Technological Changes in Beef and Pork Production: Effects on Marketing Margins and Prices

Inflation-adjusted farm prices and farm-wholesale marketing margins for beef and pork have declined over several decades. For example, from 1970 to 1998, real slaughter steer and hog prices declined by 50% and 66%, respectively, while real beef and pork farm-wholesale (FW) marketing margins declined by 57% and 65%, respectively (Figures 1 and 2). These changes have been attributed to declining retail demand, increased red meat and poultry supplies, and increased meat packer concentration (Azzam & Anderson, 1996; Purcell, 1989). However, technological change may also contribute to declines in real farm prices and FW margins. Technological change in the food processing industry has increased rapidly over the past several decades. The major drivers have been changing relative prices, increasing competitive pressures from globalized markets, improving transportation and logistics infrastructures, evolving information systems, and increasing consumer demands for quality-differentiated products (Antle, 1999; Brester, Schroeder, & Mintert, 1997). In theory, technological change in a competitive food processing industry should reduce unit production costs, consumer prices, and marketing margins while increasing farm output prices. Our study focuses on the effects of changing meat packer and farm-level technologies on real beef and pork farm-wholesale marketing margins and on livestock prices. Results indicate cost savings from meatpacking technologies increase real livestock prices, while technological changes at the farm level reduce real livestock prices. On balance, the positive effect from meatpacking technology outweighs the negative effect of farm-level technological change.