1932
0
  1. Home
  2. A-Z Publications
  3. Annual Review of Resource Economics
  4. Volume 10, 2018
  5. Article

Annual Review of Resource Economics

Volume 10, 2018

Are Cattle Markets the Last Frontier? Vertical Coordination in Animal-Based Procurement Markets

Abstract

Vertical integration and contracting have been documented as important developments in enhancing the efficiency of supply chains in agriculture. Despite the efficiency gains, movement toward greater integration remains controversial. Meanwhile, the diffusion of these alternative procurement mechanisms has been heterogeneous over time and across commodities. In this review we compare and contrast the livestock and poultry industries in the United States to provide insights into the future of integration and coordination throughout the beef cattle supply chain. While similarities exist across livestock and poultry industries, there are significant differences that placed the beef industry on a different trajectory, with a variety of structural and biological factors that have limited the industry's progression toward greater integration.

Keyword(s): beef, cattle, contracts, JEL L11, JEL Q13, livestock, vertical coordination, vertical integration
Loading

Article metrics loading...

/content/journals/10.1146/annurev-resource-100517-022948
2018-10-05
2025-05-14
Loading full text...

Full text loading...

/deliver/fulltext/resource/10/1/annurev-resource-100517-022948.html?itemId=/content/journals/10.1146/annurev-resource-100517-022948&mimeType=html&fmt=ahah

