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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)

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.

Suggested Citation

  • Stephen R. Koontz & John D. Lawrence, 2010. "Impacts of alternative marketing agreement cattle procurement on packer costs, gross margins, and profits: evidence from plant-level profit and loss data," Agribusiness, John Wiley & Sons, Ltd., vol. 26(1), pages 1-24.
    • Handle: RePEc:wly:agribz:v:26:y:2010:i:1:p:1-24
    DOI: 10.1002/agr.20234
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    1. Meilin Ma & Jayson L. Lusk, 2022. "Concentration and Resilience in the US Meat Supply Chains," NBER Chapters, in: Risks in Agricultural Supply Chains, National Bureau of Economic Research, Inc.
    2. Onur Boyabatlı & Paul R. Kleindorfer & Stephen R. Koontz, 2011. "Integrating Long-Term and Short-Term Contracting in Beef Supply Chains," Management Science, INFORMS, vol. 57(10), pages 1771-1787, October.
    3. Liu, Jicheng & Lin, Xiangmin, 2019. "Empirical analysis and strategy suggestions on the value-added capacity of photovoltaic industry value chain in China," Energy, Elsevier, vol. 180(C), pages 356-366.
    4. Fausti, Scott W. & Qasmi, Bashir A. & Diersen, Matthew A. & Li, Jing & Lange, Brent, 2011. "The Affect of Animal Gender on Fed Cattle Producer Marketing Behavior," 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas 98541, Southern Agricultural Economics Association.
    5. Christopher N. Boyer & Dayton M. Lambert & Charles C. Martinez & Joshua G. Maples, 2023. "Beef and pork processing plant labor costs," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 691-702, July.
    6. Schroeder, Ted C. & Tonsor, Glynn T., 2011. "Economic Impacts of Zilmax(R) Adoption in Cattle Feeding," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(3), pages 1-15.

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