#Pfc Division of Ag ricultural Sciences % \ ;* ] UNIVERSITY OF CALIFORNIA ^-hs«£ } ECONOMIC STRUCTURE OF CATTLE SLAUGHTERING IN THE WESTERN UNITED STATES S. H. Logan CALIFORNIA AGRICULTURAL EXPERIMENT STATION BULLETIN 836 This bulletin is a report on one phase of Western Regional Livestock Marketing Proj- ect WM-48, Livestock Marketing Efficiency and Pricing in the West. The project is conducted jointly by the Experiment Stations and the U.S. Department of Agricul- ture Economic Research Service. The Technical Committee membership at the time the bulletin was written was as follows: State or Committee Governmental Member Agency Arizona T. Stubblefield California S. H. Logan, G. A. King Colorado A. Madsen Hawaii A. B. Larsen Idaho G. Marousek Montana J. Davidson, C. Harston Nevada J. Malone New Mexico C. Greene, W. Stephens Utah E. Lamborn Washington W. Rehberg Wyoming R. Ehrich USDA W. C. Motes G. Smith W. Capener USDA Coordinator H. Abel Regional Administrative Advisor ... M. Buchanan Under procedure for cooperative publications, this regional report becomes in effect an identical publication of each of the cooperating agencies, and is mailed under the frank and indicia of each. JANUARY, 1968 THE AUTHOR Samuel H. Logan is Associate Professor of Agricultural Economics and Associate Agricultural Economist in the Experiment Station and on the Giannini Foundation, University of California, Davis. CONTENTS Introduction 3 Growth of slaughtering in the West 3 Number, size, and location of slaughtering plants 5 Concentration of production 7 Location of slaughtering 9 Plant operations 9 Diversification 12 Federal grading 13 Costs of slaughtering and size of plant 14 Integration 16 Source of slaughter animals 17 Summary and conclusions 20 Literature cited 22 Appendix tables 24 ECONOMIC STRUCTURE OF CATTLE SLAUGHTERING IN THE WESTERN UNITED STATES 1 INTRODUCTION The' term "structural elements" as applied to an industry generally refers to its or- ganizational characteristics and to the physical or institutional setting, or both, in which firms make decisions (Bain, 1959). 2 These elements include such fac- tors as number, size and location of firms, concentration of market sales or output by the largest firms, degree of product differentiation, and degree of integration within firms. Although market structure does not de- termine the competitive nature of an in- dustry, it does provide the setting in which the market operates and thus af- fects the industry's performance. For ex- ample, a large number of small slaughter plants, no one of which controls a signifi- cant portion of total market production or sales, does not assure pure competi- tion — but complete collusion among them to allocate livestock, markets, and to agree on prices becomes considerably more dif- ficult than if there were only a few firms. This study concerns structural compo- nents of the cattle-slaughtering industry in the western United States. The western region includes Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada, Washington, Ore- gon, and California. Because Texas sup- plies large quantities of feeder and slaugh- ter cattle to the western region, it will also be included. Hawaii is relatively in- dependent of the remainder of the west- ern region, so it is not discussed. The analysis focuses on cattle and calf slaughtering, with little emphasis on as- sociated processing operations other than their relations to integrated slaughter op- erations. The objective of the study is to determine patterns and trends in the or- ganizational and growth characteristics of cattle slaughtering in the West. A brief description of growth of cattle slaughter- ing in the West will be followed by a more detailed consideration of number, size and location of slaughter plants, and the internal operations (such as integra- tion and diversification) of these plants. 