Experimental Approach

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1 Findings Less than 50% of beef cattle producers are aware of the EQIP program. Increasing EQIP cost-share rates would entice greater numbers of producers to adopt BMPs. Younger producers with family members to take over the land upon their retirement and those with greater debt are more likely to be adopters of rotational grazing under the EQIP program. Introduction Best Management Practices (BMPs) have been developed and promoted to conserve soil and water quality on agricultural land. Rotational grazing is a BMP that has been cited as being effective at reducing soil erosion, thus conserving water and soil quality. However, the economic implications of using this practice at the farm level have been less clear. Given the higher costs associated with rotational grazing, profit may be reduced under some conditions. Thus, if the federal government desires to encourage adoption of rotational grazing, it is likely that an input subsidy in the form of cost-share would be appropriate. To assist farmers in adopting BMPs, the federal government is providing farmers with technical and financial assistance through programs such as the Environmental Quality Incentives Program (EQIP). EQIP assists farmers with up to 75% of the BMP adoption cost. This research examines the rate of adoption of rotational grazing that would be expected at different cost-share proportions using contingent valuation questions. The Effect of EQIP Cost-Share Rate on Adoption of Rotational Grazing Jeffrey M. Gillespie, Seon-Ae Kim, and Krishna Paudel; LSU Department of Agricultural Economics and Agribusiness The objectives of the study are to assess beef cattle producers willingness to adopt rotational grazing under alternative bid offers; to assess reasons for (not) being willing to adopt under a cost-share payment offer; and to determine the types of producers most likely to adopt under a cost-share payment offer. Experimental Approach A statewide Louisiana mail survey of 1,500 cattle producers was conducted in Summer, 2003, to determine adoption rates of BMPs and potential adoption rates of rotational grazing under alternative cost-share rates. A stratified sample was drawn according herd size. The size categories were 1-19, 20-49, 50-99, and 100 animals. These size categories constituted 26.7 percent, 23.3 percent, 23.3 percent, and 26.7 percent of the stratified sample, respectively. The response rate was 41 percent after deducting 270 who were no longer in the cattle business. Potential respondents to a willingness to adopt rotational grazing question were cattle producers who had not previously adopted rotational grazing or who answered that they were using rotational grazing, but with less than five paddocks. The cost of adoption was estimated using current market prices of materials necessary to establish a rotational grazing system. Respondents were provided with an extensive description of rotational grazing and then asked, Suppose that the total cost of establishing a rotational grazing system is $50 per cow, including self-filling troughs, electric fencing, pipeline and labor charges for this installation. Suppose the federal government were to agree to pay X percent ($Y per cow) of the cost. Would you be willing to pay the remainder ($Z per cow) to 60

2 adopt it? Chosen cost-share percentages, X, were varied among 60, 70, 80, 90 and 100 percent. The Y and Z figures were calculated accordingly. To ask whether producers were willing to pay to adopt the BMP, half of the respondents received dichotomous choice formats with potential yes and no responses. The other half received polychotomous choice formats with six different options to choose from, including I definitely would not adopt it, I probably would not adopt it, I would slightly lean towards not adopting it, I would slightly lean towards adopting it, I probably would adopt it, and I definitely would adopt it. Both treatments were evenly distributed across the sample. Both versions of the questionnaire had follow-up questions asking reasons for adopting or not adopting with the cost-share payment. Those unwilling to adopt answered the following: Which of the following best describes your reason(s) for not adopting a rotational grazing system, supposing you would receive a cost-share payment for implementing it? Nine possible answers were offered for non-adoption. Those willing to adopt answered the following: Which of the following best describes your reason(s) for answering that you would adopt a rotational grazing system? Eight possible choices were offered. Probit analyses were run to determine the impact of the following variables on farmers willingness to adopt rotational grazing: number of animals in the cattle herd, presence of purebred animals on the farm, presence of stockers on the farm, number of other crop and other livestock enterprises on the farm, ratio of owned to total land used in the cattle operation, number of contacts with NRCS personnel in the past year, number of contacts with Louisiana Cooperative Extension (LCES) personnel in the past year, having a stream or river running through the beef cattle farm, having a family member to take over the farm upon the farmer s retirement, tendency to avoid risk when possible in investment decisions, age of the respondent, holding of a college bachelor s degree, household net income, percentage of household income from the cattle operation, debt-asset ratio, three different land descriptors (hilly, marsh, or river bottom), and southern Louisiana location. Results and Discussion Results Of the producers who responded to the questionnaire, only 51% had heard of the EQIP program. Thus, it is evident that a substantial number of cattle producers are unaware that there is a program available through which they can cost-share on BMP adoption. A total of 369 cattle producers answered the willingness to adopt rotational grazing question. Of these, 185 responded in the dichotomous and 184 in the polychotomous formats. Table 1 presents results of the percentages of producers willing to adopt rotational grazing under alternative cost-share rates. Results show evidence that increasing the cost share rate from 60% to 100% increases adoption, with 26% to 57% adopting with a 60% cost-share and 60% to 71% adopting if the government provided 100% of the funding. Variation depended upon the question format, with the dichotomous choice format showing greater variation by cost-share rate than the polychotomous question. Of interest is that, even with a 100% cost share rate, 29% to 40% of the producers were unwilling to adopt rotational grazing. Of the reasons given for unwillingness to adopt rotational grazing, the 61

