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Vertical Integration of the Beef Industry
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<blockquote data-quote="farmer rich" data-source="post: 185936" data-attributes="member: 1952"><p>Vertical integration/consolidation good or bad? </p><p>I think that depends on where in the food chain the power is concentrated. By food chain I mean the great food chain of the beef industry where the majority of producers are the small fry and the multiple retailers are the sharks, the processers are of course somewhere in the middle. </p><p>Getting bigger will lead to greater efficiencies and economys of scale, it may also lead to greater power when marketing stock if you are big enough. It also means that smaller inefficient producers are squeezed out, a good thing some might say. But, getting bigger in the beef industry requires large capital investments in land and equipment, I doubt many producers have much spare capital for land purchases. Certainly the potential return on investment is not that great.</p><p>In my opinion, due to the nature of beef production consolidation of primary production has only limited potential. Simply put the fractured nature of land ownership and the unwillingness of producers to co-operate on a meaningful scale limits the size of individual operations and marketing schemes. </p><p></p><p>Consolidation in the processing industry will deliver the same benefits of increased efficiency resulting in large finantial savings, will those savings be passed down the food chain? My experience says not. Do you think fewer buyers round the sale ring wll result in increased prices for fat cattle? I think not.</p><p></p><p>What about the retailers, the Walmarts of this world whose moto is pile em high sell em cheap. In the UK the retail market is dominated by just four companies, each in open warfare for market share. There imense buying power puts huge downward pressure on prices, particularly comodities such as beef. They manipulate imports to drive down home markets and cancel contracts with proccessers with impunity. This in turn forces processers to relentlessly drive down the cost of their raw materials in desparation to retain supermarket contracts. </p><p>I read an article recently that described the way we as food producers are treated, it struck a chord. "Like farmers keep cows to produce milk, the supermarkets and the processers keep us to produce beef ". We are paid derisory sums for our product giving the most efficient a tiny margin, just sufficient to keep us holding on, waiting for promises of better times to come. Yet always the price is talked down, "there are too many cattle forward" "consumption has dropped" "imports are up" All these excuses have been used over the last year, yet consumption has shown year on year increases, imports are at a lower level than the previous year and kill numbers are unchanged. </p><p></p><p>I expect that after you have read that last part, you know where I stand on vertical integration, great if you are a shareholder of a major multiple, not so good for those at the bottom of the food chain.</p></blockquote><p></p>
[QUOTE="farmer rich, post: 185936, member: 1952"] Vertical integration/consolidation good or bad? I think that depends on where in the food chain the power is concentrated. By food chain I mean the great food chain of the beef industry where the majority of producers are the small fry and the multiple retailers are the sharks, the processers are of course somewhere in the middle. Getting bigger will lead to greater efficiencies and economys of scale, it may also lead to greater power when marketing stock if you are big enough. It also means that smaller inefficient producers are squeezed out, a good thing some might say. But, getting bigger in the beef industry requires large capital investments in land and equipment, I doubt many producers have much spare capital for land purchases. Certainly the potential return on investment is not that great. In my opinion, due to the nature of beef production consolidation of primary production has only limited potential. Simply put the fractured nature of land ownership and the unwillingness of producers to co-operate on a meaningful scale limits the size of individual operations and marketing schemes. Consolidation in the processing industry will deliver the same benefits of increased efficiency resulting in large finantial savings, will those savings be passed down the food chain? My experience says not. Do you think fewer buyers round the sale ring wll result in increased prices for fat cattle? I think not. What about the retailers, the Walmarts of this world whose moto is pile em high sell em cheap. In the UK the retail market is dominated by just four companies, each in open warfare for market share. There imense buying power puts huge downward pressure on prices, particularly comodities such as beef. They manipulate imports to drive down home markets and cancel contracts with proccessers with impunity. This in turn forces processers to relentlessly drive down the cost of their raw materials in desparation to retain supermarket contracts. I read an article recently that described the way we as food producers are treated, it struck a chord. "Like farmers keep cows to produce milk, the supermarkets and the processers keep us to produce beef ". We are paid derisory sums for our product giving the most efficient a tiny margin, just sufficient to keep us holding on, waiting for promises of better times to come. Yet always the price is talked down, "there are too many cattle forward" "consumption has dropped" "imports are up" All these excuses have been used over the last year, yet consumption has shown year on year increases, imports are at a lower level than the previous year and kill numbers are unchanged. I expect that after you have read that last part, you know where I stand on vertical integration, great if you are a shareholder of a major multiple, not so good for those at the bottom of the food chain. [/QUOTE]
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