3 GROWTH OF SLAUGHTERING IN THE WEST Cattle slaughtering (which hereafter will include calves) in the western region has for the last 15 years expanded at a faster rate than for the United States as a whole. In 1950, the combined commercial cattle and calf slaughter in the above 12 states totaled 5,338,600 head, and by 1965 had jumped 89 per cent to 10,097,400 head. For the entire country (48 states), the in- crease during the same time was 36.6 per cent (U. S. Department of Agriculture, Statistical Reporting Service, 1963, 1966k). There are several reasons for increased production by western slaughter plants. The population of the United States has 1 Submitted for publication July 5, 1967. 2 See "Literature Cited" for publications referred to in the text by author and date. 8 Detailed analysis of number, size, and location factors is on a "plant" basis rather than a "firm" level. Multiple-plant operations in cattle slaughtering are not usually of major importance in the region other than for large national packers. For most purposes, plant designation is synonymous with the firm. [3] shifted toward the West Coast, and this has increased demand for dressed beef there. Simultaneously, there has been an- other change which has aided growth of slaughtering in the West: slaughter plants formerly were located in metropolitan areas near terminal markets and railroad centers but now have moved toward areas where the animals are produced. Development of refrigerated trucking has also facilitated shipment of dressed meat, which is only about two-thirds of the weight of the live animal. In addition, commercial drylot cattle feeding has de- veloped on a larger scale in the West at a faster rate than in the Midwest. Such feeding activity provides a supply of slaughter animals relatively close at hand and in large numbers for meat packers. Technology has taken on a new ap- pearance along with growth in output. The number of plants processing the in- creased number of animals has declined, giving larger output per plant, and methods of slaughtering have changed to more automated operations yielding better labor efficiency Increase in slaughter has occurred throughout all the states (table 1). The largest relative in- crease was in New Mexico, where 1965 slaughter was 512 per cent of the 1950 production. The largest absolute increase occurred in California with the 1965 out- put 1,446,000 head over that of 1950. If total slaughter figures are considered in terms of cattle and calves, a different picture emerges. Calf slaughter decreased by 31 per cent (467,800 head) in the 12- state area, while cattle slaughter rose by nearly 137 per cent (5,226,600). This change reflects in part the shift to com- mercial feedlot finishing as well as de- creased dairy cow numbers. Although 1950 data on marketings of cattle from feedlots are not available, growth in com- mercial feeding activity is evident from recent figures. In the 12 western states, marketings from feedlots in 1965 reached 6,466,000 cattle and calves, up about 41 per cent from the 1961 level (table 2). Texas showed the greatest relative growth during that 4-year interval, with the 1965 marketings nearly double the 1961 figure. Table 1 CATTLE AND CALF SLAUGHTER, 1950, 1965 State Montana. Idaho. . . . Wyoming Colorado. New- Mexico . Arizona . Utah Nevada. . Washing- ton Oregon California Texas Total . . Cattle and calf slaughter 1950 1965 Increased slaughter 1,000 head 67.8 94.2 9.4 530.6 46.6 81.0 130.2 24.7 363.0 273.1 1,945.0 1,773.0 5,338.6 221.4 286.7 24.9 1,433.6 238.6 247.0 300.4 28.0 589.9 358.9 3,391.0 2,977.0 10,097.4 153.6 192.5 15.5 903.0 192.0 166.0 170.2 3.3 226.8 85.8 1,446.0 1,204.0 4,758.8 1965 as per cent of 1950 per cent 326.5 304.4 264.9 270.2 512.0 304.9 230.7 113.3 162.5 131.4 174.3 167.9 189.1 Table 2 MARKETINGS OF CATTLE AND CALVES FROM FEEDLOTS, 1961 AND 1965 State Marketings Increased market- ings 1965 as 1961 1965 per cent of 1961 1,000 head per cent Montana.. . Idaho Wyoming. . Colorado.. . New Mexico. . . Arizona. . . Utah Nevada. . . . Washing- ton Oregon California. . Texas 113 234 74 794 99 514 109 37 247 130 1,701 548 141 272 62 1,144 173 650 125 50 306 167 2,282 1,094 28 38 -12 350 74 136 16 13 59 37 581 546 124.7 116.2 83.8 144.1 174.7 126.4 114.7 135.1 123.9 128.5 134.2 199.6 Total.. 