Research Reports
A Study on the Stabilization of Livestock Farm Income
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AuthorSong, Jooho
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Publication Date2007.12.01
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Original
Amidst the fast enlargement of livestock farms, the recent outbreak of mad cow disease(BSE) in the United States has kept locally produced livestock prices high, enabling local livestock farms to earn relatively higher incomes than farms producing crops and vegetables. However, the net income ratio of livestock industry is low due to the high proportion of livestock purchase and animal feed prices in overall production costs. In this circumstance, even a slight change in the price of final products brings about a significant swing in income amount, thus resulting in an unstable income for livestock farms.
For livestock farms, price, production volume, and management costs are the factors influencing the farm income. The analysis of the factors that impact the Korean traditional beef(Hanwoo) price shows that Hanwoo price is more sensitive to the slaughtering volume of Hanwoo than the imported beef volume. The beef production volume grew until the Asian financial crisis in 1998 but fell down at a fast speed until 2002. Beginning 2003, the production volume has grown again, triggering a concern on the excess of the Korean traditional cattle population. Among the farm management costs of fed cattle, the cost for calf purchase has been reduced on a gradual basis. In the 2000s, it accounts for 58% of the total production cost on average.
The animal feed cost has been on the increase as well, and it accounts for 34% of the total cost in the 2000s. For swine, locally produced pork price is more sensitive to the slaughtering volume of locally produced pork. The pork production has increased until 2003, but because of the occurrence of the foot-and-mouth disease (FMD) and other diseases, the local pork production has been slightly reduced or remained same ever since. Among the management costs of swine farms, the proportion of livestock purchase price is being lowered, but still it amounts to 32% in the 2000s. The proportion of feed cost in the total cost has slightly moved down, but it is still as high as 54%. It seems that animal feeds take up a large portion of the total cost mainly due to the recent feed price hike.
The Korea-US Free Trade Agreement was completed in early April 2007, and the resumption of US beef ribs import is under negotiations. Meanwhile, the international corn price growth is projected to push up the local feeds price by 13.1~18.1% in 2007 compared to 2006. Scenarios were drafted depending on expected beef rib importation volume, and the scenario-based analysis anticipates that it could push down the Hanwoo farmers average income by 11% at minimum and 36% at maximum in 2008. Pig farmers average income would be reduced by 16%~ 43% in 2008.
Going forward, measures should be sought out to stabilize the income of livestock farms. To this end, a comprehensive approach that includes the stabilization of livestock price and production costs at producing regions, productivity enhancement, and added values increase should be taken. As the first step to livestock price stabilization at producing regions, price volatility risks should be diversified, and to this end, a price insurance program and a livestock futures market can be introduced on top of the current calf production stabilization program. Furthermore, the ability to forecast the livestock industry should be beefed up, and the self-regulated demand-supply control ability of the producer groups needs to be improved.
In the face of the rapid increase of the Hanwoo population, keeping it at an appropriate level is necessary. As measures to stabilize the management cost of livestock farms, the production base of roughage should be expanded; the productivity of breeding stock should be enhanced; and the investment in the livestock industry should be expanded. The expanded investment and loan programs to the livestock sector will enhance productivity and improve the profitability of the Hanwoo and pork industries. The stable production of livestock products will be assisted by the broad adoption of livestock disease insurance and an efficient livestock veterinary consulting system. In addition, the quality and food safety enhancement for higher added value of livestock products and the increase of full-time livestock farms through farm enlargement should be pursued consistently as policy measures for livestock farm income stabilization.
Researchers: SONG, Joo-Ho, JUNG, Min-Kook, CHAI, Sang-Hyen
E-mail address: jhsong@krei.re.kr
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