Thursday, August 19, 2010

Lit in review: 3 on meat markets

Anderson and Hudson "Acquisitions and Integration in the Beef Industry" [Policy Issues, Sept 2008] discuss the growth of Brazilian beef processor JBS, who bought up Swift, National Beef, and Smithfield to become the largest beef processor in the US [more recent, unfavorable, views on further expansion here and here]. In the process, they also gained control of the largest feeding operation in the US, vertically integrating these for the first time. The percent of "cattle obtained through non-price methods increased from 20.5% to 40.4% between 1988 and 2006". The factor driving the acquisitions is low cattle numbers and resulting overcapacity. Since 2002, each Congress has considered (without taking action) limiting packers' ability to own cattle directly.

Gunderson, Lusk, and Norwood (2005), "Getting Something from Nothing: An Investigation of Beef Demand Expansion and Substitution," Review of Agricultural Economics, Vol. 31, No. 1, 68-87.
In order to do a proper choice experiment, you have to give participants the option to buy nothing. Most of the time, economists have ignored the nothing, but the authors believe there can be significant information in it (so we can get something from nothing ... clever). Specifically, they investigate how consumers substitute between nothing and new products to identify whether the introduction of a new product increases total demand for the class of products or whether demand is largely stolen from other products in the same class. They find that for a new "natural" steak, total steak demand increases with significant differences in the negative impact between USDA Choice steak (larger negative impact) and ungraded beef (smaller).

In the same issue, Rude and Gervais (2005) consider "Biases in Calculating Dumping Margins: The Case of Cyclical Products."
Dumping is identified by exporting goods at a price below "normal" in the home market. But if you have a cyclical product, the trough periods by definition feature below normal prices. And if you have a case like the US/Canada hog industry, the cycles are very well matched. So US hog producers are upset at Canadian imports just at the same time that prices are low (because prices are low) and so cry "dumping!" The authors find an 11% dumping bias that could only be partially addressed by estimating costs over short time periods.

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