4,600 6,466 1,866 140.6 Source: U. S. Department of Agriculture, Statistical Reporting Service, [1963, 19666]. Source: U. S. Department of Agriculture, [1967] and U. S. Department of Agriculture, Statistical Report- ing Service [1966a], 4] Table 3 ESTIMATED CONSUMPTION AND PRODUCTION OF BEEF, 1965 State Population on July 1, 1965 Consumption of dressed beef Production of dressed beef Surplus or deficit production persons 703,000 693,000 330,000 1,949,000 1,014,000 1,575,000 994,000 434,000 2,973,000 1,938,000 18,403,000 10,591,000 1,000 pounds 95,608 94,248 44,880 265,064 137,904 214,200 135,184 59,024 404,328 263,568 2,502,808 1,440,376 128,126 166,353 14,130 831,726 129,235 127,276 171,027 15,196 333,314 192,829 1,799,799 1,386,975 + 32,518 Idaho + 72,105 Wyoming - 30,750 +566,662 - 8,669 New Mexico - 86,924 Utah + 35,843 Nevada Washington - 43,828 - 71,014 Oregon - 70,739 California Texas -703,009 - 53,401 Total 41,597,000 5,657,192 5,295,986 -361,206 Source: Col. 1. U. S. Bureau of the Census [1966]. Col. 2. Col. 1 times 136 pounds per person. The latter is estimated as 130 per cent of United States per capita beef and veal consumption of 104.8 pounds in 1965, U. S. Department of Agriculture Statistical Report- ing Service. [19666]. Col. 3. Cattle and calf slaughter in 1965 multiplied by average live weight of cattle and calves slaughtered in each state times the dressing percentage of 57.2 per cent and 55.8 per cent for cattle and calves, respectively. U. S. Department of Agriculture, Statistical Reporting Service. [19666]. Col. 4. Col. 3 minus col. 2. Despite increased feeding and slaugh- tering in the western region, the area remains a deficit region with respect to dressed beef (table 3). In 1965, produc- tion of dressed beef, including veal, was about 93 per cent of estimated consump- tion. Consumption of beef in the region (excluding Texas) in 1955 averaged about 130 per cent of the national level [U. S. Department of Agriculture, Agricultural Marketing Service, 1960a]. This figure closely approximates a consumption level for California derived by Hopkin and Kramer [1965], and it was used herein to estimate consumption in individual states for 1965. Production-consumption data show that Idaho, Montana, Colo- rado, and Utah were beef-surplus states; the other eight states did not slaughter enough cattle to satisfy consumer de- mands. Although California ranks second nationally in cattle slaughtering, it reg- istered the largest deficit (703,009,000 pounds) in the region. NUMBER, SIZE, AND LOCATION OF SLAUGHTERING PLANTS Although there is slaughtering activity in all 12 western states, 76 per cent of the region's total production is accounted for by California, Texas, and Colorado (table 1). These states contain the most people and are also major production centers for fat cattle. The number of slaughter plants in the region is more dispersed among the 12 states than is the slaughter; however, California and Texas possess nearly 50 per cent of the plants slaughtering more than 300,000 pounds live weight (approximately 300 head) an- nually. The other plants are scattered over all other states. During the past decade the number of plants slaughtering cattle and calves has dropped from 684 in 1955 to 642 in [5] Table 4 NUMBER OF PLANTS SLAUGH- TERING CATTLE* State Plants slaughter- ing assorted livestock Plants slaughter- ing cattle and calves only 1965 1960 1955 1965 1960 1955 Arizona 18 109 43 53 33 3 19 57 209 29 61 8 642 17 117 43 55 32 5 23 55 219 26 73 10 675 13 131 40 34 32 6 18 63 218 30 88 11 684 4 39 10 2 1 3 33 8 100 2 26 8 1 2 1 3 19 5 5 72 California Colorado 22 7 o Montana Nevada New Mexico .... Oregon Texas 3 2 4 23 Utah 1 Washington Wyoming Total 5 67 * Includes only plants with annual output of 300,000 pounds or more live weight. Includes plants killing other species in addition to cattle. Source: U. S. Department of Agriculture, Agricul- tural Marketing Service, [19606] and U. S. Department of Agriculture, Statistical Reporting Service [1965]. 