3 most frequently cited was the belief that the farmer had too few animals to effectively utilize it. Other frequently cited reasons were that the farmer rented land for the operation, he or she preferred not to deal with the additional management and labor requirements, or the land used for the operation was not erodible. Only five cited that they felt rotational grazing was not profitable with a cost-share payment. Of those who answered that they were willing to adopt with a cost-share payment, the most frequently cited reason was that they felt rotational grazing was a better way to manage grazing land (Table 3). Other frequently cited reasons were the belief that soil and water conservation were important, that rotational grazing is profitable under these circumstances, that they had considered implementation previously, or that they had heard of the benefits from others. Probit results provided insights into the types of producers who were most likely to adopt rotational grazing under a cost-share agreement. Results indicated that increasing the cost share rate by 10% increased the probability of the farmer indicating he or she would adopt by Having a family member who would take over the land upon the farmer s retirement, an increase in the farmer s age, and a higher debt load increased the probability of the farmer indicating he or she would adopt rotational grazing with a costshare. Being located in river bottom land or in South Louisiana increased the probability of the farmer being willing to adopt rotational grazing with a cost-share. Discussion Among the most surprising results of this study are that about half of the surveyed farmers had never heard of the EQIP program. This is likely due partly to the fact that the federal government has not had support programs for beef production previously, so cattle farmers are not tuned in to government programs. Considering that the stratified sample drawn was weighted towards the larger cattle producers and assuming that the smaller producers are less aware of EQIP than the larger producers, it is probable that substantially less than 50% of the general cattle producer population is aware of the program. Thus, this study not only served to determine how many would adopt if offered specific EQIP cost-share rates, but also to inform about half of the 1,500 farmers surveyed about EQIP and BMPs. If the farmer had not already adopted rotational grazing, a relatively large percentage indicated that they would be willing to adopt if offered a cost-share payment. As the costshare rate increased, so did willingness to adopt. This suggests that if the general population has great interest in getting farmers to adopt BMPs, increasing cost-share rates through programs such as EQIP will be an effective way to increase adoption as long as the farmers are informed of it. Of those who would not adopt, the major reason given for non-adoption was that they did not feel they were large enough to effectively utilize the BMP. Surprisingly, needing more information about rotational grazing was not a heavily cited reason. Of those who would adopt, the greatest percentage felt it was a better way of managing grazing land. Results suggested that the younger farmers who had family members to take over their land upon their retirement, as well as those who were in greater debt, were the most likely candidates to utilize the program. Older farmers were less likely to be willing to undertake the greater management required with rotational grazing. Those with family 62

4 members to take over the land have an interest in preserving the land for future generations and, thus, BMP adoption is likely to be more attractive to them. Those with credit constraints may not have adopted rotational grazing previously due to the unavailability of funds. With a substantial cost-share payment, they might be more likely to afford to adopt. Overall, these results suggest that costsharing has the potential to increase the adoption rates of rotational grazing and, likely, BMPs in general. If, however, farmers are unaware of the EQIP program, they cannot utilize it. Thus, greater educational efforts could be devoted to informing producers of this program. Table 1. Percentages of Producers Willing to Adopt Rotational Grazing Under Alternative Cost-Share Rates. Cost-Share Rates Total Dichotomous Accepted Non-Accepted Polychotomous Accepted y Non-Accepted Accepted in this context is defined as having indicated one of the following: I would slightly lean towards adopting it, I probably would adopt it, or I definitely would adopt it. Table 2. Reasons for Not Being Willing to Adopt a Rotational Grazing System. Reasons # Yes % Yes I rent the land for my beef cattle operation I believe rotational grazing is not profitable, even if there is a cost-share payment. 5 3 I do not want to go through the paperwork involved in getting the cost-share I believe I have too few animals to be able to practically use a rotational grazing system. I prefer not to deal with the additional management and labor required with a rotational grazing system. The land I use for beef cattle operation is not erodible I do not like the way the government pays the cost-share payment. 9 5 I need more information on rotational grazing in order to make a decision Other Table 3. Reasons for Being Willing to Adopt a Rotational Grazing System. Reasons # Yes % Yes I believe soil and water conservation is very important I believe rotational grazing is a better way of managing grazing land I believe rotational grazing is profitable under these circumstances I was considering implementation of a rotational grazing system before I have heard about the benefits of rotational grazing from farmers, specialists, workshops, etc. Other

