TDOC Z TA245.7 B873 ANAL YSES or VALUE-ADDED ran 0A SE-READ Y BEEF, Wlfll SPEGIAI. EMPIM 51$ 0N TEXAS F The Texas Agricultural Experiment Station - J. Charles Lee, Interim Director The Texas A&M University System - College Station, Texas KIRK _ _ [Blank Page in 01mm Bulletin] ' '5» P Analyses of Value-added for Case-ready Beef, with Special Emphasis on Texas R.A. Dietrich, D.E. Farris, and J .B. Ward* .espectively, associate professor, professor, and research associate, Texas Agricultural Experiment Station, Department of Agricultural Economics, Texas A&M University, College Station, Texas. Conrnrrrs Executive Summary ................................................................................................ I Introduction ............................................................................................................... .. 5 Problem .................................................................................................................. ..5 Objectives .............................................................................................................. .. 5 Method of Analysis ..................................................................................................... ..5 Analytical Model ..................................................................................................... ..5 Fabrication /Packaging Systems and Models Employed .......................................... ..6 Fabrication/Packaging Systems ......................................................................... ..6 Models Employed ............................................................................................... ..7 Data Requirements ................................................................................................. .. 7 Analysis of Beef Fabrication / Packaging Systems ...................................................... .. 14 Conventional Boxed Beef Packaging/ Distribution System .................................... .. 14 Alternative Beef Packaging/ Distribution Systems Without Start-up U Merchandising Costs ............................................................................................ .. 18 Alternative Beef Packaging/ Distribution Systems With Adjustments in Merchandising Costs ............................................................................................ ..2l Impact of Initial Start-up Merchandising Costs on Alternative Packaging/ Distribution Systems ...................................................................... ..2l Impact of Short-run Adjustments in Merchandising Costs on Alternative Packaging/ Distribution Systems ...................................................................... ..27 Impact of Intermediate-run and Long-run Adjustments in Total Costs on Alternative Packaging/ Distribution Systems ...................................... ..32 Impact of Regional Shifts in Population and Fed Beef Production on Alternative Packaging/ Distribution Systems ................................................... ..37 Impact of Regional Shifts in Population ............................................................ ..37 Impact of Regional Shifts in Cattle Feeding ....................................................... ..39 Combined Impact of Regional Shifts in Population and Cattle Feeding on Alternative Packaging/Distribution Systems ................................... ..4l Impact of Increases in Regional Wage Rates and Transportation Costs on Alternative Packaging/ Distribution Systems ......................................... .. Impact of a 5O Percent Increase in Regional Packer Wage Rates ........................ ..4l ii 3‘\\ir‘i t<9~<>l§\5' V1051} 4=Y“‘~“’l=»ll,£ l Y ‘"117’- Impact of a 5O Percent Increase in Regional Packer and Retail Wage Rates ............................................................................................. .. 42 Impact of a 25 Percent Increase in Nebraska Wage Rates .................................. ..43 Impact of a 5O Percent Increase and a 100 Percent Increase in Transportation Costs .................................................................................... ..44 Economic Considerations for Alternative Packaging/ Distribution Systems .............. ..46 Summary of Shipments by Packaging/ Distribution System .................................. ..46 Regional Receipts of Beef by Packaging/ Distribution System ............................... ..46 Total Retail Beef Cost and Retail Cost Differentials by Region and Packaging/ Distribution System ............................................................................ ..5O Potential Location and Economic Impact of Regional Increases ‘in Beef Supplies by Packaging/ Distribution System ................................................. ..5O Potential Beef Markets by Region and Packaging/ Distribution System ................. ..52 Implications of Industry Technology Adoption Rate by Packaging / Distribution System ................................................................................................. ..55 Initial Start-up Adoption ...................................................................................... ..55 Short-run Adoption .............................................................................................. ..55 Intermediate- and Long-run Adoption .................................................................. ..56 References ............................. ..‘ ................................................................................ .. 56 Appendix A VAL-ADD Model .................................................................................... .. 5'7 Appendix B Regional Beef Demand .......................................................................... ..58 ACKNOWLEDGEMENT The assistance of Shari L. Popp, Computer Operator, Cameshia D. Sims, Technical Secretary, and David W. Holloway and Coleen McGarrity, Research Assistants, on this project is greatly appreciated. This material is based in part upon work supported by the Texas Advanced Technology Program under Grant No. 2870. my [Blank Page in Orig»! Bulletin] ' 5'» EXECUTIVE SUMMARY A Advancements in packaging technology for -tail case-ready beef provide potential for de- ‘creasing the cost of merchandising beef at retail and increasing the value-added from beef at the packer/ processor level. Adoption of case-ready packaging technology by the beef industry trans- fers the function of retail cutting and packaging of fresh beef from the retail store to the slaughter / processing plant. The economic impact emanating from case-ready beef has the potential to generate structural changes in the beef industry; revolu- tionize beef purchasing, handling, and merchan- dising practices; and affect beefs competitive po- sition in the market place through cost reducing technologies. Centralized beef fabrication and processing, which involved breaking carcasses into primals, sub-primals, and other cuts by major retailers in the 1960's at a central facility rather than in the backroom of a retail store, was the forerunner of the current boxed-beef system. During the l 970’s, centralized cutting and packaging moved back toward the slaughter plants with the establish- ment of highly specialized beef slaughtering and boxed-beef fabrication facilities. The boxed-beef innovation took about 25 years from introduction ‘more than 8O percent adoption by the beef .ustry. In 1990, slaughter and processing plants added about $12 per hundredweight to the value of beef at wholesale as a result of boxed beef. Case-ready beef has significant implications for production and slaughter regions since ser- vices formally added at the retail level are now added at the slaughter level, and of increased importance to the consumer/ producer are the reductions in marketing system costs. Adoption of case-ready beef could reduce the cost of beef fabricating and marketing as much as 10 cents per pound. Further, research results show that case- ready beef would add another 19 cents per pound ($l9/cwt) at the slaughter or processing plant level. The value added to Texas beef would have been $200 million or more if 8O percent of the beef had been merchandised as case-ready beef, given the 1990 level of fed-beef production and fed-beef prices. To date, adoption of retail case-ready beef in the United States has been slow. However, there ere several firms at the retail and wholesale level that were merchandising case-ready beef in 1990. Similar to boxed beef, case-ready systems appar- ently will require considerable time for the tech- nology, economics, and marketing to create ad- equate incentives for general adoption. Adoption of vacuum packaging systems has occurred for tion-controlled steak and other meat items in . hotel. restaurant, and institutional (HRI) trade where package appearance is not an important consideration. Although adoption of case-ready beef has been slow, a number of industry leaders have stated that case-ready beef packaging sys- tems will become an integral part of the future beef industry, provided that packaging and associated economic problems are solved. This study developed a national beef process- ing and distribution model (VAL-ADD model) to facilitate an economic analysis of alternative beef fabrication /packagir1g/ distribution systems in the United States during 1988-89. The model incorpo- rated 1988-89 industry supply, demand, and cost conditions to estimate optimal economic packag- ing/distribution systems for distributing and merchandising beef from packer/ processors to retailers among 30 regions within the contiguous 48 states. Further, the VAL-ADD model estimated the competitive positions of specified regions in Texas and other areas of the United States in merchandising case-ready beef to retailers. Seven fabrication / packaging/ distribution beef systems (boxed beef, tray-readypverwrap, vacuum package, gas flush, frozen, and HRI) are incorpo- rated in the VAL-ADD model to provide informa- tion and guidelines to packer/processors, whole- salers, and retailers relative to the economics of specified case-ready beef systems. These packag- ing/distribution systems were analyzed under 14 different industry scenarios, which encompassed potential changes in packaging technology and costs, in labor costs, in transportation costs, in beef consumption, and in costs associated with advertising and promotion. These scenarios facili- tated basic analyses dealing with the economics of alternative systems and also the economic impact on alternative beef packaging/distribution sys- terns. Selected findings of this report, which are based on least cost analyses, are as follows: Highlight Summary ' Central-vacuum-packaged beef (case-ready systems are defined on pages 9 and 10) has the potential, from a least-cost basis, to be the predominant packaging,/ distribution system in beef merchandising if the current beef appearance problem can be overcome, or if consumers can be convinced to accept vacuum-packaged beef that is at least com- parable to store cut beef in freshness, qual- ity, and sanitation. ' Tray-ready packaging / distribution systems do not have the appearance problem, but were at a small cost disadvantage compared with vacuum-packaged beef. However, if wage rates or basic beef costs were to in- crease substantially more than other costs, tray-ready would have a cost advantage over vacuum-packaged beef. Central overwrap was generally at a cost disadvantage compared with vacuum -pack- aged and tray-ready systems because of a shorter shelf-life, combined with the neces- sity for more frequent store deliveries. Boxed beef will likely continue to be an important packaging/ distribution system for the foreseeable future. Boxed beef will be important in the initial adoptive phase of the case-ready beef systems in combination with various case-ready alternatives. Gas-flush and frozen packaging/ distribu- tion systems were generally not cost com- petitive with other alternative packaging/ distribution systems analyzed in this study. Alternative Packaging / Distribution Systems with Merchandising Costs Impact of Initial Start-up Merchandising Costs Given initial start-up merchandising costs, 33 percent of the domestic beef was mer- chandised as boxed beef, 37 percent was merchandised as vacuum-packaged beef, and 3O percent was distributed as HRI beef. Almost 6O percent of the boxed beef was merchandised to out-of-state markets. The major interregional distributor was Kan- sas, followed by Colorado, Montana-Idaho- Wyoming, and the Texas-Oklahoma Pan- handle. More than 7O percent of the vacuum-pack- aged beef was shipped to out-of-state mar- kets. Regions with a competitive advantage in merchandising vacuum-packaged beef were the Texas-Oklahoma Panhandle, Ne- braska, Minnesota-Wisconsin, Kansas, Col- orado, and Illinois. More than 51 percent of the HRI beef de- mand was filled from intrastate sources. Major shippers of HRI on an interregional basis were Nebraska, the Texas-Oklahoma Panhandle, South Texas, West Texas, Ari- zona, and North Dakota-South Dakota. Impact of Short-run Adjustments in Merchandising Costs Three packaging/ distribution systems ac- counted for the non-HRI domestic beef merchandised in the United States. Vacuum- packaged beef accounted for 83 percent of the total, followed by boxed beef with 14 percent and tray-ready with 3 percent. Sixty-two percent of the vacuum-packaged beef was shipped on an interregional basis. Major out-of-state shippers were Kansas, Texas-Oklahoma Panhandle, Nebraska, Colorado, and Minnesota-Wisconsin. Out-of-state domestic shipments of boxed beef originated from Kansas and Iowa. i export demand for United States beef satisfied by shipments of boxed beef fr I Montana-Idaho-Wyoming, Colorado, an‘ Utah-Nevada. Over 5O percent of the HRI beef require- ments were obtained from suppliers within their own respective regions. Regions ship- ping on an interregional basis were Ne- braska, West Texas, South Texas, Texas- Oklahoma Panhandle, and North Dakota- South Dakota. Impact of Intermediate- and Long-run Adjustments in Merchandising Costs More than 97 percent of the non-HRI do- mestic beef was shipped as vacuum-pack- aged beef under the scenarios incorporat- ing intermediate- and long-run adjustments in merchandising costs. Tray-ready beef accounted for the remaining 3 percent. More than two-thirds of the vacuum-pack- aged beef was distributed on an interregional basis by surplus regions such as Kansas. the Texas-Oklahoma Panhandle, Colorado, Nebraska, and Iowa. All boxed-beef shipments were destine ' the export market. Originating supp“ were Colorado, Utah-Nevada, Washingto - Oregon, and Montana-ldaho-Wyoming. The shipping pattern suggests that these re- gions have a locational advantage for ex- porting beef to Pacific Rim countries. Costs were minimized when surplus beef producing regions, such as the Texas-Okla- homa Panhandle, Kansas, Colorado, and Iowa, shipped their surplus beef to other regions as vacuum-packaged beef rather than HRI beef. Regions shipping surplus beef as HRI beef included Nebraska, North Dakota-South Dakota, West Texas, and South Texas. These four regions had a common thread—lower reported packer labor costs compared with other surplus beef regions. Impact of Increases in Regional Wage Rates and Transportation Costs Tray-ready packaging/ distribution was the dominant case-ready system for all of the non-HRI domestic beef merchandised when regional packer wage rates were increased 5O percent or more over 1989 packer wage rates. These results suggest that if wage rates were to increase faster than ot packaging/ distribution costs, the 1mm run competitive advantage would tend favor tray-ready over other packaging/dis- tribution systems. .