The value of swine

Written to Noventa Anos Do Samba by Jamelão

Thou shall not kill. Thou shall not commit adultery. Don't eat pork.

I'm sorry, what was that last one? Don't eat pork. God has spoken.

Is that the word of God or is that pigs trying to outsmart everybody?

- Jon Stewart quotes (American Comedian and Actor, b.1962)

Since November we have been dabbling in the sale of organic piglets to a handful of upscale restaurants in São Paulo. This has given us an invaluable opportunity to test and fine tune our organic piglet business model. Fortunately, the initial analysis looks very promising. The key numbers:

REVENUE

price per kg: R$17.00

average weight per piglet (kg): 13

average revenue per piglet: R$221.00

FEED

# of sows: 30

# of piglets per litter: 6 (we are currently achieving closer to 8)

# of piglets per year per sow: 12

piglet mortality: 10%

total piglets per year: 324

kg. of feed per sow per day: 2

# of days: 243

kg. of feed per day (during lactation): 5

# of days per lactation: 122

total kg of feed per year: 1,095

cost of feed (per kilo): R$0.55

total cost of feed per year per piglet: R$55.87

LABOR

# of days per year: 365

# of hours per day: 1

# of hours per week (slaughter): 19

total labor hours per year: 1,337

total labor hours per piglet: 4

net labor costs (per hour): R$5.80

total gross labor costs per piglet: R$23.92

TRANSPORT

total km per week: 426

km per liter: 8

liter per week: 53

price per liter (gasoline): R$2.49

total cost per week: R$158.24

piglets transported per week: 6

cost per piglet: R$25.40

TOTAL COST PER PIGLET PER YEAR: R$120.18

NET MARGIN PER PIGLET (R$): R$100.82

NET MARGIN PER PIGLET (%): 46%

Clearly, we will be quite pleased if we can continue to maintain a net margin per piglet of 46%.

As important, however, is to make certain that our partners are successful. In other words, our profits will be short-lived if we overcharge our restaurant customers. Therefore, before setting prices, I produced a simple, back-of-the-envelope analysis to test whether we were creating a win-win scenario. Without all of the desired data points, I applied the following simple logic:

• At approx. 33%, Chipotle Mexican Grill, Inc. (NYSE: CMG) has the highest food costs in the fast-food industry (only data point I could find).
• A high-end restaurant should have higher food costs as a percentage of revenues than a fast-food restaurant.
• Our restaurant customers charge approx. R$140.00 (€54.37 or $75.57) for a portion of piglet (defined as a quarter or sixth of a piglet). This works out to between R$10.77 (€4.18 or $5.81) and R$16.15 (€6.27 or $8.72) per person -proving beyond any doubt that eating exceptionally well does not have to be expensive.

Given these inputs, and assuming that our restaurant customers divide a 13 kg piglet into 6 pieces (a pretty reasonable assumption considering that each sixth of a piglet would produce 9 servings of 250 gr), their food costs as a percentage of revenues would be 26%, less than a fast-food restaurant. It is our humble hope that this particular win-win strikes a righteous balance between what Joel Salatin refers to as making a white collar salary from a pleasant life in the country and what Mohandas K. Gandhi would refer to as commerce with morality.