the main production types found in Ontario is as follows: farrow to finish % and finishing (50lb to market weight) %. Farrow to early wean represents 4% of producers and nurseries account for 0.3% of farm types. These results verify that the long run trend in Ontario towards consolidation will most likely continue with many small farms leaving the business. Ontario s swine industry remains dominated by the family farm. Even in the largest sales categories, business corporations own a small percentage of the pigs. The majority of pigs are reared on relatively large farms, regardless of business type.

5 Table of Contents Pg. # 1.0 Introduction Purpose, Methodology and Limitations Identifying Pig Producers Survey Protocol Survey Questions Rate of Response Survey Limitations Survey Responses and Discussion... 7 B Demographics and Farm Structure... 7 C. Current and Forecast Inventories... 9 D. Financial Performance and Intentions E. Questions for Non-Owners Analysis of Specific Variables Who Owns Ontario s Pigs Young and Old: The Role of Operator Age The Makings of Profit Some Observations on Debt The Role of Farm Size A Comparison of Production Systems The Future Shape of The Industry Future Pig Producers Future Intentions by Operator Age Future Intentions by Farm Size Future Pig Operations Future Intentions by Specialization Future Intentions by Asset Allocation Future Intentions by Age of Facilities Future Intentions by Production System Future Pig Businesses Future Intentions by Business Type Future Intentions by Financial Status Investing in Expansion Findings Small Farms vs Large Farms Young vs Old Farmers Ownership Conclusions i

6 List of Appendices Appendix A - Survey Form...36 Appendix B - Summary of Total Responses Per Question...39 Appendix C - National and International Comparisons ii

7 List of Tables Table 1: Counties Ranked by Total Number of Producers with Pigs...2 Table 2: Counties Ranked by Total Number of Pigs...2 Table 3: Response Codings...5 Table 4: Age of Producer...7 Table 5: Business Type...8 Table 6: Production System...8 Table 7: Owned Acreage vs Additional Acreage for Manure Spreading...9 Table 8: Current Inventories...10 Table 9: Pigs Sold During Last Year...10 Table 10: Intentions for Operation Size...11 Table 11: Intentions for Numbers of Sows...12 Table 12: Gross Farm Sales vs Total Inventory...12 Table 13: % of Total Farm Sales - Swine Related...13 Table 14: Fair Market Value - Total Farm Assets...13 Table 15: % Farm Assets - Swine Related...14 Table 16: Frequency of Profitability...14 Table 17: Frequency of Debt Level...15 Table 18: Age of Swine Facilities...16 Table 19: Intentions for New Capital Investment...16 Table 20: Business Type by Swine Inventory...18 Table 21: Business Type by Profitability...19 Table 22: Operator Age by Profitability...19 Table 23: Sow Inventory by Operator Age...20 Table 24: Operator Age by Debt...20 Table 25: Operator Age by Facilities Age...21 Table 26: Total Pig Marketings by Profitability...21 Table 27: Profitability by Debt...22 Table 28: Business Type by Debt...22 Table 29: Total Pig Marketings by Debt...23 Table 30: Total Farm Sales by Debt...24 Table 31: Total Farm Sales by Profitability...24 Table 32: Total Farm Sales by Age of Facilities...25 Table 33: Production System by Specific Variables...25 Table 34: Operator Age by Future Intentions...26 Table 35: Gross Farm Sales by Future Intentions...27 Table 36: Gross Farm Sales by Investment Over the Next 2 Years...28 Table 37: Marketings by Future Intentions...28 Table 38: % Total Sales Swine Related by Future Intentions...29 Table 39: Production System by Future Intentions...30 Table 40: Business Type by Future Intentions...30 Table 41: Business Type by Investment Over the Next 2 Years...31 iii

8 List of Tables (cont d)... Table 42: Profitability by Future Intentions...31 Table 43: Debt by Future Intentions...32 Table 44: Average Number of Pigs/Farm (Canada, 1996)...43 Table 45: Pig Inventory by Size of Farm (Canada, 1996)...43 Table 46: Pig Inventory by Size of Farm (International, 1996)...44 iv

