Multi-plant Coordination in the U.S. Beef Packing Industry
AAEA members release new research in AJAE
Many market analysts view persistently wide spreads between downstream beef prices and upstream fed cattle prices as being primarily a result of cattle supplies being out of step with slaughter capacity, and that the spread will narrow as cattle supplies contract and slaughter capacity holds steady or increases in coming years. This explanation is sound, but less than complete. Large cattle supplies and correspondingly high beef packing capacity utilization at the peaks of cattle inventory cycles are not a new phenomenon. Something must have changed since the last cattle cycle peak in 2007 to fuel such persistent price spreads without any obvious precipitating market shock.
In the new AJAE article “Multi-plant Coordination in the U.S. Beef Packing Industry,” Christopher Pudenz and Lee Schulz from Iowa State University find the possible implications of multi-plant coordination for the different segments of the U.S. beef supply chain.
The authors say, “Most U.S. beef packers with multiple plants now openly employ multi-plant coordination―their own statements confirm the use of this practice. Multi-plant coordination in beef packing is the firm-level coordination of procurement, slaughter, and downstream beef marketing activities across multiple plants owned by the same beef packing firm with the goal of maximizing corporate-level—as opposed to plant level—profits. Multi-plant coordination refers to intra-firm coordination rather than coordination across firms. Our study proposes that it is multi-plant coordination in conjunction with the salient features of the fed cattle market that could be the cause of observed trends in price spreads. ”
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ABOUT AAEA: Established in 1910, the Agricultural & Applied Economics Association (AAEA) is the leading professional association for agricultural and applied economists, with 2,500 members in more than 60 countries. Members of the AAEA work in academic or government institutions as well as in industry and not-for-profit organizations, and engage in a variety of research, teaching, and outreach activities in the areas of agriculture, the environment, food, health, and international development. The AAEA publishes three journals, the Journal of the Agricultural and Applied Economics Association (an open access journal), the American Journal of Agricultural Economics and Applied Economic Perspectives & Policy, as well as the online magazine Choices and the online open access publication series Applied Economics Teaching Resources. To learn more, visit www.aaea.org.
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