Possible Producer Benefits from a National Animal Identification

System (NAIS)

Prepared by:

Dr. Ruby WardAssistant Professor

Extension Economist

Economics Department

Utah State University

Email: ruby.ward@usu.edu

Western Center for Risk Management Education

Western Extension Marketing Committee

Can the National Animal Identification System Benefit

Cattle Producers

Outline

• Benefits – 3 categories– Food safety– Bioterrorism– Increased production information

Food Safety & Bioterrorism

• BSE in Canada and United States– Highlighted the need for an animal tracking

system

• Increased threat of Bioterrorism

• Highlighted need for NAIS– Trace back of infected animals within 48 hours

of detection.

• How does this benefit producers?

Food Safety & Bioterrorism

• Trace infected animal within 48 hours

• Quick isolation

• Increased consumer confidence

Exports and Prices

• Exports are 8-10% of beef production in the U.S.

• Drop in exports has a larger drop in price• Price elasticity is -.62 (Huang 1996)

– This measures the percentage change in quantity for a 1% change in price

• Price Flexibility of 1.5 – 1.6– Inverse of price elasticity measure the

sensitivity of price to changes in quantity.

Exports and Prices

• Exports are 8-10% of beef production in the U.S.

• Price Flexibility of 1.5 – 1.6– Inverse of price elasticity measure the

sensitivity of price to changes in quantity.

• Drop of 9% in demand would cause price to drop by 15% (1.6*9%)

• Similar to what happened in market after BSE announcement in December 2003

Food Safety and Bioterrorism

• Lower wholesale and retail prices for beef will be passed on to the cattle producer.

• Program that supports demand in event of food safety or bioterrorism crisis

• Will help producers

Increased Production Information

• More information flowing along marketing channel

• Marketing Channel – Stages a product passes through

Cow/calf producer Feedlot

PackerRetailer

Commodity Vs. Differentiated

• Commodity– All products seem the same– Low price is important

• Differentiated Products– Some products can be perceived as higher

quality– Usually sell for a higher price

• If more information is attached, the product may be able to sell it for more

For Example

• Selling a 500-pound calf– Commodity sells for market rate

• If higher probability this calf will perform well– Would finish faster– Grade higher than other calves

• Then calf is more valuable and could get a premium price.

Higher quality herd

• Information about carcass yield, feedlot performance etc. could be linked to a particular animal

• That information could flow back to the producer (usually a fee is attached)

• Producer could use it to selectively cull the herd

• Herd quality and performance could increase

Pricing on a Grid

• Only a portion of animals currently being priced based upon performance

• Should increase in future

• Some feedlots may require information as a market entrance requirement

• Animal ID could be key to market access

Verifying Information

• Some product characteristics require third party verification

• NAIS can facilitate by being able to track and audit the animal through the system.

Producer Benefits of Information

• More information can flow along marketing channel

• Can Differentiate products

• Can use information to improve herd quality

• Easier to do audits

Conclusions

• May be some liability issues

• Decrease risk of food safety or bioterrorism threat

• More information flowing along marketing channel– Improve herd quality– Add verifiable characteristics– Differentiate products