1965. Table 4 shows the number of com- mercial plants (with output per year of more than 300,000 pounds live weight) for each of the 12 states. Texas and Cali- fornia registered decreases in number of plants slaughtering cattle and calves, but the other major slaughtering state, Colo- rado, had a slight increase during the 10- year period. Idaho had the largest growth, with plants increasing from 34 in 1955 to 53 in 1965. Washington had the largest drop, from 88 in 1955 to 61 in 1965. Table 4 shows that specialized cattle- and calf-slaughtering plants have increased by about 50 per cent since 1955. California and Texas, which reg- istered decreases in the total number of plants slaughtering cattle, led the in- crease in specialized killing. The above plants have annual outputs of more than 300,000 pounds live weight. Many smaller plants are found in most states, and many of them operate as locker plants, slaughtering their own finished cattle or custom slaughtering for other producers. The importance of these small plants in terms of numbers of plants is indicated in table 5. In this table, and for most purposes hereafter, the western region has been divided into subareas to prevent disclosure of information about individual plants. In some cases, the seven size groups (slaughter categories) utilized in table 5 have been combined for the same reason. A total of 1,401 plants were reported for 1962 in the 12-state area. Of these, 1,159 (83 per cent) slaughtered less than 5,000 head per year. The large propor- tion of small plants is evident in all states to some degree; Texas had the highest absolute number of small plants as well Table 5 SIZE DISTRIBUTION OF PLANTS SLAUGHTERING CATTLE, 1962 Number of plants in each slaughter category Area 0-5, 000 head 5.000- 10,000 10,000- 20,000 20,000- 30,000 30,000- 40,000 40,000- 50,000 50,000 or more Total California 38 138 143 93 707 40 10 15 6 6 16 5* 17 6 5 7 14 15 5 3t 3 12 7t 13 5 5§ 5 14 2 5 17 13 11 124 171 157 Nevada-New Mexico- 114 Texas 772 63 * Plants slaughtered between 5,000 and 20,000 head. t These plants simply slaughtered more than 20,000 head and do not necessarily fall in this category. t Plants slaughtered between 20,000 and 50,000 head. § Plants slaughtered more than 30,000 head and do not necessarily fall into this category. Source: U. S. Department of Agriculture, Statistical Reporting Service, Livestock and Poultry Statistics Branch, unpublished figures. 6] as the largest percentage of plants falling in this category. California had only 38 small plants. Texas, California, and Colorado had nearly all of the plants slaughtering more than 50,000 head annually, with a com- bined total of 41 such establishments. Annual output in some of these plants reaches the neighborhood of 200,000 head. Concentration of Production Concentration within an industry is measured by the proportion of sales or production controlled by the largest firms. The reasoning behind this measurement is simply that if a small number of firms possesses the major share of the industry's output, the opportunity for collusive ac- tion or controlling the pricing mechanism, or both, is greater than if there is a large number of small firms, none of which con- trols a significant portion of industry out- put. Just what level of concentration (among, say, the four largest or ten larg- est firms) results in a departure from conditions of pure competition has never been definitely established. Bain [1959] and others have studied varying degrees of concentration among American indus- tries, but even with a few firms control- ling the industry one cannot say a priori that competition does not exist in that industry. Concentration figures can also be mis- leading if the market for which they are defined is inappropriate. For instance, national concentration figures showing no control by dominant firms may mean nothing in a regional or local situation in which one firm, which is small on a na- tional scale, effectively controls the mar- ket. Thus, concentration figures can be considered only as a guide as to whether or not the market setting is conducive to independent actions by firms in it. Limited data about concentration of cattle and calf slaughtering in the western region are available. Anthony [1966] di- vided