Producer’s Share: This is the fourth column in a series exploring the market and subsequent need for government intervention (see one and two and three). More specifically, the previous column dealt with the long-run trend around producer (fed cattle) and consumer (retail beef) prices. Let’s take that discussion to the next derivation: producer’s share.
I’ve previously addressed the topic (see Iffy and Squishy). In both those columns, I cited the foundational work done by Gary Brester, Montana State University (see Brester et al., 2009) and their explanation regarding the measure: “The lack of informational content in [farmer’s share] statistics suggest these data should NOT be used for policy purposes.” (emphasis mine)
Several years ago, I also published some personal correspondence from Dr. Glynn Tonsor, Kansas State University, on the topic:
Any post farm-gate investment that increases demand for meat will lead to a decline in the live animal’s share of retail dollars (presuming the investment successfully increases demand) yet can improve the economic well-being of all in the industry by providing consumers more desired products. To this end, I discourage a sole focus on this statistic as it is easily misleading.
In other words, Producer’s share is of questionable value when it comes to evaluating the health or strength of the industry. That’s especially true if it’s being leveraged for policy purposes.
RCALF: Nevertheless, RCALF’s Farm Bill Platform includes this discussion regarding producer’s share:
Another alarming index of the loss of economic viability for cattle producers is the prolonged downward trajectory of the share of the consumer beef dollar allocated to the live cattle segment of the multi-segmented beef supply chain. Data gathered by the USDA show over 41% of the share of each consumer beef dollar allocated to the live cattle segment just four decades ago has now been captured by beef packers and retailers…Four decades ago, 63% of those revenues flowed to the live cattle supply chain, and 37% remained in the beef supply chain (i.e. the beef packer and retailer). But in 2021, the allocation percentage has been turned on its head, with the beef supply chain capturing 63% of the revenues leaving only 37% to make its way to the live cattle supply chain.
Data: The first chart recreates RCALF’s presentation of the data. A couple of things of interest relative to the data – LMIC notes that, “In January 2000, ERS made a methodological change…So, ERS reported Quarterly and Annual data beginning in 1999 do not match history.” But let’s run with it.
RCALF explains the graph demonstrates “…radical reallocation of revenues manifest between the cattle supply chain and beef supply chain [and] cannot be explained by competitive market fundamentals. Instead, this reallocation evinces severe market failure…”. (See chart)
However, I’m still wondering why, using the EXACT SAME data set, RCALF presented fed cattle and retail prices on a monthly basis through 2022 (see previous column), yet 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 provides a very different perspective. Interesting to note, the business is now running ahead of COOL. And also running ahead of 1994 (the year NAFTA was implemented). So, IF the business was “[evincing] severe market failure” just barely over a year ago (when RCALF published their Platform), THEN how has it managed such a sharp and quick turn-around? (See chart)
The Playbook Makes The Difference: Despite being a questionable indicator, RCALF leverages producer’s share as doom-and-gloom – and will remain that way unless, “Congress acts decisively to enact meaningful reforms.” And so, we’re left with two options.
Either one, follow RCALF’s strategy – make the rule book bigger; that’s their idea of how to win in business. But that’ll never provide any competitive advantage in the marketplace.
Or two, keep developing the playbook (not the rule book) and remain focused 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, nor are associated with in any manner, any client or business relationship. He can be reached at nevil.speer@turkeytrack.biz.
