It is vital to understand critically how the agricultural industry works regarding market coordination of farm products such as beef and how the integration affects all levels of industries. Market coordination involves establishing the flow of products right from the producers to the consumers and vice versa(the flow of consumer feedback to the producer)
The beef industry incursvariouscosts, which can often reduce the profit level margins because of the multiple companies functional at the multiple levels of production. The process involves farmers raising the animals until they attain approximately 500 pounds before selling to the feedlots responsible for ensuring that the cattle is about 1000 pounds (Miljkovic, 2009). The feedlots sell the animals to abattoirs or meat packers who process the meat ready for supply to stores and commercial producers. Paying for cattle feeding can be quite expensive to purchase grass, silage, and hay.
Vertical integration occurs when a company takes over several stages of a production process and the distribution chain to generate more efficiency and reduce the costs of production involved in the whole process. Considerable incomes might get lost in the process between the cattle farm where extended costs of land feeding and maintaining the animals and the point of selling the product to the customer. Other costs might get lost in the event of transportation of the products packaging and slaughtering costs. Therefore, the chain of processes warrants a vertical way of production in the beef industry.
The size of beef packaging are not small packages to associate it with a post office, and it involves a significant operationof transporting cattle to an abattoir and the market which is related to a price tag. Lots of money saved through the acquisition of trucks and trailers to carry both the cattle to slaughter and frozen beef to the market. Transport management is essential to ensure that beef products rich the market in excellent condition, particularly for the farmers who have to navigate for long distances before reaching the marketplace.
Vertical integration aims to reduce the costs through combinations of the various processes that meat go through and lower the costs of feedthrough producing it on the same farm where cattle are maintained. Creating a rotating field where animals are managedto ensure that pasture matures enough would reduce the costs of feeding (Bresnahan and Levin, 2013). More nutrients to the cows and consistent supply of nutrient-rich food are essential through producing hay and silage to growth.
Macedo, Luis and Otavio (2009) found out that the big meat packaging industries consume a more significant percentage of profits from the small-scale ranchers. Although the cost of maintaining a slaughterhouse concerning health safety and regulation makes it an uphill task to keep such facilities, actual benefits constructed at this stage of meat processing. The ability to incorporate this processes, it would offer the most significant investments in the whole model.
When ranches attain the standards where they can process the beef that they produce, it boosts its brand awareness and appreciation (Baum, 2015). Transportation of the processed to the products provides a platform for effectively marketing their brand names through mobile billboards. The packaging of meat with the name of the ranch is vital to have command over the prices of the products and ultimately have control over the process. Initiating beef processing facilities such as packaging will intensification the ability the ability to purchase additional cattle from other ranchers and expound their profit.
Baum, E.L (2015). "An Evaluation of Integration in the Poultry Meat Industry." Journal of FarmEconomics. 61(2015):34-37.
Bresnahan, T., & Levin, J. (2013). Vertical Integration and Market Structure. The Handbook of Organizational Economics. doi:10.1515/9781400845354-023
Macedo, Luis OtavioBau (2009). "Governance and Coordination in Brazilian Beef Alliances: An Analysis Based on Transaction Cost and Relational Approaches." SSRN Electronic Journal, doi:10.2139/ssrn.1443330.
Miljkovic, D. (2009). US and Canadian livestock prices: Market integration and trade dependence. Applied Economics, 41(2), 183-193. doi:10.1080/00036840600994260
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