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The Value of Third-Party Certification of Preconditioning Claims at Iowa Feeder Cattle Auctions

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  • Bulut, Harun
  • Lawrence, John D.

Abstract

After controlling a variety of feeder cattle characteristics and market and sale conditions, we estimate the price premiums for preconditioning (vaccinations and minimum 30 days weaning) claims with and without third-party certification (TPC) as $6.15/cwt and $3.40/cwt, respectively, in Iowa feeder cattle auctions. These premiums differ statistically (p-value less than 0.0001) and their difference exceeds the additional participation cost of TPC ($1/cwt) on average. This indicates that the third party certification is valued in the market to credibly signal preconditioning investment under asymmetric information.

Suggested Citation

  • Bulut, Harun & Lawrence, John D., 2006. "The Value of Third-Party Certification of Preconditioning Claims at Iowa Feeder Cattle Auctions," Staff General Research Papers Archive 12683, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12683
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    References listed on IDEAS

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    1. Allen, Douglas W, 1993. "Pot-Bellies, Cattle Breeds and Revealing Signals," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 481-487, July.
    2. Brent Hueth & John D. Lawrence, 2002. "Quality Management and Information Transmission in Cattle Markets: A Case Study of the Chariton Valley Beef Alliance," Midwest Agribusiness Trade Research and Information Center (MATRIC) Publications 02-bp40, Midwest Agribusiness Trade Research and Information Center (MATRIC) at Iowa State University.
    3. Dhuyvetter, Kevin C., 2004. "Preconditioning Beef Calves: Are Expected Premiums Sufficient To Justify The Practice?," 2004 Annual Meeting, June 30-July 2, 2004, Honolulu, Hawaii 36196, Western Agricultural Economics Association.
    4. Nfune Nyamusika & Thomas H. Spreen & Owen Rae & Charles Moss, 1994. "A Bioeconomic Analysis of Bovine Respiratory Disease Complex," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 16(1), pages 39-53.
    5. Athanasios G. Chymis & Harvey S. James & Srinivasa Konduru & Vern L. Pierce & Robert L. Larson, 2007. "Asymmetric information in cattle auctions: the problem of revaccinations," Agricultural Economics, International Association of Agricultural Economists, vol. 36(1), pages 79-88, January.
    6. Avent, R. Keith & Ward, Clement E. & Lalman, David L., 2004. "Market Valuation of Preconditioning Feeder Calves," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(01), April.
    7. Hatanaka, Maki & Bain, Carmen & Busch, Lawrence, 2005. "Third-party certification in the global agrifood system," Food Policy, Elsevier, vol. 30(3), pages 354-369, June.
    8. Kevin C. Dhuyvetter & Ted C. Schroeder, 2000. "Price-Weight Relationships for Feeder Cattle," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 48(3), pages 299-310, November.
    9. Ward, Clement E. & Lalman, David L., 2003. "Price Premiums From A Certified Feeder Calf Preconditioning Program," 2003 Conference, April 21-22, 2003, St. Louis, Missouri 18973, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    10. Avent, R. Keith & Ward, Clement E. & Lalman, David L., 2004. "Market Valuation of Preconditioning Feeder Calves," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(01), pages 173-183, April.
    11. Thomas L. Sporleder & Peter D. Goldsmith, 2001. "Alternative Firm Strategies for Signaling Quality in the Food System," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(4), pages 591-604, December.
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    Cited by:

    1. Hardin, Dan & Saghaian, Sayed, 2014. "Factors that Affect Seasonality in Kentucky Feeder Calf Prices and How Calving Dates Affect Cow-Calf Enterprise Profitability," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162495, Southern Agricultural Economics Association.
    2. Williams, Brian R. & DeVuyst, Eric A. & Peel, Derrell S. & Raper, Kellie Curry, 2014. "The Likelihood of Positive Returns from Value-Added Calf Management Practices," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 46(01), pages 125-138, February.
    3. Blank, Steven C. & Saitone, Tina L. & Sexton, Richard J., 2016. "Calf and Yearling Prices in the Western United States: Spatial, Quality, and Temporal Factors in Satellite Video Auctions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), September.
    4. Schulz, Lee L. & Dhuyvetter, Kevin C. & Doran, Beth, 2014. "Factors Affecting Preconditioned Calf Price Differentials: How much do Market and Sale Conditions Matter?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170570, Agricultural and Applied Economics Association.
    5. Schulz, Lee L. & Dhuyvetter, Kevin C. & Doran, Beth E., 2015. "Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), May.
    6. Williams, Brian R. & DeVuyst, Eric A. & Peel, Derrell S. & Raper, Kellie Curry, 2014. "Reducing Self-Selection Bias in Feeder Cattle Premium Estimates Using Matched Sampling," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(1), April.
    7. repec:ags:joaaec:163228 is not listed on IDEAS
    8. Williams, Galen S. & Raper, Kellie Curry & DeVuyst, Eric A. & Peel, Derrell S. & McKinney, Doug, 2012. "Determinants of Price Differentials in Oklahoma Value-Added Feeder Cattle Auctions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(1), April.
    9. Mallory, Shannon & DeVuyst, Eric A. & Raper, Kellie C. & Peel, Derrell & Mourer, Gant, 2016. "Effect of Location Variables on Feeder Calf Basis at Oklahoma Auctions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), September.
    10. Schumacher, Stephanie & Peel, Derrell S. & Raper, Kellie Curry, 2013. "Non-Adoption of Best Management Practices: Demographics and Adoption Constraints of Oklahoma Cattle Producers," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 143094, Southern Agricultural Economics Association.
    11. Schumacher, Tucker & Schroeder, Ted C. & Tonsor, Glynn T., 2012. "Willingness-to-Pay for Calf Health Programs and Certification Agents," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 44(02), pages 191-202, May.
    12. Burdine, Kenneth H. & Maynard, Leigh J. & Halich, Greg, "undated". "Factors Affecting Feeder Cattle Prices in the Southeast," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142976, Southern Agricultural Economics Association.
    13. Zimmerman, Lance C. & Schroeder, Ted C. & Dhuyvetter, Kevin C. & Olson, K.C. & Stokka, Gerald L. & Seeger, Jon T. & Grotelueschen, Dale M., 2012. "The Effect of Value-Added Management on Calf Prices at Superior Livestock Auction Video Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(1), April.

    More about this item

    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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