9 1.0 INTRODUCTION The swine industry in Ontario is dynamic and constantly evolving. Until the last few years it was common for many farms to have a few pigs on their farm which would be raised from birth to market weight. There are now many different production systems and the scale of the farms involved in the production of pigs has changed as well. Overall, the average Ontario swine producer is in their mid-40's. They operate a farrow to finish operation as a sole proprietor and market approximately 500 pigs per year. The swine enterprise contributes 50 per cent of the total gross farm sales which are approximately $200,000 and total farm assets are valued at close to $500,000 with roughly 30 per cent of these assets dedicated to the production of pigs. The main pig producing facilities on the average farm are more than twenty years old and they plan to maintain their current level of production with no major capital investment planned for the next two years. These farms own approximately 100 tillable acres and have another 100 acres available to them for the purpose of manure disposal. These producers are relatively profitable with low to medium debt levels. Whether the numerically 'average' pig producer is also a 'typical' swine producer, however, is a vital distinction. During the past twenty years the number of pig producers has steadily declined from just over 18,000 to only 5,500 in Currently the number of large producers (>3,000 pigs sold/yr) is increasing while the number of small producers (<3,000 pigs sold/yr) is decreasing. This trend is expected to continue as large farms continue to increase in number and size and small farms leave the industry. Even though the producer group as a whole may be changing, it is important to note that the provincial hog marketings have remained relatively constant during this time at about million. At the county level there are differences in farm size and number. Table 1 depicts the top ten ranked counties in Ontario as determined by the total number of producers per county. All of these counties are located in southern Ontario. Perth ranks as the number one county with 430 producers and a total pig inventory of approximately 472,000. Although Waterloo ranks second in terms of the number of producers, it is much lower in terms of pig inventory. Huron county has the highest average number of pigs per farm but ranks third in terms of total producers which indicates it has the largest farms in the province in terms of the number of pigs per farm.

10 Table 1: Counties Ranked by Total Number of Producers with Pigs # Producers Total Avg # Pigs Ranking County with Pigs Inventory of Pigs Per Farm 1 Perth ,357 1, Waterloo , Huron ,028 1, Wellington , Oxford ,889 1, Bruce , Middlesex ,634 1, Grey , Kent , Lambton , If the counties are ranked according to the total inventory of pigs, Perth is still ranked number one followed closely by Huron. Haldimand-Norfolk is ranked ninth in terms of total inventory but it has a relatively small number of producers in the county. Comparing the average number of pigs per farm shows that Haldimand-Norfolk follows Huron, the leader, very closely. Table 2: Counties Ranked by Total Number of Pigs # Producers Total Avg # Pigs Ranking County with Pigs Inventory of Pigs Per Farm 1 Perth ,357 1, Huron ,028 1, Oxford ,889 1, Middlesex ,634 1, Wellington , Waterloo , Lambton , Kent , Haldimand-Norfolk 56 67,223 1, Bruce , These tables show that there is much diversity in the number and size of farms throughout southern Ontario. Some counties are represented on average by many small pig farms (ie. Waterloo which averages 414 pigs/farm across 391 producers). Other counties have a small number of producers who have large farms (ie. Haldimand-Norfolk which has only 56 producers averaging 1200 pigs/farm). The traditional hog producing counties such as Huron and Perth have a large number of producers with relatively large farms.

11 2.0 PURPOSE, METHODOLOGY AND LIMITATIONS This study is intended to describe the demographics, production, resources, and future intentions of the individuals who comprise Ontario's pork production sector. Specifically, the objectives of the study were to: 1. Develop a database of basic industry descriptive statistics including producer numbers, type of production, animal inventory levels and expansion or contraction plans. 2. Identify and quantify indicators of future change and develop benchmark statistics to enable the monitoring of producer and industry trends for a range of categories of producers and production criteria. There has been general consensus that Ontario's pork production sector is rapidly evolving and there have been concerns that as a result, surveys of small samples may be untrustworthy. Therefore, this study was designed to attempt to survey every farmer and farm operation in Ontario who own one or more pigs. 2.1 Identifying Pig Producers A total of 6,800 names from two lists were provided to the researchers by Ontario Pork. These lists identified individuals who had recently sold market hogs as well as individuals involved in nursery and weaner production. Next, duplications were eliminated where more than one person was identified per farm. The names of a few recently deceased individuals were also removed, bringing the base list to 6,660 names. At the time of the survey 3,563 people indicated they owned one or more pigs. 2.2 Survey Protocol The survey form and return envelope were circulated in the October issue of the Ontario Pork newsletter, mailed October 1, Explanatory notices were printed in both the September and the October issues. Survey forms, return envelopes and letters of explanation were mailed October 8, 1998 to those not receiving the Ontario Pork newsletter, together with a reminder letter one week later. Participants were requested to complete the survey form and return it in the envelope provided. Telephone calls were placed to those producers from whom survey forms had not been received by October 28, Producers were given the option to answer the survey questions by telephone or were asked to complete the survey on their own and promptly

