Returns to Stakeholders from the American Lamb Checkoff Program: A Supply Chain Analysis

The United States sheep industry has suffered an almost constant decline in sheep and lamb inventories; a record of 56 million head in the early 1940s to only 5.33 million head in 2013. The steady decline of the industry can be attributed to a confluence of many factors, amongst which is the discontinuation of the U.S. Wool Incentive payment program. With the discontinuation of the program in 1996/97, an unsuccessful effort was made to pass a mandatory checkoff program through a producer referendum. Six years later, in 2002, to enhance the demand for lamb, the Lamb Promotion, Research, and Information Order, better known as the American Lamb Checkoff Program, was established under the Commodity Promotion, Research and Information Act of 1996. The main objective of this research was to measure the effectiveness of the Lamb Checkoff Program by determining the extent to which the program has been able to shift out the demand for U.S. lamb and how much of the promotion benefit, if any, has been transmitted back through the supply chain to the different stakeholders of the lamb industry. This research investigated questions dealing with the demand, supply and trade of sheep and lamb through the global supply chain. This analysis used a seventy equation, non-spatial price equilibrium model (LamMod) to estimate the parameters of interest using the OLS method of estimation. After estimating the parameters of all seventy equations, the model was simulated over the sample period (1987 - 2013) as a means of model validation. The model was then used to simulate two expenditure scenarios, the “with” and “without” lamb checkoff expenditure to measure the effects and benefits of the program by calculating the Benefit-Cost-Ratio. The results of this study clearly indicated that not only did the lamb checkoff program increase the demand for lamb, the program tended to lift the entire supply chain in the process with every stakeholder group benefitting from it. The Benefit-Cost Ratio (the dollars of net returns per dollar of checkoff expenditure) to the lamb industry as a whole over the entire period of analysis (1987-2013) was $7.10, considerably lower than the $44.14 reported by Williams, Capps and Dang (2011) at the retail level. When discounted to present value, the BCR was still a healthy $3.46. In other words, for every dollar invested by industry stakeholders in lamb promotion through the checkoff program, they realized $7.10 in additional profit ($3.46 on a discounted basis).Under the current lamb checkoff program (2002-2013), the industry BCR was $14.40 compared to the BCR of $3.03 in preceding years when the promotion expenditures were funded by the now defunct Wool Incentive Program.