Economic Impact of the United States Beef Industry
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
1
Professor and Associate Professor, Department of Economics, Iowa State University
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.
Emerging Issues
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
Units (Millions)
Cost ($1,000)
Feed costs
Corn
2,849
Bushels
$5,270,700
Supplements and Minerals
102
cwt.
$1,843,995
Alfalfa-Brome Hay
112
Tons
$9,291,174
Pasture
117
Acres
$1,588,377
Other Grazing
26
Acres
$77,240
Total feed costs
$18,071,486
Veterinary and Health
$1,165,593
Machinery, Equipment, Fuel and Repairs
$1,153,577
Marketing and Misc.
$1,979,105
Interest on Feed & Other Costs
Labor
$711,971
434
Hours
$3,342,076
Total non-feed variable costs
$8,352,323
Machinery, Equipment, Fences
$1,499,571
Interest, Insurance, on herd
$3,359,940
Bull Depreciation/Replacement
Total fixed costs
Total Costs
$386,200
$5,245,711
$31,669,520
Table 2. Economic Effects Associated with the U.S. Cattle Industry, 2000.
Total
Sales
(Million $)
Agriculture
Mining
Construction
Manufacturing
Tran.Utilities
Trade
Fin.Ins.R.Estate
Services
Government
Labor
Income
(Million $)
Value
Added
(Million $)
Jobs
51,308
1,179
2,413
66,050
12,011
15,926
17,999
19,913
1,658
9,510
316
1,329
9,452
3,493
6,705
4,054
10,891
705
13,379
757
1,398
13,048
6,830
11,342
13,174
12,952
807
348,332
5,025
35,464
258,688
75,576
229,642
101,027
348,098
19,286
188,457
Total
Source: IMPLAN model for U.S.
46,455
73,688
1,421,137
U.S. January Cattle Inventories 1990-2001
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
1990
1992
1994
Beef Cows and Heifers
Figure 1
1996
Cattle on Feed
1998
Feeder Cattle
2000
Cow Inventory and Beef Production
Million Cows
Billion Pounds
52
28
Annual Beef Production
50
26
48
46
24
44
22
42
Cow Inventory
40
20
1980
1985
1990
1995
2000
Figure 2
US Beef and Variety Meat Exports
1000 Metric Tons
1400
Billion
$7
1200
$6
1000
$5
800
$4
600
$3
400
$2
200
$1
0
$1980
1985
1990
Quantity
Figure 3
1995
Value including hides
2000
US Beef Cow Industry Structure
831,000 farms average 40 cows/farm
90%
80%
653,550*
Percent of Farms
Percent of Total Inventory
70%
60%
50%
173
40%
15**
30%
64
20%
100,640
890
71,175
10%
5,515
0%
1-49
50-99
100-499
Figure 4 *Total number of operations, **Average inventory
500+
Feedlot Industry Structure
1,000 Head Capacity and Larger Feedlots
95,000 lots under 1,000 head market 14% of cattle
2,100 lots over 1000 head capacity market 86%
80%
70%
1,304
64,527
Percent of Total Feedlots
*
60%
Percent of Total Marketings
50%
40%
30%
20%
335
1,702 **
16,041
6,401
194
258
10%
0%
1,000-3,999
4,000-7,999
8,000-15,999
Figure 5 *Total number of operations, **Average inventory
16,000+
United States Cattle Flowchart
Slaughter
36,247, 197 Head
26.77 Billion Lbs. of Beef
Domestic Food
24.25 Bil Lbs. Beef
Export Food
2.52 Bil Lbs. Beef
Expenses ($1,000)
Cattle Feedlots
28, 130,000 Fed Cattle Marketed
Feed and Supplements
$18,071,486
Labor
$3,342,076
Cattle Backgrounding
29,641,000 Winter Ration
40,300,000 Summer Ration
69,941,000 Total
Cull Cow
6,899,618 Head
Vet and Health
$711,971
Machinery & Equip
$2,653,149
Replacement Heifers
6,899,618 Head
Marketing
$1,979,105
Cow-Calf Operations
Calf Crop
38,620,000 Calves
Figure 6.
Calf Net Imports
1,933,500 Calves
Interest
$4,071,911
Bull Replacement
$386,200