Respect the value of managing genetics

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Mar 7, 2014
by WLJ

Genetic management can be used to capture added value through the supply chain, explained Lisa Elliott, Assistant Professor & South Dakota State University (SDSU) Extension Commodity Marketing Specialist.

“Management tools and protocols should be coupled with complimentary organizational arrangements and market differentiation mechanisms in order to maximize value captured from the investment,” Elliott said.

Elliott identified three key components to managing beef genetics: genetic management; organization design; and market differentiation mechanisms. The main area discussed was genetic management, what it means and how producers can use it to increase their profitability. What does genetic management mean to producers?

Elliott said genetic management is identifying and employing complementary organization arrangements and market differentiation that reduces transaction costs and, perhaps most importantly, increase premiums to producers.

“Genetic management can be used to capture premiums in the market,” she said. “However, there are challenges to optimizing management of beef genetics when transaction costs exist throughout the beef supply chain.”

She explained that price signals that should incentivize producers to manage genetics have been distorted from transaction costs due to market failures.

“For example, a producer may bear most of the risk, or cost, in a genetic program. If it fails, the producer could potentially bear large costs, whereas the processor may share little of the cost of genetic improvement,” she said.

Vertical integration, Elliott explained, could limit the transaction costs; however, it can also increase other costs in the beef supply chain due to differences between firms. Added value from genetic management can occur from two different sources: value-added premiums for higher quality beef products; and improved segregation of beef production that leads to increases in consistency of products and quality yields.

“Consumers’ willingness to pay for quality beef has been well documented. Branded products, such as Certified Angus Beef (CAB), have shown strong demand and garner consistent premiums. In addition to value-added premiums, packer and feedlot capacity can be utilized more efficiently with a coordinated, consistent production system,” Elliott said. — WLJ

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