Download Potential Benefits of Production Information to Cattle Producers

Possible Producer Benefits from a
National Animal Identification
System (NAIS)
Prepared by:
Dr. Ruby Ward
Assistant Professor
Extension Economist
Economics Department
Utah State University
Email: [email protected]
Western Extension
Marketing Committee
Western Center for
Risk Management
Education
Can the National Animal
Identification System Benefit
Cattle Producers
Outline
• Benefits – 3 categories
– Food safety
– Bioterrorism
– Increased production information
Food Safety & Bioterrorism
• BSE in Canada and United States
– Highlighted the need for an animal tracking
system
• Increased threat of Bioterrorism
• Highlighted need for NAIS
– Trace back of infected animals within 48 hours
of detection.
• How does this benefit producers?
Food Safety & Bioterrorism
• Trace infected animal within 48 hours
• Quick isolation
• Increased consumer confidence
Exports and Prices
• Exports are 8-10% of beef production in
the U.S.
• Drop in exports has a larger drop in price
• Price elasticity is -.62 (Huang 1996)
– This measures the percentage change in
quantity for a 1% change in price
• Price Flexibility of 1.5 – 1.6
– Inverse of price elasticity measure the
sensitivity of price to changes in quantity.
Exports and Prices
• Exports are 8-10% of beef production in the
U.S.
• Price Flexibility of 1.5 – 1.6
– Inverse of price elasticity measure the
sensitivity of price to changes in quantity.
• Drop of 9% in demand would cause price to
drop by 15% (1.6*9%)
• Similar to what happened in market after
BSE announcement in December 2003
Food Safety and Bioterrorism
• Lower wholesale and retail prices for beef
will be passed on to the cattle producer.
• Program that supports demand in event of
food safety or bioterrorism crisis
• Will help producers
Increased Production Information
• More information flowing along
marketing channel
• Marketing Channel – Stages a product
passes through
Cow/calf producer
Feedlot
Packer
Retailer
Commodity Vs. Differentiated
• Commodity
– All products seem the same
– Low price is important
• Differentiated Products
– Some products can be perceived as higher
quality
– Usually sell for a higher price
• If more information is attached, the product
may be able to sell it for more
For Example
• Selling a 500-pound calf
– Commodity sells for market rate
• If higher probability this calf will perform
well
– Would finish faster
– Grade higher than other calves
• Then calf is more valuable and could get a
premium price.
Higher quality herd
• Information about carcass yield, feedlot
performance etc. could be linked to a
particular animal
• That information could flow back to the
producer (usually a fee is attached)
• Producer could use it to selectively cull the
herd
• Herd quality and performance could
increase
Pricing on a Grid
• Only a portion of animals currently being
priced based upon performance
• Should increase in future
• Some feedlots may require information as a
market entrance requirement
• Animal ID could be key to market access
Verifying Information
• Some product characteristics require third
party verification
• NAIS can facilitate by being able to track
and audit the animal through the system.
Producer Benefits of Information
• More information can flow along
marketing channel
• Can Differentiate products
• Can use information to improve herd
quality
• Easier to do audits
Conclusions
• May be some liability issues
• Decrease risk of food safety or bioterrorism
threat
• More information flowing along marketing
channel
– Improve herd quality
– Add verifiable characteristics
– Differentiate products