- Increases 0f 5O percent and 100 percent inregional transportation rates had no im- pact on longer run optimal packaging/dis- tribution systems utilized. Changes in dis- tribution patterns included: (l) increases in intraregional shipments of beef whenever intraregional supplies permitted, and (2) total packaging and distribution costs in- creased with increases in regional trans- portation cost. Economic Considerations for Alternative Packaging / Distribution Systems Comparison of Total Retail Beef Costs by Packaging/Distribution System A comparison of retail costs revealed that the lowest retail costs, generally, accrued to vacuum-packaged beef, followed by tray- ready, overwrap, frozen, and boxed beef. If full (long-run) adoption of case-ready beef were achieved, given 1988-89 industry, eco- nomic, and consumption conditions, the VAL-ADD model revealed that central- vacuum-packaged beef would have the fol- lowing per hundredweight cost advantages over other alternative packaging/ distribu- tion systems (Table 35): (1) $1.00 over tray-ready, (2) $3.00 over central overwrap, (3) Almost $7.00 over central frozen, (4) Almost $9.00 over boxed beef (the pre- dominant 1988 system), (5) Almost $12.00 over central gas, (6) More than $22.00 over central HRI. Given a 50 percent increase in the regional packer wage rates, with other costs un- changed, tray-ready beef exhibited a $1 . 14/ hundredweight cost advantage over vacuum-packaged beef. Competitive Position of Packaging/ Distribution Systems for Additional Markets In addition to the packaging systems, which are specified by the VAL-ADD model by shipment routes, the VAL-ADD model also provides estimates of the next lowest cost systems, which would enter the solution if a combination of supply and demand war- ranted such shipments. These would be as follows: During the adoptive phases of case-ready systems, given 1988-89 industry supply and demand conditions, vacuum-packaged beef exhibited a competitive advantage in 23 out of 24 next potential shipment routes in addition to those to which shipments were specified. Given a 50 percent increase in regional packer wage rates, with other costs at 1 988- 89 industry levels, tray-ready-packaged beef showed a competitive advantage in five out of eight potential shipment routes followed by vacuum packaged beef with a least cost competitive potential in two out of eight markets. Implications of Industry Technology Adoption Rate Initial Start-up Adoption Cost advantage of vacuum-packaged versus boxed beef on a regional basis was depen- dent upon the level of retail wage rates. Regions with relatively lower retail wage rates minimized total costs by fabricating beef purchased as boxed beef. Conversely, regions with relatively higher retail wage rates minimized costs by merchandising vacuum-packaged beef. Short-run Adoption Assuming decreases in promotional activi- ties and labor costs of approximately $3.00/ hundredweight from initial start-up costs, the VAL-ADD model revealed that four- fifths of the non-HRI domestic beef would be merchandised as vacuum-packaged beef since slaughter level wage rates were sub- stantially lower than retail level wage rates. Almost all of the remaining non-HRI domes- tic beef was destined only to those regions with the lowest retail labor rates. Intermediate and Long-run Adoption Although vacuum-packaged beef accounted for 97 percent of the non-HRI domestic beef merchandised under intermediate- and long- run cost scenarios, tray-ready-packaged beef was a close competitor. , The VAL-ADD model revealed that total re- tail costs were generally $1.13 / hundred- weight higher for tray-ready-packaged beef compared to vacuum-packaged beef for the intermediate- and long-run models em- ployed in the study. Supplemental analyzes generated through the VAL-ADD model suggested that cost changes accruing from such items as pack- aging technology advances, labor require- ments, promotional activities, or basic prod- uct expenditures tend to provide a competi- tive advantage to one packaging/distribu- tion system over another system depending upon the direction of cost changes. Cost increasing activities tended to provide a competitive edge to tray-ready over vacuum - packaged beef. Similarly, cost decreasing activities provided a competitive edge to vacuum packaged beef over tray-ready beef. Competitive Position of Texas Regions Texas-Oklahoma Panhandle slaughter/ fabricating firms have a competitive ad- vantage in shipping HRI-packaged beef to Southern California. The Texas-Oklahoma Panhandle enjoys a locational advantage for shipping vacuum-packaged beef to markets throughout the Southeast and Southern California. West Texas and South Texas, with their relatively low wage rates, are strong com- petitors for nearby HRI-packaged beef mar- kets. West Texas has a locational advantage for the Southern California HRI market, while South Texas competes for the nearby Houston and Southeastern HRI markets. Packaging Considerations for Industry Focus on reducing costs and offering partial or full line of case-ready products a a discount. Add frozen beef cuts or prepared entrees to frozen food sections of supermarkets or to the food section of general merchandise discount stores. The greatest opportunities for economies are for suppliers in the Southern and Cen- tral Plains to supply case-ready beef to retailers in areas with highest retail meat department wages. A variety of central packaging systems are available. Costs range about 1O cents per pound of packaged product with the vacuum package being the lowest and gas flush the highest. Tray-ready and central overwrap can com- pete on cost and appearance with the con- ventional store-cut product under some conditions. It will take time, experimentation, plus em- ployee and customer education to find the best combination for each market. INTRODUCTION 4' Technological developments in fresh beefpack- flging, health-safety considerations, and enhanced shelf-life have the potential to greatly alter the economics of beef distribution and beef merchan- dising through retail case-ready beef. The indus- try and economic impact emanating from case- ready beef has similar implications to that of the boxed-beef revolution in the 1 960's. The advent of boxed beef, among other things, generated struc- tural changes in the beef industry; it revolution- ized beef purchasing, handling, and merchandis- ing practices; and further increased the efficiency of beef marketing. Fresh red meat has been one of the last food items to be prepared and packaged for the retail case inside the food store. Sales of case-ready fresh meat prepared and packaged outside of the retail store represented less than five percent of the total fresh meat sales in 1989.‘ Nevertheless, the majority of meat industry executives, includ- ing processors and distributors, believe that case- ready products will become a significant, if not dominant, part of fresh meat sales? Vacuum- packaged, portion-controlled, fresh and frozen steaks and roasts for the hotel, restaurant, and titution (HRI) trade have been a standard method Qdistribution for several years. Studies con- ucted during the 1970’s documented the feasi- bility of alternative fresh beef distribution sys- temsF-‘Ls Two studies conducted during the l980’s focused on potential cost savings associated with case-ready meat sales.“ Problem Although technically feasible, the economic, marketing, and technology issues associated with case-ready beef distribution are complex. Some firms merchandising case-ready fresh beef experi- enced lower than anticipated sales due to such factors as purge, lack of acceptable fresh beef color, packaging, and merchandising costs. How- ever, recent technological advances in packaging and distribution systems are showing promise in the United States, Europe, and Japan. A variety of central fabrication and beef packaging systems are currently being used on a small scale in the ‘United States. Some of these systems offer longer A shelf-life and reduced costs, other systems offer “fresh cut” appearance but at a higher cost. To date (1 991), prepackaged, retail, case-ready, fresh beef has shown only limited success on an industry wide basis. Beef, at the same time, has been losing market res to pork, poultry, and fish due in part to her prices at retail. The poultry industry, for example, was able to reduce fabrication and mar- keting costs by adopting a centrally-packaged, chill-pack system. The results have been increased efficiencies for poultry and increased retail shelf- life while providing higher quality products to the consumer. It appears that there are opportunities for the beef industry to reduce costs and/ or add value to retail beef through changes in fabrication, packaging, and merchandising associated with case-ready beef. Although continued technical improvements in current beef packaging materials are desirable, existing technology, materials, and methods are acceptable provided problems associated with costs, management, and merchandising are solved. To facilitate the orderly adoption of new technolo- gies and management systems associated with retail case-ready systems, analyses of the eco- nomics of the alternative fabrication/distribution systems are required. Other prerequisites include analyses of the price premiums and/or discounts associated with each packaging system and mini- mal regional cost locations for various system activities. Objectives The objectives of this study are to: (1) deter- mine the value added to case-ready beef by evalu- ating the economics of six alternative fabrication/ packaging systems compared with the conven- tional system of fabricating and packaging retail beef in the backroom of the retail store and (2) analyze these alternative systems to determine potential competitive advantages by system for packers and / or purveyors expanding into retail, packaged-fresh and prepared beef. METHOD OF ANALYSIS Analytical Model A national transshipment model for beef fab- rication and marketing (VAL-ADD model) was developed to determine optimal economic systems and methods of packaging and distributing case- ready beef from packer/processors to retailers in different market areas. Further, the study was designed to estimate the competitive advantages of specified regions in Texas and other areas of the United States in supplying case-ready beef to retailers. The general specifications of the VAL-ADD model are shown in Appendix A. The detailed specifications of the VAL-ADD model are available in Ward et al.8 The model developed for this study is a multidimensional transshipment model in which the combined costs of fabricating, packag- ing, transporting, and merchandising case-ready fresh beef are minimized. More specifically, given such regional cost data as fabrication and packag- ing, transportation, merchandising, and asso- ciated expenditures, the model allocates case- ready fresh beef so that total costs associated with fabricating, packaging, and distributing beef to consumers are minimized. These results provide an estimate of the delivered cost on a regional basis for specified packaging/ distribution sys- tems. The contiguous 48 states were delineated into 3O regions to reflect regional differences in beef production, consumption, wage rates, and other economic considerations relative to beef fabrica- tion/packaging systems (Figure 1). Twenty-two of these regions include one or more states, the remaining eight regions consist of regional delin- eations within the states of California, Texas, and Oklahoma. These three states were divided into multiple regions to reflect additional differences in beef fabrication, wage rates, and retail demand. Fabrication / Packaging Systems and Models Employed Fabrication/Packaging Systems Seven fabrication/ packaging beef systems are specified in this study to provide information and guidelines to packer / processors, wholesalers, and retailers relative to the economics of specific case- ready beef systems. The fabrication, packaging, and distribution systems designed for this study are as follows: Conventional Boxed Beef: Packers and wh salers under this system fabricate carcasses an ship wholesale primal and subprimal products (boxed beef) to stores for on-site fabrication into retail products that are packaged in foam trays with a film overwrap. The conventional system is designed to depict the most common (1988) pack- aging/ distribution system utilized by the beef industry. The conventional system will be used as a base for comparing other alternative systems specified below. Tray-ready: Packers or wholesalers fabricate carcasses and subprimals that are pre-trimmed, pre-sliced, and then vacuum packaged for ship- ping to stores for on-site packaging in foam trays with a film overwrap. Central Overwrap: Packers or wholesalers cen- trally fabricate carcasses and ship to stores retail products packaged in foam trays with a film overwrap. ready for the meat case. This system limits distribution to within a radius of 200 miles. ' Central Vacuum: Packers or wholesalers cen- trally fabricate carcasses and ship to stores retail products vacuum packaged in an oxygen barrier film, ready for the meat case. Central Gas: Packers or wholesalers centri fabricate carcasses into case-ready retail prod Figure 1. Regional demarcation and regional shipping and receiving points. film overwrap, which are then packed in bulk as flushed boxes with a barrier film for shipment ‘y retail stores. Central Frozen: Packers or wholesalers cen- ‘ trally fabricate carcasses and ship to stores retail products (vacuum packaged in an oxygen barrier film and frozen), ready for the meat case. Central HRI: Packers or wholesalers centrally fabricate carcasses and ship to the hotel and restaurant industry retail products vacuum pack- aged in an oxygen barrier film, ready for storage. Models Employed Fourteen models were designed to provide insights and guidelines for decision making by packer / processors, wholesalers, and retailers rela- tive to the economics of alternative beef packag- ing/distribution systems. These models were de- signed to represent the following industry sce- narios. Model 1 depicts the predominant beef distri- bution system (boxed beef) used by the industry during 1988. Model 1 provides a basis for estab- lishing cost and associated distribution criteria for determining the economic efficiency of the alternative systems specified in this study com- pared with boxed beef. This model and all ensuing odels require that 3O percent of the beef be Uiipped as HRI-packaged beef to the various de- mand regions to approximate industry shipment patterns during 1988. Model 2 provides estimates of the least-cost packaging/ distribution systems and associated shipment routes and opportunity costs when all seven packaging/ distribution systems are con- sidered. This model does not incorporate start-up merchandising costs. The results, therefore, are optimal only up to the retail case for the packag- ing/distribution systems and associated budgets developed for this study. Models 3, 4, 5, and 6 incorporated all of the assumptions of Model 2. In addition, Model 3 analyzes the impact of initial start-up merchan- dising costs by packaging/ distribution system. Model 4 analyzes the impact of short-run adjust- ments in merchandising costs on optimum pack- aging/ distribution systems, while Model 5 incor- porates interim time period adjustments in mer- chandising costs. In addition, Model 6 measures the impact of potential longer run adjustments in merchandising costs and fixed costs on optimal packaging/ distribution systems. Retail wage costs for case-ready systems are reduced to 75 percent of the former models to reflect use of fewer skilled employees in the meat department. This applies to the remaining models. Models 7 through 14 incorporate all of the ssumptions of Model 6 and are designed to measure the impact of some regional and/or na- tional changes in beef demand, beef supplies, wage rates, and transportation costs on optimal packaging/ distribution systems. Model 7 is de- signed to measure the impact of regional shifts in beef demand, and Model 8 determines the impact of regional shifts in fed-beef supplies. Model 9 measures the combined impact of regional shifts in beef demand and beef supplies on optimum packaging/ distribution systems. Model IO mea- sures the impact of a 5O percent increase in regional packer labor costs and Model 1 1 mea- sures the combined impact of a 5O percent in- crease in regional packer and retail labor costs. Model 1 2 is designed to measure the impact of a 25 percent increase in Nebraska labor costs on pack- aging/ distribution systems and competitive align- ments. Models 13 and 14 reflect the economic impact of a 5O and 1OO percent increase in trans- portation costs, respectively, on