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Making Beef Genetics Pay Throughout the Value Chain

Making Beef Genetics Pay Throughout the Value Chain
South Dakota State University extension specialist looks at the economics of beef producers' genetic choices

Genetics are a tool that many beef producers use to improve the value and productivity of their herds, but capturing the full potential of genetics throughout the value chain can be a challenge.

Dr. Lisa Elliott, South Dakota State University Extension commodity marketing specialist, says selecting a genetic plan depends upon the goals and size of the operation. She discussed the issue during a presentation in December at the at the 2013 Range Beef Cow Symposium in Rapid City, S.D.

Elliott explained how different management tools should be coupled with complimentary organizational arrangements and market differentiation to maximize the value producers receive from investing in genetics.

South Dakota State University extension specialist Dr. Lisa Elliott looks at the economics of beef producers' genetic choices

Identifying and employing complementary organization arrangements can reduce transaction costs and increase premiums to producers, she said. However, there are challenges.

Price signals that should incentivize producers to manage genetics have been distorted from transaction costs due to market failures, she said. For example, a producer may bear most of the risk (or cost) in a genetic program. If it fails, the producer could potentially bear large costs, whereas the processor may share little of the cost of genetic improvement.

Vertical integration could be a solution to limiting transaction costs, but it can also increase other costs in the beef supply chain due to differences between firms.

Overall, she said, added value from genetic management can occur from two different sources: premiums for higher quality beef products and improved segregation of beef production that leads to increases in consistency of products and quality yields.

Elliott indicated consumers' willingness to pay for quality beef has been well documented. Branded products, such as Certified Angus Beef and Laura's Lean Beef, for example, have shown strong demand and garner consistent premiums.

In addition to value added premiums, packer and feedlot capacity can be utilized more efficiently with a coordinated, consistent production system, she said.

Source: Shannon Sand, SDSU Livestock Business Management Field Specialist

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