12 return it by mail. These calls continued until January 29,1999. Where there was no telephone number provided and a survey had not been received, a second mailing including an explanatory letter, a survey form and return envelope was made on December 1, A final mailing with explanatory letter, survey form and return envelope was made December 23, 1998 to individuals that the researchers had not been able to contact. A sample of the letters and survey form are provided in Appendix A. 2.3 Survey Questions The survey was designed to elicit sufficient information to profile the producer without being rejected as overly intrusive, complex or time-consuming. For most questions, answer ranges were provided. Specific answers were requested, however, for inventory numbers and for expected sales of weaners and market hogs for the year. Survey questions covered five areas: a) Personal Information: Producers were asked to provide their name, mailing address, telephone number and farm location in order to help the survey team match the respondent to the original list and to ensure the accuracy of that information. b) Demographics and Farm Structure: Producers were asked to provide their age and general information regarding type of proprietorship, type of production system, and amount of land available for manure application. c) Inventory: Producers were asked to provide current inventories of boars and sows and pigs by weight class. As well, they were asked to provide expected sales for the next year and future intentions for the overall pig operation. d) Financial: Producers were asked to provide total gross farm sales and total fair market value for the entire farm operation and to state the percentage of these numbers directly attributable to the swine operation. This section of the survey also asked questions regarding profitability, indebtedness, age of main pig facilities, and the expected level of new capital investment for the next two years. e) For Non-Owners of Pigs: Individuals who were on the list but were not currently owners of pigs were asked whether they are producing swine under contract, and whether they intend to own pigs in the next two years.

13 2.4 Rate of Response As surveys were completed over the telephone or received through they mail, they were coded into the following categories: a) Complete to Some Extent - Respondent answered some or all of the survey questions. b) Refusals - These individuals were asked but declined to complete the survey. c) Unable to Contact - Although numerous attempts were made by mail and by telephone, there was no response from these producers. d) No Telephone - Attempts by mail to secure participation by these individuals were unsuccessful and the survey team was unable to obtain a telephone number or found the number provided was not in service. Of the 6,660 names on the base list, response codings were as follows: Table 3: Response Codings Complete to Some Extent 5, % Refusals % Unable to Contact % No Telephone % Total 6, % Of the 5,658 responses, 2,221 (39.3 per cent) were received by mail. There were 3,536 participants (53%) who indicated they owned pigs at the time of the survey. 2.5 Survey Limitations The survey was not able to achieve its goal of obtaining a response from every individual in Ontario who owns one or more pigs. As indicated above, the team received responses from 82.5 per cent of 6,660 individuals on the base list. The team is not able to authoritatively rate the completeness of this list or to comment on the nature of the pig operations of the 17.5 per of named individuals from whom responses were not obtained. It may be valuable, however, to note that the swine inventory reported by respondents is 2.65 million head. During the survey period, the provincial inventory reported by Statistics Canada was 3.44 million head.

14 In addition, the survey was administered during a period of declining pork prices. This may have influenced the future intentions and perhaps the profitability and debt level responses from producers. As well, these influences may not have been uniformly at work since the survey took four months to complete. The wording of certain questions may also have distorted the responses. For example, the question regarding multiple farm locations did not specifically refer to more than one pig production location. Producers may have indicated yes to having more than one farm location even if all their pig operations are conducted at only one site. Readers should also be aware that respondents may have variable definitions especially for financial terms such as 'gross farm sales', 'fair market value' and 'profitability'. The survey assumes that producers accurately reported their swine inventories and that all participants have concentrated their pig operations in one of the provided production systems.

15 3.0 SURVEY RESPONSES AND DISCUSSION Summarized with occasional narrative below are survey responses from 5,658 survey participants representing an inventory of 2.65 million pigs. Results are arranged according to their order in the questionnaire. Section A is not summarized as it consisted of personal identification information including names and addresses. It is interesting to note, however, that 12.8 per cent of respondents provided fax numbers and 6.0 per cent provided addresses. Other sections in the survey are: Section B: Demographics and Farm Structure; Section C: Current and Forecast Inventories; Section D: Financial Performance and Intentions; and Section E: Questions for Non-Owners. A response rate is included below most of the tables in the following sections to illustrate the number of responses received for a particular question. A summary of results and total responses for each question is provided in Appendix B. B. DEMOGRAPHICS AND FARM STRUCTURE B.1 Do you own one or more pigs? Of the 5,658 respondents, 3,563 or 64.9 per cent reported they owned one or more pigs at the time of the survey. Recall, Section E summarizes responses of those who did not own pigs. B.2 What is the age of the main decision maker on your farming operation? The majority of farms (62.9%) were operated by individuals aged 41 or older while only 8.9 per cent of farms were operated by producers aged 30 or younger. This compares to 28.1 per cent of respondents who are 31 to 40, and 31.1 per cent who are 41 to 50, and may confirm the frequent observation that fewer young people are looking to farming as a career. Table 4: Age of Producer Age Percent Age Percent <25 yrs 1.7% % % % % % % >55 yrs 19.8% Response Rate: 3,330

16 B.3 What is the main type of business organization? Sole proprietorships are the most common type of business organization, followed by partnerships and family corporations. The number of business corporations and co-ops was small. Table 5: Business Type Business Type Percent Sole Proprietorship 55.8% Partnership 26.8% Family Corporation 14.8% Business Corporation 2.4% Co-op 0.2% Response Rate: 3,329 B.4 Are you a seedstock supplier? Only 163 respondents, representing 4.6 per cent of participants who own pigs, reported they are seed stock suppliers. B.5 What type of swine production system do you currently have? While a great deal of attention has been paid to innovative swine production systems in recent years, farrow-to-finish remains the most common. Table 6: Production System System % Farrow to finish 57.2% Farrow to early wean 4.0% Farrow to feeder (50 lbs) 8.2% Nursery 0.3% Feeder to finisher 12.7% Finisher 17.6% Response Rate: 3,333

