New Instruments for Co-ordination and Risk Sharing within the Canadian Beef Industry

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  • The Canadian beef industry has stated objectives of improving beef quality and consumer satisfaction while reducing unit costs of production. Suggested methods for achieving these goals include working towards value based marketing and improved information flows between different market levels through systems such as a birth to plate information system. These initiatives are designed to provide a more direct link between consumer product needs and breeding and management decisions at the farm level. The industrialization of agriculture has introduced a number of changes to the structure of livestock production; from vertical integration (arrangements such as packers feeding cattle0 and forward contracting to increasing concentration (of packers and feedlots) within the marketing structure. In the past emphasis was placed on marketing what was produced. Today the challenge is to find value added markets for products. This has promoted changes to the way in which beef and beef products are priced and sold. Vertical coordination has been suggested as a means of dealing with such pricing aspects and information transmission. Grid pricing for finished cattle is also proposed another method to improve the industry by providing more information to all levels of the industry. This research evaluates several areas in coordination, pricing and risk for cattle. These areas are: * Introduction to theory of vertical coordination * Risk tools to manage market risk in the cattle industry * Sources of risk in the cattle industry * Review of the Alberta beef cattle industry structure * Level of use of risk tools by the cow-calf sector in Alberta * Math models and evaluation for new derivative rools * Evaluation of Value-Based-Marketing using Alberta cattle research data * Case studies in vertical coordination and managing risk. This report addresses the issues in risk and vertical co-ordination in the beef industry. It provides information, new research and suggestions for moving the beef industry in Alberta forward. The original research proposal planned to develop math models and pricing contracts that can be used by cow-calf, backgrounder, processors and feedlot sectors. These models are developed and simulated but not extended. Preliminary research showed them to be useful but the use would be limited. Traditional risk tools would be more relevant in most cases. Instead, further risk management might be achieved by evaluating different marketing channels for the beef industry through more co-ordination and the risks surrounding grid pricing. These extensions were pursued in this study.

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    Attribution-NonCommercial-NoDerivatives 3.0 International