The impact of identity preservation of specialty soybeans as measured by additional costs along the value chain

Haley Brooke Wendler, Purdue University

Abstract

Technological advancements have led to the development of innovative soybean traits that provide additional value to U.S. soybeans. In a market that traditionally handles a homogenous and bulk commodity, commingling comparable grain is commonplace. As different varieties of soybeans are introduced, it is essential that a separation strategy is implemented to allow for the preservation of quality and pureness of soybean traits. However, the act of separation comes at a cost to the industry and is shared among all stages in the supply chain. Decision makers will only choose to handle identity preserved (IP) soybeans if the additional costs do not exceed additional revenue that is received from the enhanced quality soybeans. A thorough understanding of IP cost structures will provide insight to the decision makers throughout the industry. In addition, knowledge of IP cost structures can lead to the implementation of pricing strategies to incentivize players to enter the IP soybean market, thus adding value to U.S. soybeans. The types of IP costs and the cost of different purity requirements are examined in this research. In addition, factors that significantly impact IP costs as they apply to different sectors of the value chain are identified. Survey data from growers, originators, processors, refiners, and feed manufacturers who have handled a form of IP soybeans are examined. Data were collected from in-person interviews, organized, and inserted into quantitative models representing additional costs experienced by IP decision makers. Six models were developed for growers, originators, and processors/refiners. For each model, multiple scenarios were evaluated to provide analysis of the impact of variables on additional costs. Additional costs for a grower meeting high purity requirements ranged from $0.28 to $1.88 per specialty bushel and additional costs for a grower meeting low purity requirements ranged from $0.18 to $0.93 per specialty bushel. Additional costs ranged from $0.04 to $0.26 per specialty bushel for an originator meeting high purity requirements and $0.02 to $0.23 per specialty bushel for an originator meeting low purity requirements. Finally, additional costs ranged from $0.07 to $0.22 per specialty bushel for a processor/refiner meeting high purity requirements and $0.06 to $0.21 per specialty bushel for a processor/refiner meeting low purity requirements. A notable conclusion is that yield drag has the most impact on additional costs for an IP grower of all variables tested in the sensitivity analysis. In addition, the premium level received by growers also had a large impact on profitability. Originators bear the lowest additional cost per specialty bushel for IP soybeans. The most important factor that impacts this sector is delivery costs to a location further away. The processor and refiner incur slightly greater additional costs than the originator. This is due to product that is lost when switching back and forth from commodity to specialty soybean product during the production process.

Degree

M.S.

Advisors

Fulton, Purdue University.

Subject Area

Agricultural economics

COinS