17 B.6 How many tillable acres do you own? and How many additional acres do you have access to for manure spreading? Nearly three quarters (74.5%) of the respondents own fewer than 200 tillable acres. Table 7: Owned Acreage vs Additional Acreage for Manure Spreading Acres %Owned % Additional Acres <100 acres 40.1% 58.1% % 20.0% % 7.4% >300 acres 13.6% 14.5% Response Rate: 3,265 2,778 Many pig producers (41.9 per cent) are utilizing at least 100 acres of non-owned land for manure applications. From the survey it is not possible to determine what portion of these acres are also cropped by the respondents and what portion may be covered with custom application arrangements. B.8 Have you completed a Nutrient Management Plan? At the time of the survey, 9.9 per cent of respondents had completed a Nutrient Management Plan and 90.1 per cent had not. Larger farms were much more likely to have completed a plan (21% had completed one). Many participants did not have a good understanding of what a Nutrient Management Plan was. B.9 Have you completed an Environmental Farm Plan? At the time of the survey, 24.4 per cent of respondents had completed an Environmental Farm Plan. Again, larger farms were more likely to have completed a plan (39% had completed one). It should also be noted that the timing of the survey would have missed those individuals who were intending to complete either a Nutrient Management Plan or an Environmental Farm Plan during the winter of 1998 / 99. C. CURRENT AND FORECAST INVENTORIES C.1 Current Inventories Total inventory reported by respondents was 2,651,448 animals. During the survey period, Statistics Canada estimated the Ontario herd was million head. A breakdown by pig

18 class is provided in Table 8. Table 8: Current Inventories Survey Inventories Statistics Canada (Jan. 1, 1999) Surv/St.Ca Swine Type Total % of Swine Type Total % of % Diff Boars % Boars % 22.4% Sows % Sows & bred gilts % 12.6% Pigs <20 kgs % Pigs <20 kgs % 25.2% Pigs kgs % Pigs kgs % 26.4% Pigs > 60 kgs % Pigs <60 kgs % 24.1% % % 23.0% This table indicates that although the total inventory of pigs on farm compiled from the survey represents 77% of the Statistics Canada estimate, the number of sows reported is 87.4% of the figure provided by Statistics Canada. The survey captured a significant portion of the number of sows provincially, however, there is still a substantial number (almost 42,000 sows) not accounted for in the survey. Part of this is due to participant reluctance to disclose these numbers as several participants chose not to provide inventory numbers. See Appendix C for National and International Comparisons. C.2 What is the total number of pigs you sold during the past year? Most Ontario pig production units are small per cent of respondents reported selling fewer than 500 pigs. In fact, 88.2 per cent of respondents sold fewer than 3,000 pigs. The majority of pigs, however, are produced by large operations. Please see Section 4.5 for a more complete discussion. Table 9: Pigs Sold During Last Year # Pigs Sold % of Respondents <500 pigs 43.6% 500-1, % 1,001-3, % 3,001-5, % 5,001-7, % >7,000 pigs 4.2% Response Rate: 3,303

19 C.3 How many market hogs do you expect to sell during the next year? Respondents indicated they would sell 5,097,887 market hogs during the next year. 5.7 per cent will be sold by farms with gross farm sales under $100,000, 39.2 per cent by farms with sales from $100,000 to $500,000, and 55.4% by farms with sales in excess of $500,000. C.4 How many weaner pigs do you expect to sell during the year? Respondents indicated they would sell 2,000,947 weaners during the next year. The breakdown of this number by sales category is similar to market hogs above with 6.6 per cent to be sold by small farms, 35.1 per cent by medium sized farms and 58.3 per cent by large farms. C.5 During the next two years, do you plan to increase or decrease the size of your operation? Responses indicated that the rapid evolution of the Ontario pig production sector can be expected to continue. Table 10 below shows that within the next two years, 12.5 per cent of respondents said they intend to increase the size of their operations. At the same time, 15.5 per cent said they would cut back their swine activities, including 5.4 per cent who said they would reduce their inventories and 10.1 per cent who said they planned to cease pig production altogether. Overall, most participants (71.9%) plan to stay the same size over the next two years. Table 10: Intentions for Operation Size Increase % of Respondents Decrease % of Respondents <5% 1.4% <5% 1.1% 5-10% 3.8% 5-10% 0.9% 11-20% 2.3% 11-20% 0.6% 21-50% 2.4% 21-50% 1.6% >50% 2.6% >50% 1.2% Stay Same Size 71.9% Leave the Industry 10.1% Response Rate: 3,321 C.6 If you own sows, do you plan to stay the same, increase, or decrease sow numbers during the next 2 years? There were 2,300 respondents who owned sows at the time of the survey per cent