Literature Cited

  1. Adjemian MK, Brorsen BW, Hahn W, Saitone TL, Sexton RJ 2016. Thinning markets in U.S. agriculture: What are the implications for producers and processors? Econ. Inf. Bull. 148, US Dep Agric., Econ. Res. Serv Washington, DC:
     [Google Scholar]
  2. Alston JM, Andersen MA, James JS, Pardey PG 2010. Persistence Pays: U.S. Agricultural Productivity Growth and the Benefits from Public R&D Spending New York, NY: Springer
     [Google Scholar]
  3. Alston JM, Beddow JM, Pardey PG 2009. Agricultural research, productivity, and food prices in the long run. Science 325:41209–10
     [Google Scholar]
  4. Arrow KJ 1969. The organization of economic activity: issues pertinent to the choice of market versus nonmarket allocation. The Analysis and Evaluation of Public Expenditures: The PPB System 147–64 Washington, DC: Joint Econ. Comm
     [Google Scholar]
  5. Arrow KJ 1974. Limited knowledge and economic analysis. Am. Econ. Rev. 64:1–10
     [Google Scholar]
  6. Azzam AM, Anderson DG 1996. Assessing competition in meatpacking: economic history, theory and evidence Rep. GIPSA-RR 96–6, US Dep. Agric Washington, DC:
     [Google Scholar]
  7. Blank SC, Forero LC, Nader GA 2009. Video market data for calves and yearlings confirms price discounts for western cattle. Calif. Agric. 63:4225–31
     [Google Scholar]
  8. Blank SC, Saitone TL, Sexton RJ 2016. Calf and yearling prices in the western United States: spatial, quality, and temporal factors in satellite video auctions. J. Agric. Resour. Econ. 41:3458–80
     [Google Scholar]
  9. BLM (Bur. Land Manag.). 2017. Livestock grazing on public lands US Dep. Inter Washington, DC: https://www.blm.gov/programs/natural-resources/rangelands-and-grazing/livestock-grazing/fees-and-distribution
    [Google Scholar]
  10. Bloomberg News 2017. U.S. beef is back on China's shelves—but China doesn't care. Bloomberg Politics Aug 4: https://www.bloomberg.com/news/articles/2017-08-03/trump-s-vaunted-return-of-u-s-beef-to-china-risks-turning-a-dud
    [Google Scholar]
  11. Bullard B 2013. Under siege: the U.S. live cattle industry. S. Dak. Law Rev. 58:3560–610
     [Google Scholar]
  12. Capper JL 2011. The environmental impact of beef production in the United States: 1977 compared with 2007. J. Anim. Sci. 89:124249–61
     [Google Scholar]
  13. Carlson LW 2001. Cattle: An Informal Social History Chicago: Ivan R. Dee
     [Google Scholar]
  14. Carlton D 1979. Vertical integration in competitive markets under uncertainty. J. Ind. Econ. 27:3189–209
     [Google Scholar]
  15. Coase RH 1937. The nature of the firm. Economica 4:386–405
     [Google Scholar]
  16. Coase RH 1960. The problem of social cost. J. Law Econ. 3:1–44
     [Google Scholar]
  17. Crespi JM, Saitone TL, Sexton RJ 2012. Competition in U.S. farm product markets: do long-run incentives trump short-run market power. ? Appl. Econ. Perspect. Policy 34:669–95
     [Google Scholar]
  18. Crespi JM, Xia T 2015. A note on first-price sealed-bid cattle auctions in the presence of captive supplies. Agric. Resour. Econ. Rev. 44:340–45
     [Google Scholar]
  19. Debreu G 1959. Theory of Value New York: Wiley
     [Google Scholar]
  20. FAO (Food Agric. Organ.) 2006. World agriculture: towards 2030/2050 Interim Rep., FAO, Rome
    [Google Scholar]
  21. Foss NJ, Lando H, Thomsen S 1999. The theory of the firm. Encyclopedia of Law and Economics B Bouckaert, G DeGeest 631–57 Camberly Surrey, UK: Edward Elgar
     [Google Scholar]
  22. Goodhue RE 2011. Food quality: the design of incentive contracts. Annu. Rev. Resour. Econ. 3:119–40
     [Google Scholar]
  23. Grossman SJ, Hart OD 1986. The costs and benefits of ownership: a theory of vertical and lateral integration. J. Political Econ. 94:4691–719
     [Google Scholar]
  24. Hart O, Moore J 1990. Property rights and the nature of the firm. J. Political Econ. 98:61119–58
     [Google Scholar]