optimum packag- ing/distribution systems. Data Requirements The economics of beef packaging/ distribu- tion, including regional location of such activities, are impacted by such regional factors as labor costs, transportation costs, facility investment costs, carcass prices, surplus/ deficit beef sup- plies, beef demand, packaging costs, merchandis- ing costs, and other variable and annual fixed cost items. Packaging, labor, and transportation cost data for this study were obtained directly from various industry sources as packaging firms, pack- ers, wholesalers/ purveyors, retailers, and trans- portation firms. Other important sources were United States Departments of Agriculture, Labor, and Commerce and prior publications dealing with case-ready beef systemsPA-s Estimated regional carcass beef supplies, hourly wage rates, and beef consumption devel- oped for this study are shown in Table 1. Regional carcass-beef supplies were obtained from U.S. Department of Agriculture. Regional hourly wage rates were obtained through a telephone survey of packer, wholesaler, and retail firms in each region. Beef consumption was estimated on a regional basis as shown in Appendix B. In addition to hourly wage rates, beef fabrication output per man-hour at the packer/wholesale and retail lev- els, by fabrication / packaging system, was neces- sary for estimating labor cost associated with each system, Table 2. Labor support personnel, as shown in Table 3, are also an important ingredient of the labor requirement for performing the fabri- cation/ packaging activities at the packers /whole- salers and retailer levels. Both the fabrication output per man-hour and labor support require- ments were derived from industry data and con- sultation with packer, wholesale, and retail firms producing case-ready beef. The total basic retail- ing costs associated with delivering the packaged beef product to the consumer, by packaging/ distribution system, consists of packer/ processor costs, including carcasscost, and costs associ- Table 1. Estimated carcass-beef supplies, hourly wage costs, and beef consumption, by region, 1988. Carcass-beef‘ Beefa Hourly wage costs” ‘ Region supply consumption Packers Wholesalers Retailers u 1,000 pounds 1,000 pounds ------------- -;- --------- --Dollars- ------- --, -------------- -- ‘ (1) wA-OR 616,079 538,937 12.38 13.31 16.07 (2) N. CA 556,965 810,199 11.05 19.33 20.25 (3) S. CA 383,706 4 1,571,596 11.45 15.26 16.69 (4) AZ 279,039 240,129 8.04 8.43 12.53 (5) UT-Nv 293,929 185,581 11.49 11.05 13.29 (6) MT-ID-WY 499,865 148,768 10.63 11.67 10.94 (7) CO 1,489,370 252,768 10.20 10.69 13.03 (8) NM 77,501 92,778 7.84 7.43 13.33 (9) TX-OK PAN 2,418,142 124,125 9.75 8.50 11.62 (10) w.TX 634,283 60,965 8.74 8.75 12.51 (11) s.TX 502,625 266,939 7.60 9.11 10.63 (12) SE.TX 23,106 ' 337,512 8.76 10.25 14.05 (13) E.TX 270,058 444,536 9.94 10.26 13.57 (14) E. OK 108,462 202,350 10.66 10.14 10.22 (15) KS 4,038,986 185,682 10.18 11.42 14.37 (16) NE 3,766,457 118,572 8.36 9.50 12.86 (17) ND-SD 468,134 95,745 8.64 9.24 12.59 (18) MN-Wl 1,493,971 690,043 10.27 8.25 18.90 (19) IA 1,243,205 206,954 10.47 8.86 12.90 (20) IL 802,730 936,948 9.92 12.55 16.74 (21) MO 228,142 377,822 10.05 13.42 12.39 (22) AR-LA 38,739 423,514 8.61 8.66 9.86 (23) FL 105,134 896,290 6.87 6.62 12.87 (24) MS-AL-GA 370,727 803,604 9.52 7.37 10.54 (25) NC-SC 135,405 627,169 8.31 9.57 10.93 (26) KY-TN 204,608 556,733 9.56 9.64 14.82 (27) VA-W.VA" MD-DE 60,025 932,575 6.59 9.03 17.25 (28) Ml-IN-OH 571,063 1,857,756 10.76 10.07 13.71 (29) PA 672,612 897,738 10.02 9.97 11.10 (30) NE (7 states) 329,015 a 3,184,618 10.42 14.00 15.99 “Carcass beef supplies and beef consumption are for 1988. The methodology for developing estimates of beef supplies and consumption is reported in Ward et al., "Program and Model Documentation for Analysis of Value-Added for Beef--With Special Emphasis on Texas," Depart- mental Programming Model Documentation, PMD 91-1 , TAES. “Hourly wage costs include fringe benefits, are for 1989, and were obtained through a telephone survey of packer, wholesale, and retail firms in each region. - holesalers, and retailers, 1988. fickaging Boxed Tray- Table 2. Estimated volume of beef fabrication/processed per man-hour, by fabrication/packaging system, packer- ~ rication/ Fabrication/Packaging System Central Central Central Central Central Beef Ready Overwrap Vacuum Gas Frozen HRI g Packers/ Pounds/Man-Hour a Wholesalers 430 177 10s 10s 10s 10s , 70° Retailers 111 20s 22a 22a 22s 22a 11s” “Represents Choice beef carcass proportions to facilitate comparison among systems. “Assumes added labor for portion cutting is partially offset by large volume automated ground beef patty operations. Table 3. Estimated support labor requirements, by fabrication/packaging system, packer-wholesalers, and retailers, 1988'. . Fabrication/ Fabrication/Packaging System Packaging Boxed Tray- Central Central Central Central Central Beef Ready Overwrap Vacuum Gas Frozen HRI Packers/ Pounds/Man-Hour Wholesalers 1667 667 400 400 400 400 400 Retailers 100 108 119 119 119 119 119 aSupport labor is supplemental labor such as clean-up, maintenance, management, etc. necessary to perform the primary function offabrication and packaging. ated with performing the retailing function. values. These basic cost items undergo sub- antial change, by packaging/ distribution sys- tem, as the VAL-ADD model considers economies of scale, changes in merchandising costs, and adoption rates, Table 32. Given the carcass cost at the packer/ whole- saler level, variations in costs between systems are associated with cost differences in fixed cost, labor, packaging, distribution, and “other”, which includes utilities, supplies, variable interest, sales and advertising, and earnings before taxes as shown in Tables 5 and 6. For example, differences in packaging costs between systems reflect prima- rily packaging material costs and volume of beef per package, Table 4. Labor cost differences be- tween systems are reflective of throughput or beef output per man-hour expended among systems and, in the case of HRI, also generally tighter specification requirements. The value-added to the boxed-beef system at the packer/ wholesaler level as defined by the cost of services, labor, and file 4. All cost items are shown in retail equiva- ‘materials was $1 1.55 per hundredweight (1 77.03 minus 165.48), Table 4. In comparison, the value of the services and materials added to the carcass in the central-overwrap system at the packer/ wholesale level was $31.63. The value of total services and materials added to the central- overwrap system at retail was $49.55. The addi- al cost of services associated with the central- rwrap system as compared with boxed beef is primarily due to the fabrication and packaging costs being moved back to the processing plant from the retail store. In addition, the average meat department wage costs are generally higher than average beef packer or processor wage costs. Labor costs and other costs are the major cost categories at the retail level (Tables 4 and 5). “Other” cost items, which are further detailed in Tables 5 and 6, vary considerably, depending upon beef fabrication/packaging system. Store shrink is a major cost item for fabrication / packag- ing systems for the other retail cost categories, Table 6. Labor, the single most important cost item at retail, ranged from 27 percent of the retailing cost for the central-overwrap and tray-ready sys- tem to 38 percent for the boxed-beef system, Table 4. Analysis of the combined packer/wholesale and retail function cost items, excluding carcass cost, reveals that labor costs are the single most important non-carcass cost item ranging from 27 percent for central gas to 36 percent for the boxed- beef system, Table 4. The second most important cost item for the boxed-beef, tray-ready, and cen- tral overwrap systems was store shrink, which ranged from a low of 1O percent of the total non- carcass cost for the central vacuum systems to 23 percent for the boxed-beef system (Tables 4 and 6). The second most important cost item for the central vacuum, central-gas, and central-frozen systems was packaging cost, which ranged from a low of 12 percent of the non-carcass costs for the central-frozen system to 2O percent for the central gas. Given the above basic cost data, regional transportation, and unloading costs for shipping beef as shown in Table 7, the transshipment model allocates fresh beef among regions to retailers Table 4. Beef and packaging/distribution cost, by system and cost categories, packers, retailers, and total co short-run adoption (Model 3), 1988a. 5i System Boxed Tray- Central Central Central Central Central Item Beet Ready Overwrap Vacuum Gas Frozen HRl dollars/cwt Packers: Carcass 165.48 165.48 165.48 165.48 165.48 165.48 165.48 Fixed 0.84 1.10 1.00 1.18 1.18 1.18 0.93 Labor 2.86 5.53 9.73 9.76 9.76 9.76 16.06 Package 2.24 2.60 5.21 10.10 18.43 10.10 10.10 Distribution 2.75 2.75 5.35 2.75 3.72 2.27 4.20 Other 2.86 10.03 10.34 10.34 11.34 16.04 11.78 Sub-Total 177.03 187.49 197.1 1 199.61 209.91 204.83 208.55 Retailers: Fixed 7.72 6.72 6.32 6.32 6.32 8.49 13.52 Labor 25.56 15.75 14.59 14.63 14.63 14.63 19.63 Package 5.20 5.20 0.00 0.00 0.00 0.00 0.00 Distribution 3.11 3.11 0.00 3.11 3.53 2.57 3.70 Other 24.89 26.39 28.64 19.99 21.04 19.99 11.29 Sub-Total 66.48 57.17 49.55 44.05 45.52 45.68 48.14 Total Cost: Carcass 165.48 165.48 165.48 165.48 165.48 165.48 165.48 Fixed 8.56 7.82 7.32 7.50 7.50 9.67 14.45 Labor 28.42 21 .28 24.32 24.39 24.39 24.39 35.69 Package 7.44 7.80 5.21 10.10 18.43 10.10 10.10 Distribution 5.86 5.86 5.35 5.86 7.25 4.84 7.90 Other 27.75 36.42 38.98 30.33 32.38 36.03 23.07 Total System” 243.51 244.66 246.66 243.66 255.43 250.51 256.69 l. Source: Estimated from information provided by trade sources and other sources. “Assumes short-run merchandising and other costs of $9/cwt forthe case-ready systems. Long-run costs are shown in Table 32. H costs would increase these total costs by about $1 5/cwt. 1O igher 1 990 carcass ‘ Table 5. Other operating costs, by system, packers, 1988*’. Boxed Tray- Central Central Central Central Central ‘em Beef Ready Overwrap Vacuum Gas Frozen HRI . dollars/cwt Utilities 0.78 1.28 1.53 1.53 2.53 3.53 1.78 Supplies 0.34 0.40 0.46 0.46 0.46 0.46 0.50 Variable Interest 0.11 0.15 0.15 0.15 0.15 0.15 0.25 Sales & Advertising” 0.48 1 .85 1.85 A 1 .85 1.85 3.70 5.55 Earnings Before Taxes° 1.15 1.85 1.85 1.85 1.85 3.70 3.70 Total Other Costs $2.86 $5.53 $5.84 $5.84 $5.84 $1 1 .54 $11.78 Source: Estimated from personal interviews with beef fabricators and from industry financial reports in Meat Facts, AMI. aAssumes an average sales price of $1 65/cwt for boxed beef (AMI Meat Facts, 1989). b Tray-Ready, Central Overwrap, Central Vacuum, and Central Gas=1%, Central Frozen=2%, and Central HRl=3% ofthe wholesale boxed beef price in retail terms ($185/cwt). ° Boxed Beef=0.7% of$165/cwt.Tray-Fteady, Central Overwrap, Central Vacuum, Central Gas, and Central Frozen=1%, and Central HFtl=2% ofthe wholesale boxed beef price in retail terms, $185/cwt. Table 6. Other operating costs, by system,retailers, 1988a. Boxed Tray- Central Central Central Central Central Beef Ready Overwrap Vacuum Gas Frozen HRI dollars/cwt Store "Shrinkm 17.80 15.30 17.80 7.60 10.20 7.60 5.10 Supplies 1.00 0.50 0.25 0.25 0.25 0.25 0.10 Sales & Advertising° 1.00 1.00 1.00 2.55 1.00 2.55 1.00 Income & Other“ 5.09 5.09 5.09 5.09 5.09 5.09 5.09 Total Other Costs $24.89 $21.89 $24.14 $15.49 $16.54 $15.49 $11.29 aAssumes a retail value of $255/cwt. °7% store cut "shrink", 2% on vacuum packcage (Bishop, 8%, 3%). ° 1% of sales for central vacuum and central frozen. ’ d2% of average retail beef price ($255/cwt). 11 Qwoo OC-UMOACD UCQ .OEUMO_ dcfiaofizm; éodmcoawcm: wQUDAOE 9S co_;=n.._.w_u AMwOFQ »n; dnn dwn ddn dd.n ;d.d m»n 3n vvd »o.d ndn dod »;d on.» ;d.» dd.» »v.» od.» dd.» vd.» dd.» »».» dd.» Sq.» dd.» 5.» owd omd odd dwd 5mm £52 A8. wdn 3.; d».¢ non d;n ddd ;wn own ddn wnn 3n dd... d»n d;.» odd 5d vdd do.» n;.» nv.» dd.» dm.» ;d.» oo.» vn.» nn.» Nd.» d».d vod ood (m A8. ddd 5n d;.; d;d 5... d;d ddd dnn ddn 5+ ddd 5;. 5n 98 ddn ood dud dvd ddd dd.» ddd ddd $3 ddd vdd ddd dd.» dud nvd ddd _._o-z_._§ Add. 5d von 3.. nn; 8... dmn don d;.n d»n ddn ddn odn 3n nd.» »dd ddd ddd ddd »dd »m.» ed.» dm.» nw.» o;.» dd.» v».» wd.» ndd n; o;.o 4D-02-<>>>.<> A»m. vw.» dvd 3+ m;d 0;; ddn 8+ ddn N: ;».v »n.v o;n dvn ddd d;.d vdn vdn ddn do.d odd dnd vdd 3d ndd mm.» ;;.» mod »o.» wvd dnd 25c. 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A8. A8. A»d. A8. A3. A3. A8. Afi. AK. A8. A2. A2. At. A2. A2. A2. A2. A~;. A;... A2. Am. A... A». Aw. Am. Av. Ad. AN. A;. uwiioiwm co_mom codaczwoo mcducfitO wddddm; 52am. >n .Em_m>>uo.u::: .2. 22.2. c. .35.. co=an=bm=v Ema _2o._. .» 2am... 12 ‘U or» \ (10) 1 ‘ urce: Estimated from data from a national survey. Details are in Ward, J. B., and D. E. Farris, "Estimating Truck Rates for Refrigerated Food Products". such that total costs associated with fabrica- tion/ packaging and distribution are minimized iven the alternative systems previously specified. alternative systems by region. Some packaging/ distribution systems, such as central overwrap, often result in shipments of 200 miles or less for local distribution. Beef short-haul distribution rates, including transportation rates, warehous- ing, and unloading costs as shown in Table 8, were developed to accommodate short-haul distribu- his produces estimates of cost comparisons of tion patterns. These are included in the total distribution rates in Table 7. For example, on an interregional shipment from a packer/ processor in the Texas-Oklahoma Panhandle to Southern California, the total distribution cost is $6.69 / cWt. This includes the local distribution cost of $3.42/ cvvt from a warehouse in Southern California to individual retail stores (Table 8). lntraregional shipments normally do not include warehousing, therefore, shipments not exceeding 200 miles did not include a warehousing cost. Table 8. Beet short haul transportation rates, warehousing costs, and unloading costs, by region, 1988. Short haul Total short haul Region transportation Warehouse Unloading distribution ratesa costs costs costs Dollars/cwt. (1) WA-OR 1.26 2.00 i 0.1a 3.44 (2) N. CA 1.26 2.00 0.19 3.45 (3) S. CA 1.26 2.00 0.16 ' 3.42 (4) AZ 1.14 2.00 0.13 3.27 (5) UT-NV 1.14 2.00 0.16 3.30 (6) MT-ID-WY 1.14 2.00 0.13 3.27 (7) co 1.14 2.00 0.13 3.27 (8) NM 1.14 2.00 0.13 3.27 TX-OK PAN 1.23 2.00 0.13 3.36 W. TX 1.14 2.00 0.15 3.29 (11) s. TX 1.23 2.00 0.13 3.36 (12) SE. TX 1.23 2.00 0.16 3.39 (13) E. TX 1.23 2.00 0.15 3.38 (14) E. OK 1.23 2.00 0.13 3.36 (15) Ks 1.23 2.00 0.13 3.36 (16) NE 1.23 2.00 0.13 3.36 (17) ND-SD 1.23 2.00 0.13 3.36 (16) MN-Wl 1.02 2.00 0.15 3.17 (19) IA 1.02 2.00 0.14 3.16 (20) IL 1.02 2.00 0.15 3.17 (21) MO 1.02 2.00 0.14 3.16 (22) AR-lA 1.02 2.00 0.14 3.15 (23) FL 0.96 2.00 0.14 3.10 (24) MS-AL-GA 0.97 2.00 0.13 3.10 (25) NC-SC 1.40 2.00 0.14 3.54 (26) KY-TN 0.97 2.00 0.13 3.10 (27) VA-W. VA-MD-DE 1.40 2.00 o. 1 5 3.55 (2a) Ml-IN-OH 0.97 2.00 0.16 3.13 (29) PA 1.39 2.00 0.15 3.54 (30) NE (7 states) 1.39 2.00 0.18 3.57 I Journal of Food Distribution Research, Vol 21 :2, pp. 21 ~30, 1990. “Short haul transportation rates depict routes within 200 miles of the local distribution center. l3 packaged in foam trays with an oxygen permeable In addition to the basic analyses dealing with the economics of alternative systems, this study also is concerned with the economic impact upon alter- native beef fabrication/ packaging systems result- ing from potential changes in packaging technol- ogy and costs, labor costs, transportation costs, beef consumption, costs associated with advertis- ing and promotion, and price premiums and / or discounts. The VAL-ADD model also is designed to facilitate shipments of surplus beef into the export market on a boxed beef basis. Analysis of Beef Fabrication / Packaging Systems Factors impacting the optimal location and optimal beef fabrication/packaging system, given regional beef production and consumer demand, include: (1) the “system” costs as specified in Tables 4, 5, and 6; (2) regional labor and distribu- tion costs, and (3) regional carcass price. Many of the costs remain constant over all regions by