Impacts of alternative marketing agreement cattle procurement on packer costs, gross margins, and profits: evidence from plant‐level profit and loss data

Abstract

This work measures the impact of captive supplies, or cattle procured through alternative marketing agreements (AMAs), on meatpacker costs, gross margins, and profits. Confidential profit and loss data were examined from all the individual packing plants within the four largest packing firms for a 30-month period. Alternative marketing agreement use resulted in improved beef supply chain efficiency, product demand, and plant profitability. The slaughter and processing costs were lower for plants with higher volumes of AMA cattle relative to cash market cattle. Plants that slaughter cattle from AMA sources operated at higher volumes, had less variable volumes, and had lower average total costs per head because of the substantive economies of size. Plants that slaughter cattle from AMA sources also had higher gross margins and average profits per head. The general conclusion is clear: If policies are implemented that limit AMA use then packing industry efficiency would be negatively impacted. [EconLit Citation: Q130]. © 2010 Wiley Periodicals, Inc.

Concentration and Resilience in the U.S. Meat Supply Chains

“…The Cournot model offers an appropriate framework for our context because a meat processor is committed to producing at a particular scale upon building its plant. 1 Once the plant is built, the processor tries to, and often does, produce near full capacity where costs are minimized (Koontz and Lawrence, 2010;. It is hence reasonable to model plants competing in quantity, which implies rising marginal costs of processing at the full capacity or increasing shadow value of relaxing the capacity constraint of a given plant.…”

“…Relatively large processors enjoy economies of scale and have relatively low marginal costs of processing than smaller processors (Koontz and Lawrence, 2010;MacDonald, 2003;MacDonald and Ollinger, 2005). Under Cournot competition, a processor with lower marginal costs always produces at a larger scale in equilibrium.…”

“…Pork packing is similarly concentrated with the largest 15 plants, representing only 2.5% of all plants, responsible for 61.9% of all federally inspected hogs slaughtered (see appendix 1). The high level of horizontal concentration can be explained, at least in part, by the economies of scale in meat packing (Koontz and Lawrence, 2010;MacDonald, 2003;MacDonald and Ollinger, 2005;Morrison Paul, 2001), implying that, in normal times, large and cost-efficient packing plants result in more affordable meat for consumers and higher livestock demand than would be the case with a more diffuse and higher-cost packing system. However, times are not always normal, and unexpected events can lead to plant shutdowns.…”

Policy Experiments for the U.S. Intermountain West Native Seed Industry

“…Livestock markets, for example, increasingly rely on forward rather than spot delivery (Ward et al 2000;Koontz and Lawrence 2010). Livestock markets, for example, increasingly rely on forward rather than spot delivery (Ward et al 2000;Koontz and Lawrence 2010).…”

“…Although the native seed industry is young, it shares many features with other, more frequently analyzed, agricultural industries. Livestock markets, for example, increasingly rely on forward rather than spot delivery (Ward et al 2000;Koontz and Lawrence 2010). Experimental studies have consequently examined relative market outcomes (price, quantity traded, and earnings) under forward versus spot delivery (Menkhaus et al 1999(Menkhaus et al , 2000(Menkhaus et al , 2003(Menkhaus et al , 2007Phillips et al 2001).…”