  25. Informa Econ 2010. Update of cost assessments for country of origin labeling—beef & pork (2009) Rep., Informa Econ New York: http://www.informaecon.com/COOLStudyUpdate2010.pdf
    [Google Scholar]
  26. James HS, Klein PG, Sykuta ME 2007. Markets, contracts, or integration? The adoption, diffusion, and evolution of organizational form Work. Pap., Contract. Organ. Res. Inst., Univ. Mo. https://mospace.umsystem.edu/xmlui/handle/10355/8910
    [Google Scholar]
  27. Joskow PL 1987. Contract duration and relationship-specific investments: empirical evidence from coal markets. Am. Econ. Rev. 77:1168–85
     [Google Scholar]
  28. Kastner J, Tenhouse B 2011. 150 Years of Kansas Beef Virginia Beach, VA: Donning Co. Publ
     [Google Scholar]
  29. Key N, McBride W 2003. Production contracts and productivity in the hog sector. Am. J. Agric. Econ. 85:1121–33
     [Google Scholar]
  30. Key N, McBride W 2014. Sub-therapeutic antibiotics and the efficiency of U.S. hog farms. Am. J. Agric. Econ. 96:3831–50
     [Google Scholar]
  31. Knight FH 1921. Risk, Uncertainty and Profit New York: Houghton Mifflin
     [Google Scholar]
  32. Knoeber CR 1989. A real game of chicken: contracts, tournaments, and the production of broilers. J. Law Econ. Organ. 5:2271–92
     [Google Scholar]
  33. Knoeber CR 1999. Land and livestock contracting in agriculture: a principal-agent perspective. Encyclopedia of Law and Economics B Bouckaert, G DeGeest 1133–53 Camberly Surrey, UK: Edward Elgar
     [Google Scholar]
  34. Lagerkvist CJ, Hess S 2011. A meta-analysis of consumer willingness to pay for farm animal welfare. Eur. Rev. Agric. Econ. 38:155–78
     [Google Scholar]
  35. Lawrence JD 2010. Hog marketing practices and competition questions. Choices 25:21–11
     [Google Scholar]
  36. Loftus RT, MacHugh DE, Bradley DG, Sharp PM, Cunningham P 1993. Evidence for two independent domestications of cattle. PNAS 91:2757–61
     [Google Scholar]
  37. Lusk JL 2013. Role of technology in the global economic importance and viability of animal protein production. Anim. Front. 3:320–27
     [Google Scholar]
  38. MacDonald JM 2015. Trends in agricultural contracts. Choices 30:31–6
     [Google Scholar]
  39. MacDonald JM, Korb P 2011. Agricultural contracting update: contracts in 2008 Econ. Inf. Bull. 72, US Dep Agric., Econ. Res. Serv Washington, DC:
     [Google Scholar]
  40. MacDonald JM, McBride WM 2009. The transformation of U.S. livestock agriculture: scale, efficiency, and risk Econ. Inf. Bull. 43, US Dep Agric., Econ. Res. Serv Washington, DC:
     [Google Scholar]
  41. MacDonald JM, Perry J, Ahearn M, Banker D, Chambers W et al. 2004. Contracts, markets, and prices: organizing the production and use of agricultural commodities Agric. Econ. Rep. 837, US Dep Agric., Econ. Res. Serv Washington, DC:
     [Google Scholar]
  42. Maples JG, Lusk JL, Peel DS 2017. Technology and evolving supply chains in the beef and pork industries. Food Policy press https://doi.org/10.1016/j.foodpol.2017.07.011
    [Crossref] [Google Scholar]
  43. Maples JG, Lusk JL, Peel DS 2018. Unintended consequences of the quest for increased efficiency in beef cattle: when bigger isn't better. Food Policy 74:65–73
     [Google Scholar]
  44. Marsh JM 2001. U.S. feeder cattle prices: effects of finance and risk, cow-calf and feedlot technologies, and Mexican feeder imports. J. Agric. Resour. Econ. 26:463–77
     [Google Scholar]
  45. Martinez S 2002. Vertical coordination of marketing systems: lessons from the poultry, egg, and pork industries Agric. Econ. Rep. 807, US Dep Agric., Econ. Res. Serv Washington, DC:
     [Google Scholar]
  46. McKendree MGS, Olynk N, Widmar DL, Foster KA 2013. Consumer preferences for verified pork-rearing practices in the production of ham products. J. Agric. Resour. Econ. 38:3397–417
     [Google Scholar]
  47. Mench JA, Sumner DA, Rosen-Molina JT 2011. Sustainability of egg production in the United States—the policy and market context. Poultry Sci 90:1229–40