5 Findings The most heavily used marketing arrangement continues to be the conventional auction. Most producers utilize this arrangement. Producers more likely to use alternative marketing arrangements were generally better managers, larger, younger, and had greater contact with cooperative extension agents. Introduction Beef producers have a number of options available for marketing their cattle. In addition to the conventional auction method of marketing, producers may use video auction, private treaty sales, or internet sales. They may retain ownership of calves through the feedlot and/or become involved in a strategic alliance. This paper addresses some of the advantages and disadvantages of each of the marketing methods, provides statistics on the extent of use of each by a sample of Louisiana cattle producers, and discusses the characteristics of producers using each of the marketing methods. Expanded information on this study can be found in Gillespie, Basarir, and Schupp. The traditional method of marketing for many Louisiana cattle producers is the conventional auction, which provides producers with a convenient location where the animal will be sold at a price determined by the number of buyers present who are interested in the particular animal type. It is a useful marketing option for most types of beef animals. Assuming sufficient cattle volume, competition among buyers, and good Marketing Arrangements Used by Louisiana Cattle Producers Jeffrey Gillespie, Aydin Basarir, and Alvin Schupp; LSU Department of Agricultural Economics and Agribusiness information on animal value by buyers and sellers, this marketing method is efficient. Drawbacks of the conventional auction can be: (1) few buyers may be present on a particular day, reducing competition and, ultimately, prices; (2) animal value may be based more on perception than true value; (3) the price may be determined by buyers whose primary goal is to fill a truck to capacity rather than based on animal quality; (4) producers may not receive higher prices for unobservable added value, such as vaccinations or creep feeding; (5) commission fees are due to the sale facility; (6) transportation costs to and from the sale facility are incurred by the producer; (7) no sale may not be a reasonable option for the seller who has incurred significant expense in transporting animals to the auction; and (8) shrink occurs as the animal is hauled and kept at the auction prior to actual sale. With the video auction, animals are videotaped on the farm by an agent of the video firm. These videos are aired via cable TV to remote locations where buyers bid on the lots of animals based on the videos. Advantages of this method over the conventional auction are: (1) larger numbers of buyers may bid on the animals, increasing competition; (2) buyers purchasing cattle via video auction are generally more interested in specific animal types, and are more likely to pay premium prices to procure them; (3) commission fees are typically lower; and (4) since animals remain on the farm, the farmer can no sale if offers are inadequate, and actual shrinkage is minimal. However, a pencil shrink is usually assessed on animals sold via video markets. The two major disadvantages are the larger number of animals required to effectively sell via video auction 63

6 and the need to develop a reputation for producing high quality animals. Efficiency is gained via video auction if buyer preferences truly represent feedlot operator and packer preferences. With private treaty, cattle producers must offer enough animals for sale to attract the buyer. The buyer typically comes to the farm and purchases cattle on-site. As with video auction, buyers using this method are typically interested in specific and consistent animal types, and will pay premium prices for animals with these traits. Both generally result in more efficient pricing since they involve sellers and buyers who are interested in specific animal types. A potential drawback is that the producer needs to have a good knowledge of prices, value, and quality of his or her cattle. With private treaty sales, actual shrinkage is minimal and a sales commission is not charged. With internet marketing, producers generally photograph animals, place photos on a website, and invite potential buyers to view animals on the website. Sales can arise from the site itself or after the buyer personally views the animals. Advantages and drawbacks are generally similar to those for private treaty sales. Retained ownership involves the cowcalf producer owning cattle through the custom feedlot phase. The contract between the feedlot and cow-calf producer stipulates that the producer will be paid after the animals are marketed and slaughtered. This allows cow-calf or stocker producers the opportunity to increase average returns, though profitability associated with this option varies from year to year. Producers generally receive prices that reflect carcass quality. Thus, production decisions to improve carcass quality lead to higher prices. Cattle producers have formed or joined strategic alliances with other producers for a number of reasons, though the desire for higher prices is probably the most important reason. Strategic alliances are typically structured such that animals are sold in large lots, resulting in higher prices to all producers involved. Experimental Approach Information on the use of marketing methods by Louisiana cattle producers was collected using a mail survey conducted during Summer, A total of 1,472 Louisiana producers were surveyed, with 25% going to each of the following size categories: 1-19 animals, animals, animals, and 100 or greater animals. The final response rate for the survey was 36%. A binomial logit analysis was used to describe the types of producers most likely to use each of the marketing methods. The analysis examined the effect of the following variables on the type of marketing method used: number of animals on the farm, whether stockers were produced, the number of farm enterprises other than beef, the producer s age, whether the producer held a college bachelor s degree, the number of contacts with extension service agents over the past year, percentage of income from an off-farm job, the weaning weight of calves sold, the percentage of cows in the operation that were purebred, and the number of vaccines administered prior to calves being sold. Results and Discussion Table 1 provides percentages of producers using each of the marketing methods, by size category. The vast majority of producers continue to use the conventional auction to market at least some of their cattle, 64

