Market Regulation
 Food
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 Monopolies
 Recognized
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 Service
 PSA
1921
– Set standards for trade
– Assured prompt payment
 Grades,
weights, & standards
 Promotion and research 1980s
– Checkoff activity
Mandatory Price Reporting
 Federal
initiative
 Midwest state regulations
 Currently
– 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 Act
 1987 Hatch Act, experiment station
 1914 Smith-Lever Act, extension
 Currently over 10,000 agricultural
researchers employed by gov’t
Standardization and Grading
 Reduces
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
Beef
Quality Grades
Prime
3-4%
Choice
60-65%
Select
30-35%
Standard ---
Yield Grades
1
11-12%
2
48-50%
3
33-40%
4
1-2%
5
<1%
NATIONAL CARCASS PREMIUMS AND DISCOUNTS
FOR SLAUGHTER STEERS AND HEIFERS
For the Week of: April 20, 1998
Value Adjustments
Quality
Range
Simple Avg
Change
Prime 3.00 - 10.00
5.71
0.00
Choice 0.00 - 0.00
0.00
0.00
Select
-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
W estern Cornbelt Lean Value Direct Hog Trade (close)
Hot Carcass Value Information Based On Individual Packers
Lean Value Programs and W eight Differentials - Plant Delivered
47-48
49-50
51-52
53-54
41.32
47.61
42.57
49.30
44.62
50.30
46.00
51.11
170191
45.31
49.14
45.31
49.30
47.15
52.50
48.50
54.50
192199
45.37
49.38
46.00
49.38
47.94
52.50
48.88
54.50
200207
45.37
50.17
46.00
52.17
47.94
54.17
48.88
54.50
pct Lean
Car W t
163169
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 compulsory
 Cost 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 consumers
 Designing 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 commodity
 Role of private brands
 Larger firms may develop own
 Specification contracts with
more detail may replace grades
Consumers and Food Grades
 Grades
often confusing and
offer little differentiation
 Consumers often do not
understand grades
 Brand loyalty may replace
uniform grades