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Published March 17, 2014, 09:59 AM

Maximize your investment by managing genetics

BROOKINGS, S.D. — Genetic management can be used to capture added value through the supply chain, according to Lisa Elliott, assistant professor and South Dakota State University Extension commodity marketing specialist.

By: SDSU Extension Service ,

BROOKINGS, S.D. — Genetic management can be used to capture added value through the supply chain, according to Lisa Elliott, assistant professor and South Dakota State University Extension commodity marketing specialist.

“Management tools and protocols should be coupled with complementary organizational arrangements and market differentiation mechanisms in order to maximize value captured from the investment,” Elliott says.

Elliott identified three key components to managing beef genetics: genetic management, organization design and market differentiation mechanisms. The main area discussed was genetic management, what it means and how producers can use it to increase their profitability.

What does genetic management mean to producers?

Elliott says genetic management is identifying and employing complementary organization arrangements and market differentiation that reduces transaction costs and, perhaps most importantly, increase premiums to producers.

“Genetic management can be used to capture premiums in the market,” she says. “However, there are challenges to optimizing management of beef genetics when transaction costs exist throughout the beef supply chain.”

She explains that price signals that should incentivize producers to manage genetics have been distorted from transaction costs due to market failures.

“For example, a producer may bear most of the risk, or cost, in a genetic program. If it fails, the producer could potentially bear large costs, whereas the processor may share little of the cost of genetic improvement,” she says.

Vertical integration, Elliott explains, could limit the transaction costs; however, it can also increase other costs in the beef supply chain because of differences between firms. Added value from genetic management can occur from two different sources: value-added premiums for higher quality beef products, and improved segregation of beef production that leads to increases in consistency of products and quality yields.

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