RTI International report show alternative marketing arrangements benefit livestock producers, meat industries, consumers

NORTH CAROLINA - Alternative marketing arrangements in the livestock and meat industries provide benefits to meat consumers and livestock producers, according to a report by researchers at RTI International.
calendar icon 21 February 2007
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The study, which was conducted for the U.S. Department of Agriculture's Grain Inspection, Packers and Stockyards Administration or GIPSA, was mandated by Congress in 2003.

The study was designed to assess the effects on the market of packer ownership or control of livestock more than 14 days in advance of slaughter and to examine alternative marketing arrangements that govern procurement and transfer of livestock from farm to retail.

Alternative marketing arrangements are methods by which livestock and meat are transferred through successive stages of production and marketing and include forward contracting, packer ownership, and marketing agreements.

The GIPSA Livestock and Meat Marketing Study found that economic benefits are distributed to meat consumers as well as to livestock producers and meat packers who use alternative arrangements.

"Our findings indicate that use of alternative marketing arrangements in the livestock and meat industries provides higher and more consistent meat quality, reduces costs of production for meat, reduces price risk and allows for market access," said Mary Muth, Ph.D., director of RTI's Food and Agricultural Policy Research Program. "Restricting their use would have negative economic consequences on the industry based on a variety of scenarios."

GIPSA contracted with RTI International to conduct an extensive study of the economic effects of alternative marketing arrangements on beef, pork and lamb marketing channels. The final report addresses the extent of alternative marketing arrangement use; analyzes price differences and short-run market price effects of those arrangements; measures and compares costs and benefits including those related to production costs, quality and risk; and assesses the implications of alternative marketing arrangements for the livestock and meat marketing system.

Led by RTI, the research team included experts from Iowa State University, Montana State University, Colorado State University, North Carolina State University and the Wharton School at the University of Pennsylvania.

An interim report, released in August 2005, identified and classified alternative marketing arrangements and described their terms, availability and reasons for use in beef, pork and lamb market channels from production to consumption. The most common marketing arrangements for livestock that are made 14 days before slaughter include lot-by-lot contracts or forward contracts, marketing agreements that are contracts for multiple lots, and equity investments by packers in feeding animals referred to as "packer ownership."

In December 2006, the report was sent to economic academics across the country for peer review. Their comments have been incorporated into the report.

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