Abstract

U.S. beef packers openly began employing multi-plant coordination during the last decade. Using the Salop Circular City framework, we demonstrate that this leads to wider spreads between downstream beef prices and upstream fed cattle prices. Taken together with market concentration, geography and transportation costs, alternative marketing arrangements, and cattle cycles and related beef packer capacity utilization, multi-plant coordination helps explain farm-to-wholesale beef price spreads that have remained wide absent any obvious market shocks. We find that, as cattle inventories decline, a multi-plant coordinator will permanently shut down a plant before a plant run as an individual profit center will shut down, which is consistent with packer behavior in recent years. We further demonstrate that adding a strategically-located packing plant, owned by a different firm, can narrow the price spread. Our results add new underpinnings to ongoing policy discussions.

Subsequent version published in the American Journal of Agricultural Economics, Volume 106, Issue 1, available online at https://doi.org/10.1111/ajae.12391