Dan Otto and John D. Lawrence1 The beef industry is an important value added enterprise in United States agriculture. Over a million farms and ranches benefited directly from the sales of cattle and calves in 2000. Gross receipts from sales of cattle and calves in 2000 totaled $40.76 billion accounting of 21% of all agricultural receipts making the beef sector the largest single agricultural enterprise. The estimated $40.76 billion of gross output from beef production activity supports an additional $147.4 billion of economic output for a total of $188.4 billion of direct and indirect economic activity throughout the U.S. economy. Direct and indirect employment in or related to the production and processing of beef supports over 1.4 million full-time-equivalent jobs in the US as well. Cattle are produced in all 50 states and their economic impact contributes to nearly every county in the nation and they are a significant economic driver in rural communities.
The US processed 36.2 million head of cattle in 2000 including 28.1 million head of fed cattle. In addition to cattle in feedlots, beef cows and calves, replacement heifers, stocker cattle awaiting placement in the feedlot, bulls, and young calves make up the US inventory of over 97 million head. Inventories of all classes of cattle are declining cyclically and are expected to bottom out in the middle of the decade before expanding again. While cattle producers are typically most profitable during periods of low beef supplies and thus higher selling prices, the economic impact of the industry is significant year-in year-out. Cattle prices typically decline during times of large inventories, but the large inventories also result in greater purchases for inputs such as feed, health supplies, and transportation, financial, and veterinarian services. During low inventories and higher prices and profits producers generally re-invest in their operations.
Following a brief overview of recent inventory and economic trends in the US beef sector we will describe the estimation of the economic impact of the beef industry on the US economy. Finally we will discuss some of the emerging issues facing the beef industry.
Inventories and Production
Beef cattle inventories in the US have been relatively stable during the 1990s (Figure 1). The total number of cattle posted a recent peak in 1996 at 103.5 million head and has declined to 97.3 million by 2001. The inventory of beef cows and heifers kept for replacement declined approximately 6 percent from 1995 to 2001 and is expected to decline further over the next couple of years before rebuilding. The number of cattle on feed has increased steadily to 14.2 million head in 2001, 22 percent or 2.6 million head higher than the 1990 level. Over the same time the number of cattle available for placement declined 2.8 million head or approximately 10 percent to stand at 28.6 million head.
Beef production set a record in 2000 and is expected to be down slightly in 2001. As Figure 2 shows the beef industry has improved its efficiency significantly since 1980. The total number of cows (beef and dairy) declined 11 percent while beef production increased 22 percent. Much of the increase has come for genetic, nutritional, and management changes that resulted in heavier carcasses. Table 1 lists the aggregate cost of producing cattle in the US. Inputs include 2.85 billion bushels of grain and over 100 million tons of hay, 400 million hours of labor, and $5 billion of operating expenses.
Approximately 90 percent of US beef production by weight is consumed domestically with the remainder exported. Exports have increased dramatically since 1980 increasing 645 percent in quantity and 528 percent in value (Figure 3). Exports of beef and veal including variety meat and hides totaled $6 billion in 2000.
Like all of agriculture, beef operations are fewer in number and larger in size that they were a decade a go, but the rate of change is not as dramatic as is the change in other sectors such as pork. The structure of the beef industry is like an inverted triangle. There are 831,000 beef cowherds in the US and 80 percent of herds have less than 50 cows yet they produce 30 percent of nation’s calves (Figure 4). USDA lists 97,000 farms and ranches with cattle on feed. Approximately 14 percent of fed cattle marketed are finished in feedlots with less that 1000 head capacity (Figure 5). Feedlots with capacity between 1000 and 16,000 head market 19 percent of fed cattle. There are an estimated 258 feedlots with capacity of 16,000 head or more that market 67 percent of fed cattle annually. Finally, five beef packing companies process 90 percent of steers and heifers with the three largest having a 74 percent share.
Economic Importance of the United States Beef Industry
In addition to the backward linkage effects of purchased inputs (Table 1) by beef producers, forward linkages can be traced to the slaughter and processing level for impact on the national economy. Data from the American Meat Institute indicate that, on average, the cost of live animals represents about 89 percent of the total value of the processor’s product (AMI). The remaining margin is for other inputs including labor and return on investment. The final demand uses of processed cattle products are an estimated 2.52 billion pounds going into foreign markets and 24.25 billion pounds into domestic markets.
These estimates for the various dimensions of the U.S. beef industry at the producer and processor level represent the direct component of the industry with the production inputs purchased by these sectors representing the indirect effects. In addition to these obvious producer and input supplying impacts, income earned in these agriculturally-related components of the beef industry is spent in the rest of the economy stimulating a wide range of sectors, including consumer-related businesses in urban areas. To identify and estimate these multiplier effects, an Input-Output (I-O) model is developed for the United States and used in this portion of the study. The I-O model used is based on the IMPLAN system developed initially by the U.S. Forest Service. An I-O model is basically a general accounting system of the transactions taking place between industries, businesses and consumers in an economy. The estimates of outputs from the cattle sector are matched against USDA estimates of marketings and the level of estimated inputs used are matched against livestock budgets based on average technology (Figure 6).
