Modeling Beef Quality Heterogeneity

The events of various supply and demand shifts upon beef price, quantity, and industry welfare have been widely studied beneath the assumption of beef quality homogeneity. In this paper, we fabricate a model of the beef sector that incorporates differences in beef quality. The type is used to analyze the result of supply and demand shifts upon changes in prices and quantities of high- and low-quality beef and changes in income accruing to producers of high- and low-quality beef. type results indicate that supply and demand collisions have the potential to alter the average quality of beef upon the market and the price premium charged for high-quality beef, which has important implications for retailers selling quality-differentiated beef and farmers selling cattle on a grid.

Key Words: beef, equilibrium displacement type multisector model, quality heterogeneity

JEL Classification: Q11 Q18

Several studies have analyzed the issue of technology-induced supply shifts or consumer-driven demand shifts upon beef industry welfare (e.g., Mullen Wohlgenant, and Farris; Unnevehr Gomez and Garcia; Wohlgenant 1993) In addition, several studies have focused upon whether beef producers gain more from advertising or research into cost-saving technologies (Chung and Kaiser; Wohlgenant 1993 1999) individual notable theme among such studies is that beef was treated as a homogeneous commodity and no distinction was made between changes in prices or quantities of beef of different qualities.

Although beef quality homogeneity might have been a realistic assumption in the past, today's market for beef is segregated by dint of the USDA quality grading a whole In the late 1980s, les than 10% of graded beef was assigned a quality grade lower than Choice. However, through 2000, almost 40% of graded beef received a grade lower than Choice. Despite of that kind changes in quality differentiation within the grading a whole little research has focused upon identifying elasticities of demand or provide for differing beef qualities or determining the event of supply and demand clashs on prices and quantities of different beef qualities.

Given the heterogeneity in today's marketplace, consumer have the ability to substitute between differing qualities of beef.1 To a somewhat smaller extent, feedlots and fed cattle agriculturists also have the ability to substitute between cattle qualities by dint of varying the number of days cattle are upon feed (see Greer and Trapp) or by dint of altering the types of cattle purchased for feeding. These facts intimate that homogeneous quality models might not provide an accurate picture of price, quantity, or income changes occurring for a serviceable comprised of different qualities.

When quality homogeneity is assumed, no inferences can be made about the event of exogenous shocks on the average quality of beef and the premium for higher quality beef. This is problematic for a number of reasons. First, store or demand shifts might be invoked with the use of capitals from producer-financed programs such as a checkoff program. Producer-financed promotion might not have an equivalent event on prices and quantities of high- and low-quality beef, implying that benefits might not be equally distributed across producers2 next to the first beef retailers and fed cattle husbandmans are increasingly interested in beef quality and the consequences of exogenous shifts on quantity horizontals and price premiums. Grocery stores are beginning to present a diversity of beef yields in addition to the traditional selection of cull or store-brand beef. These retailers are interested in in what manner new regulations, for example, might change the price premiums they can charge for high-quality beef produces At the farm level, Schroeder et al. throwed that by 2006, over 60% of f cattle would be marketed upon a grid, in which cattle are priced upon the basis of quality characteristics. McDonald and Schroeder showed that the distribution of cattle quality had a significant result on profitability of marketing upon a grid, and Schroeder and Graff showed that changes in the Choice-to-Select spread had a significant consequence on the variability of grid receiptss Clearly, cattle producers would benefit from knowing in what way factors such as increased promotion, fresh food safety concerns, or fresh technology might affect price premiums for quality.

The goal of this paper is threefold First, we unfold a model that is able to capture quality heterogeneity in retail, wholesale, and farm markets. Our prototype is a hybrid of the product-differentiated mould of James and Alston and the marketing channel mould of Wohlgenant (1993). second, the type is implemented with data from the beef sector to analyze by what means generic promotion and research affects beef quality and by what mode the revenues generated by of that kind shocks are allocated among high- and low-quality farmers Finally, we identify the lock opener parameters affecting beef quality and price premium changes in an effort to guide time to come empirical work.

A Model of Heterogeneous Beef Quality

To accurately pattern the effect of supply and demand impacts on beef quality, a number of factors must be considered. First, at the retail sector, large markets exist for one as well as the other high- and low-quality beef, and generic promotion is aimed at expanding these sum of two units markets. However, even if promotion expands the market for all beef, the expansion might be biased toward a particular quality. For example, high-quality husbandmans might receive a higher go [i]or[/i] come back from the "Beef: It's What's For Dinner Campaign" than low-quality agriculturists or vice versa. As a be the effect a model must be able to incorporate asymmetries in issues of promotion across quality. In addition, the type must be able to capture the ability of consumer to substitute between qualities of beef.