system, but labor rates, distribution costs, and carcass prices vary by region over all systems in this study. The conventional beef fabrication/ packaging system (boxed beef) for l 988 was used as a base for determining economic efficiencies associated with previously specified alternative beef fabrication / packaging systems. The VAL-ADD model designed for this study facilitates analysis of the competitive relationship between the various beef fabrication packaging systems. A further requirement for all systems and/or scenarios in this study is that 3O percent of all domestic beef consumption must be obtained from hotel, restaurant, and institution (HRI) sources to coincide with current U.S. con- sumption patterns. Conventional Boxed-beef Packaging / Distribution System Packers and Wholesalers, under the boxed- beef system, fabricate carcasses for shipment as wholesale primal and subprimal products to retail stores for on-sitefabrication into retail products and packaging in foam trays with a film overwrap. The conventional system, represented by Model 1, depicts the most common packaging/ distribution system for beef during 1988 and provides a base for comparing cost and associated distribution criteria for detennining the economic efficiency of the various alternative systems specified in this study. Model 1 reveals that the total cost of merchan- dising, packaging, and distributing 18.071 billion pounds of fresh beef to consumers in the contigu- ous 48 states and 494 million pounds to export markets would have been $2.49 per pound if boxed beef had been the predominant packaging/ 14 distribution system utilized, Table 9. Since this study required that 3O percent of all fresh beef g distributed in the contiguous 48 states be fabri-Q cated and distributed as HRI packaged beef for the HRI industries in all models employed, the 18.07 1 billion pounds of fresh beef (retail equivalent weight) would be merchandised in the. contiguous 48 states as follows if costs were minimized: (1) 7O percent as boxed beef for further fabrication and packaging into retail cuts at retail stores, and (2) 3O percent to the HRI industries. The remaining 494 million pounds (retail equivalent) is exported to foreign markets as boxed beef in this model and‘ all ensuing models employed. Table l0 and Figure 2 show that boxed beef distribution costs are minimized when 42 percent of the boxed beef is shipped on an intraregional basis, 55 percent is shipped on an interregional basis, and 3 percent moved into export. Regions competing for out-of-state markets for boxed beef included Kansas, Texas-Oklahoma Panhandle, Colorado, Iowa, and Minnesota-Wisconsin. Least-cost results from the VAL-ADD model show that the Texas-Oklahoma Panhandle could compete for boxed beef markets in the Southeast- ern states, East and Southeast Texas, the South- western states, and Southern California, Figure 2. Major markets for Kansas were the Atlantic Coast Kansas shared the Northeast boxed-beef marke l. states, the Northeast, and Michigan-Indiana-Ohio“ with Iowa and Minnesota-Wisconsin. Colorado was a major supplier to the West Coast boxed-beef markets where it competed with the Texas-Okla- homa Panhandle for the Southern California mar- ket. Export markets were satisfied by Washington- Oregon, Montana-Idaho-Wyoming, Utah-Nevada, and Colorado. While it is likely that some of the larger packers in the Plains states exported beef to foreign markets during 1988-89, these results show that Northwestern plants have a slight locational shipping cost advantage to Far Eastern Table 9. Model 1- Optimum shipments of boxed beef and HRI packaged beet, 1988". Packaging/distribution Beef shipped system (million pounds) Boxed beef: Domestic market 12,648 Export market 494 HRl 5.423 Total shipped 18,565 a Model 1 was designed to determine the optimum shipment routes and opportunity costs for the predominant packaging/distribution syste (boxed beef) used bythe industry during 1988. 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Optimal distribution of boxed beef (Model 1). Regional beef shipment patterns in Model 1 generally coincide with that experienced by the beef industry during 1988 and with prior studies 9'”. Specific regional shipment patterns in ensu- ing models, although similar to Model 1, may vary because of differences in regional fabrication / packaging system costs. Costs were minimized when almost one-third of the HRI-packaged beef was supplied by intrastate sources, Table 1 l and Figure 3. Because of a favorable estimated wage rate, Nebraska supplied about three-fourths of the beef shipped on an interregional basis under the scenario posited by Model l. Nebraska had a competitive advantage in supplying HRI beef to the major markets in the Midwest, the Northeast, the Atlantic Coast, and Southeast states. South Texas shipped HRI beef to East and Southeast Texas. West Texas competed with Arizona for the South- ern California HRI market, while it had a competi- tive disadvantage in the San Francisco market of only $0.95 per hundredweight. North Dakota- South Dakota competed with Nebraska for the Northern California HRI markets and also sup- plied all of the HRI beef requirements for Washing- ton-Oregon markets. The five surplus HRI-beef regions have a com- mon thread—these regions reported slightly lower labor costs for fabricating HRI beef than did other regions. The model employed in this study is highly sensitive and likely allocated more of the 16 surplus beef in Nebraska for shipment as HRI beef than normally occurs because of relatively low reported wage rates. Nevertheless, these results strongly suggest that regions and / or processors with lower labor cost, other things equal, have a competitive advantage in marketing HRI beef. Data in Tables 1O and 1 1 provide not only the volume of beef shipped/merchandised between surplus and deficit regions [underlined figures), but also “opportunity costs” (non underlined fig- ures). Given the basic regional data relative to beef supplies and demand, carcass costs, and associ- ated costs related to packaging/distribution sys- tems, the VAL-ADD model allocates beef among regions, by packaging/ distribution system, such that total costs are minimized. The opportunity costs in Table 1O for the Texas-Oklahoma Pan- handle (9) show that the next best boxed beef markets for the Texas-Oklahoma Panhandle are Eastern Oklahoma ( 14) and North Carolina-South Carolina (25) with opportunity costs of $0.11 and $0.12 per hundredweight, respectively. An oppor- tunity cost of $0.1 1 per hundredweight suggests that if some cost component associated with either price, packaging, transportation costs, etc., were to decline by at least $0. l 1 per hundredweight, the Texas-Oklahoma Panhandle would have a co petitive advantage in shipping beef to Easter Oklahoma, provided supply/ demand conditions warranted such shipments. An examination of the f.‘ Q .:o..:_ow EsEzao m... c. 3.26m cm 9.3m; .0: E9. ._:ww._ zoE; ozmfiiuwwucz: 6Q 222. 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Optimal distribution of HRI beef (Model 1). destination region opportunity costs in Table l0 reveals that if Kansas could not supply the beef requirements to Region 25 (North Carolina-South Carolina), the Texas-Oklahoma Panhandle would be the next best supplier for Region 25 with an opportunity cost of $0.12 per hundredweight for that market. A more detailed analysis of opportu- nity costs, by model, region, and packaging/ dis- tribution system is provided in a latter section of this report. Alternative Beef Packaging/ Distribution Systems Without Start-up Merchandising Costs Model 2 is designed to analyze simultaneously not only the boxed beef packaging/ distribution system but also the tray-ready, the central- overwrap, the central-vacuum, the central-gas- flush, the central-frozen, and the HRI packaging / distribution systems to determine which system or combination of systems minimize total costs of distributing fresh beef to consumers. This model does not consider start-up merchandising costs. The results, therefore, are optimal only up to the retail case prior to merchandising. Total costs are minimized when all of the non- HRI domestic beef is packaged and distributed to U.S. markets as central-vacuum-packaged beef, Table 12. Recall that 3O percent of the domesti- 18 in all models and that 2.7 percent of the total bee r cally consumed beef must be shipped as HRI beem enters the export market as boxed beef in all models. A word of caution in interpreting results from multi-product transshipment models. These mod- els are highly sensitive and occasionally overstate changes in shipment patterns and packaging / distribution systems employed. Nevertheless, these models and the results provided are valuable tools for determining directions of potential changes in an industry. For example, multi-product trans- shipment models employed by Dietrich and based on 1969 data projected that the Texas-Oklahoma Panhandle, Kansas, Nebraska, and Colorado had the potential to account for 60.2 and 58.1 percent Table 12. Model 2 - Optimum shipments of beef, without start-up merchandising costs, by packaging/distribution system, 1988. Packaging/distribution Beef shipped system (million pounds) Boxed beef: Domestic market 0 Export market 494 Central vacuum 12,649 HRI 5,422 Total shipped 18,565 Q i. of the total cattle fed and slaughtered, respec- ely, in the U.S. in 1972.“) During 1988 these gions accounted for 62.8 and 58.1 percent, respectively, of the cattle fed and slaughtered in the U.S. Central Vacuum. Kansas and the Texas-Okla- homa Panhandle supplied 6O percent of the beef shipped on an interregional basis in Model 2, Figure 4 and Table l3. Kansas enjoyed a competi- tive advantage in shipping vacuum-packaged beef to the Atlantic Coast states and competed for the deficit Northeast market with Nebraska, Iowa, North Dakota-South Dakota, and Minnesota-Wis- consin. The Texas-Oklahoma Panhandle region had a competitive advantage in the Texas markets, the Southwestern states, Arkansas-Louisiana, and Florida. Colorado supplied all of the out-of-state vacuum-packaged beef to the Northern California market and most of the shipments to the Southern California region, where it competed with Texas- Oklahoma Panhandle suppliers. Export demand (boxed-beef shipments) was filled by Montana- Idaho-Wyoming, Washington-Oregon, Utah-Ne- vada, and Colorado. Major beef suppliers such as Colorado, Texas- Oklahoma Panhandle, Kansas, Nebraska, Iowa, and North Dakota-South Dakota are very competi- tive for central-vacuum markets as indicated by the opportunity costs in destination Regions 2O through 3O for these suppliers, Table 13. Oppor- tunity costs (which indicate decreases in delivered costs or increases in product prices necessary to enter a market) for these suppliers ranged from $0.01 to $0.99 per hundredweight in Regions 2O through 30. HRI. Almost one-half of each region's HRI-beef demand was filled from sources within their own regions, Figure 5 and Table 14. Nebraska was the predominant supplier of HRI beef shipped on an interregional basis to deficit markets in the North- east, the Atlantic Coast, and Southeastern states. South Texas shipped its surplus HRI beef to East Texas and to Arkansas-Louisiana in competition with Nebraska. West Texas shipped its surplus HRI beef west to Southern California. Washing- ton-Oregon found it least costly to retain that portion of its beef production for its vacuum- packaged beef demand and then: (1) ship its remaining beef to the export market, and (2) im- port its HRI requirements from North Dakota- South Dakota. \_ .\ ‘_ \ \ -\ \. '\ . - \. .\. \.\~ \ '\ \'\ \ \\ (1 ' \ ‘w. . \_ \\ .\ (m no - . ( a \.\ \_\ I ‘ S ‘\ \'\ 4 (1 29) H 3,3 (s, \ _ “ Cly l \. (is; Gltll m F Wynn m O (18 \ I l A ( 9 O § 1m ElP (13) III ’ 22) (11 mArtcrb 1 0.1m Central Vacuum Exports O’ ure 4. Optimal distribution of vacuum packaged and boxed beef exports without start-up merchandising costs (Model 2). K . K - 6222mm EzEzmo m5 c. 33.2mm cm @222 6c E9: mmmm. ;m=._>> Amhgmmsummucm: mmm mmm=ou c; mmmom bEmcommo mmm momma: .650 Amucmom co==E c; mEmEmEm mmm momma: ummommmmvcnm mwmm2 mmmm mmm 62 mmm mmm mmm mmm 2mm mmm mmm mmm m3 mm... 2m mm m2 :3 m6 mmm 22 Q. 2m mm 222 2.2 m2 m2 mm: mmm 22m =22 m2.m . mmmm £62 6mm 2m mmm Hammm mmm 2m.m mm.m mmm 3mm >>.<>A2mm 3mm mm.m 2mm m2.m mm.m mmm mm.m mmm 2561mm. 3mm mm.2 mm.2 mmm mm.2 mm.m mm.2 mmm omézfimmm 2 2mm mmm 2m.m mmm 22m mmm H mmm >>-m_-22 mm m2 $12 mm.m 2m.2 mm.2 mm.m >z-S mm $2 mmm SA mmm mmm mmm m< i mmm . mm.2 2m.2. mmm m2.m mmm >€ mmmmzm 2mm. 2mm. 2mm. 22mm 2mm. 2mm. 2mm. 2mm. Ammm 2mm 6mm am Am: 22: mm 2m: .3. Am: 2m: f. am m. m. E m. 2m. i mm m. 3 mmimmmmmm =30... 2:05am comhczmun mcwmfimtO damp .=o_mm._ >2. 63cm mfimampmsummc. 93.2w So-Eznm-wou msmmzm >E5toaao ucm moan E::um> 325x10 mEoEqEm 2258.50 - m _muos_ .2 mink 2O (1) (o) ' < 8 1L0 "i Sm (1 ' (s) cum ‘< 01v (16) (170 Q - (is sum ‘ O D Q O (mo (QAIInIQ-I c ‘q E|p 1QDQ (11 I1 1 (335 (Z9 H Figure 5. Optimal distribution of HRI beef without start-up merchandising costs (Model 2). Alternative Beef Packaging/ Distribution Sys- ms with Adjustments in Merchandising Costs Impact of Initial Start-up Merchandising Costs on Alternative Packaging/Distribution Systems A major consideration for firms instituting case-ready fresh meat systems is initial merchan- dising costs after the products have been placed in the retail case. Start-up merchandising costs may include such items as media advertising, in store promotions and displays, point of sales materials, support personnel, price discounts, etc. Model 3 is designed to measure the impact of start-up mer- chandising costs on alternative packaging/ distri- bution systems when total system costs are con- sidered. Model 3 includes all of the costs of Model 2, plus start-up merchandising costs assump- tions. Since data on start-up merchandising costs were generally not available, this study assumed that start-up merchandising costs would be $9.00 / hundred weight, as a minimum, for alternative packaging/ distribution systems. The total costs for all alternative packaging / distribution systems, therefore, were assumed to be approximately equivalent to those of the boxed-beef system. Given the assumptions of Model 3, Table 15 reveals that the most efficient distribution system eef and 37 percent would be packaged and dis- an 4O percent of the domestic beef would be boxed 21 tributed as central-vacuum beef. The remaining 3O percent of the domestic beef, again, was distrib- uted as HRI beef. Boxed Beef. Almost 6O percent of the beef packaged and distributed as boxed beef for the domestic market was merchandised to out-of- state markets, Table 16 and Figure 6. Kansas was the major interregional distributor of boxed beef, followed by Colorado, Montana-Idaho-Wyoming, and the Texas-Oklahoma Panhandle. Kansas was the major supplier of boxed beef to the deficit markets in the southeast. Kansas also competed for the boxed beef market in Michigan-Indiana- Ohio with Iowa, which was also a major supplier to the Pennsylvania market. The Texas-Oklahoma Panhandle shipped boxed beef to nearby East Texas and Arkansas-Louisiana. Colorado, which was the sole supplier of boxed beef to nearby markets in Arizona and New Mexico, shipped most of its surplus boxed beef to the export market. Other export regions were Montana-Idaho-Wyo- ming and Utah-Nevada. Central Vacuum. More than 7O percent of the central-vacuum-packaged beef was shipped to out-of-state markets in Model 3, Table 17 and Figure 6. The primary fabricators of central-pack- aged beef were the Texas-Oklahoma Panhandle, followed by Nebraska, Minnesota-Wisconsin, Kan- sas, Colorado, and Illinois, Table 17. The Texas- Oklahoma Panhandle was the sole supplier of central-vacuum-packaged beef to Southern Cali- K .c . _ow E:E=aow...:.>._>=ww ...w mc.>m...oc EoczzwoEofik.Em.w.sv2uc:;.m.. w. c..w.woo>..czconao9m ww.:m...mc.O..wuc:oQ co==E ..__.w.cwEQ_..ww.w wwzaucuwcoww 3... ww3 www www .3 www .w. ww. .3 www .w. w.. .ww ww ...w ww ww ww .w ww. ww. ww w. .w ww w. 3 ww w. w... w..w ww. 