The basic scenario in this analysis looks at the overall importance and contribution of the beef industry to the U.S. economy based on the current situation in the U.S. beef industry. This perspective identifies and estimates values associated with the backwards and forward linkages in the U.S. beef industry.
The results of the I-O analysis are presented in Table 2 with estimates of total output, personal income, value-added, and employment presented at a 10 sector level of detail. This table of a baseline scenario for the nation’s cattle industry includes related economic activity from inputs provided to the producers through the processing level. The key indicators of economic activity reported include total industry output, total income, value-added, and employment.
Total industry output measures total dollars of goods and services produced by an industry, including government and non-government activity. The estimated $41 billion of gross output from beef production activity supports an additional $147.4 billion of economic output for a total of $188.4 billion of direct and indirect economic activity throughout the U.S. economy. While much of the impact is concentrated in the agricultural sectors, the personal income linkages in the economy results in major economic effects also being distributed in the services and trade sectors.
Total personal income is a composite of wage and salary income and proprietary income. This more comprehensive measure of income is chosen because most farm income is reported as proprietor’s income. The estimate of $7.8 billion of direct income to beef producers is linked to an additional $38.6 billion of income throughout the U.S. economy for a total impact of $46.4 billion of personal income. Again, the service and retailing sectors receive strong stimulus from the initial effect of income earned in the beef sector.
Total value-added measures the total gain in economic activity resulting from production of goods or services. Wages, salaries, taxes, and profits are included in the value-added measure. The value-added measure is a good indicator of net economic activity as only the net incremental value is summed at each transaction to avoid double counting. The estimated $19.1 billion of value-added for beef production is linked to $55.4 billion of additional indirect and induced value-added to the U.S. economy. Total value added related to the U.S. beef industry is an estimated $74 billion
Employment is based on a per job unit consistent with the definitions used by the U.S. Commerce Department. The employment levels are likely to be nearly full-time equivalents for the manufacturing and production oriented jobs. Retail and service sector positions tend to involve many part-time positions. Based on aggregate budgets for the total hours of labor required to produce 36.2 million head of calves including over 28.1 million fed cattle per year an estimated 212,000 direct jobs are involved in beef producing activities including farm workers as well as farm proprietors. This 212,000 be interpreted as full-time equivalent positions, although many operators are in cattle production on a less than full-time basis. As indicated in Table 2, these direct jobs at the farm level support an additional 1.21 million jobs throughout the rest of the economy, or a total of 1.42 million direct and secondary jobs. The distribution of impacts is similar to the pattern for the other indicators in that effects are present in all sectors. The service sector provided the largest number of secondary jobs followed by Finance, Insurance and Real Estate and Retailing. The higher number of jobs in services, combined with the lower levels of income, suggests that many of these jobs are less than full-time.
Estimates of the impacts of the U.S. beef industry shown in Table 2 include forward linkages into the meatpacking industry. By moving past the farmgate, additional economic activities including the transportation, processing, and handling are captured in the economic model and presented in the estimates.
The direct employment estimates for cattle processing in the I-O model are consistent with secondary sources such as County Business Patterns. Since cattle processing and slaughtering facilities tend to be located near the source of raw materials, this stage of the beef industry has the additional benefit of providing needed jobs in rural labor markets.
The 21st century promises to be both an exciting and challenging time for the US beef industry. After a 20-year decline in consumer demand for beef, 1999 appears to be a turning point in beef demand. Both 1999 and 2000 posted significant gains in beef demand with several quarters posting year-over-year increases in both per capita consumption and retail price. Farm level prices and profits improved at all production segments. A new emphasis on consumer friendly beef products is beginning to show up at the retail meat counter and is expected to strengthen demand further as consumers have greater selection on how to purchase and consume beef. These value-added consumer products will further increase employment and economic activity in communities where they are produced. There is also increased emphasis on branded beef products many of which that have specifications on production parameters. These specifications typically come with higher cost and higher returns for the producers providing them. Continued growth in export markets in spite of a strong US Dollar indicates a beef industry that is competitive in global markets. These changes in the domestic and export markets point to increased growth for US beef industry in the years ahead.
The US beef industry also faces challenges. Food safety continues to be a concern of domestic and export customers. Confirmation of BSE in Europe and Japan significantly reduced beef consumption in infected countries and sharply reduced beef imports to Japan as the confidence of Japanese beef consumers was shaken. Increased accountability throughout the beef supply chain will lead to increased traceability as well, particularly in the emerging branded programs where a company’s reputation is at stake or in the export market where US competitors (Canada and Australia) have a animal identification system in place. Environmental concerns surrounding animal agriculture will continue to be an issue for the beef industry to address. The EPA proposed changes to regulations effecting concentrated animal feeding operations that are expected to be more restrictive and more inclusive of smaller operations. As a result cost of production is expected to increase and many producers may choose to exit the industry rather than pay the higher costs. In either case beef production would be expected to decline and the economic impact would also decline if regulations become too burdensome.
Regardless of what challenges or opportunities that the future brings the beef industry will play a significant role in US agriculture and be an essential value added enterprise for much of rural America.
Table 1. United States Aggregate Beef Production Inputs and Costs