Impacts of alternative marketing agreement cattle procurement on packer costs, gross margins, and profits: evidence from plant-level profit and loss data

Stephen R. Koontz and John D. Lawrence
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Stephen R. Koontz: Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, CO 80523, Postal: Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, CO 80523
John D. Lawrence: Department of Economics, Iowa State University, Ames, IA 50011, Postal: Department of Economics, Iowa State University, Ames, IA 50011

Agribusiness, 2010, vol. 26, issue 1, 1-24

Abstract: This work measures the impact of captive supplies, or cattle procured through alternative marketing agreements (AMAs), on meatpacker costs, gross margins, and profits. Confidential profit and loss data were examined from all the individual packing plants within the four largest packing firms for a 30-month period. Alternative marketing agreement use resulted in improved beef supply chain efficiency, product demand, and plant profitability. The slaughter and processing costs were lower for plants with higher volumes of AMA cattle relative to cash market cattle. Plants that slaughter cattle from AMA sources operated at higher volumes, had less variable volumes, and had lower average total costs per head because of the substantive economies of size. Plants that slaughter cattle from AMA sources also had higher gross margins and average profits per head. The general conclusion is clear: If policies are implemented that limit AMA use then packing industry efficiency would be negatively impacted. [EconLit Citation: Q130]. © 2010 Wiley Periodicals, Inc.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:wly:agribz:v:26:y:2010:i:1:p:1-24

DOI: 10.1002/agr.20234

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