Module 11: Vertical Integration

ANFS 101

What is Vertical Integration?

control of two adjacent stages in vertical marketing channel from producers to consumers

What is Contract Integration?

a firm or company at one production-processing-distribution phase that contracts with another firm at an adjacent stage for services and/or products

What is ownership integration?

firm owns most resources in both adjacent production-processing-distribution stages

ex: meat firm owning cattle lot

What are the motives of vertical coordination?

PROFIT INCENTIVES

• more efficient

• less transaction costs

• new technologies reduce costs

  • new customer preferences

Where is the poultry industry currently at in terms of vertical integration?

most integration, especially compared to pork and beef

Where is the pork industry currently at in terms of vertical integration?

has increased dramatically, but still not as integrated as poultry

Where is the beef industry currently at in terms of vertical integration?

lowest degree of coordination due to high reliance on market prices

Why is the beef industry so behind in terms of integration?

• more complex sex of production stages

  • long time period of conception-market (26 month)

What is the length of Hogs conception-market?

10 months

What is the length of poultry conception-market?

5 months

What causes more incentive for vertical integration?

shorter biological processes, especially those that can be genetically modified

• faster process=faster to market=faster profits

What are the poultry primary production stages?

2- hatching and growing

What are the pork primary production stages?

2- farrowing and finishing

What does finishing mean in terms of pork production stage?

equivalent to term growing

• most weight gain before sold for meat

What are the cattle primary production stages?

3: cow-calf, stocker (growing), and feeding

T/F: The more production stages, the higher transaction costs for industry.

True

Does less or more coordination help respond more rapidly to changes in customer demands?

More

What is a fresh-packaged product?

traditional fresh product sold with minimal processing

ex: traditional fresh chicken

What is a value-added product?

product that has been processed in some way that enhanced its value

What is a differentiated product?

value-added product with a brand name.

ex: Perdue Short Cuts

T/F: Consumers want less time taken to prepare food, so they prefer fresh-packaged products.

Falsebran

What allows for companies to charge premium prices for their products?

brand loyalty, consistent quality (or perceived quality)

T/F: Firms have an economic incentive to integrate vertically and develop customer brands, including brand loyalty, for their differentiated products.

True