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H .w.w www >... v2.25 ...w. .ww. .ww. ..w. .ww. .ww. .3. .ww. .ww. ..w. ...w. .w.. .w.. .... .w.. .w.. .2. .w.. .w.. .... .w.. .w. .w. ... .w. .w. .w. .w. .w. ... ww._<.._o_wwm .20.. wcofiom cozuczmmn mc=wc_m_5 6mm. .co.mm._ >n £500 mEfluc-wzwriE naéflm 505.3 .323 wswwzw 32.23.50 new Ema E: .0 mEoEaEw E:E=QO . w .232 .3 03w... 22 Table 15. Model 3 - Optimum shipments of beef, with initial start-up merchandising costs, by packaging/distribution ystem, 1988. ‘ Packaging/distribution Beef shipped system (million pounds) Boxed beef: Domestic market 5,954 Export market 494 Central vacuum 6,696 HRI 5,422 Total shipped 18,566 fornia, Southeast Texas, and Kentucky-Ten- nessee. Five surplus regions, including Nebraska, Minnesota-Wisconsin, Kansas, Iowa, and Colo- rado, competed for the large deficit beef market in the Northeast. Although Colorado shipped central vacuum packaged beef to the Northeast, most of the vacuum-packaged beef shipped from Colorado was destined for Northern California. The distribution pattern of boxed beef versus vacuum-packaged beef in Figure 6 is impacted, to a large degree, by regional labor cost differentials. Regions receiving vacuum-packaged beef , both on an interregional and intraregional basis, generally fixhibited higher retail labor costs compared to regions receiving boxed beef, Table 1. These re- sults suggest that regions receiving vacuum-pack- aged beef found it economical for beef to be fabri- cated and packaged into vacuum packaging at the packer /fabrication level compared to receiving beef as boxed beef for further fabrication in those regions with relatively high wage rates. For ex- ample, regions with relatively high retail wage rates such as Houston (Region 12), received cen- tral-vacuum beef rather than boxed beef. HRI. Under the conditions imposed by Model 3, 51 percent of the HRI-beef demand was filled from intrastate sources, Figure 7 and Table 18. Six regions shipped surplus HRI beef on an interregional basis. Nebraska, which accounted for 73 percent of the interregional HRI shipments, merchandised HRI beef in the Southeast, the Atlantic Coast states, and the Northeast. The Texas-Oklahoma Panhandle and South Texas shipped HRI beef to nearby markets to the east and southeast of these regions. The T exas-Oklahoma Panhandles next best market was Florida with an opportunity cost of only $0.30 per hundredweight. West Texas competed with Arizona for the South- ern California market. North Dakota-South Da- kota shipped its surplus HRI beef to Washington- Oregon. Impact of Short-run Adjustments in Merchandising Costs on Alternative '\_ \ (flpfibt-chnn 18) a \ ‘ _ D """"" ' " """""""" " _ “m; \ - .\‘ ' -- _ _ _ - -' ’ e 38m \‘ \ l. .--- ("9 H,’ ( (Q ‘. \_ - - \ _ _ _ _ _ _ __ 0% \. (wlfiflfl _ w F wqm ~~~~~~ ~» ~ -~ ~ (m 1__ - -- -- -- - - - - - - - - -- (15) (21) c“ ' ' mun __ _ ---°- i" ____‘_:_~_\_ ‘_:%p . . . . . h‘. - --- " ( ) \ ‘ (4) Friar: (q'bm“'q" \ _ Q . x B qElP ‘=99 m. 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Model 4 contains all of the assumptions of Model 3, except that costs associ- ated with such items as advertising, labor, and promotions are assumed to decline by $3.00 per hundredweight as consumers begin adjusting to case-ready beef systems. Table 19 shows that three packaging/ distri- bution systems accounted for the non-HRI domes- tic beef merchandised in the U.S. Central vacuum accounted for 83 percent of the total, followed by boxed beef with 14 percent, and tray-ready with 3 percent. Central Vacuum. Costs were minimized when more than 62 percent of the central-vacuum- packaged beef, which accounted for 83 percent of the non-HRI domestic beef merchandised, was shipped on an interregional basis, Table 2O and Figure 8. The major out-of-state shippers of cen- tral-vacuum beef were Kansas and Texas-Okla- homa Panhandle, followed by Nebraska, Colorado, and Minnesota-Wisconsin. Given the short-run adjustment in merchan- i sing costs in Model 4, the regional distributional pattern of vacuum-packaged beef versus boxed 27 beef underwent additional changes from Model 3 to Model 4. Figure 8 shows that with a $3.00 decrease in merchandising costs over all alterna- tive packaging/ distribution systems, Florida, East Texas, New Mexico, and Arizona found it economi- cal to purchase vacuum-packaged beef rather than boxed beef. Major markets for vacuum-packaged beef for Kansas were the Atlantic Coast states and the Northeast, Figure 8 and Table 20. Nebraska was a major source of vacuum-packaged beef for the Northeast, along with Minnesota-Wisconsin, Iowa, Table 19. Model 4 - Optimum shipments of beef, with short-run adjustments in merchandising costs, by beef packaging/distribution system, 1988. Packaging/distribution Beef shipped system (million pounds) Boxed beef: Domestic market 1,740 Export market 494 Tray-ready 377 Central vacuum 10,532 HRI 5,422 Total shipped 18,565 \*\_ \- '\_ \_ \ \. \. \ . _ \_ - \_\ \_ \.\ \ . \ w @ '\_ \\ _ \ '\‘ (mAb-vfifui 10M ~\_ \ p. ,1; ----------------- - --------------------- .; \ -- ':::=-' S" ,.-"' 23$!" \- ‘\ __ $1991‘ -- I”: ' - ' i”) "w (s) u- \. . -- » 1 _______ __ cg; \ (iqerul ' _ ____-.-fi!l.f~’ F w”. ~~~~ oa- ._ t: _.- ::i’--.-.s-,-_- -- ---- J31». ______ -- 0s m; “'1 _-. ' _ _ _ , ....... -- ~- o ‘ _,'-_';‘j_':_'_.';;s=-",-Q\;-_:- " t " -’_ n. ' “" ‘__'I ‘\\ "a (4)Phork mmnm“ m‘ _ \\ I ~~ q 135w Hi9, . __ a‘ a) (11 sill-mm 1 0.1mm _“~.__ Q Boxed Beef ~ Exports ------- ~—--—- Central Vacuum ---------------- -- s’ Tray-Ready -—B—-E-— Figure 8. Optimal distribution of vacuum packaged beef, boxed beef, and tray-ready beef with short-run adjustments in merchandising costs (Model 4) North Dakota-South Dakota, and Kansas. Primary interregional markets for vacuum packaged beef from the Texas-Oklahoma Pan- handle were Florida, Southeast Texas, East Texas, the Southwest, and Southern California. Surplus vacuum-packaged beef from Colorado was shipped to Northern California and to Southern California in competition with the Texas-Oklahoma Pan- handle. Boxed Beef. Out-of-state domestic shipments of boxed beef in Model 4 originated from Kansas and Iowa, Figure 8 and Table 21. Kansas shipped boxed beef southeast to Eastern Oklahoma, Ar- kansas-Louisiana, Mississippi-Alabama-Georgia, and North Carolina-South Carolina. Although North Carolina-South Carolina purchased most of its beef as boxed beef from Kansas, the region also obtained some beef as vacuum-packaged beef from the Texas-Oklahoma Panhandle. Iowa shipped its boxed beef east to Pennsylvania. The export demand for U.S. beef was satisfied by shipments of boxed beef from Montana-Idaho-Wyoming, Colo- rado, and Utah-Nevada. Tray-ready. Tray-ready beef represented about 28 3 percent of the non-HRI domestic beef shipments in Model 4, Table 22. Total system costs were minimized when the non-HRI beef consumed within Washington-Oregon was obtained from Washing- ton-Oregon sources as tray-ready beef, Figure 8. HRI. More than 5O percent of the HRI beef requirements in Model 4 were obtained on an intraregional basis or from suppliers within their own respective regions. Regions shipping HRI beef on an interregional basis were Nebraska, West Texas, South Texas, Texas-Oklahoma Panhandle, and North Dakota-South Dakota, Figure 9 and Table 23. Nebraska continued to ship HRI beef to the Southeast, the East, and Northeast in Model 4 as it did in Model 3, Figure 9. West Texas was the sole out-of-state supplier of HRI beef to Southern Cali- fornia. The shipment patterns for South Texas, Texas-Oklahoma Panhandle, and North Dakota- South Dakota in Model 4 were similar to those in Model 3. 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Packaging/Distribution Systems Model 5 was designed to measure the impact 0f intermediate-run adjustments on alternative packaging / distribution systems. This model ana- lyzed the impact of a $6.00/hundredweight de- crease in marketing and distribution costs, com- pared with initial start-up costs, as a result of industry adjustments and consumer acceptance of case-ready-beef packaging systems. Although precise data on costs associated with industry adoption of case-ready beef are not available, industry personnel suggested that costs associ- ated with promotions, advertising, and labor would likely decline, compared with initial start-up costs, as a result of industry adjustments and consumer acceptance of case-ready-beef packaging systems. Model 5 was designed to measure the impact of a $6.00 /hundredweight decrease in costs compared with initial start-up costs. Model 6, on the other hand, reflects the impact of long run adjustments on alternative packaging/ distribution systems 1f variable and fixed costs were decreased by a minimum of $9.00 / hundred- weight compared with initial start-up costs as shown in Model 3. In Model 6, all retail wage costs for case-ready systems were reduced to 75 percent of the previous models to reflect retailers adjusting to fewer skilled employees in the meat department. This applies to the remaining models. The VAL-ADD simulation model revealed that decreasing merchandising costs from $6.00 to 32 o’ $9.00 / hundredweight would have no impact on regional distribution patterns by alternative pack- aging/ distribution systems other than the higher total packaging/ distribution costs associated with Model 5 compared with Model 6. In other words, optimal packaging / distribution systems and opti- mal regional beef distribution patterns by packag- ing/distribution system were identical in Models 5 and 6. While some adjustments in shipment patterns may occur in the industry as costs de- crease from $6.00 to $9.00/hundredweight, the VAL-ADD model revealed that regional shipment patterns, under the conditions assumed in Models 5 and 6, would not undergo any changes as a result of a 3-cent-per-pound change in cost. More than 97 percent of the non-I-IRI domestic beef was shipped as central vacuum packaged beef under the scenario assumed in Models 5 and 6, Table 24. Tray-ready beef accounted for the re- maining non-HRI domestic beef shipments. These models suggest that central vacuum packaging/ distribution would be the dominant beef packag- ing / distribution system for non-HRI domestic beef given long-run consumer acceptance of vacuum- packaged, case-ready beef along with retailer ad- justments in variable and fixed costs, reflecting full adoption of case-ready beef. These results imply that technological developments for vacuum - packaged beef may be able to overcome lack of acceptable color, currently associated with vacuum-packaged beef by many consumers, by supplying the product at a lower cost. doASAQw EsEAfio o... c. 2.28m cm 052w: 8c E2. ._:ww._ no.5; ocgmiwfiuca; .8 2m=ou .5 Hwow bAcztoawo 9m wwimc $50 Awuczoq CO==E EV wEwEQEw w..w wwSmA. uwBQEwucP. ww+w www www www 8w ww. ww. .+w www ww. w.. .ww ww www ww ww ww .w ww. ww. 8 w. ww ww 2 w+ ww ww 2+ w..w ww. =2... www www www £52 A8. www .w.w www www w..w 2w .w.w www .w.w <18 2w w++ www www ww+ .w.w .w.w 8+ 10-222 Aww. 2 w..w www www 2 www +w+ +ww www wQ.w2-<>>>.<>Aww. w... +.+ ww... ww... w..w m3 www ww... ..+ zhbAAwwv ww. www 8w www w++ 8w www 2w www owéz Aww. .+w www .w+ +.+ ww.w 2w 2.. www w..w >-z2Aw.. ww 8w w... w+w www 2w +ww ww.. www ww.. w... 2w www www ww w..w 2+ ww.. www +w.w www +ww +ww www ww+ 8w 8.. www ww.. w... ww wwdzAE wwww 8.2 +ww www www q. ..w +... wq. .w.w n3 www ww.. ww.w 8w ww www w+w w+.. 2.. w..w w+w 2+ www 2w .w.w .w.. w..w www 8.. 2w wzAw: ww ww.. www ww.. w... www 8w 8.. 8w www www ww.. www w++ www www 8 www .w.. ww.. www 8w www www w+.w ww.w www 8w 2.. www www w! 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Aw. S Aw. Aw. As Aw. Aw. A: wwiiswwm A22. . wccwm w==wsw=o dam. 52w... A5 .225 mEflucwzuwuE E wEoEwwa-uw cawfiozm 5.2.2....» wswwzw Biatoaao new .25 E: .0 wEoEnEw EaEzaO - w AouosA .w.w wBE. 33 Table 24. Models 5 and 6 - Optimum shipments ot beef, with intermediate- and long-run adjustments in mer- chandising costs, by beet packaging/distribution sys- tem, 1988. Packaging/distribution Beef shipped system (million pounds) Boxed beet: Domestic market O Export market 494 Tray-ready 377 Central vacuum 12,272 HRI 5,422 Total shipped 18,565 Central Vacuum. More than two-thirds 0f the central vacuum beef was distributed on an interregional basis under full adoption and long- run adjustments in costs, Figure 1O and Table 25. Major out-of-state suppliers of central-vacuum beef were Kansas, Texas-Oklahoma Panhandle, Colorado, Nebraska, and Iowa. Kansas had a competitive advantage for the central-vacuum beef market in the Atlantic Coast and southeastern states where it competed with the Texas-Oklahoma Panhandle for the Florida market. Kansas also competed for the deficit North- a \\\ ‘x \_ ‘ \$:§f\\\ \ \ \~ east with Nebraska, Iowa, Minnesota-Wisconsin, and North Dakota-South Dakota, which shipped surplus beef to the deficit Northeast. The excep- tion to this shipment pattern was Iowa, which also shipped central vacuum beef to Pennsylvania. Texas-Oklahoma Panhandle had a competi- tive zidvzintzige in shipping (ventral-vacuum beef to the nearby southezistern states, including South- ern Czilifornia where it competed for that market with Colorado, Figure 1O and Table 25. The largest out-of-state markets for Texas-Oklahoma Pan- handle were Florida and Southern California. Colorado shipped all of its surplus central- vacuum beef to the West Coast. Northern Califor- nia and Southern California received almost equal amounts of the Colorado surplus central-vacuum beef. Tray-ready. Approximately 3 percent of the non-HRI domestic beef was packaged/ distributed as tray-ready beef by Washington-Oregon for sale within its own region, Figure 1O and Table 26. Packer labor costs were substantially higher in Washington-Oregon (Table 1), thereby encourag- ing intraregional shipments of tray-ready beef since tray-ready beef is less labor intensive than central-vacuum beef. Opportunity costs (non- underlined figures) of less than $1.00 per hun- dredweight in Table 26 for the Texas-Oklahoma Panhandle, Kansas, and Iowa suggests that these regions have numerous potential markets for tray- ready beef. 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R+.. »».. ooAR. .».» »».» »».» »».» »+.» »».» »».» »».» R..» »+.» »».» »».» »».» R+.» »».» »».R R».+ »..+ »».» .».» .».» »..R »».» .».» »».» »».» »».» »».» ++.» ...» >>>-»_....>_ A». »..» .».» »..» .+.» »».» >z.SA». »».» »».. »».» +..» .+.R N==.E»»»» uc» San >u9..:.>m.= .0 mEwEaim EaEzaO . w we» m 22.22 d» o3»... 36 U appearance as store-cut packages, this may be the most profitable alternative in the transition to case-ready beef. Boxed Beef. All of the boxed beef, as in most previous models, was destined for the export mar- ket, Figure 10. Regions shipping boxed beef to the export market included Colorado, Utah-Nevada, Washington-Oregon, and Montana-Idaho-Wyoming. HRI. Costs were minimized in Models 5 and 6 when 48 percent of HRI beef was merchandised on an intraregional basis, Figure ll and Table 27. Further, costs were minimized when surplus beef producing regions such as Texas-Oklahoma Pan- handle, Kansas, Colorado, and Iowa shipped their surplus beef to other regions as central-vacuum rather than HRI-packaged beef. Regions shipping surplus beef as HRI-pack- aged beef included Nebraska, North Dakota-South Dakota, West Texas, and South Texas. These four surplus beef regions had a common thread--lower reported packer wage rates compared with other surplus beef regions, Table 1. The major out-of-state supplier of HRI-pack- aged beef was Nebraska, which provided all of the HRI beef shipments to the Northeast, nearby mid- West regions, Atlantic Coast, and Southeastern states, Figure l l. South Texas shipped HRI beef to East Texas and Arkansas-Louisiana. West Texas shipped its surplus HRI beef to Southern California. All of the HRI beef require- ments for Washington-Oregon were shipped into that region by North Dakota-South Dakota. Impact of Regional Shifts in Population and Fed-beef Production on Alternative Packaging/ Distribution Systems In addition to the basic cost factors that im- pact alternative packaging/distribution systems, external factors such as regional shifts in popula- tion and fed-beef production, also have the poten- tial to affect alternative packaging/distribution systems. Impact of Regional Shifts in Population Model 7 revealed that regional shifts in beef demand, as reflected by regional projections in population shifts by U.S. Department of Com- merce for year 2000, had little or no impact on the longer run adoption of alternative packaging/ distribution systems as shown in Model 6. Model 7 estimated that costs would be minimized when all of the non-HRI domestic beef would be mer- chandised as central-vacuum beef, Figure 12. Model 6 previously showed that total costs would be minimized under the basic longer run scenario when more than 97 percent of the non-HRI domes- tic beef was merchandised as central-vacuum beef. (333 23F Wqm b’ Figure 11. Optimal distribution of HRI beef with intermediate-run and long-run adjustments in merchandising costs (Models 5 and 6). 