7 with 91% reporting using the conventional auction. Only 3% used video auction, though 17% of the larger producers used it. Twentysix percent of the producers used private treaty sales for at least some of their cattle. Purebred producers are likely to use this method of marketing their cattle. This likely explains the rather high percentage of smaller producers using it. Retained ownership was used by only 7% of the producers, and strategic alliances were used by 14% of the producers. The reader should note the greater prevalence of strategic alliance use by larger producers. Only about 1% of the producers used internet marketing. Overall, 39% of producers used a marketing method other than conventional auction for at least a portion of their cattle. Schmitz, Moss, and Schmitz found that, in the top 15 cow-calf producing states in 2002, 66% of stocker cattle were marketed via the conventional auction, 11% were sold via video auction, 19% were sold via private treaty, and 5% were marketed via the internet. These numbers are not, however, directly comparable to the sample numbers since Table 1 deals with percentages of producers using the methods of marketing, while theirs deal with percentages of animals sold via each method. Binomial logit analyses provided some interesting insights. Producers who raised fewer purebred animals and/or received a higher portion of their income from off-farm sources were more likely to utilize the conventional auction for sale of animals. Producers who administered more vaccinations, had heavier calf weaning weights, were larger (more animals), and/or had a lower percentage of purebred animals in their herds were more likely to utilize video auction marketing. These results suggest that the larger, better-managed commercial operations use the video auction. Producers who raised more purebred animals, had heavier calf weaning weights, were less specialized, were younger, held a college degree, and/or had greater contact with extension service personnel were more likely to use private treaty sales. These results suggest that better managed and/or purebred producers use private treaty sales. Producers who had greater contact with county agents and/or were younger were more likely to retain ownership of calves. Producers who had a higher percentage of purebred animals, did not hold a college degree, and/or had greater contact with extension personnel were more likely to join strategic alliances or cooperatives. Discussion Results of this study underscore the widespread use of the conventional auction for marketing cattle in Louisiana. This result was expected since the conventional auction is useful for most types of animals, and since most producers in Louisiana are relatively small in terms of numbers of animals sold. Results show the popularity of private treaty and retained ownership among younger producers, whereas older producers were generally more traditional in their marketing practices. These results would suggest that newcomers to the industry will be more interested in alternative marketing methods. Results may also indicate the use of alternative marketing methods by producers who tend to avoid risk. This is indicated by the fact that the more diversified producers (who tend to be more risk averse) were more likely to adopt alternative marketing methods. This is as expected since, in some respects, video auction and private treaty sales tend to reduce risk. On the other hand, those who had off-farm jobs were more likely to use conventional auctions, 65

8 perhaps due to having less time to assess alternative markets. Results show the impact of extension personnel in aiding producers to develop marketing programs that are most suitable to their operations. It is of interest that a diverse set of marketing practices are used by many of the producers, depending upon animal type. The calf-to-carcass program, along with educational efforts directed toward various beef strategic alliances through extension agents, appear to be effective in helping producers market their calves. Literature Cited Gillespie, J.M., A. Basarir, and A. Schupp. Beef Producer Choice in Cattle Marketing. Journal of Agribusiness 22,2(Fall, 2004): Schmitz, T.G., C.B. Moss, and A. Schmitz. Marketing Channels Compete for U.S. Stocker Cattle. Journal of Agribusiness 21,2(Fall, 2003): Table 1. Percentages of Producers Using Alternative Marketing Practices. Strategic Size Conventional Video Private Retained Alliance or Category Auction Auction Treaty Ownership Cooperative 1-19 animals animals animals animals Population % Note: Totals exceed 100% due to multiple uses of market types by individual producers. 66