the country into subareas and estimated concentration percentages for slaughtering under federal meat inspec- tion in these areas. The west coast region includes Washington, Oregon, and Cali- fornia; the mountain region includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico. Texas is omitted. Anthony sep- arated cattle and calf slaughter in the analysis. Because concentration figures are for federally-inspected slaughter only, they are higher than would be found for commercial slaughter as a whole and should be considered with this in mind. Anthony's figures are: Per cent of slaughter by: Four Ten largest largest firms* firms Cattle Mountain 1962 46.9 76.7 1950 47.4 83.3 West Coast 1962 19.0 34.9 1950 40.0 57.0 Calves Mountain 1962 62.7 91.8 1950 62.5 90.0 West Coast 1962 49.5 79.9 1950 59.8 76.4 * "Firms" designates business entities which may have more than one plant. These percentages are based on 35 firms in the mountain region and 73 firms in the west coast region slaughtering cat- tle under federal inspection in 1962, and 25 firms and 50 federally-inspected firms slaughtering calves for the mountain and west coast regions, respectively, in the same year. The larger firms control a larger mar- ket share in terms of both cattle and calves slaughtered in the mountain region than in the west coast area. Concentra- tion of cattle slaughtering declined in both regions between 1950 and 1962; but the decline was greater in the west coast region. This should not be inter- preted as indicating fewer large plants, as the growth of the market demand for finished product may exceed the rate at which the large companies are expand- ing. For example, the four largest slaughtering plants in California in 1964 [7] accounted for 13.6 per cent of total slaughter (includes nonfederally in- spected plants), with the eight largest slaughtering 23.4 per cent [Logan and King, 1966]. In 1962 the largest four plants had accounted for 14.5 per cent of total California cattle and calf slaughter, and the top eight had regis- tered 24.2 per cent. During the same pe- riod plants slaughtering more than 50,000 head annually in California increased from 18 to 25. Thus, although the number of large plants increased and output of existing large plants expanded, market demand for dressed beef grew enough to hold concentration levels relatively un- changed. Size breakdown and percentage of total slaughter accounted for by the various size groups in California are given in table 6. 4 There were 31 small plants in Califor- nia slaughtering less than 5,000 head per year. These plants, constituting 27.4 per cent of the state's total number, slaugh- tered only 1.2 per cent of the total kill in 1964. A similar situation was found in concentration levels in Nevada (Malone and Randall, 1963). Of 11 plants in that state, 5 slaughtered less than 2,000 animals annually, 4 killed between 2,000 and 12,000, and 2 slaughtered more than 12,000 animals, including species other than cattle. Small plants totaled only 7 per cent of the cattle slaughtered and 3 per cent of the calves, whereas the two larger plants killed 83 per cent of the cattle and 26 per cent of the calves. Texas was excluded from Anthony's figures, but a study by Dietrich, Wil- liams, and Miller [1963] indicates some- what more concentration of production in the largest firms there than there was in the west coast region, and less con- centration than in the mountain area with respect to cattle. Concentration of calf slaughtering in Texas was less than that found in either the west coast or moun- tain region. The Texas levels, based on 1959 slaughter, are: Per cent slaughter accounted for by: Four Ten Fifteen largest largest largest plants plants plants Cattle 23.3 44.4 51.5 Calves 22.1 43.7 57.8 Twenty largest plants 59.4 64.9 For any city, concentration ratios dis- cussed above will be too low. However, many of the large metropolitan areas have several large as well as a number of smaller plants. For instance, the average slaughter per plant in Los Angeles and Orange counties in 1964 was 61,900 Table 6 SLAUGHTER CATEGORIES, NUMBER OF PLANTS, AND NUMBER OF HEAD KILLED FOR CALIFORNIA, 1964* Slaughter category Number of plants Slaughter by all plants in category Per cent of total Per cent killed in category (or larger) 0- 5,000 31 10 16 10 12 9 9 7 9 38,393 72,693 249,600 250,971 413,461 415,547 484,664 465,068 831,587 1.2 2.3 7.7 7.8 12.8 12.9 15.1 14.4 25.8 100.0 5,000- 10,000 98.8 10,000- 20,000 96.5 20,000- 30,000 88.8 30,000- 40,000 81.0 40,000- 50,000 68.2 50,000- 60,000 55.3 60,000- 75,000 40.2 75,000-125,000 25.8 Total 113 3,221,984 100.0 0.0 Slaughter figures and percentages based on brand-inspection data. Source: Logan and King [1966]. 