20 indicated they would increase their number of sows over the next two years while 8.9 said they would reduce their sow herds and 76.1 per cent said they would stay the same size. Table 11: Intentions for Numbers of Sows Increase % of Respondents Decrease % of Respondents <5% 2.3% <5% 1.7% 5-10% 4.7% 5-10% 1.4% 11-20% 2.7% 11-20% 0.7% 21-50% 2.7% 21-50% 1.6% >50% 2.5% >50% 3.5% Stay Same Size 76.1% Response Rate: 2,147 D. FINANCIAL PERFORMANCE AND INTENTIONS D.1a What are your approximate total gross farm sales? We saw with Question C.2 that many Ontario pig operations are relatively small with 43.6% of survey participants selling less than 500 pigs in the last year. Similar inferences can be drawn from the respondents' reporting of their total gross farm sales. More than one third of farmers (37.7%) with swine reported total farm sales of less than $100,000 as shown in Table 12. Table 12: Gross Farm Sales vs Total Inventory Gross Farm Sales # of Farms Reporting Pigs % of Total Farms Total Inventory (hd) % of Total Inventory less than $50K $50K to $100K $100K to $250K $250K to $500K $500K to $1M more than $1M Total , % 17.5% 30.6% 18.9% 8.0% 4.8% 100.0% 57, , , , , ,659 2,509, % 4.5% 16.7% 22.0% 17.2% 37.2% 100.0% One half (49.5%) of producers reported gross farm sales of $100,000 to $500,000. These farms own 38.7 per cent of the provincial pig inventory surveyed and plan to sell 39.2 per cent of total market hogs over the next year.

21 D.1b What % of your total gross farm sales would be swine related? Responses are indicative of the diversity within Ontario's swine production sector. In each sales category, responses were fairly evenly distributed as shown in Table 13. (This suggests the survey obtained participation from a wide range of farms.) Table 13: % Total Farm Sales - Swine Related % Sales % of Respondents <20% 18.6% 20-40% 21.5% 41-60% 17.8% 61-80% 17.2% >80% 24.8% Response Rate: 3,221 One fifth of farmers (18.6%) earn less than 20 per cent of their gross sales from their swine activities. One quarter of respondents (24.8%) reported earning in excess of 80 per cent of their gross sales from their swine operations. These farms tend to be large, high-debt, and relatively profitable. D.2a What is the current Fair Market Value of your total farm assets (including breeding herd)? Fair market values as reported are consistent with a large number of smaller or older farms. They are also consistent with the finding that smaller farms have older swine facilities, which would add relatively little to fair market value. It should be noted that the survey did not ask how much swine production takes place in rented facilities. Table 14: Fair Market Value - Total Farm Assets Value % of Respondents <$100, % $100,000 - $500, % $500,001-$1,000, % $1,000,001-$1,500, % $1,500,001-$3,000, % >$3,000, % Response Rate: 3,065

22 Producers with assets between $100,000 and $500,000 represent 41.4 per cent of the respondents and they account for approximately 420,000 of the current inventory. Conversely, the next asset grouping represents only 25.7 per cent of respondents but these producers accounted for approximately 525,000 pigs on farm. D.2b What % of your total farm assets would be swine related? Most farms generate their swine income with a relatively small share of their total asset base. 63.3% of farms reported swine production assets are 40% or lower as shown in Table 15. Reported asset values also reflect the age of swine facilities (see Question D.5). In addition, it is possible some assets such as land may not have been attributed to the swine operation even though the land is used to grow feed and spread manure on. Table 15: % Total Farm Assets - Swine Related % of Assets % of Respondents <20% 38.6% 20-40% 24.7% 41-60% 14.1% 61-80% 9.6% >80% 13.0% Response Rate: 3,148 D.3 Over the last 3 to 5 years how would you rate the profitability of your swine enterprise? Over half of respondents (55.4%) believe they have been generally profitable. It is possible that the number reporting breakeven and loss may have been somewhat lower had market prices of pigs been healthier during the survey period. Table 16: Frequency of Profitability Level of Profitability % of Respondents Profitable 55.4% Breakeven 32.9% Not Profitable 11.7% Response Rate: 3,260

