The economics of alternative fresh beef distribution systems

Abstract

The beef distribution industry is facing rapid changes as a result of a new input relationships and new technology. Because meat processing and distribution are both labor intensive industries, one of the main factors causing these changes is the increase in labor cost. To deal with these developments, some operators in these industries may want to consider adjusting to new methods of beef distribution. This study is designed to estimate the economic incentives associated with alternative ways of distributing fresh beef. A multiproduct transportation model was used to examine the comparative advantages of five different systems of fresh beef distribution. The state of Texas, with its wide variation in wage rates, was used as a market area to evaluate the models and the cost relationships. Provision was made to allow supplies of wholesale beef from the Omaha area to enter the Texas market. Seven scenarios, which were the result of adjusting the Basic Model, were designed to examine how changes in input costs, processing capacities and labor productivity, affect the optimum processing locations and the distribution flows. Findings indicate that the most economical and versatile way of distributing fresh beef is in boxed-beef form direct from packer to retail stores (System II). In the Basic Model this system of distribution constituted 81.5 percent of the total shipments. This figure decreased to 63 percent in the model designed to represent the long run where no constraints were imposed on processing capacities. The other most prevalent systems were, packers sending retail cuts directly to stores (System III), boxed-beef sent to retail stores through prefabrication centers (System IV) and carcass distributed from packers directly to store (System I), in that order. The appearance of four of the five systems in each of the scenarios suggest the competitiveness of all these systems under different cost relationships. These results showed the flexibility and adaptability of boxed-beef to many different situations. This system of distribution showed a remarkable stability throughout all the scenarios. The model is designed for general application and can be adapted to many market areas, type of firms or cost relationships.