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E mEmEfia-u» ..».»»... u...» .2»_uoE.oE_ 5:... .223 »».»...» z.==.§_..» u...» Bun =1: .0 mEoEaEm E=E=QO . w u...» m wives. .».w 2n»... 38 U \\\_\\\\ \ \_\_ .\ \_ \ ‘ \ \_ .\‘ \\ \ \ ' ‘| F5 \_ \ \ -' \ ‘\_ (n) 11am \‘ \_ ' ' ' ‘ " "R:- -=~.-.=:-.-.- z -.==-. - ::=-.--. -.-:-.4=a-p=§-_ ;_ \ _,-_. \ __ _ .-:-'-'-' “q: 1W (,1, \ =1; .... -11 ..... U593)‘; *3‘ ---------- \~ D ('°)G'"°' gTwvrF wqm ‘ "=:.4 ~ . ~ _ __ amt _ ,,,,, " ~ a '::= r .... -- - m) ' -' " ' ' - - - - - - - ' - ' - -- __. ' (15)%:_“ ‘(g.;~ I'D-it‘. ’ 3A \'~ ~ ' . - it’. (ovié-v ‘°”"““"“' ‘ .1 :§‘._ ‘- mew wfbgii m.‘ _ a (11 a-{Xmario 1 \"‘~.:: Exports ------------- ~-- ' *' Central Vacuum ---------------- -- y Shipment patterns for central-vacuum beef, HRI beef, and export beef were almost identical to those shown for Model 6, Figures 1O and 1 1. Central Vacuum. Surplus beef producing re- gions, such as Kansas, North Dakota-South Da- kota, Iowa, and Minnesota-Wisconsin, shipped all of their surplus beef east as central-vacuum beef to markets in the Northeast, the Atlantic states. and the Southeast, Figure 12. Nebraska also shipped some of its surplus beef as central-vacuum beef to the Northeast. The Texas-Oklahoma Panhandle also shipped all of its surplus beef as central-vacuum beef to markets in the Southeast, the Southwest, and Southern California. Colorado also shipped al- most all of its surplus beef as central vacuum-beef west to markets in Southern and Northern Califor- ma. HRI. The predominant out-of-state supplier of HRI beef was Nebraska, which shipped HRI beef to markets in the Northeast, the Atlantic Coast states, Cornbelt states, and the Southeast, Figure 13. Other out-of-state suppliers of HRI beef were South Texas, West Texas, and North Dakota- South Dakota. Boxed Beef. Surplus beef not demanded by omestic markets was exported as boxed beef by ashington-Oregon, Montana-Idaho-Wyoming, Utah-Nevada, and Colorado. 39 igure 12. Optimal distribution of vacuum packaged and boxed beef exports with long-run adjustments in merchandising costs and egional shifts in population (Model 7). Impact of Regional Shifts in Cattle Feeding Model 8 was designed to measure the impact on alternative beef packaging/ distribution sys- tems assuming that 75 percent of the U.S. fed beef supplies were produced in the Texas-Oklahoma Panhandle, Colorado, Kansas, and Nebraska. The relative distribution of fed beef production among these regions was assumed to be similar to 1988. The results revealed that optimum alternative packaging/ distribution systems as estimated by Model 6 would undergo little or no change as a result of regional shifts in cattle feeding as as- sumed by Model 8, Figures l4 and 15. If 75 percent of U.S. beef was produced in the Texas-Oklahoma Panhandle, Kansas, Nebraska, and Colorado, the results for Model 8 were as follows: (1) central vacuum accounted for 97 percent of the non-HRI domestic beef merchandised in Model 8 as it did in Model 6, (2) beef production increased approxi- mately l6 percent in the above four regions over 1988 levels, (3) interregional shipments of beef increased almost 8 percent in Model 8 over Model 6 as beef surpluses increased in the four produc- tion regions, (4) the shipment patterns for all surplus regions to deficit regions for Model 8 were almost identical to those of Model 6 for domestic central-vacuum and HRI beef, and (5) total beef distribution costs increased less than one-tenth of one percent from Model 6 to Model 8. Figure 13. Optimal distribution of H RI beef with long-run adjustments in merchandising costs and regional shifts in population (Model 7). Exports Central Vacuum Tray-Ready a: a d’ Figure 14. Optimal distribution of vacuum packaged, tray-ready, and boxed beef exports with long-run adjustments in merchandising costs and regional shifts in cattle feeding (Model 8). 4O (17) 1o) Fm sgn ____ l (1 0 (29) U m 0m a’ F w“ (15 Si! c“ m ‘ ( D ( u) o (4) Q 4) o) EIP 13) 22) (11) m 1 ennui O t’ Figure 15. Optimal distribution of HRI beef with long-run adjustments in merchandising costs and regional shifts in population (Model a). Combined Impact of Regional Shifts in p Population and Cattle Feeding on Alternative Packaging/Distribution Systems Model 9 reveals that the combined impacts of regional shifts in population and cattle feeding on alternative packaging/distribution systems did not change the optimum packaging/ distribution system compared with Model 7. Similarities be- tween Models 7 and 9 were as follows: (1) central- vacuum beef accounted for almost all of the non- HRI domestic beef merchandised, (2) distribution routes were generally unchanged, (3) about 73 and 53 percent of the central-vacuum and HRI beef , respectively, were shipped on an interregional basis in both models, (4) total distribution costs also were almost identical in both models. Impact of Increases in Regional Wage Rates and Transportation Costs on ‘ Alternative Packaging/ Distribution Systems Regional wage rate levels and changes in wage rates impact not only regional competitive advan- tages and disadvantages, as well as total labor costs, but also competitive advantages of each - packaging/ distribution system, depending upon ‘he labor intensiveness of each system. Similarly, levels of transportation rates and changes in trans- portation rates impact not only total distribution costs but also regional shipment patterns and beef 41 shipped on an intraregional and interregional ba- sis. Models 10, 1 1, and 12 were designed to mea- sure the impact of such changes. Impact of a 50 Percent Increase in Regional Packer Wage Rates If regional packer wage rates were to increase 5O percent over 1989 wage rates, with other costs remaining at 1988-89 levels, Model 1O showed that total costs would be minimized when all of the non-HRI domestic beef was packaged and shipped as tray-ready beef, Table 28. These results suggest that with wage rates increasing at a faster rate than other costs, the longer run competitive ad- vantage would tend to favor tray-ready beef over other packaging/distribution systems if such changes in cost structures were to persist. The regional distribution patterns of tray- ready beef in Model 1O were similar to those for central-vacuum beef in Model 6, Figure 16. Sur- plus beef production regions, such as Kansas, Iowa, and Minnesota-Wisconsin, shipped their excess tray-ready beef east to markets in the Northeast, the Atlantic Coast, and the southeast. The Texas-Oklahoma Panhandle supplied tray- ready beef to markets in the southeast, the south- west, and Southern California. Colorado shipped surplus tray-ready beef to Southern and Northern California. Nebraska was the predominant supplier of HRI beef to deficit markets in the Northeast, the Atlantic Coast, the southeast and Northern Cali- fornia. Other surplus HRI regions were South Texas, West Texas, and North Dakota-South Dakota, which all had lower wage rates than other surplus beef producing regions. Impact of a 50 Percent Increase in Regional Packer and Retail Wage Rates When both regional packer and regional retail wage rates were increased 50percent over 1989 wage rates, with other costs remaining at 1988-89 levels in Model 1 1, the results were almost identi- cal to those of Model l0. In Model 1 1, costs were Table 28. Model 10 - Optimum shipments of beef, with long-run adjustments in costs and a 5O percent increase in regional packer wage rates, by packaging/distribution system, 1988. Packaging/distribution Beef shipped system (million pounds) Boxed beef: Domestic market ' O Export market 495 Tray-ready 12,649 HRI 5,422 Total shipped 18,566 minimized when almost 95 percent of the non-HRI domestic beef was packaged and distributed as tray-ready beef, Table 29. The remaining non-HRI domestic beef was merchandised as central- vacuum beef. The results of Model 1 1, which; are similar to those of Model 10, suggest that with increasing wage rates and with other costs remaining con- stant or increasing relatively less than wage rates. total system costs were minimized with the adop Table 29. Model 11 - Optimum shipments of beef, with long-run adjustments in merchandising costs and a 50 percent increase in packer and retail wage rates, by packaging/distribution system, 1988. Packaging/distribution Beef shipped Tray-Ready in regional packer wage rates of 50 percent (Model 10). system (million pounds) Boxed beef: Domestic market O Export market 495 Tray-ready 1 1 ,837 Central vacuum 812 HRl 5,422 Total shipped 18,566 1O B (13 D ( ( F Wayne (17) O O ( 0 fl 1 O n SQ Figure 16. Optimal distribution of tray-ready and boxed-beef exports with long-run adjustments in merchandising costs and increase tion of the tray-ready packaging/distribution system. It was also important to note that regions th relatively lower base Wage rates, such as outh Texas, New Mexico, Arizona, Nebraska, and North Dakota-South Dakota, all used the central- vacuum packaging / distribution system to supply beef for consumption Within their own regions. Figure 1 7. This suggests that central-vacuum pack- aging has a competitive advantage over other sys- tems in those regions with relatively lower wage rates, even with a 5O percent increase in regional base wage rates. However, since tray-ready beef is less labor intensive than central-vacuum beef, the impact of a 5O percent increase in regional retail and packer wage rates is less on tray-ready beef. The regional distribution patterns for tray- ready beef in Model 11 were similar to those for central-vacuum beef in Model 6, Figures 17 and 10. Kansas, Iowa, and Minnesota-Wisconsin shipped tray-ready beef to markets in the North- east. North Dakota-South Dakota shipped sur- plus beef to the Northeast as central-vacuum beef. Kansas also shipped tray-ready beef to the Atlan- tic Coast states and to the deficit southeast. The Texas-Oklahoma Panhandle competed for tray- ready beef markets in the southeast, the south- west, and Southern California. Colorado shipped surplus beef to Southern California as tray-ready ‘eef, but surplus beef going to Northern California was shipped as central-vacuum beef. Surplus domestic beef was exported as boxed beef by Utah- Nevada, Montana-Idaho-Wyoming, and Washing- ton-Oregon. HRI beef shipments in Model 1 l also were generally similar to those in Model 6, Figures 18 and 1 1 . Nebraska was the predominant supplier of HRI beef to the markets east and southeast of the Northern Plains. Nebraska also supplied HRI beef to the southwest and Northern California. Impact of a 25 Percent Increase in Nebraska Wage Rates Of paramount importance to a study of beef packaging/distribution systems and regionalcom- petitive alignment is the impact of an increase in cost of a major factor input such as wages on a surplus beef producing region such as Nebraska. Recall that Nebraska reported relatively lower wage costs among surplus beef production re- gions, as did South Texas, West Texas, and North Dakota-South Dakota. Since HRI beef is the most labor intensive of all systems considered, Ne- braska was the predominant supplier of HRI beef to deficit HRI beef markets in the U.S. in almost all models because of its relatively large surplus beef supplies and low regional wage costs. Regions such as West Texas and South Texas, which also \- ‘W \'§ \§\ \ \_ .\ \~ \\ \ \\ \~ \ \_ l \ w \ \ (n) 1am \ ------ -- - ------- -- - ----- -- -~<=-==>- . \_ . Fl?) s“ (s) ‘l (100 l <' ' - - - , _ _ _ _ _ ‘F? m F . _______ "o." (m ' - on 9 O < .. .- ( w Pa.“ (lTAh-nnvw-I Q, o qaP 13) (11 a . 0 Exports —--~----—--- Tray-Ready ——————- p Central Vacuum ---------------- -- y gure 17. Optimal distribution of tray-ready, vacuum packaged, and boxed beef exports with long-run adjustments in merchandising costs and increases in packer and retail wage rates of 50 percent (Model 11). ""8 (17) 1a) i w "m S - (1 m’ zqr wqm (15 c" i” <2 o ‘i ‘Q (Ohm-ml M c Q D ~> new 1 III (11 m 1 O’ Figure 18. Optimal distribution of HRI beef with long-run adjustments in merchandising costs and increases in packer and retail wage rates of 50 percent (Model 11). had a competitive advantage for HRI beef mar- kets because of their 10w regional wage costs, lacked sufficient surplus beef supplies t0 compete with Nebraska for the HRI market. Model l2 was designed to measure the impact of an increase in Nebraska wages, while the wage costs of other regions remained at 1988-89 levels. The Model determined the impact on packaging/ distribution systems and the competitive alignment of surplus beef producing regions, Table 3O and Figures 19 and 20. The major results of Model 12 were as follows: ( 1 ) given a 25 percent increase in Nebraska’s regional wage costs, that region lost its competi- tive position in the HRI beef market and shipped all of its surplus beef to the Northeast as central- vacuum beef; (2) surplus beef producing regions with relatively low wage costs, such as South Texas, West Texas, and North Dakota-South Da- kota, shipped all of their surplus beef supplies as HRI beef; (3) more than two-thirds of the HRI beef was obtained from intraregional sources in Model 12 when wage costs increased in Nebraska com- pared to almost 5O percent in Model 6; (4) Minne- sota-Wisconsin, Kansas, and the Texas-Oklahoma Panhandle supplied the additional HRI beef re- quired to satisfy the demand in deficit HRI regions; (5) Colorado, which historically has been a sup- plier of HRI beef, remained a primary shipper of central-vacuum beef to the West Coast and a shipper of boxed beef for export along with Ne- vada-Utah and Montana-Idaho-Wyoming; (6) cen- 44 tral-vacuum beef accounted for 97 percent of the non-HRI domestic beef merchandised; and (7) the regional distribution pattern of central-vacuum beef in Model 12 was almost identical to that of Model 6. Impact of a 50 Percent and a 100 Percent Increase in Transportation Costs Models 13 and 14 were designed to determine the impact of a 5O percent and a 100 percent increase in transportation rates with other costs remaining at 1988-89 levels. Increases in trans Table 30. Model 12 - Optimum shipments of beef, with long-run adjustments in costs and a 25 percent increase in wages in Nebraska, by packaging/distribution system, 1988. Packaging/distribution Beef shipped system (million pounds) Boxed beef: Domestic market O Export market 494 Tray-ready 377 Central vacuum 12,273 HRI 5,422 Total shipped 18,566 2Q U l» fl Exports Central Vacuum Tray-Ready s a 0 Figure 19. Optimal distribution of vacuum packaged, tray-ready, and boxed beef exports with long-run adjustments in merchandising costs and increases in Nebraska wage rates of 25 percent (Model 12). (Z9) / . y Figure 20. Optimal distribution of HFil beef with long-run adjustments in merchandising costs and increases in Nebraska wage rates of 25 percent (Model 12). 