Valuing quality differentiated grains from a total logistics perspective

Marty Jay McVey

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Currently, United States grains within a grade are traded as a homogeneous commodity when in fact they are heterogeneous. Biotechnology will present the market with a myriad of quality special-grains, placing great pressure on the current distribution system to handle differentiated grains. Forcing the current distribution system to handle quality differentiated grains may have a significant impact on producers, elevators, and processors operations and revenues. The purpose of this dissertation was to examine the economic impacts of shifting from a commodity based logistics system to a quality differentiated logistics system;Results suggest significant gains from shifting from a commodity based distribution system to a quality differentiated system. Grain producers located close to processors or end-users produced the qualities of grain desired by these end-users, causing production of specific grain qualities to become localized around respective markets. Elevators and railroads will likely have to seek out niche markets and overseas markets in order to remain in the market. Moreover, some elevator abandonments and further branch rail line abandonments will likely occur as the grain industry adjusts to handle quality differentiated grains. In the short run, processors are the major beneficiaries of shifting to a quality differentiated grain distribution system. However, as capacities adjust, it is not so clear who the major beneficiaries will be in the long run. The distribution of benefits depends on the market power of the processors in the market.

Date: 1996-01-01
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