     [Google Scholar]
  48. Morrison Paul CJ 2001. Market and cost structure in the U.S. beef packing industry: a plant-level analysis. Am. J. Agric. Econ. 83:164–76
     [Google Scholar]
  49. Mottet A, de Haan C, Falcucci A, Tempio G, Opio C, Gerber P 2017. Livestock: on our plates or eating at our table? A new analysis of the feed/food debate. Glob. Food Secur. 14:1–8
     [Google Scholar]
  50. Natl. Chicken Counc. 2017. Vertical integration Accessed Nov. 10, 2017. http://www.nationalchickencouncil.org/industry-issues/vertical-integration/
    [Google Scholar]
  51. O'Donoghue EJ, Hansen J 2017. USDA agricultural projections to 2026 Long-Term Proj Rep. OCE-2017-1, US Dep. Agric Washington, DC:
     [Google Scholar]
  52. O'Donoghue EJ, MacDonald JC, Vasavada U, Sullivan P 2011. Changing farming practices accompany major shifts in farm structure. Amber Waves 9:430–37
     [Google Scholar]
  53. Painter KL 2017. Cargill is selling two cattle feedlots, exiting that portion of the beef industry. Star Tribune Apr. 26. http://www.startribune.com/cargill-sells-last-cattle-feedlots-exiting-that-portion-of-the-beef-industry/420501343/
    [Google Scholar]
  54. Pendell DL, Tonsor GT, Dhuyvetter KC, Brester GW, Schroeder TC 2013. Evolving beef export market access requirements for age and source verification. Food Policy 43:332–40
     [Google Scholar]
  55. Pouliot S, Sumner DA 2014. Differential impacts of country of origin labeling: COOL econometric evidence from cattle markets. Food Policy 49:107–16
     [Google Scholar]
  56. Rimbey NR, Tanaka JA, Torell LA 2015. Economic considerations of livestock grazing on public lands in the United States of America. Anim. Front. 5:32–35
     [Google Scholar]
  57. Roe B, Sheldon I 2007. Credence good labeling: the efficiency and distributional implications of several policy approaches. Am. J. Agric. Econ. 98:51020–33
     [Google Scholar]
  58. Saitone TL, Forero LC, Nader GA, Forero LE 2016. Calf and yearling prices in California and the western United States. Calif. Agric. 70:4179–86
     [Google Scholar]
  59. Saitone TL, Sexton RJ 2010. Product differentiation and quality in food markets: industrial organization implications. Annu. Rev. Resour. Econ. 2:341–68
     [Google Scholar]
  60. Saitone TL, Sexton RJ 2017. Agri-food supply chain: evolution and performance with conflicting consumer and societal demands. Eur. Rev. Agric. Econ. 44:4634–57
     [Google Scholar]
  61. Saitone TL, Sexton RJ, Sumner DA 2015. What happens when food marketers require restrictive farming practices?. Am. J. Agric. Econ. 97:41021–43
     [Google Scholar]
  62. Schroeder TC, Jones R, Mintert J, Barkley AP 1993. The impact of forward contracting on fed cattle transaction prices. Rev. Agric. Econ. 15:2325–37
     [Google Scholar]
  63. Schroeder TC, Tonsor GT 2012. International cattle ID and traceability: competitive implications for the U.S. Food Policy 37:31–40
     [Google Scholar]
  64. Schroeter JR, Azzam A 2003. Captive supplies and the spot market price of fed cattle: the plant-level relationship. Agribusiness 19:489–504
     [Google Scholar]
  65. Schulz LL, Dhuyvetter KC, Doran BE 2015. Factors affecting preconditioned price premiums: Does potential buyer competition and seller reputation matter. ? J. Agric. Resour. Econ. 40:2220–41
     [Google Scholar]
  66. Schulz LL, Schroeder TC, Ward CE 2011. Trade-related policy and Canadian-U.S. fed cattle transactions basis. . J. Agric. Resour. Econ. 36:2313–25
     [Google Scholar]
  67. Schulz LL, Tonsor GT 2010. Cow-calf producer preferences for voluntary traceability systems. J. Agric. Econ. 61:138–62
     [Google Scholar]
  68. Schumacher T, Schroeder TC, Tonsor GT 2012. Willingness-to-pay for calf health programs and certification agents. J. Agric. Appl. Econ. 44:2191–202
     [Google Scholar]
  69. Sexton RJ 2013. Market power, misconceptions, and modern agricultural markets. Am. J. Agric. Econ. 95:2209–19