45 portation rates of 5O percent and 100 percent had no long-run impact on optimal packaging/ distribution systems as shown in Model 6. Central- vacuum beef represented 97 percent of non-HRI domestic beef merchandised in all three models. The regional shipment patterns were unchanged except that intraregional shipments of beef in- creased when intraregional supplies were suffi- cient to satisfy some of the regional‘ demand to minimize total distribution costs with increases in regional transportation rates. Total distribution costs increased 0.7 percent and 1.4 percent with a 50 percent and a 1 O0 percent increase in regional transportation rates, respectively, while other costs remained constant. Economic Considerations for Alternative Packaging / Distribution Systems Economic factors impacting adoption of pack- aging/ distribution systems, as well as location of fabrication and processing facilities for such sys- tems, involve not only basic system cost consider- ations but also regional demand and supply. This section analyzes the basic competitive alignment among packaging/ distribution systems, potential packaging/ distribution systems associated with regional beef markets, and potential regional loca- tion for packaging/distribution systems. Summary of Shipments by Packaging/ Distribution System Least cost distribution of 18,565 million pounds of fresh beef (retail equivalent) by packag- ing/ distribution system as generated by the VAL- ADD model may be summarized as follows: ( l) Boxed beef will continue to be an important packaging/ distribution system during the initial adoptive phase of the case-ready beef systems, Table 3 1. Once intermediate-run and full adoption of retail case-ready systems is achieved, least-cost results suggest that boxed beef (pending techno- logical development of other systems) would be used predominantly in the export market. (2) Tray-ready packaging/ distribution systems would be at a slight cost disadvantage compared with vacuum packaged/ distribution systems, Table 32. However, research results revealed that tray-ready systems would have a cost advantage over vacuum package / distribution systems if wage rates or basic beef costs were to increase substan- tially more than other costs in the beef packaging / distribution systems. Furthermore, it might have a consumer acceptance advantage due to more acceptable package appearance. (3) Central overwrap was generally at a com- petitive disadvantage because of shorter shelf-life, compared with central-vacuum and tray-ready systems, but it had a competitive advantage over 46 other alternative systems, Table 32. This system may be more feasible for a chain operating in a metropolitan area located near the processor. (4) Least cost results suggest that central- vacuum-packaged beef, because of longer shelf- life, has the potential to be the predominant pack- aging / distribution system in beef merchandising, Table 31. This assumes that vacuum-packaged beef can overcome current appearance problems. The major exception to these results could result from a substantial increase in wages while other costs remain relatively constant. If such a scenario were to occur, tray-ready beef would enjoy a competitive cost advantage over vacuum-pack- aged beef, primarily because of lower base wage expenditures in the tray-ready system compared with the vacuum packaged system. During the initial start-up phase of case-ready systems, vacuum-packaged beef accounted for almost 53 percent of the non-HRI domestic beef market while boxed beef accounted for the remaining 47 per- cent. However, central-vacuum-packaged beef ac- counted for 97 percent of the non-HRI domestic beef merchandised once intermediate- and long- run cost adjustments were allowed to impact alternative packaging/ distribution systems. Tray- ready accounted for the remaining 3 percent. (5) Gas-flush and central-frozen packaging/ distribution systems were not competitive with other alternative packaging/distribution systems under the various models designed for this study. These results suggest that total packaging / distri- bution costs would not have been minimized if either the gas-flush or the central-frozen system had been used to ship beef in any of the models designed for this study. Gas flush, for example, has some advantages in that this system retains the favorable “cherry-red” color appearance of beef. However, this system has cost disadvan- tages, compared with other systems in this study, accruing from greater space requirement per pack- age, which results in lower volume of beef per storage or transportation unit and increased costs. (6) Thirty percent of the domestic beef in this study was required to be merchandised as HRI beef to approximate the beef merchandised in these HRI markets during 1988 and to identify regions with a competitive advantage in producing HRI beef. Regional Receipts of Beef by Packaging/ Distribution System Table 33 provides a detailed summary of re- gional beef receipts by packaging/distribution system and model. This information provides guide- lines relative to the impact of regional surplus / deficit status and the impact of cost or cost com- ponents, such as wage rate changes, on packag- ing/ distribution systems. For example, Table 1 revealed that packer wage rates in the contiguous 48 states were highest in Washington-Oregon. 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N.mN N.0N N.0N N.mN N.0N N.0N N.0N N.0N N.0N N.0N N.0N N.0N N.0N N.0N EI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.8.. 60:00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 wmm _m=coO ?.00 ?.00 ?.00 1?. 0.0 ?.00 ?.00 ?.00 ?.00 ?.00 E00 0.00 ?.00 0.0 E_.5um> _m.=cm0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 qm._>>._m>o i=5“. 0.N 0.N 0.N E00 ?.00 0.N 0N 0.0 0N 0N 0N 0.0 0.0 0.0 >wwwlwt EN EN EN EN EN EN EN EN EN EN EN EN EN EN 09:08 toaxw 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 vw ?N0 0.0 ?.00 09:08 éwweoo cmmn umxom v2.9.3 Eon 233m 28w .82. 28w .82. $3 as was... 8.2 82> s $8 as 88m E58. 226a 95.8. 2:8 wazw 8.. a w=_wE.w==.< 80 .88: 80 .58: .80 8.8m. .80 E220 8.885 $8? 88.65 $8 82> 883; ¢ww2ws .80 vuwffiwwm i3 5 wczw s 3E0 .=.w _==._.s.._ ==._.95._ ==._..8E..2=_ .=:..._o=0 88o 5:80 .582 58E. .80 8.8m =.._?_.5_.=w_0\u=_9.._wwn E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< E 2w .._< 2w .._< _..=.._==>s.w f. f. 2. f. a; a a E 2w. w. i w. a a .000? .uo>o_aEo _ouoE >0 new Eo3>m :o=_..n_.=w_u\m=_mu._oma .3 ._.2...=_w .32.. swat 3 5.5.8.5. .?n 2am? 47 Table 32. Beef and packaging/distribution cost, by system and cost categories, packers, retailers, and total costs, long- run adoption (Model 6), 1988.“ System Boxed Tray- Central Central Central Central Central Item Beef Ready Overwrap Vacuum Gas Frozen HRI dollars/cwt Packers: Carcass 165.48 165.48 165.48 165.48 165.48 165.48 165.48 Fixed 0.84 1.10 1.00 1.18 1.18 1.18 0.93 Labor 2.86 5.53 9.73 9.76 9.76 9.76 16.06 Package 2.24 2.60 5.21 10.10 18.43 10.10 10.10 Distribution 2.75 2.75 5.35 2.75 3.72 2.27 4.20 other 2.86 5.53 5.84 5.84 6.84 11.54 11.78 Sub-Total 177.03 182.99 192.61 195.11 205.41 200.33 208.55 Retailers: Fixed 7.72 6.72 6.32 6.32 6.32 8.49 13.52 Labor 25.56 15.75 14.59 14.63 14.63 14.63 19.63 Package 5.20 5.20 0.00 0.00 0.00 0.00 0.00 Distribution 3.11 3.11 0.00 3.11 3.53 2.57 3.70 Other 24.89 21.89 24.14 15.49 16.54 15.49 11.29 Sub-Total 66.48 52.67 45.05 39.55 41.02 41.18 48.14 Total Cost: Carcass 165.48 165.48 165.48 165.48 165.48 165.48 165.48 Fixed 8.56 7.82 7.32 7.50 7.50 9.67 14.45 Labor 28.42 21.28 24.32 24.39 24.39 24.39 35.69 Package 7.44 7.80 5.21 10.10 18.43 10.10 10.10 Distribution 5.86 5.86 5.35 5.86 7.25 4.84 7.90 Other 27.75 27.42 29.98 21.33 23.38 27.03 23.07 Total System 243.51 235.66 237.66 234.66 246.43 241 .51 256.69 aAverage costs for 48 states in terms of 1988 prices. Higher carcass prices in 1990 would increase these total costs by about $1 5/cwt. The packaging /distribution system most pre- dominant in Washington-Oregon for the 1 4 models analyzed in this study was tray-ready, Table 33. The tray-ready system was not the predominant packaging / distribution system in any of the other regions over the entire range of models specified. However, the tray-ready system was used by al- most all regions when wage rates were systemati- cally increased in all regions while other costs remained constant, as in Models 1 O and 1 1. These results suggest the tray-ready packaging/ distri- bution system has a competitive advantage over other systems when wage rates are relatively high or increase relatively faster than do other costs. The predominant packaging/ distribution sys- tem for all regions, with the exception of Washing- 48 ton-Oregon, was central-vacuum packaging, given long-run adjustments in costs and without in- creases in wage rates relative to other costs, Table 33. These results suggest that the vacuum pack- aging/ distribution system has a competitive ad- vantage over other packaging/ distribution sys- tems, given the industry cost conditions, includ- ing the relationship of the various cost items during 1988, along with long run adjustments in merchandising costs. The surplus/ deficit status of a region had little or no impact on type of packaging/ distribution system utilized as the pattern of packaging/ distri- bution systems were generally similar for all re- gions, Table 33. € Q .0802 2:002: 0:080: 000000 20 000000 6c 0020mm .0562 002050: >503 0009.0 0.0 0:052 00:00.50 E0000> 0.0000 n >0 .>000m->0E n E .0000 00x00 u 00.. . 000.0:>0 0000: >0 008: >0 0000: >0 A0000: E $80: E 008: >0 008: >0 008: >0 0000: >0 008: >0 0000: >0 .008: >0 008: >0 0000: 00 .000 5.02 000.0: >0 008: >0 008: >0 008: >0 $80: E 0000: E 0000: >0 0000: >0 008: >0 0000: >0 0000: >0 000.00: 00 008: 00 $80: >0 0000: 00 <0 0000: >0 008: >0 $000: >0 008: E 008: E 008: >0 0000: >0 0000: >0 008: >0 0000: >0 0000: >0 0000: 00 0000: >0 $000: 00 zo-z_-_s_ 0000: >0 0000: >0 008: >0 $80: E $08: E $80: >0 008: >0 0000: >0 0000: >0 0000: >0 $08: >0 008: >0 008: >0 0000: 00 w0.02.<>>>-<> 008: >0 0000: >0 008: >0 0000: E 0000: E 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: 00 25c. . 000.0:>0 0000: >0 $000: >0 $000: >0 0000: E 008: E 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 00: .0: 00 0000: 00 0000: >0 0000: 00 00-02 . 00:0:>0 . 0000: >0 0000: >0 0000: >0 008: E 0000: E 0000: >0 008: >0 0000: >0 0000: >0 0000: >0 000.00: 00 0000: 00 0000: >0 0000: 00 <0-0<-w2 0000: >0 0000: >0 0000: >0 0000: E 0000: E 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: 00 0000: >0 0000: 00 d 0000: >0 0000: >0 008: >0 0000: E 0000: E 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: 00 0000: 00 0000: >0 0000: 00 <,_-0< 0000: >0 0000: >0 $80: >0 0000: E 0000: E 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: >0 0000: 00 0000: >0 0000: 00 o2 0000: >0. 0000: >0 0000.: >0 0000: E 0000: E 0.000: >0 0000: >0. 0000: >0 . 0.08: >0. 0000: >0. 0000: >0 0000: >0 0000: >0 A000: 00 ._._ A000:.>0M_A.000:.>0H . 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E a: E 49 Total Retail Beef Cost and Retail Cost Differentials by Region and Packaging/ Distribution System Analysis of packaging/distribution systems revealed that the central-vacuum system gener- ally enjoyed a competitive cost advantage over other packaging/ distribution systems, Table 34. The second and third most competitive systems with respect to cost were tray-ready and central overwrap, respectively. The next lowest cost sys- tem was the central-frozen system followed by boxed beef. The VAL-ADD model designed for this study can be used to measure the impact of various cost components at the regional or national level upon the total beef distribution cost. For example, the assumptions and basic costs in Models 6 and 12 were identical except that Model 12 assumed an arbitrary 25 percent increase in Nebraska wage rates. Changes in regional costs, such as labor. impact not only the competitive alignment of pack- aging/ distribution systems and regional distribu- tion patterns but also costs to the total beef distribution system. A 25 percent increase in Nebraska wage rates resulted in an overall in- crease to the beef distribution system of 15 cents per hundredweight (241.44 minus 241.29) or an increased cost of $27.5 million dollars. Total beef retail cost differentials by model and packaging/distribution system provide informa- tion concerning the competitive alignment of pack- aging/ distribution systems as cost components undergo change. The VAL-ADD model revealed generally lowest total retail costs for central- vacuum-packaged beef, Table 35. Further com- parison of retail costs by packaging/ distribution system revealed that tray-ready and central overwrap ranked second and third, respectively, relative to lowest retail costs, Table 35. Ranked next lowest were central-frozen and boxed-beef packaging/distribution" systems. However, cost differentials also provide clues relative to the com- petitive alignment and changes in competitive alignment as cost components undergo change. For example, Model 1O measured the impact on packaging/ distribution systems from a 50 per- cent increase in regional packer wage rates. The VAL-ADD model showed that if such a scenario i were to occur, with other costs remaining un- changed, tray-ready-packaged beef would enjoy a $ 1. 1 4 /hundredweight competitive advantage over vacuum-packaged beef, Table 35. The results also imply that tray-ready-packaged beef would enjoy a $4.35 /hundredweight cost advantage over cen- tral overwrap given the cost assumptions of Model 10. Further, the price differentials for Models 13 and 14 show that with increases in transportation costs relative to other costs, central overwrap becomes more competitive since costs to the total beef distribution system are minimized when in- creasing proportions of beef are shipped (mer- 5O chandised) by a packaging/ distribution system oriented toward more nearby markets as is central \ overwrap. Although the average retail cost differencew Q between central vacuum and boxed beef packag- ing/ distribution systems was $8.85 per hundred- weight ($243.5 1 minus $234.66) in Model 6 (Table 35), regional cost differences between packaging/ distribution systems vary depending upon dis- tance between surplus and deficit regions, re- gional labor rates, and regional beef prices. Retail cost differences between boxed beef and central- vacuum-packaged beef in Model 6, which as- ’ sumed long-run adjustments, ranged from $5.69 to $ 1 4.67 and involved shipments from the Texas- Oklahoma Panhandle to various destinations, Table 36. Similarly, retail cost differentials be- tween boxed beef and central-vacuum-packaged beef for shipments from Kansas to various desti- nations ranged from $5.3 1 to $ 1 4.30 per hundred- weight. Potential Location and Economic Impact of Regional Increases in Beef Supplies by Packaging/ Distribution System The VAL-ADD model also generated cost re- ductions (shadow costs) which could accrue, thCOQ retically, if beef supplies were increased by one ' unit (hundredweight). Table 37 provides cost re- ductions by region and model designed for this study. Regions with highest cost reductions across all models were Virginia-West Virginia-Maryland- Delaware and Florida. For example, results sug- gest that given the regional cost, supply, and demand conditions posited in Model l0, total distribution costs as estimated by the VAL-ADD model could be decreased $14.14 if beef supplied in Florida were increased one unit (hundred- weight). This assumes that Florida has the capac- ity and/ or facilities to perform the necessary fab- rication/packaging services. More importantly, these cost reductions reveal that, given the as- sumptions and basic data in Model 1 O, Florida and Virginia-West Virginia-Maryland-Delaware have more potential to decrease total packaging/ distri- bution costs than do other regions, Table 37. Regions with the largest cost reductions (Re- gions 27 and 23) have several common attributes. These regions are (1) large deficit regions and (2) located relatively long distances from surplus beef regions, which translates into higher transporta- tion costs per unit of beef received. Conversely. regions such as Montana-Idaho-Wyoming (6) re- veal “O” cost reductions across all models, which suggests that costs to the system would not 8“ decreased by the fabrication of additional units i 1 that region. 