Agricultural Economics Department

 

Date of this Version

2-4-2022

Document Type

Article

Citation

Center for Agricultural Profitability report (February 4, 2022)

Prepared for the United States Senate Committee on Agriculture, Nutrition, and Forestry at the request of Ranking Member John Boozman (Republican-Arkansas)

Project contact: Dr. John Newton, Chief Economist, U.S. Senate Committee on Agriculture, Nutrition & Forestry

Alternate title: Regional Minimums in the United States Beef Complex

Comments

Copyright 2022, the authors. Used by permission.

Abstract

This report shows how the currently proposed policies differ; shows how these policies have aligned with historical market behavior; provides alternative specifications to regional minimums; and suggests policy alternatives to regional minimums.

The main purpose of this report is to show how current and potential alternative specifications of regional minimums would have historically aligned with observed market behavior. However, the fundamental question in the debate of the validity and effectiveness of regional minimums first rests on whether robust price discovery has historically occurred over time and within each USDA-AMS region. If there has been a lack of price discovery during certain times of the year or systematically within certain regions, then creating regional minimums is one alternative to increase negotiated trade to robust levels. Thus, if either of these two conditions are met, then one should not expect any formulation of regional minimums to match historical market behavior. This does not necessarily imply regional minimums are poorly constructed or would be ineffective at increasing price discovery. On the contrary, to create regional minimums so that they matched historical market behavior considering either of these two conditions would be counterproductive to the objective of increasing negotiated trade to a robust level. Rather than solving issues of price discovery, the enacted regional minimums would only continue permitting deficient levels of price discovery to persist under the guise of “improved price discovery.”

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