9 Factors Influencing the Adoption of Beef Cattle Best Management Practices Seon-Ae Kim, Jeffrey M. Gillespie, and Krishna P. Paudel; LSU Department of Agricultural Economics and Agribusiness Findings The adoption rates of beef cattle production BMPs ranged from 19 to 75 percent. Farmers engaged in more crop and other livestock enterprises are more likely to adopt BMPs targeting erosion and sediment control. Having contact with NRCS at least once a year had a positive impact on the adoption of cattle production BMPs. Older and college-educated producers with a greater percentage of income from cattle were more likely to adopt BMPs. Introduction Control of non-point source pollutants from pasture-based cow-calf production may have been less scrutinized historically because it does not typically involve extensive confinement facilities, unlike feedlots in most dairy, swine and poultry operations. The emphases to control pollution from these sources are, however, evolving. Despite its relatively lower historical emphasis, nonpoint source pollution originating from crops and pasture-based livestock production has been identified as the major source of U.S. water quality problems, as indicated by the U.S. Environmental Protection Agency (USEPA, 2003). The major method for reducing nonpoint source pollution in agriculture is for farmers to voluntary adopt best management practices (BMPs). BMPs are conservation practices that reduce air and water pollutants. Louisiana beef cattle farms are generally characterized as small, pasture-based operations. More than 80 percent of its beef cattle farms have fewer than 50 cattle, accounting for around 35 percent of the total number of cattle in the state (NASS, 2004). Though the industry has many small farms, beef cattle production is the second largest animal production enterprise in total value in the state (Louisiana State University Agricultural Center, 2002). Understanding BMP adoption behavior of Louisiana farmers is of value in designing effective policies to improve water quality. Understanding the factors affecting BMP adoption helps to determine which practices can be designed for a given location to meet water quality goals in the most cost effective manner. Experimental Approach This study uses survey data collected from Louisiana cattle producers. Farmers were asked whether they are currently using 16 BMPs recommended by USDA/Natural Resource Conservation Service and the Louisiana State University Agricultural Center. Descriptions of BMPs recommended for cattle production can be found in Louisiana State University Agricultural Center publication no The 16 BMPs are grouped into three categories: 1) erosion and sediment control practices, 2) grazing management, and 3) mortality, nutrient and pesticide management. The survey was conducted during July- September, The National Agricultural Statistics Service drew the sample. A pretest was conducted with 200 farms and the main sample included 1,500 farms. The sample was stratified by the number of beef animals on the 67

10 farm. The size categories sampled were 1-19, 20-49, 50-99, and more than 100 animals, and they constituted 26.7 percent, 23.3 percent, 23.3 percent, and 26.7 percent of the sample, respectively. The response rate was 41 percent. A probit model was used to determine the factors affecting BMP adoption by cattle producers. The factors considered in the analysis include the following five categories of characteristics:1) farm type, 2) information availability, 3) land type, 4) farmer attitudes and perspectives, and 5) financial situation. Results and Discussion Table 1 provides weighted estimated adoption rates of BMPs in Louisiana beef cattle production. The weighting adjusts according to differences in the number of operations in the stratified sample, as larger farms were over-sampled and smaller farms were under-sampled. More than 480 farms are included for each BMP. For erosion and sediment control practices, the adoption rates range from 19 to 31 percent; for grazing management practices, 57 to 75 percent; and for Mortality, Nutrient, Pesticide Management practices, 53 to 65 percent. Water facility was the most widely adopted BMP, while regulating water in a drainage system was the least adopted BMP. Overall, adoption rates for beef cattle producers (19 to 75 percent) are relatively lower than other enterprises in Louisiana. For example, in Louisiana sugarcane production, the adoption rates range from 31 to 92 percent (Zhong, 2003), and for Louisiana dairy production, 28 to 77 percent (Rahelizatovo, 2004). This suggests a potentially significant role of increased educational and monetary incentive programs to increase BMP adoption. Probit analyses show the importance of farm type on the adoption of BMPs in cattle production. Diversified farmers were more likely to adopt BMPs targeting erosion and sediment control. This is likely because BMP adoption benefits not only the cattle enterprise, but also crop and/or other livestock enterprises. Purebred producers were more likely to adopt BMPs, while stocker producers were less likely to adopt. As expected, producers who owned their land were more likely to adopt BMPs than those who rented. Surprisingly, cattle operation size had little impact on BMP adoption and, in fact, had a negative influence on some BMPs. These results suggest that BMP educational programs should be targeted toward single-enterprise, commercial operations that raise a greater number of stockers. Economic incentives could be provided to encourage land renters to adopt BMPs, as they currently have little incentive to invest in capital intensive conservation practices whose long-run benefits accrue mainly to the owner. Alternatively, land owners could be educated about BMPs and encouraged to include provisions in leases that specify the use of BMPs. In the case of cattle producers, any perception that the smaller producers should be specifically targeted due to non-adoption should be dispelled. Information and the ability to process it have significant influences on BMP adoption. Having contact with NRCS at least once a year positively impacted adoption. Having contact with LCES at least four times a year had mostly positive impacts on BMP adoption. Given these results, as well as those found for other enterprises (e.g., Rahelizatovo, 2002, and Zhong, 2003), it appears that further resources devoted to educating producers about BMPs could be highly effective in improving adoption rates. Likewise, college-educated producers were more likely to have adopted BMPs. Therefore, efforts by NRCS and LCES 68