23 D.4 How would you rate your farm's debt level (as a % of total farm assets)? While the percentage reporting low debt is nearly identical to the percentage reporting profitability, these are not the same farmers. In general, small farms have low debt levels but are also less likely to be profitable. Large farms have higher debt levels but also report higher rates of profitability, suggesting these farms have access to efficiencies (including newer facilities, feed costs, management options, etc) that significantly exceed their debt servicing costs. Table 17: Frequency of Debt Level Level of Debt % of Respondents Low (<33% debt) 55.8% Medium (33-66% debt) 33.0% High (>66% debt) 11.2% Response Rate: 3,059 Table 17 depicts that over one half of the respondents report low debt levels. Intuitively this makes sense as there are a large number (41.4%) of operators in this low debt group who are over 50 years of age and who have had an opportunity to reduce debt over time. The low debt group, while accounting for over one half of respondents, represents only 28% of the total pig inventory. This indicates that the farms producing the bulk of the pigs in Ontario have incurred more debt. D.5 What is the average age of your main pig facilities? The age of pig facilities is linked to several key sector descriptors. Farms with newer facilities reported that higher levels of their gross farms sales were generated by their swine operations. They had higher debt levels and higher reported rates of profitability, as well as higher rates of planned new capital investment. Table 18 below shows that almost one half of the participants (48.2%) report that their main pig facilities are more than 20 years old. Conversely, there are almost 25 per cent of respondents who have swine buildings which are 10 years old or less.

24 Table 18: Age of Swine Facilities Age of Facilities % of Respondents <5 yrs 11.6% 5-10 yrs 12.7% yrs 12.5% yrs 15.0% >20 yrs 48.2% Response Rate: 3,210 Age of swine facilities, however, did not have a large influence on the type of business structure (ie. sole proprietorship or corporation) or on the type of production system per cent of farms with facilities built within the past five years are farrow to finish, as are 50.3 per cent of the farms with facilities more than 20 years old. D.6 How much new capital investment do you plan to add during the next 2 years in buildings, breeding stock and barn equipment? While half (48.2%) of respondents reported their swine facilities are more than 20 years old, only 13 per cent plan capital expenditures exceeding $25,000 as shown in Table 19 below. Table 19: Intentions for New Capital Investment Amount of Investment % of Respondents $0-$25, % $25,000-$100, % $101,000-$250, % >$250, % Response Rate: 3,074 Intentions for new capital investment increase with size of operation per cent of farms with gross farm sales in excess of $500,000 intend to invest more than $25,000 in new capital projects over the next two years. Over one quarter of these (28.3 per cent) plan to invest more than $250,000. By contrast, only 3.6 per cent of respondents with less than $100,000 in gross farm sales anticipate investing more than $25,000 in new capital spending over the next two years. None of these intend to spend more than $250,000.

25 D.7 Do you have more than one farm location? 37.0 per cent of respondents reported more than one farm location. Nearly two-thirds (63.0 per cent) reported one location only. (Note: This question does not specify more than one pig producing location and, therefore, it is not sufficient to say that over one third of the respondents have more than one site for the purpose of raising pigs.) E. QUESTIONS FOR NON-OWNERS E.1 Contract production 185 responses were received from individuals raising pigs under contract. Of these, seven (3.8%) were producing contract farrow to early weaning, 20 (10.8%) were operating contract nurseries, and 158 (85.4%) were contract finishers. E.2 Do you plan on owning your own animals within the next 2 years? Of the 1,953 responses from current non-owners, 20.6% indicated they intend to own pigs within two years. The majority (79.4%) do not plan to own pigs. A summary of results is provided in Appendix D.

26 4.0 ANALYSIS OF SPECIFIC VARIABLES Among the variables that are useful for obtaining insight into the structure and functioning of Ontario's swine industry, five have been identified as especially important. These variables include: ownership; age of operator; profitability; debt level; and size of operation. Each of these variables are explored in some depth within this section. 4.1 Who Owns Ontario's Pigs Ontario's swine industry remains dominated by the family farm. Even in the largest sales categories, business corporations own a small percentage of pigs. Most swine, however, are owned by relatively large farms regardless of business type. The family farm is a cornerstone of Ontario's swine industry, although as these operations get larger, operators adopt more complex business models. Whether operated as a sole proprietorship, partnership or corporation these family operations account for nearly all producers. Business corporations make up 2.4% of total swine operations, and although these corporations tend to be large, it is important to observe that even on the largest farms (> $500,000 total sales) only 11.0% are business corporations. Table 20 outlines business organizational type by farm size (determined by sow inventory). As the business structure becomes more complex, the farm sizes increase. Sole proprietors tend to own small pig operations with 86.3 per cent of sole proprietors having less than 100 sows. Family and business corporations are more evenly split amongst the sow inventory categories but approximately half (48%) of both business structures own between 101 and 500 sows. There is a significant proportion (32.7%) of business corporations owning more than 500 sows, however, this group in terms of total respondents is small. Using sow inventory levels as a guide, 84.5% of farms having greater than 500 sows are operated by sole, family and partnership structures versus business corporations. Table 20: Business Type by Sow Inventory Business Type % of Respondents Sow Inventory < ,000 >1,000 Sole Proprietor 53.8% 59.8% 26.5% 9.9% 3.1% 0.5% 0.2% Partnership 27.5% 41.9% 29.1% 17.5% 7.6% 3.0% 0.8% Family Corporation 16.4% 18.0% 18.0% 24.9% 23.1% 11.0% 5.1% Business Corporation 2.3% 9.6% 9.6% 17.3% 30.8% 15.4% 17.3% Response Rate: 2,281

