1. Possible Producer Benefits from a National Animal Identification System (NAIS) Prepared by: Dr. Ruby Ward Assistant Professor Extension Economist Economics Department Utah State University Email: ruby.ward@usu.edu Western Center for Risk Management Education Western Extension Marketing Committee

2. Can the National Animal Identification System Benefit Cattle Producers

3. Outline Benefits – 3 categories –Food safety –Bioterrorism –Increased production information

4. Food Safety & Bioterrorism BSE in Canada and United States –Highlighted the need for an animal tracking system Increased threat of Bioterrorism Highlighted need for NAIS –Trace back of infected animals within 48 hours of detection. How does this benefit producers?

5. Food Safety & Bioterrorism Trace infected animal within 48 hours Quick isolation Increased consumer confidence

6. Exports and Prices Exports are 8-10% of beef production in the U.S. Drop in exports has a larger drop in price Price elasticity is -.62 (Huang 1996) –This measures the percentage change in quantity for a 1% change in price Price Flexibility of 1.5 – 1.6 –Inverse of price elasticity measure the sensitivity of price to changes in quantity.

7. Exports and Prices Exports are 8-10% of beef production in the U.S. Price Flexibility of 1.5 – 1.6 –Inverse of price elasticity measure the sensitivity of price to changes in quantity. Drop of 9% in demand would cause price to drop by 15% (1.6*9%) Similar to what happened in market after BSE announcement in December 2003

8. Food Safety and Bioterrorism Lower wholesale and retail prices for beef will be passed on to the cattle producer. Program that supports demand in event of food safety or bioterrorism crisis Will help producers

9. Increased Production Information More information flowing along marketing channel Marketing Channel – Stages a product passes through Cow/calf producer Feedlot Packer Retailer

10. Commodity Vs. Differentiated Commodity –All products seem the same –Low price is important Differentiated Products –Some products can be perceived as higher quality –Usually sell for a higher price If more information is attached, the product may be able to sell it for more

11. For Example Selling a 500-pound calf –Commodity sells for market rate If higher probability this calf will perform well –Would finish faster –Grade higher than other calves Then calf is more valuable and could get a premium price.

12. Higher quality herd Information about carcass yield, feedlot performance etc. could be linked to a particular animal That information could flow back to the producer (usually a fee is attached) Producer could use it to selectively cull the herd Herd quality and performance could increase

13. Pricing on a Grid Only a portion of animals currently being priced based upon performance Should increase in future Some feedlots may require information as a market entrance requirement Animal ID could be key to market access

14. Verifying Information Some product characteristics require third party verification NAIS can facilitate by being able to track and audit the animal through the system.

15. Producer Benefits of Information More information can flow along marketing channel Can Differentiate products Can use information to improve herd quality Easier to do audits

16. Conclusions May be some liability issues Decrease risk of food safety or bioterrorism threat More information flowing along marketing channel –Improve herd quality –Add verifiable characteristics –Differentiate products