11 to address BMP adoption should not be limited to currently well-managed farms of more highly educated producers. Land characteristics had significant impacts on BMP adoption. The impact of having a stream or river running through the farm had mixed results. In models for Water Facility and Rotational Grazing, the variable had negatively significant signs. For models, Riparian Forest Buffer and Streambank and Shoreline Protection, it had expected positively significant signs. A stream or river running through a pasture appears to be an impediment to adoption of rotational grazing. In cases where a stream ran through the farm, installation of water troughs or tanks was less likely. Having hilly land for the beef cattle operation was significantly associated with increased adoption of BMPs, all of which belong to the erosion and sediment control practices category. Being located in South Louisiana was associated with increased adoption of four BMPs, as Southern Louisiana land is generally low and close to water sources. Farmer attitudes and perspectives influence BMP adoption decisions. Surprisingly, older producers were the greater adopters of BMPs, likely due to the fact that most of the BMPs have been promoted for a number of years, and many of the older producers are retired from other careers with greater time to devote to the cattle operation. This situation is likely unique to cattle production few other agricultural enterprises would be entered into or continued into retirement. Risk averse producers were less likely to adopt several BMPs. This suggests that cattle producers view the adoption of BMPs as risky. This is particularly true for rotational grazing, which involves greater cost and increased management. Greater information would help risk averse producers to make better-informed decisions. Financial situation influenced farmers adoption decisions, as those with greater financial resources were more likely to adopt BMPs. As the percentage of income from the cattle operation increased, the likelihood of BMP adoption was greater for six BMPs. This suggests the need to continue providing economic assistance for adoption through programs such as the Environmental Quality Incentives Program and, furthermore, to better inform producers of program availability. References Cited Louisiana State University Agricultural Center (LSUAC). Beef Production Best Management Practices (BMPs). Publication 2884, Baton Rouge, Louisiana, LSUAC, Louisiana State University Agricultural Center (LSUAC). Louisiana Summary-Agriculture and Natural Resources. Baton Rouge, Louisiana, LSUAC, Rahelizatovo, Noro C. Adoption of Best Management Practices in the Louisiana Dairy Industry. Ph.D. Dissertation, Louisiana State University, Baton Rouge, Louisiana, December Rahelizatovo, Noro C. and Jeffrey M. Gillespie. The Adoption of Best-Management Practices by Louisiana Dairy Producers. Journal of Agricultural and Applied Economics 36 (2004) USDA, National Agricultural Statistics Service (NASS), Census of Agriculture 2002, Washington, D.C., USEPA. Clean Water Act, Laws and Regulations, ( 69

12 Zhong, Ying. Economic Analysis of the Best Management Practices (BMPs) in Louisiana Sugarcane Production. M.S. Thesis. Louisiana State University, Baton Rouge, Louisiana. December Table 1. Beef Cattle Producers Adoption Rates of BMPs, Percentages. Practices I. Erosion and Sediment Control Practices Cover and Green Manure Crop (23%) Critical Area Planting (25%) Field Borders and Filter Strips (28%) Grassed Waterways (24%) Heavy Use Area Protection (31%) Livestock Exclusion (25%) Regulating Water (19%) Riparian Forest Buffer (21%) Streambank and Shoreline Protection (24%) II. Grazing Management Fence (65%) Water Facility (75%) Continuous Prescribed Grazing (67%) Rotational Grazing (57%) III. Mortality, Nutrient, Pesticide Management Mortality Management (65%) Nutrient Management (53%) Pesticide Management (61%) 70

13 Strategic Alliances in the U.S. Beef Industry Jeffrey Gillespie, Angel Bu, and Robert Boucher; LSU Department of Agricultural Economics and Agribusiness Findings Strategic alliances serve to reduce a number of transaction costs to producers. Strategic alliances report higher cattle prices than can be received by independent producers. Strategic alliances provide mechanisms for efficient information transfer. Introduction The U.S. beef industry has traditionally produced a product that could more accurately be described as a commodity than a branded, differentiated product. This situation is slowly changing. Through greater vertical coordination, the industry is evolving towards providing a broader range of products that meet consumers diverse demands. Industry coordination among producers and various industry segments has increased through strategic alliances. While no typical alliance structure exists in the beef industry, most involve cattle producers devising strategies through which they can collectively market cattle at higher prices than they could receive outside the alliance. This often entails the producer vertically coordinating with downstream segments. The objective of this study is to compare the structures of strategic alliances in the beef industry. Beef strategic alliances are identified with structures useful to Louisiana producers, and are compared and contrasted. Experimental Approach Case study analyses of strategic alliances were conducted. Case studies are useful when there are only a few entities to be examined, disallowing statistical inference. Interviews were used to collect data on production, economic, performance, and marketing characteristics. The six alliances selected were chosen based on their proximity to the Southern U.S. and acceptance of Bos indicus genetics. Two commercial beef carcass, one natural / implant free, and three calf marketing alliances were interviewed. Personal interviews were conducted by applying the questionnaire and tape recording interviews. After each interview, data were compiled and written as transcripts. Post-interview communications with the strategic alliance heads were established to validate interview content. Strategic alliances are described, compared, and contrasted. Calf Marketing Alliance #1 (CMA1) CMA1 was formed in 1999 by 23 cowcalf producers with a goal of marketing cattle at higher prices. Prior to its formation, the individuals did not have enough calves to sell truck load lots. Unless they pooled with other producers, the only marketing option was conventional auction. Through pooling, truck loads could be sold, allowing video auction and private treaty sales, both of which the Alliance has utilized. The Alliance requires that producers use Angus bulls. It generally advertises calves as ½ Angus and ¼ Brahman. Bulls are purchased together to increase calf uniformity. Over 700 cows are dedicated to the Alliance. 71

