Beef and pork packing industries.

A remarkable transformation of the meatpacking industry occurred in the last 25 years. That transformation consolidated the industry into one that could deliver large volumes of meat at low costs. Slaughter plants grew much larger and realized economies of scale from their size, and operations within plants were rationalized to emphasize the delivery of a small set of consistent major products (boxed beef, cut-up pork, and by-products) to retailers, wholesalers, and other processors. Similar developments occurred in livestock feeding whereby the industry realized significant cost reductions by consolidating production in very large cattle feedlots and hog farms. Gains from scale have largely been met (absent the development of new technologies that are not yet on the horizon); therefore, we are unlikely to see similar shifts in plant sizes in the next 25 years. The major forces affecting meatpacking and livestock feeding in the near future are more likely to revolve around tighter coordination among livestock production, meatpacking, wholesaling, and retailing. Although much of the recent response to food safety concerns took the form of investments in equipment, testing, and training within meatpacking plants, packers and retailers are likely to focus more on assurance of livestock production quality and methods in the future. Such assurance can be met through vertical integration or through a greater reliance on tightly drawn contracts; producers who attempt to provide the assurance while still selling through cash markets will need to develop paper trails of testing and quality assurance that will move through the marketing chain with livestock. Similarly, because of likely increased future demand for meats of assured consumer qualities, such as organically grown products or branded meat products with very specific traits, producers will likely need to provide similar indicators of assurance throughout the marketing chain. Finally, the funding offered through federal environmental assistance programs such as the USDA's Environmental Quality Incentives Program along with related regulations governing waste management will likely lead to greater control over livestock production practices by investors, financiers, integrators, and packers through contractual design. Shifts toward tighter vertical coordination will force continuing changes in traditional ways of doing business in livestock production and in meatpacking. In turn, public policy discussions and corporate strategies in meatpacking are likely to focus continuing attention on the particulars of contract design: how to meet consumers', retailers', and regulators' requirements for quality assurance while ensuring efficient low-cost production without retarding competition in the industry.