Speer: Rulebook or gamebook?

Producer’s share: This is the fourth column in a series examining the market and the resulting need for government intervention (see one, two, and three). More specifically, the previous column looked at the long-term trend in producer prices (fed cattle) and consumer prices (retail beef). Let’s now take this discussion to the next derivative: producer share.

I have addressed the issue before (see Iffy and Squishy). In both columns I cited the foundational work of Gary Brester of Montana State University (see Brester et al., 2009) and their explanation of the measure: “The lack of information in the statistics (on the share of farmers) suggests that these data should NOT be used for political purposes.“ (Emphasis mine)

A few years ago I also published a personal correspondence from Dr. Glynn Tonsor of Kansas State University on this topic:

Any post-produce investment that increases demand for meat will result in a decline in the share of live animals in retail sales (assuming the investment successfully increases demand), but can improve the economic well-being of everyone in the industry by providing consumers with more desired products. For this reason, I advise against focusing exclusively on this statistic, as it is slightly misleading.

In other words, the producer share is of questionable value when it comes to assessing the health or strength of the industry, especially when it is used for political purposes.

RCALF: Nevertheless, RCALF’s Farm Bill Platform includes the following discussion on producer share:

Another alarming indicator of the loss of economic viability for cattle producers is the continued downward trend in the share of the beef dollar allocated to the live beef segment of the multi-segmented beef supply chain. Data collected by the USDA shows that over 41% of the share of each beef dollar allocated to the live beef segment just four decades ago is now captured by beef packers and traders… Four decades ago, 63% of that revenue went to the live beef supply chain, and 37% stayed in the beef supply chain (i.e., with the beef packer and trader). Yet in 2021, the allocation percentage has flipped on its head: The beef supply chain receives 63% of the revenue, while only 37% finds its way to the live beef supply chain.

Data: The first chart recreates RCALF’s data presentation. A few interesting things about the data – LMIC notes that “ERS made a methodological change in January 2000… Therefore, quarterly and annual data reported by ERS from 1999 onwards are not consistent with history.” But let’s leave it at that.

RCALF explains that the graph “…shows a radical redistribution of revenues between the cattle and beef supply chains (and) cannot be explained by competitive market fundamentals. Instead, this redistribution reflects a serious market failure…” (See graph)

However, I still wonder why RCALF, using EXACTLY THE SAME dataset, presented beef cattle prices and retail price through 2022 on a monthly basis (see previous column), but this data is presented on an annual basis – and only through 2021.

Updated view: Now let’s turn to an updated view of the data. It offers a very different perspective. What’s interesting is that the company is COOL ahead now. And also in 1994 (the year NAFTA was implemented). So IF the company was experiencing “severe market failure” just under a year ago (when RCALF released its platform), THEN how did it manage such a sharp and rapid turnaround? (See chart)

The playbook makes the difference: Although RCALF is a questionable indicator, the producer share is used as a pessimistic indicator – and will continue to be so unless “Congress acts decisively and passes meaningful reforms.” So we are left with two options.

In any case, follow RCALF’s strategy – make the rulebook more comprehensive. That’s their idea of ​​how to be successful in business. But that will never give you a competitive advantage in the market.

Or second, evolve the playbook (not the rulebook) and keep the focus on competitiveness: consumers are the business. That’s how producers ultimately win the game!
Nevil Speer is an independent consultant based in Bowling Green, KY. The views and opinions expressed herein do not reflect, or are in any way associated with, a client or business relationship. You can reach him at [email protected].