Peter D. Mitchell 1 and Raymond J.G.M. Florax 1,2

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1 Peter D. Mitchell 1 and Raymond J.G.M. Florax 1,2 1 Dept. of Agricultural Economics, Purdue University 403 W. State Street, West Lafayette, IN 47907, USA pmitche@purdue.edu, rflorax@purdue.edu 2 Dept. of Spatial Economics, VU University Amsterdam, The Netherlands

2 Outline History and background Research questions Data and spatial distribution Location models Empirical results Conclusions

3 History and background Decline slaughter plants Regulatory policy Technological change Demand for specialty foods Slow Food movement

4 Research questions What is the spatial distribution of USDA slaughter plants? How does that compare to distribution of people and animals? Is the spatial distribution changing through the location choice of new slaughter plants? What is driving the location choice of new firms, and is it different from the past?

5 Data and types of firms Data Existing stock USDA inspected slaughter plants across US counties in 2007 New establishments USDA slaughter plants across US counties from Types of firms USDA inspected State inspected Custom exempt Data and types of firms USDA-FSIS Economic census

6 U.S. inspection regimes

7

8 Dairy Sheep & Goat Agglomerations

9 USDA Inspected Poultry Plants 2007 Legend US County USDA Poultry Plants Meters 0 300, ,000 1,200,000

10 Hot Spots (G-Stat) Meat Plants Plants

11 Hot Spots (G-Stat) Poultry Plants

12 Location choice theory Microeconomic framework (Guimãraes et al., 2003, 2004) Profit maximizing individual firms Random utility theory/ discrete choice Poisson model equivalent to conditional logit Location factors Elaborate empirical research Manufacturing, food segment (McNamara, Lambert, Brown, Florax) General setup, location choice as a function of agglomeration, market, labor, infrastructure, and government Y i = g (A i, M i, L i, I i, G i )

13 Spatial models and estimators Specification: probit, spatial lag model Klier and McMillen (2008) linearized version Y i = ρ j W ij Y i + X it-1 β + ε i Weights contiguity matrix - queen

14 Explanatory variables total (n) Counties (lower 48 States) 3,066 USDA Meat establishments 590 Input market median Total Meat firms, census bureau 1,616 Beef cow farms 173 USDA Poultry establishments 192 Cattle Feed farms 5 Total Poultry firms, census bureau 549 Dairy Farms 3 Total Employment Meat 170,274 Hog and pig farms 15 Total Employment Poultry 254,897 Sheep and Goat farms 13 New USDA Meat 182 Poultry (any) farms 41 New USDA Poultry 62 Meat Chicken farm 2 Consumer - Market median Avg. Age of operator 57.2 Population 25,638 Production total Per Capital Income 30,123 USDA Meat Processing 2970 % Household $75, USDA Poultry Processing 152 Labor market Rendering 222 Weekly wages 743 Cold Storage 449 % Foreign Born 1.71 Livestock Wholesale firms 992 % High School or Less 38.4 Poultry Wholesale firms 573

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19 Results existing plants Strong tendency to agglomerate Proximity to consumer markets not that important Labor markets: Preference for higher educated work force Poultry industry wage sensitive Proximity to inputs is important Infrastructure factors weak Governmental factors most relevant Strong preference for State Inspection vs. USDA Highway access important for poultry Spatial heterogeneity North East (meat), Missouri (meat)

20 Results for new establishment Competitive factors most relevant Spatial dependence weak Agglomeration tendency for firms, mid size firms most relevant (meat) vs larger plants (poultry) Consumer markets week Low wage labor markets desired Proximity to production inputs important State inspected programs preferred over USDA inspection Spatial heterogeneity North East (meat and poultry), South (Poultry)

21 Overall conclusion Location behavior of slaughter industry dominated by supply side conditions and inspection regimes. Strong tendency to agglomerate. Potential improvements Better Inspection, plant size, and species data Using model results to select top 100 US counties with most favorable factors to acquire new USDA meat plant and top 10 counties for poultry.

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