4 Use of the plant as a unit to determine concentration can be misleading in markets where multiple- plant firms are numerous. Here, the importance of multiple-plant firms is considered negligible because of scattered location of the few plants involved. [8] head (cattle and calves), the highest of any area in that state. There were 26 plants, many in upper size categories (table 6), but no single plant nor small group of plants controlled a major part of the area's slaughter. The large number of slaughtering establishments in the western region ap- pears conducive to a competitive market. Even though some firms may exist in a monopolistic setting because of the geo- graphically isolated nature of the market, such market power is limited by the pos- sibility of interregional trade of dressed beef. Thus, if prices in one area differ from those in another area by more than the cost of transporting dressed beef, a competitive incentive exists for such trade and prices should be brought back to an equilibrium point. Location of Slaughtering Clusters of slaughtering operations are common. In Texas, such collections of plants are found in the Fort Worth, Houston, and San Antonio areas. Colo- rado slaughtering is highlighted in the Denver area. In California the Los An- geles area accounts for nearly half of the state's total cattle slaughter, with the San Francisco-Bay area being another center (Logan and King, 1966). A similar group- ing of plants is found in the Seattle, Wash- ington, area. Although slaughter data by city or county are not available, some indication of slaughtering locations in the western region is shown in figures 1 and 2. Figure 1 (page 10) shows location of all federally- inspected plants and commercial plants killing more than 2,000,000 pounds live- weight annually. Figure 2 (page 11) shows the non-federally inspected plants which slaughter between 300,000 and 2,000,000 pounds live weight annually. Clustering of the plants is more evident for the larger than for the smaller plants. While the two figures shows plants slaughtering all species of livestock (thus including spe- cialized sheep- and hog-killing plants), all but about 2.5 per cent of the plants will slaughter some cattle. PLANT OPERATIONS Questionnaires sent to all cattle slaugh- tering plants in the western region (with the exception of Wyoming) asked about size of operation, diversification, integra- tion, and sources of supplies and sales. A total of 226 usable questionnaires were returned. To prevent disclosure of in- formation about any one plant, some states were combined into subareas for this study, and plants were stratified into Table 7 SIZE DISTRIBUTION OF PLANTS Number of plants in each slaughter category Area 0-5,000 5,000- 10,000 10,000- 20,000 20,000- 30,000 30,000- 40,000 40,000- 50,000 50,000 or more Total California 8 17 48 58 6 13 2 3 5 2 4 2 5 3 2 1 9 5 2 1 3 3 3 1 1 5 1 7 3 3 35 28 55 Nevada-New Mexico- 63 Texas Colorado 25 20 Total 150 18 20 11 8 6 13 226 Source: 1962 questionnaire. [9] Q 1X1 ►- 7 tn >o >- 0* —J —i < —^ C* J. LU u Q a: LU < IX. 1 2 Z* ^ o wo z Z LU < O a. < O — i z Q a: Z UJ < X o o LU -> 1— u IXI Q. < LO z >- O i— _l «/> _J UJ < > &sr A »< « * g *?. °v\ /A £ of • • i a -o ? ' / f> - / tt° I 4 / / O Federally ins * Large non-fe (In g.„.,ol plan,, lie ^ / I o /^"** * z y • o >fii-VSi S \ r* ; \ * V • 1 ?Cr \r*' " u* * \. r^V/ « \ vrC'A •v'&t' f*^-* V '>*• l Jr**~-~r*^ '• • w-^ i to VT vii^i *"" AM'.' 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