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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