Effects Of Animal Identification On Cattle Market Structure
Prepared by:
Darrell R. Mark, Ph.D.Asst. Professor & Extension Livestock Marketing Specialist
Department of Agricultural EconomicsUniversity of Nebraska-Lincoln
402-472-1796Email: [email protected]
Web: http://agecon.unl.edu/mark
Western Center for Risk Management Education
Western Extension Marketing Committee
Structural Change Is:
1. Change In Number Of Firms2. Change In Size Of Those Firms3. Change In Geographic Location Of The
Firms
• Because NAIS Continues To Be Developed & Implemented, Impacts On Beef Industry Structural Change Is Currently Uncertain
Cow-Calf Sector
U.S. Beef Cow Operations, 2003
• Average 41 Cows Per Operation• Large Number Of Small Operations• Over 40% Of Operations & 60% Of Cow Herd
In Western States
Beef Cow OperationsBeef Cow Inventory1-49
Head50-99 Head
100-499
Head
500+ Head
Total
620,550 95,825 70,345 5,330 792,050 32,860,300
78.3% 12.1% 8.9% 0.7% 100%
Source: USDA-NASS
Costs Will Vary For Operations
• Some Will Not Participate Unless ID Becomes Mandatory– No Increase In Costs, But May Jeopardize
Market Access
• Some Will Only Obtain Premises ID Number, But Not Do Individual Head ID– Will Keep Costs Low– Potential Benefits Would Be Low
Group/Individual Head ID
• Small Herd Sizes– Variable Costs (Tagging, Scanning):
$2-5/head– Fixed Costs (Electronic Readers): $4-25/head– Costs Per Head Will Decrease With
Increasing Herd Size
Source: Blasi et al.
Third-Party Technology Provider
• Collect Traceability Information Required By NAIS & Report It
• Collect Production & Management Information– Birth Dates & Weights, Vaccination Records,
etc.– Provide Summary Reports & Benchmark
Information To Producer– Beneficial Only If Producers Use It To Make
Better Production Management Or Marketing Decisions
Costs For Third-Party Providers
• Depends On:– Amount & Type Of Hardware & Software– Individual Tags & Recordkeeping Charges– Decreases In Technology Costs Over Time
Small Sized Operations
Three Alternatives1. Contract With Third Party
2. Forgo ID As Long As It Is Voluntary & They Maintain Market Access
3. Cooperatively Own Hardware & Software With Other Producers
• As Long As NAIS Is Voluntary & Technology Neutral, Costs Should Remain Low (<$5/head)
Medium & Large Sized Operations
• Larger Herd Sizes Can Distribute Fixed Costs Over More Cattle
• Medium Sized Operations Must Determine Whether To Use Third-Party Provider Or Invest Themselves
Structural Change
• All Operations Will Adapt In Least-Cost Manner– Each Size Has Advantages & Disadvantages
• Structural Change Will Be Led By How Producers Use The Individual Head Production Records – Not Required By NAIS– Better Tracking Of Productivity May Provide
Comparative Advantage, This Return Could Be Reinvested In Operation To Increase Its Size
Market Access & Price Differentials
• If Program Is:1. Voluntary
2. Some Producers Don’t Participate
3. There Are Benefits To ID
• Stocker Or Finishing Operations Or Packers Will Eventually Discount Cattle Without Tags Or ID Records Or Possibly Not Buy Them
Liability
• If Improved Traceability Exposes Producers To Additional Liability For Quality Or Safety, Smaller Sized Operations Would Be More Impacted By This Risk
• Geographic Differences May Exist Depending On State Laws To Provide Protection
Seed Stock Sector
Structural Changes
• Likely Minimal Because Some Type Of Individual ID Is Already Used– Don’t Need Technology To Quickly Read
Large Numbers Of Cattle
• NAIS May Provide A Way To Verify Breeding & Genetics Of A Particular Line That Might Have A Valuable Attribute
Stocker Sector
Stocker Operators
• NAIS Guidelines Would Have Cattle Tagged Before Being Sold, So Stockers Should Not Have These Costs, At Least After System Is Functioning
• Buyers Of Cattle Have Responsibility To Report The New Location
• Stocker Operators That Use Multiple Premises Sites May Have To Report Movements That Do Not Include Change Of Ownership
Sourcing Cattle From Multiple Locations
• Results In Cattle With Different Types Of Tags & Different Technology– It Is Hard To Make The Different
Technologies & Software Work Together Seamlessly
– Will Stockers Have To Re-Tag Or Buy Cattle With Only One Type Of Tag?
• Some Cattle Purchased Will Continue To Be Serviced Throughout Their Life By The Original Third-Party Provider
Feeding Sector
Feed Yard Operators
• Have Same Issue With Multiple Sources Of Cattle & Different Technologies– To Get Useful Individual Head Data, They
Need All Information Aggregated Into One System
• More Difficult With Producers Retaining Ownership
• Have Incentive To Build Relationship With Feeder Cattle Suppliers– Lower Costs, Consistent Technology,
Liability Protection
Costs By Size
• Small Yards Likely Need Only One Panel Reader & One Hand-Held Reader
• Large Yards May Need Multiple Panel Readers & Hand-Held Readers– Can Spread Hardware, Software, &
Technology Costs Across More Cattle & Pounds Gained To Create Economies Of Scale
– If They Realize A Benefit From The Data Collected, They Will Likely Gain The Most
Implications
Vertical Coordination
• Animal Identification Creates Strong Incentive For Linkages Between Cow-Calf, Stocker, & Finishing Sectors That Would Share Information– Easier Liability Transfer– Do Business With As Few Firms As Possible
• May Reduce Liability & Improve Product Quality & Safety
Sales Method
• Direct Sales/Private Treaty Will Be Easier To Transfer & Exchange Information– Fed Cattle Market Will Be Less Affected
• Central Markets Present Numerous Issues For Traceback
Public vs. Private Benefit
• Public Benefit From 48-Hour Trace back– Avoid Negative Demand Shock From Animal
Disease Problem
• Private Benefit From Using “Extra” Production Management Data– The Greater These Benefits, The More
Disparity Between Producers Using Individual Animal ID Data & Those Who Do Not