Vertical Integration in the Pork Industry

This article provides an economic explanation regarding why the share of U.S. pork raised on company‐owned farms with hired management (integration) is increasing relative to production through independently owned‐and‐operated contract growers (contracting). The article develops a property rights model that shows how in certain circumstances production contracts do not transfer sufficient control over the use of production assets to intermediaries. On the other hand, integration removes certain grower incentives, with the result that production on company farms tends to be relatively costly. Practical examples of factors that influence the likelihood of full integration are emphasized.