Date of this Version
Range Beef Cow Symposium XXIII, December 3-5, 2013, Rushmore Plaza Civic Center, Rapid City, SD.
Capturing value from managing beef genetic depends on three key complementary components—genetic management, organization design, and market differentiation. Without complementary changes to organization and market differentiation mechanisms, value from better management of beef genetics may not be fully captured, or beef genetics may be undermanaged. The purpose of this paper is to frame the problem of obtaining optimal beef genetic management as identifying, and employing, complementary organization arrangements and market differentiation mechanisms that reduce transaction costs and facilitate greater beef genetic management. The paper concludes with specific recommendations for northern beef producers to improve capturing the value of greater genetic management. The problem of obtaining optimal management of beef genetics results from transaction costs in the beef supply chain. Transmission of price signals that incentivizes greater genetic management has been shown to be distorted from transaction costs in a nonintegrated beef supply chain; these transaction costs result because of typical market failures that are described in the academic literature, examples include: opportunism for asset specific investment, inadequate risk-sharing institutions, horizon investment problems, specialized human capital required for optimal genetic management, and uncertain product differentiation signals to buyers and consumers. The adoption of a vertically integrated supply chain, as an alternative to the market mechanisms, may reduce transaction costs that occur using the price mechanism; however, vertical integration in the beef chain may result in large “bureaucratic costs” because of the heterogeneity of beef production-- both in scale and geography and in producer financial attributes and objective functions. The existence of bureaucratic costs in either a vertically integrated beef supply chain, or a beef supply chain that relies on improper or mixed price signals, results in sub-optimal investment in genetic management. As a result, there is the opportunity to capture greater value from added premiums, or reduced costs, by adopting greater genetic management in beef production if there are complimentary organization and market differentiation mechanisms (James, Klein, and Sykuta, 2007).