Over time, the variety, complexity, and use of alternative marketing arrangements (AMAs) have increased in the livestock and meat industries. Marketing arrangements refer to the methods by which livestock and meat are transferred through successive stages of production and marketing. Increased use of AMAs raises a number of questions about their effects on economic efficiency and on the distribution of the benefits and costs of livestock and meat production and consumption between producers and consumers.
A report recently released by the USDA’s Grain Inspection, Packers and Stockyard Administration (GIPSA) focuses on AMAs used in the beef, pork, and lamb industries from the sale of live animals to final meat sales to consumers. They studied detailed information collected from packers from 2002 through 2005 about the prices paid for animals and the terms of the purchase (auction, direct negotiation, or alternative marketing arrangement).
A few of the key findings:
Cattle : Hypothetical reductions in AMAs, as represented by formula arrangements (marketing agreements and forward contracts) and packer ownership, are found to have a negative effect on producer and consumer surplus measures. For example, if such AMA’s were banned, the analysis suggests a 16% reduction in the benefits generated by feeder cattle producers, an 8% reduction for fed cattle producers, a 5% reduction for packers and a 5% reduction for consumers.
Hogs : In analyzing the economic effects of hypothetical restrictions on the use of AMAs in the hog and pork industries, we found that hog producers would lose because of the offsetting effects of hogs diverted from AMAs to the spot market, consumers would lose as wholesale and retail pork prices rise, and packers would gain in the short run but neither gain nor lose in the long run.
The report is a comprehensive effort to resolve some major questions about how various marketing arrangements impact this sector. It is a very long report, but the ‘executive summary’ portion does a nice job laying out what the investigators have done and their key conclusions.
For the full report, go to: http://www.gipsa.usda.gov/GIPSA/ and search on the term ‘meat marketing study’.