Market RegulationFood is most highly regulated of all consumer product industries

Differences of opinion on the appropriate level of regulation

Regulate Competition

US founded on private enterprise

Concerns about market power–1890 Sherman Anti-trust Act –1914 Clayton and FTC Acts set rules–1936 Robinson-Patman Act»Price discrimination illegal unless economically justified

Regulations of MonopoliesRecognized natural monopolies and dealing with monopolies

Capper-Volsted Act 1922–Right of farmers to collectively bargain

Agricultural Marketing Act 1937– Established marketing orders for dairy

and fruit and vegetables

Facilitate Trade and ServicePSA 1921–Set standards for trade–Assured prompt payment

Grades, weights, & standardsPromotion and research 1980s–Checkoff activity

Mandatory Price ReportingFederal initiativeMidwest state regulationsCurrently–AMS collects, reports, doesn’t

keep–GIPSA can demand all records

but can report

Consumer Health and Safety.Food and Drug Act–1906, 1938–1958 Delaney Clause

Food Quality Protection Act–1996 replaced the Delaney Clause

Wheeler-Lea Act 1935–Truth in advertising– Labeling laws, 1973, 1990

Regulations on Food Prices

Price control or freezes–Typically war time and/or rapid inflation–Retail price freeze -> farm price impact–WWI 1917-18–WWII 1941-1946 also rationing–Korean conflict 1950-1953–1971-1973 inflation

Economic and Social Progress 1862 Department of Agriculture

1862 Morrill Land Grant Act1987 Hatch Act, experiment station

1914 Smith-Lever Act, extensionCurrently over 10,000 agricultural researchers employed by gov’t

Standardization and GradingReduces marketing costs– Improves communication–Possible to trade on description

rather than inspection–Grading sorts commodities by

defined quality standards–Quality grades typically optional

Public or Private Use differs by industry–Cattle use USDA grades and graders»Moving to private grades

–Hogs use private grading»Grading done by employee of buyer

–Grain use USDA standards but grading by the buyer

Examples of Grades

BeefQuality Grades Yield Grades

Prime 3-4%1 11-12%Choice 60-65%2 48-50%Select 30-35%3 33-40%Standard --- 4 1-2%

5 <1%

NATIONAL CARCASS PREMIUMS AND DISCOUNTSFOR SLAUGHTER STEERS AND HEIFERSFor the Week of: April 20, 1998Value Adjustments

Quality Range Simple Avg ChangePrime 3.00 - 10.00 5.71 0.00Choice 0.00 - 0.00 0.00 0.00Select -2.00 -4.00 -2.72 -0.30

Standard -12.00- -23.00 -16.43 -0.15

Examples of Grades

Hogs–Barrows and Gilts»U.S. 1-2, 230-250 pounds»U.S. 1-3, 230-250 pounds

–Sows»U.S. 1-2, 400-500 pounds

Western Cornbelt Lean Value Direct Hog Trade (close)Hot Carcass Value Information Based On Individual PackersLean Value Programs and Weight Differentials - Plant Delivered

pct Lean 47-48 49-50 51-52 53-54Car Wt

163- 41.32 42.57 44.62 46.00169 47.61 49.30 50.30 51.11

170- 45.31 45.31 47.15 48.50191 49.14 49.30 52.50 54.50

192- 45.37 46.00 47.94 48.88199 49.38 49.38 52.50 54.50

200- 45.37 46.00 47.94 48.88207 50.17 52.17 54.17 54.50

Examples of Grades

#2 Yellow Corn#1 HRW Wheat ordinary protein

#1 HRW Wheat 13% protein#2 SRW Wheat#1 Yellow Soybeans

Mandatory v. Optional Grades

Few precedents for compulsoryCost may increase if mandatory Industry may already have grades

Grades may inhibit innovation

Criteria for Grades and Standards

Based on characteristics that –Are important to users–Are easily recognizable–Can be measured and interpreted by

graders to reduce variation within a grade–Have common terminology–Represent the distribution of production–Make it cost effective to operate

Problems of Grades and Standards

Subjective nature of “quality”Made for industry not consumersDesigning grades and grading methods–Accurate, fast, cheap, meaningful–Number of grades

Implementing grades

Farmers and Grades

Not always used –Trust of grades or grader–Risk - reward

Beef industry transition–Selling on average–Strategic alliances

Marketing Agencies & Grades

May add value to commodityRole of private brandsLarger firms may develop ownSpecification contracts with more detail may replace grades

Consumers and Food GradesGrades often confusing and offer little differentiation

Consumers often do not understand grades

Brand loyalty may replace uniform grades