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

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  • Stephen R. Koontz

    (Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, CO 80523)

  • John D. Lawrence

    (Department of Economics, Iowa State University, Ames, IA 50011)

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    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.

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    File URL: http://hdl.handle.net/10.1002/agr.20234
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

    Volume (Year): 26 (2010)
    Issue (Month): 1 ()
    Pages: 1-24

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    Handle: RePEc:wly:agribz:v:26:y:2010:i:1:p:1-24

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    Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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    1. Wohlgenant, Michael K., 2001. "Marketing margins: Empirical analysis," Handbook of Agricultural Economics, Elsevier, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 16, pages 933-970 Elsevier.
    2. Clement E. Ward, 1993. "Comparative analysis of cattle slaughtering and fabricating costs," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 9(5), pages 441-451.
    3. Feuz, Dillon M. & Grimes, Glenn & Koontz, Stephen R. & Lawrence, John D. & Purcell, Wayne D. & Schroeder, Ted C. & Ward, Clement E., 2002. "Comments on Economic Impacts of Proposed Legislation to Prohibit Beef and Pork Packer Ownership, Feeding, or Control of Livestock," Staff General Research Papers, Iowa State University, Department of Economics 10134, Iowa State University, Department of Economics.
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    5. Schroeter, John R. & Azzam, Azzeddine M., 2004. "Captive Supplies and Cash Market Prices for Fed Cattle: The Role of Delivery Timing Incentives," Staff General Research Papers, Iowa State University, Department of Economics 11159, Iowa State University, Department of Economics.
    6. Ward, Clement E. & Koontz, Stephen R. & Schroeder, Ted C., 1998. "Impacts From Captive Supplies On Fed Cattle Transaction Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 23(02), December.
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    9. Zhang, Mingxia & Sexton, Richard J., 2000. "Captive Supplies And The Cash Market Price: A Spatial Markets Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 25(01), July.
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    11. Whitley, John E., 2002. "The political economy of quality measurement: a case study of the USA slaughter cattle market," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, Australian Agricultural and Resource Economics Society, vol. 46(4), December.
    12. Clement E. Ward, 1990. "Meatpacking plant capacity and utilization: Implications for competition and pricing," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 6(1), pages 65-73.
    13. John R. Schroeter & Azzeddine Azzam, 2003. "Captive supplies and the spot market price of fed cattle: The plant-level relationship," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(4), pages 489-504.
    14. Paul J. Driscoll & S. Murthy Kambhampaty & Wayne D. Purcell, 1997. "Nonparametric Tests of Profit Maximization in Oligopoly with Application to the Beef Packing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 79(3), pages 872-879.
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