     [Google Scholar]
  70. Simon HA 1951. A formal theory of the employment relationship. Econometrica 19:293–305
     [Google Scholar]
  71. Soderlin B 2017. In China, interest in U.S. beef is high, but rancher and feeders need time to build supply. Omaha World Herald Jul. 25. http://www.omaha.com/money/in-china-interest-in-u-s-beef-is-high-but/article_758155a2-0d4b-5848-b435-d9b571c5e3ea.html
    [Google Scholar]
  72. Tonsor GT, Wolf CA 2011. On mandatory labeling and animal welfare attributes. Food Policy 36:3430–37
     [Google Scholar]
  73. USDA (US Dep. Agric.). 2013. Feedlot 2011. Part 1: Management practices on U.S. feedlots with a capacity of 1,000 or more head Rep., Anim. Plant Health Inspect Service, USDA Fort Collins, CO:
     [Google Scholar]
  74. USDA (US Dep. Agric.). 2015. Summary report: 2012 national resources inventory Nat. Resour. Conserv. Serv., USDA Washington, DC:
     [Google Scholar]
  75. USDA (US Dep. Agric.). 2016. Packers and Stockyards Program: 2016 annual report Grain Insp. Pack. Stockyards Adm., USDA Washington, DC: https://www.gipsa.usda.gov/psp/publication/ar/2016_PSP_Annual_Report.pdf
    [Google Scholar]
  76. USDA (US Dep. Agric.). 2017. Livestock slaughter: 2016 summary Natl. Agric. Stat. Serv., USDA Washington, DC:
     [Google Scholar]
  77. Vavra P 2009. Role, usage and motivation for contracting in agriculture OECD Food Agric. Fish. Work. Pap. 16 OECD, Paris:
     [Google Scholar]
  78. Ward CE 1997. Vertical integration comparison: beef, pork, and poultry OSU Ext. Facts WF-552, Okla. State Univ Stillwater:
     [Google Scholar]
  79. Ward CE 2002. A review of causes for and consequences of economic concentration in the U.S. meatpacking industry. Curr. Agric. Food Resour. Issues 3:1–28
     [Google Scholar]
  80. Ward CE 2010. Assessing competition in the U.S. beef packing industry. Choices 25:21–14
     [Google Scholar]
  81. Williamson OE 1971. The vertical integration of production: market failure considerations. Am. Econ. Rev. 61:2112–23
     [Google Scholar]
  82. Williamson OE 1975. Markets and Hierarchies: Analysis and Antitrust Implications. A Study in the Economics of Internal Organization New York: Free Press
     [Google Scholar]
  83. Williamson OE 1985. The Economic Institutions of Capitalism: Firms, Markets, and Relational Contracting New York: Free Press
     [Google Scholar]
  84. Williamson OE 1991. Comparative economic organization: the analysis of discrete structural alternatives. Adm. Sci. Q. 36:2269–96
     [Google Scholar]
  85. Wohlgenant MK 2013. Competition in the US meatpacking industry. Annu. Rev. Resour. Econ. 5:1–12
     [Google Scholar]
  86. Wu SY 2006. Contract theory and agricultural policy analysis: a discussion and survey of recent developments. Aust. J. Agric. Resour. Econ. 50:490–509
     [Google Scholar]
  87. Xia T, Sexton RJ 2004. The competitive implications of top-of-the-market and related contract pricing clauses. Am. J. Agric. Econ. 86:124–38
     [Google Scholar]
  88. Zhang M, Sexton RJ 2000. Captive supplies and the cash market price: a spatial markets approach. J. Agric. Resour. Econ. 25:88–108
     [Google Scholar]
  89. Zimmerman LC, Schroeder TC, Dhuyvetter KC, Olson KC, Stokka GL et al. 2012. The effect of value-added management on calf prices at superior livestock auction video markets. J. Agric. Resour. Econ. 37:1128–43
     [Google Scholar]
/content/journals/10.1146/annurev-resource-100517-022948
Loading
Are Cattle Markets the Last Frontier? Vertical Coordination in Animal-Based Procurement Markets
Annual Review of Resource Economics 10, 207 (2018); https://doi.org/10.1146/annurev-resource-100517-022948
/content/journals/10.1146/annurev-resource-100517-022948
/content/journals/10.1146/annurev-resource-100517-022948
Loading

Data & Media loading...

  • Article Type: Review Article

Most Cited Most Cited RSS feed

This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error