14 Producers raise calves to be shipped in August. Different contracts specify different calf weights. All calves are weighed in June and their projected August weights determine the load in which they will fit. A required breeding season has allowed for improved marketing due to synchronization. The Alliance requires specific vaccinations, knife castration (males), implants, worming and dehorning. Producers learn in Alliance workshops how to work calves. Enforcement is internal, as producers are involved in working other members animals. Given the reduced dependence on conventional auctions, producers have reduced commissions and other associated marketing costs. Transportation cost is paid by the buyer. The Alliance has sold mainly via private treaty, generally resulting in higher prices. Alliance members have purchased some inputs in bulk, resulting in lower input prices. The Alliance consists of a chairman, treasurer, and purchasing agent, all Alliance members. There are no Alliance employees. Members meet bimonthly, on an as needed basis. Decisions are made in a democratic manner. A $50 initial membership fee helps to cover operational expenses. Calf Marketing Alliance #2 (CMA2) CMA2 was formed by a statewide farm input supply cooperative and the livestock division of a farmer advocacy organization. The cooperative, coordinates the Alliance. The Alliance also uses resources from a land grant university, its state department of agriculture, and the state s cattlemen s association. Other members include four animal health input firms and a credit division that provides 60- day interest-free loans to members. Formed in 2001, the Alliance involves about 350 cow-calf producers using a preconditioning program, including nutritional and health programs, and BQA procedures. Alliance operations are conducted using existing cooperative employees. The cooperative sells more products and producers group truckloads of preconditioned calves to be sold at higher prices than by selling on their own. Stockyard personnel group calves into uniform weights to yield as many thousand lbs loads as can be presented for sale. Meetings among Alliance members are informal, but members frequently communicate. A per head marketing fee is charged to producers. Producers may enroll at any cooperative store, and must agree to follow Alliance requirements. Animal health record keeping forms are provided. These records go with the cattle to market. Buyers purchase cattle from the Alliance based on its program assurance. CMA2 has a U.S. patented trademark. Marketing agencies with whom the Alliance works have standard commission fees charged to producers. Farmers pay transportation costs. Producer payment is issued through the cooperating conventional auction. Cattle Marketing Association #3 (CMA3) CMA3 was formed in 1994 with 21 cow-calf producers. The Alliance is involved in calf production, followed by preconditioning the calves over a 45-day period. The Alliance was formed to help producers raise better quality animals that would command higher prices. It receives assistance in selling calves from the owner of a local stockyard. The President of the Alliance keeps in close contact with all stakeholders. Buyers communicate with him to describe calves and, if purchased, sort to buyer specifications. The Alliance is self-funded by a marketing fee. For a new member to join the Alliance, he or she must follow the health program; produce quality, uniform calves; have a minimum of 20 head; be BQA certified; and meet the approval of a designated 72

