Multi-plant Coordination in the US Beef Packing Industry
Christopher C. Pudenz, Lee L. Schulz
December 2021 [21-WP 630]
Pudenz, C. and L. Schulz. 2021. "Multi-plant Coordination in the US Beef Packing Industry." Working paper 21-WP 630. Center for Agricultural and Rural Development, Iowa State University.
U.S. beef packers openly began employing multi-plant coordination during the last decade. This paper adapts the Salop Circular City framework to demonstrate that beef packers effectively implementing multi-plant coordination can eliminate intra-firm forces causing correlation between downstream beef prices and upstream fed cattle prices. Taken together with market concentration, geography and transportation cost effects, alternative marketing arrangements, and cattle cycles and related beef packer capacity utilization, multi-plant coordination helps explain farm-to-wholesale beef price spreads that remain wide absent any obvious market shocks. Such beef price spread behavior has been observed in 2021, during which beef prices have been seemingly unhinged from fed cattle prices. We further demonstrate that adding a single strategically-located packing plant, owned by a different firm, can restore the correlation between beef prices and fed cattle prices. Overall, our results have implications for current policy and industry deliberations and also suggest avenues for future research.