AN ANALYSIS OF FACTORS AFFECTING THE ORGANIZATION OF A COOPERATIVE FEED MANUFACTURING AND DISTRIBUTION SYSTEM (NONLINEAR PROGRAMMING, CONCAVE)
Abstract
A trend toward larger livestock production units and a concurrent shift to more concentrated feed products used for on-farm feed preparation has led to excess production capacity in the feed manufacturing industry. Firms in the industry must respond to these changes with decisions regarding adjustments in product mix and production capacity. A forty region spatial equilibrium model of the cooperative feed firm was developed to determine the long run organization of the feed manufacturing and distribution system that maximizes the benefits to the coop's members. In the model, livestock producers choose from among three feed program alternatives--premix, supplement or complete feed--to feed a fixed set of livestock at minimum cost. A nonlinear specification of on-farm processing costs is used to reflect the size distribution of livestock enterprises in each region. Model results show that the size distribution of livestock units affects the organization of the cooperative feed system. Growth in demand for feed among the largest producers results in a less than proportional increase in mill capacity requirements because much of the added demand is satisfied through on-farm feed production. Variation in the quality of feeds prepared on-farm was found partially to offset the trend toward on-farm feed preparation. However, even considering the greater variability in the quality of home-prepared feeds, the long run pattern remains in the direction of increased on-farm feed preparation. Feed product pricing alternatives in the cooperative system also were examined. Flat pricing--charging all customers the same price for products regardless of location--was shown to increase the total system cost compared to product pricing based on economic costs. Significant regional differences in feed program choices were observed under the two pricing systems.
Degree
Ph.D.
Subject Area
Agricultural economics
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