15 committee. Alliance meetings are held to discuss health and economic issues. Since 1994, the Alliance has held an annual Thursday night sale. The sale entails a conference call with 6 private lines. Within 30 minutes, generally about 2,000 calves are sold. The Alliance uses internet marketing. Alliance members benefit also due to the low shrink incurred. The Alliance charges a per-head marketing fee. In cases where producers desire carcass information on calves upon slaughter, an additional fee is charged. The Alliance handled 1,975 calves in By forming the Alliance, producers have been able to reduce commission fees to 1.5%. Buyers are responsible for transportation costs. Alliance calves generally command relatively high prices due to Alliance standards. Commercial Beef Carcass Alliance #1 (CBCA1) CBCA1 was established in It involves feeder, stocker, and cow-calf production, and meat packing. The main objectives are to obtain top quality cattle to fill packer demand, and to negotiate higher prices for Alliance cattle. An exclusive carcass grid designed for high quality cattle is used. It is considered capable of efficiently sending economic indicators to producers, so the Alliance avoids requiring specific production practices. About 140 feedlots and 1,300 to 1,400 cow-calf producers are involved. The Alliance works with 3 packing plants. Some cow-calf Alliance producers retain ownership of animals to slaughter. These producers obtain all carcass data. Some feedlots purchase calves and then provide the production and carcass data to the cow-calf producers for a fee. Alliance members benefit from grid access and receipt of carcass data. The Alliance sends letters to the membership dealing with Alliance program performance. Members may work together when assembling truckloads. An office administrator handles carcass data and a hired manager runs the Alliance. Members pay Alliance fees on a per-head basis. Opportunities to market specific breeds through CBCA1 began with Angus cattle. Production and management practices are handled individually by producers. Producers fill out forms for each animal sold, including information on implants, vaccinations, and other medication. The Alliance collects as much information as possible. Commission fees are avoided via CBCA1. According to the manager, the grid allows producers to obtain higher prices. Commercial Beef Carcass Alliance #2 (CBCA2) CBCA2 is a division of a multinational agribusiness firm, formed with feedlots and cow-calf producers in CBCA2 operates 4 feedlots, coordinates with about 225 cowcalf producers, and is allied with a packer. It promotes improved cattle quality in its feedlots, better product quality for the packer, and an alternative market for producers. CBCA2 realized the need to provide feedback to cow-calf producers in order to obtain top quality cattle. This was done via a grid. CBCA2 is not a retained ownership program. The Alliance employs about 20 people, including an administrator, fieldmen and feedlot employees. Buyers are paid commission on cattle purchased. The primary benefit to cow-calf producers is to receive production and carcass data on cattle. At purchase, an agreement establishes how cattle will be evaluated. Most of the communication between the Alliance and members is through the buyers. The Alliance publishes newsletters and meets with groups of producers annually. For cattle closeouts, there is a conference call between the buyer, producer, and administrator to interpret data. Most members ship >300 calves annually, though some 73

16 smaller producers ship as co-mingled groups. Most decisions are left to producers, though the Alliance advises on management practices. All calves follow a specific post-weaning vaccination programs. Cattle must be within certain breed parameters. Producers must follow Beef Quality Assurance (BQA) guidelines. Detailed records are required. CBCA2 buys cattle at market prices and then pays premiums to producers based on having the top performing 1/3 of cattle at slaughter. CBCA2 participates in branding programs. CBCA2 pays a contractor to collect individual animal data, and charges a per head fee to the producers who purchase it. Transportation costs to the feedlots are paid by CBCA2. Natural / Implant Free Alliance (NIFA) NIFA was formed with two feedlots, 150 cow-calf producers, and a packing plant. There was a perceived need to improve production practices to increase consistency in beef quality. The packing plant was built in Its association with feedlots began in the early 1990s, when cow-calf producers became involved. In 1996, cow-calf producers began retaining ownership of cattle. Cow-calf members meet at least once a year and are encouraged to visit the plant when their cattle are slaughtered. As a retained ownership program, producers incur all costs until cattle are slaughtered. Some specific requirements are: cattle must never have been implanted or exposed to antibiotics and must go through a specific post-weaning vaccination program. Since natural beef is being sold, thorough records must be provided to the packer. NIFA created a branded, natural beef product. Producers receive carcass data from the plant on each animal sold, and are able to analyze the quality of their animals. No specific breed is required, but premiums are paid for Angus cattle. NIFA has worked with producers in educational programs, providing carcass information, genetic advice, and site visits. No data or commission fees are charged. The head of the Alliance states that Alliance producers receive higher cattle prices than do those producing similar quality cattle for sale to other outlets. Newsletters are printed and there is extensive advising of producers. Comparing and Contrasting Strategic Alliance Structures The alliances are compared with respect to transaction costs, capital availability, information flow, use of alternative market outlets, and production characteristics. For each alliance, some costs were reduced relative to the independent producer. The three calf marketing alliances purchase some inputs in bulk, allowing members to buy at lower prices. CMA2 also provided shortterm interest-free loans. Commission fees were reduced or eliminated in all strategic alliances except for CMA2. For most of the other alliances, a flat per-animal fee was charged. Shrinkage, insurance and feed costs associated with the conventional auction are other transaction costs that may be reduced. Collection of product / price information can result in significant cost to producers, as search is conducted to identify characteristics leading to higher prices. The commercial beef carcass and natural / implant-free strategic alliances use grid formulae to transfer information, issuing payments according to how carcasses grade. CMA3 members may also obtain carcass information. Information is spread among members through frequent communication. It is shared through both formal (e.g., newsletters) and informal (e.g., producers working together) means. Producer 74

17 transportation costs appear to be lower for most of the alliances, as buyers pay for transportation. All alliance heads reported that their members received higher prices for cattle due to selling animals of specific breeds and/or production requirements. This has increased the marketing options available to the producers. Involvement in the cow-calf phase in each of the alliances began within the past 12 years. Thus, these strategic alliances are relatively new to the industry. No employees are specifically hired to manage 5 of the alliances. The alliances vary greatly in terms of volume and phases of production handled. The calf marketing alliances are focused on cow-calf production with smaller quantities of cattle while the commercial beef carcass and natural / implant-free alliances are more formally coordinated with downstream phases of production. 75