27 While in some cases this may make it difficult to separate the influence of size from the influence of ownership type, it is interesting to note that while family corporations and business corporations both tend to be relatively large based on sow numbers, family corporations have higher reported rates of profitability as seen in Table 21. Table 21: Business Type by Profitability Business Type % of Respondents Profit Break-even Loss Sole Proprietor 56.0% 49.6% 36.7% 13.7% Partnership 26.7% 59.4% 31.8% 8.9% Family Corporation 14.7% 70.3% 20.7% 9.0% Business Corporation 2.5% 56.3% 30.0% 13.8% Response Rate: 3, Young and Old: The Role of Operator Age Farmers aged 30 or less account for 8.9% of all swine operations, less than a third of the number owned by farmers aged 50 or older. Nevertheless, as a group, young farmers are more profitable than the older farmers. Young farmers are also committed to their pig operations: many have invested in new facilities and have acquired substantial debt in order to participate in the swine industry. Table 22 illustrates that profitability rates among young farmers are higher than for farmers aged 41 and older. Loss rates are essentially the same. Table 22: Operator Age by Profitability Age of Main Decision Maker % of Respondents Profit Break-Even Loss <30 years 8.6% 60.2% 27.6% 12.2% years 28.3% 61.4% 28.8% 9.8% years 31.3% 54.0% 33.5% 12.5% >50 years 31.9% 50.3% 37.2% 12.5% Response Rate: 3,245 The next table describes the role of age in the size of swine operations. Table 23 indicates each sow inventory category has a relatively similar breakdown of producer age groups. Producers in their 30's and 40's account for a slightly larger proportion of farms in the medium and large sow inventory categories.

28 Table 23: Sow Inventory by Operator Age Sow Inventory % of Respondents Age of Main Decision Maker < >50 < % 9.1% 23.1% 28.7% 39.1% % 11.2% 34.3% 30.7% 23.9% % 5.4% 35.7% 34.2% 24.7% % 10.1% 38.8% 31.3% 19.6% 501-1, % 5.4% 36.5% 32.5% 25.7% >1, % 5.9% 32.3% 29.4% 32.3% Response Rate: 2,286 Among farmers older than 50 years, the majority (59.2%) own fewer than 50 sows and may be seen as easing out of production. Young farmers also tend to own fewer than 50 sows however this may be an opportunity for a young person to enter the business and get established before making the decision to expand. Young farmers are more likely to carry high debt (greater than 66 per cent of equity) while farmers over 50 have the highest reported incidence of low debt (less than 33 per cent of equity) as shown in Table 24. This makes sense because young farmers will have acquired debt in order to develop an operation. Table 24: Operator Age by Debt Age of Main Decision Maker % of Respondents Low Debt Medium High Debt <31 years 8.6% 33.0% 36.4% 30.7% years 28.7% 43.5% 42.1% 14.4% years 31.2% 55.9% 34.7% 9.4% >50 years 31.6% 73.3% 22.0% 4.7% Response Rate: 3,047 Nevertheless, it may be unsafe to generalize about young farmers: approximately one third of young farmers appear to have adopted a strategy of working their way into the swine industry based on a combination of low debt and older buildings, while another third have made a large upfront investment in new facilities. Table 25 depicts operator age versus facility age.

29 Table 25: Operator Age by Facilities Age Age of Main Decision Maker % of Respondents Age of Swine Facilities <5 yrs 5-10 yrs >20 yrs <31 yrs 8.8% 28.5% 11.7% 14.6% 8.2% 37.0% yrs 28.4% 14.1% 19.4% 17.4% 13.9% 35.5% yrs 31.1% 9.8% 11.7% 11.9% 19.2% 47.4% >50 yrs 31.7% 6.1% 8.3% 8.2% 13.9% 63.4% Response Rate: 3,197 A significant number of older farmers (63.4%) have buildings more than twenty years old and this reinforces the thought that they may be exiting the industry in the foreseeable future unless they are prepared to invest in capital upgrades to maintain an efficient, profitable operation. 4.3 The Makings of Profit Larger farms are much more likely to report that they're profitable. It isn't a simple picture, however. Young farmers on average are more likely to be profitable than older farmers. Among big farms, family corporations and partnerships are more profitable than business corporations. Even in many low-profit categories, half of farmers say they're making money. Overall, 55.4 per cent of respondents say they've been generally profitable over the last three to five years, compared to 32.9 per cent who report operating at break-even, and 11.7 who say they haven't been profitable. Table 26 illustrates that the size of the farm in terms of number of pigs sold per year may affect the level of profitability. This table shows that as the number of pigs sold increases, the frequency of profitability also increases. This may result if larger farms are able to achieve efficiencies in terms of bulk buying, securing packer contracts, etc. Table 26: Total Pig Marketings by Profitability Total Pig Marketings % of Respondents Profit Break-even Loss < % 41.8% 41.6% 16.6% 500-1, % 61.0% 30.9% 8.1% 1,001-3, % 65.4% 27.0% 7.6% 3,001-5, % 70.8% 19.6% 9.5% 5,000-7, % 81.3% 13.8% 5.0% >7, % 78.7% 13.2% 8.1% Response Rate: 3,225

