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Consumer Demand for Quality, Consistency, and Loyalty Driving Force Behind Use of Alternative Marketing Agreements, Says Interim GIPSA Report

Tuesday, August 16, 2005

The driving force behind the use of alternative marketing agreements by meatpackers and livestock producers is “increased demand by consumers for higher and consistent quality beef,” according to an interim report to Congress released by the Grain Inspection, Packers and Stockyards Administration (GIPSA). The report, entitled “Spot and Alternative Marketing Arrangements in the Livestock and Meat Industries,” was mandated by Congress in 2003.

“This report confirms that alternative marketing agreements are good for all participants, from the producer down to the ultimate consumer,” said J. Patrick Boyle, president and CEO of the American Meat Institute. “These market-driven arrangements allow consumer preferences, notably product quality and consistency, to guide the meat production system,” he stated. “These factors help ensure consumer loyalty and potentially boost overall meat consumption.”

The report’s summary notes that “increased demand by consumers for higher and consistent quality of beef is the driving force toward the use of marketing arrangements." Such arrangements allow market participants to improve information sharing and supply chain management in the beef and pork industries. Meatpackers are able to “secure slaughter needs and ensure cattle and beef quality control” through a combination of alternative marketing agreements and the cash market, the report says.

Interestingly, the report called the findings of studies that looked at the relationship of alternative marketing agreements with cash market prices, “statistically insignificant.” “Producers [who use marketing agreements] can benefit through reducing price risk, obtaining favorable financing, ensuring a buyer for cattle, and reducing marketing costs. For meat packers, forward contracts secure slaughter needs, secure quality cattle, reduce procurement costs, and reduce price risk,” the report stated.

“Quantity and quality assurances, risk management and market flexibility” have underscored the move away from cash markets in the pork industry, according to the report. "Hog farmers use alternative marketing arrangements because of the desire for market access, income stability [due to price volatility], improved efficiency, market security, access to capital, and reduced marketing management. Packers' rationale for using alternative marketing arrangements includes input supply, assurance and control, improved response to consumer demand, expanded and diversified operations, and risk sharing."

The report also notes the downstream impact consumer preferences and retailers have had on spurring the movement toward marketing agreements. "Changes in demand due to non-price factors, including those related to demand for food consumed at home versus away from home, have increasingly become important for beef and pork." "Retailers are attempting to bolster meat sales by tailoring sales to consumers who are time starved, nutrition conscious, quality conscious, and environmentally conscious."

“The best chance of future domestic growth for the meat industry lies in our ability to respond rapidly and effectively to signals from consumers. Market and poll data tell us that the ability to produce a consistently good product, and offer it in an easy to prepare format, will be a key to success for our industry,” noted Boyle.

For more information contact:
David Ray
Vice President, Public Affairs
Janet Riley
Sr. Vice President, Public Affairs

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