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Table 36. Comparison of retail costs for boxed beef and central vacuum packaged systems, selected routes, Texas- Oklahoma Panhandle and Kansas”. (9) TX-OK-Pan (1 5) KS Destination Central Boxed Beef vs. Central Boxed Beef vs. Region Boxed Beef Vacuum Central Vac. Costs Boxed Beef Vacuum Central Vac. Costs (cents per retail pound) (2) N. CA 255.53 240.86 14.67 256.11 241.81 14.30 (3) S. CA 248.38 236.901‘ 11 .48 248.98 237.87 11.1 1 (9) TX-OK PAN 233.65 226.71 b 6.95 237.50 230.93 6.57 (10) W. TX 238.95 231.21 7.74 239.74 232.38 7.36 (11) ‘S. TX 235.89 229.84 6.05 236.30 230.62 5.68 (12) SE. TX 242.47 233.35” 9.12 242.55 233.92 3.74 (13) E. TX 241.00 232.31b 8.69 241.20 232.89 8.31 (14) E. OK 234.49 228.80 5.69 234.31 229.00” 5.31 (15) KS 242.46 233.05 9.41 238.89 229.86” 8.94 (16) NE 240.08 232.03 8.05 239.79 232.12 7.67 (20) IL 247.25 235.73 11.52 246.81 235.65 11 .16 (23) FL 240.51 232.55” 5.05 240.53 232.99” 7.09 (24) MS-AL-GA 235.73 229.76 5.97 235.66 230.06)’ 5.60 (25) NC-SC 238.65 232.33 6.32 238.46 232.52” 5.96 (27) VA-W.VA-MD-DE 250.72 238.74 1 1 .98 250.42 238.81 b 11 .61 (29) PA 243.65 232.81 10.84 239.03 232.93 6.10 (30) North East 248.96 238.11 10.85 248.68 238.19)’ 10.49 “Costs are based on Model 6 that assumes long-run adjustments have been made at retail stores. “Optimal routes distances from most major beef markets. Min- nesota-Wisconsin accrued relatively low cost re- ductions since that region competes in one market (Northeast) with other major surplus regions, but it has a locational disadvantage with respect to most other deficit markets. Colorado also had “0” cost reductions for most models analyzed. Al- though Colorado competed for the California mar- ket with Texas-Oklahoma, it reported relatively higher wage rates than did most other surplus beef regions. In addition, Kansas, Nebraska, and Iowa have a locational advantage to the eastern beef markets compared with Colorado. The Texas regions with the largest potential for reducing costs to the total system were Southeast Texas (l2), South Texas (1 l) and East Texas (13). The major common attribute of these regions is relatively low wage rates (Table 1) compared with most other regions. Major surplus regions such as the Texas- Oklahoma Panhandle, Kansas, and Nebraska ac- crued relatively low cost reduction coefficients over all models as expected. The largest cost reductions in these three regions were in Ne- 52 braska, which reported the lowest packer wage rates of these three regions (Table l). Potential Beef Markets by Region and Packaging / Distribution System The VAL-ADD model also provided “least-cost opportunity routes”, which provide information relative to the next or potential packaging/ distri- bution system, by model and shipping/ receiving region, which would have come into the least cost solutions if costs (transportation, packaging, etc.) were decreased by the specified amounts, Table 38. For example, Model 2 revealed that central- vacuum-packaged beef would have been the next packaging / distribution system to enter the least- cost solution, in addition to those already in the solution, on shipments from Region 15 (Kansas) to Region 2O (Illinois) provided packaging/ distribu- 1. Q tion costs decrease at least $0.01 per hundred-U) weight. 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The data in Table 38 for Model 2 are summarized and ranked from data in Tables 13 and 14. These least cost opportunity shipping routes provide insights into the “next” or potential pack- aging/ distribution systems, by shipping/ receiv- ing region, which could enter the least cost or optimum solution if some cost component were to decrease by at least the specified amount. For example, least-cost opportunity coefficients in Model 6 reveal that central-vacuum-packaging systems have a “potential" competitive advantage over other systems if costs were to decrease by the amounts specified. Further, Model 1O least-cost opportunity coefficients suggest that tray-ready packaged beef would potentially have a competi- tive advantage over other packaging/ distribution systems in the first five out of nine comparisons if packaging/ distribution costs were to decrease. These least-cost opportunity coefficients are im- portant for ranking or determining the next poten- tial packaging/distribution system, by shipping/ receiving region, which would occur provided the scenarios occur as specified in the various models and the overall objective is to minimize costs to the system. Implications of Industry Technology Adoption Rate by Packaging/ Distribution System Industry technology adoption rate is often impacted by numerous factors or a combination of factors relating to costs, profits, output, health and safety considerations, competition, regula- tory standards, product development, etc. Recall, this study focused primarily on the economics of alternative beef packaging/ distribution systems compared to boxed beef as previously discussed. Industry adoption of a case-ready beef pack- aging system is impacted not only by economic considerations but also by the consumers reac- tion to changes in packaging technology. From the consumer perspective, acceptability of such changes in technology may be tempered by such accompanying changes as product costs, appear- ance, or product color associated with a specific packaging / distribution system, package size, and other attributes of the particular package. Given the above considerations, including reaction to change itself, it was assumed that considerable promotion and advertising would be required to entice consumers to make initial purchases of beef in new (alternative) packaging systems. Conse- quently, the industry/ consumer case-ready adop- tion rate was broadly categorized into four time frames: (1) initial start-up, (2) short-run adoption, (3) intermediate-run adoption, and (4) long-run adoption. 55 Initial Start-up Adoption Under the initial start-up scenario, total alter- native packaging/ distribution system costs were increased over base costs such that the average total alternative system retail costs were equiva- lent to boxed beef retail costs. Results from the VAL-ADD model revealed that costs would be minimized under such a scenario when 47 percent of the non-HRI domestic beef was merchandised as boxed beef and 53 percent of the remainder was merchandised as central-vacuum-packaged beef. It is significant to note that industry adoption of central-vacuum versus boxed-beef packaging on a regional basis was dependent upon the level of retail wage rates. Regions with relatively lower retail wage rates minimized total costs when beef was packaged and distributed as boxed beef . Con- versely, regions with relatively higher retail wage rates minimized costs by purchasing beef which was packaged as central-vacuum beef at the packer level. Adoption of HRI-packaged beef and boxed beef for export is not discussed in this section. The VAL-ADD model required that 3O percent of all domestic beef consumption be obtained from HRI sources in all scenarios modeled to coincide with 1988-89 consumption patterns. Further, all sur- plus beef was destined for export as boxed beef. Short-run Adoption The short-run time period in terms of packag- ing technology is not clear at this time. This study assumed that short-run adoption referred to that time period after the initial start-up promotion program to the intermediate-run adoption period. Short-run adoption assumes that packaging tech- nology is given and that variable cost adjustments relating to labor costs at retail and promotional costs can be decreased from the initial start-up costs for all central packaging systems such that total system costs decline $3.00 per hundred- weight (retail equivalent). Given the above sce- nario, the VAL-ADD model revealed that central- vacuum-packaged beef had the potential to ac- count for more than 8O percent of the non-HRI domestic beef merchandised. Boxed beef was the second most important packaging/ distribution system, accounting for 14 percent of the total, followed by tray-ready with 3 percent. Domestic boxed beef shipments, again, were destined only to those regions having the lowest retail labor rates. Almost all of the remaining beef that was marketed in the U.S. was packaged and distrib- uted at the packer level as central-vacuum-pack- aged beef, since total system costs were minimized when these services were performed at the slaugh- ter level where wage rates were substantially lower than at the retail level, Table 1. Intermediate- and Long-run Adoption Intermediate-run adoption of packaging tech- nology was defined as that time period when packaging technology was given and the variable costs of labor and promotional activities were further decreased to the extent that total system costs, and initial start-up costs declined by $6.00 per hundredweight. Long-run adoption was de- fined as that time period, after intermediate-run adoption, when packaging technology could change, although specific packaging systems in this study were unchanged to accommodate com- parisons to previously specified systems. The long- run adoption scenario further assumed that ad- justments could be made in all costs including fixed facilities such that total system costs de- clined by $9.00 per hundredweight compared with initial start-up costs. The VAL-ADD model revealed that intermedi- ate-run and long-run adoption rates, as impacted by the above cost scenarios, would achieve similar results with respect to optimal packaging/distri- bution systems, optimal distribution routes by packaging distribution system, and intraregional and interregional opportunity shipping costs. These results imply that cost declines in the range of $6.00 to $9.00 per hundredweight over all packaging/ distribution systems, would have a minimal impact on the optimal packaging distri- bution systems. When the intermediate- and long- run scenarios were imposed on the VAL-ADD model, central-vacuum-packaged beef accounted for 97 percent of the non-HRI domestic beef mer- chandised in both scenarios. This assumes that the beef color disadvantage associated with cen- tral-vacuum beef will be overcome in the long run. The remaining 3 percent consisted of tray-ready beef. The above adoption rates for the intermediate- and long-run scenarios were impacted by the basic industry and system costs for 1988-89 and assumptions regarding the various scenarios im- posed on the VAL-ADD model. Further assump- tions regarding (1) potential increases in labor costs while other costs remained relatively un- changed, and (2) potentially relative lower start- up merchandising costs for some packaging/dis- tribution systems, including tray-ready, central overwrap, and gas flush, compared with central- vacuum-packaged beef also impact long-run adop- tion. The VAL-ADD model showed that central- vacuum and tray-ready-packaged beef are highly competitive and that changes in cost items such as labor and merchandising costs tend to afford competitive advantage to one packaging/ distribu- tion system over the other system, depending upon the direction of cost changes. If costs such as labor and merchandising costs were to increase substantially more than other system cost items, the VAL-ADD model suggested that long run adop- tion would favor tray-ready over central vacuum. Conversely, relative decreases in major cost items such as labor and merchandising costs over all systems, with other costs remaining relatively stable, tends to provide a competitive advantage to central-vacuum-packaged beef over the tray-ready system. Supplemental analyses generated through the VAL-ADD model also revealed that if initial start- up merchandising costs are substantially lower for one case-ready system over another system, the system with the lower initial merchandising cost could have a competitive advantage, depend- ing upon the labor intensiveness of the system and the impact upon overall system costs. For ex- ample, if total system retail costs for tray-ready- packaged beef were $ 1 .00 per hundredweight lower than central-vacuum-packaged beef as a result of lower initial merchandising costs, the VAL-ADD model suggested that the competitive advantage relative to adoption at retail would accrue to tray- ready over central vacuum. Adoption of packaging systems, by region, may be impacted by such factors as regional wage rates, consumer reaction to specific packaging systems, retail firm prefer- ence of packaging systems, and health and safety considerations. References (1) Allen, J .W. Centrally Prepared Fresh Red Meat: Success or Failure?, The National Provlsloner, August, 1989. (2) Ibid. (3) Case and Company, Inc. The Economics of Alternative Fresh and Frozen Beef Distribution Systems At Super- markets. Stanford, Conn." LandMark Square. Contract Report. December, 1975. (4) Duewer, L.A. and T.L. Crawford. Alternative Retail Meat Handling Systems. Agricultural Economics Research, U.S. Dept. ofAgri.. ERS, 29(l977). (5) Case and Company. Inc. An Updated Look At Beef Distri- bution Systems. Stanford, Conn.: LandMark Square. Contract Report. May 1978. (6) Diaz-Martinez, J .L. The Economics of Alternative Fresh Beef Distribution Systems. Unpublished Ph.D. Disserta- tion, Department of Agricultural Economics, Texas A&M University, May, 1984. (7) Willard Bishop Consulting Ltd. A Study of the Retail Economics of Case-Ready Meats. Study conducted for American Meat Institute, Washington. D.C. June, I988. (8) Ward. J.B., D.E. Farris, and R.A. Dietrich. Program and Model Documentation for Analysis of Value-Added for Beef—With Special Emphasis on Texas. Departmental Programming Model Documentation, PMD 9l-l, TAES, Department of Agricultural Economics, Texas A&M Uni- versity, College Station. Texas, 1991. (9) Dietrich, R.A. Interregional Competition in the Cattle Feeding Economy - With Special Emphasis on Economies of Size. Bulletin 1115, Texas Agricultural Experiment Station. College Station, Texas, 1971. (l0) Clary, G.M., R.A. Dietrich, and D.E. Farris. lnterregional Competition in the U.S. Cattle Feeding Fed -Beef Economy. Bulletin I487, Texas Agricultural Experiment Station, College Station, Texas. 1984. p’ below: Subject to: APPENDIX A: VAL-ADD Model The model used in this study follows the basic transshipment cost minimization problem presented 3O 31 22% Supply of beef carcasses by packers / purveyors. 3O 31 7 zzzri Demand for retail beef by stores. Where: U) (k) ijk = 3O 31 The total cost (S/hundredweight) of distributing beef from ‘packer and/ or purveyors in region (i) to retail firms in region (1) by system (k). The amount of beef distributed from packers/ purveyors in region (i) to retail store in region (j) through system (k). Supply of carcasses to packer / purveyors in region (i). Demand for retail beef by stores in region (j). 1. pi 1. ...,30; packer/ processor carcass supply regions. ,...,3l; retail demand regions, with Region 31 as importers from the United States. ...,7; fabrication and distribution systems. 57 APPENDIX B: Regional Beef Demand ‘ Per capita beef demand was assumed to be influenced by disposable income, retail price and time. Given this, the following equation was used to estimate average U.S. per capita beef demand: ‘ Y=BO+B 1X+ BZX2+|33X3 Where, Y = per capita beef demand. X1 = per capita disposable income. l X2 = retail beef price. X3 = Year, where 1978=1 and 1987=10. Per-capita disposable income data were collected by state and county from the U.S. Department of Commerce, Bureau of the Census and Bureau of Economic Analysis, from l 978 to 1 987. These data were deflated by the consumer price index and assembled by each region. The 1988 average U.S. retail beef price of $2.55 per pound was obtained from the U.S. Department of Agriculture, Livestock and Poultry Situation and Outlook Report and combined with regional price differentials (Dietrichg) to estimate regional average retail prices. The resulting function for estimating 1988 regional per-capita beef demand was: Y = 82.45413 + O.OO472(X1) - O.15693(X2) - 2.97l98(X3) ‘I, F = 55.95 R2 = .9555 Parameter Probability Variable Estimates T-Value > / t / [30 82.454137 9.211 .001 X1 0.004717 9.170 .001 X2 -0. 156925 -7.885 .001 X -0.971983 -10.986 .001 3 Regional per capita beef consumption was estimated by inserting regional per capita disposable income and regional retail beef price into the above equation. Regional per capita beef consumption was then multiplied by regional population to estimate regional beef demand. U 58 $1.1; .. [Blank Page in Original Bulletin] ‘ 4/ Mention of a trademark or a proprietary product does not constitute a guarantee or a warranty of the product by The Texas Agricultural Experiment Station and does not imply its approval to the exclusion of other products that also may be suitable. All programs and information of The Texas Agricultural Experiment Station are available to everyone without regard to rac color, religion, sex, age, handicap, or national origin. ‘ Copies printed: 1,600 — _