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: dmark2@unl.edu

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