30 4.4 Some Observations on Debt On average, profitable farms have lower debt levels but profitable farms include a wide array of farm scenarios and this can be deceptive. Debt level increases with variables that are associated with higher profitability, including the size of the swine operation, and complexity of business arrangements. Debt levels are essentially identical for farms that reported they were generally profitable or were operating at breakeven over the previous three to five years. Farms that operated at a loss during this time period reported a higher debt load as shown below in Table 27. Table 27: Profitability by Debt Profitability % of Respondents Debt Level Low Debt Medium Debt High Debt Profitable 56.1% 56.0% 34.4% 9.6% Break Even 32.7% 57.8% 31.8% 10.4% Not Profitable 11.3% 49.1% 30.6% 20.3% Response Rate: 3,021 Partnerships and incorporated farms carried higher debt as illustrated in Table 28. These farms also tend to be larger and, on average, more profitable than sole proprietorships as was discussed previously in Section 4.1. It is interesting to note that business corporations carry substantially more debt than family corporations and also are somewhat less profitable. Table 28: Business Type by Debt Business Type % of Respondents Debt Level Low Debt Medium Debt High Debt Sole Proprietor 56.1% 61.1% 28.8% 10.1% Partnership 26.9% 53.0% 35.4% 11.6% Family Corporation 14.8% 44.8% 42.3% 12.9% Business Corporation 2.2% 26.5% 48.5% 25.0% Response Rate: 3,042 Table29 depicts hog marketings versus debt load. Note that debt levels increase markedly with the size of the operation as determined by the number of pigs sold. Intuitively, this makes sense since these larger operations will have more financial commitments to carry large inventories and bigger buildings.

31 Table 29: Total Pig Marketings by Debt Total Pig Marketings % of Respondents Debt Level Low Debt Medium Debt High Debt < % 70.9% 23.1% 6.1% 500-1, % 59.8% 30.4% 9.7% 1,001-3, % 40.4% 44.6% 15.1% 3,001-5, % 29.7% 51.0% 19.4% 5,001-7, % 20.5% 56.4% 23.1% >7, % 21.8% 48.1% 30.1% Response Rate: 3, The Role of Farm Size Farm size is key to understanding Ontario's swine industry. Large farms are more likely to report they own new buildings, have high debt, are profitable, and that they plan to invest in future expansion. As a category, however, smaller farms are relatively stable and offer sufficient opportunities for profitability. As shown previously in Table 12, the 4.8 per cent of producers with gross farm sales in excess of $1 million account for 37.2 per cent of the total inventory of pigs on farm compiled in the survey. Conversely, the 20.2 per cent of producers with gross farm sales of less than $50,000 control only 2.3 per cent of the total production. The size of an operation is a significant influence in most areas examined in this report. In particular, large operations (gross farm sales in excess of $500,000) are more specialized in pig production; 64.8 per cent of these large farms reported that swine operations accounted for 60 per cent or more of their total sales, compared to 27.5 per cent of small farms (gross farm sales below $100,000). Large farms also have newer facilities; 46.0 per cent of large farms have barns built within the last 10 years, compared to 16.9 per cent for small farms. Large farms have higher debt loads; 68.2 per cent of large farms report debt:asset ratios of at least 33 per cent, compared to 28.3 per cent for farms with sales under $100,000 as shown in Table 30 below.

32 Table 30: Total Farm Sales by Debt Total Farm Sales % of Respondents Debt Level Low Debt Medium High Debt < $100, % 71.8% 21.8% 6.5% $100,000 - $250, % 55.7% 33.3% 11.1% $250,001 - $500, % 42.4% 42.8% 14.8% > $500, % 31.9% 51.2% 17.0% Response Rate: 2,967 Despite higher debt servicing costs, however, large farms report greater profitability; 74.7 per cent of large farms report they are profitable, compared to 37.5 per cent of the small farms. This comment refers to Table 31. Table 31: Total Farm Sales by Profitability Total Farm Sales % of Respondents Profitable Breakeven Loss < $100, % 37.5% 44.2% 18.3% $100,000 - $250, % 60.1% 31.9% 8.0% $250,001 - $500, % 70.7% 22.4% 6.9% > $500, % 74.7% 18.6% 6.8% Response Rate: 3,116 A large proportion (65.4%) of small farms have pig production concentrated in buildings which are more than 20 years old as depicted in Table 32. Large farms on the contrary have production taking place in newer facilities with 46.1% of these farms operating in buildings which are ten years old or newer. Investing in new building shows the long term commitment of large operations to the industry.