Vertical Integration in Beef Production

Vertical Integration in Beef Production

What is the vertical integration logic behind each of the following moves that Iowa Beef made?

The vertical integration logics in the moves of Iowa Beef is explained by their plans to eliminate extra costs spent on transportation and dependence upon local store butchers, who sell beef in local stores. Vertical integration at this point allowed to avoid dependence upon small contractors and it also allowed to introduce beef on new markets, where all processes of beef preparation for end customers were mechanized and where the demand on beef is higher as retailers were simply selling beef on the shelves of supermarkets.

Even though they were economically distinct activities and had different desirable efficient sizes, IBP ran both slaughterhouses and boxing plants, and they located them next to teach other when they could. If these were distinct activities, why did IBP locate them physically adjacent to each other?

IBP decided to locate these plants close in order to save on transportation fees and in order to save time on the of meat processing. Boxing plants with mechanized production allowed saving money on butcher's services. In addition, boxed meat can be quickly sold to retailers, as it's a finished product. That's why such effective logistics of production allowed increasing the amounts of beef, which could produce, raised profits and allowed company to find new more permanent customers for their production.

The boxing plants had larger ideal-efficiency capacity than the slaughterhouses, so IBP had to bring in beef carcasses to supplement those produced at an adjacent slaughterhouse they owned. Some of the shipped-in carcasses came from IBP slaughterhouses and some came from other firms' slaughterhouses. Why did IBP mix their sourcing for the boxing plants?

IBP mixed their sourcing in order to fully load the boxing plants, which was profitable for the company and which allowed company to gain new positions on the beef market, so that the production of other companies or farms would depend upon their services. In future IBP may also "absorb" those suppliers.

BP used its own refrigerated trucks to move carcasses from distant slaughterhouses to boxing plants in the Great Plains states. Why did they not hire trucking firms that specialized in trucking when they needed this service or rent trucks as needed?

Because the company needed transportation for a long time activities, it was more reasonable to purchase its own refrigerating tracks and hire transportation personnel than to use services of transportation firms. Such services are more expansive, which effects the prime cost of production. IBP decision reduced prime costs and promoted further vertical integration. In addition, it's much cheaper for a big business with considerable funds to organize certain kind of service departments for its own needs, than to use services of other firms.

When IBP sourced cattle from feedlots in the Great Plains states, the firm bought on the spot market using their cost advantage to ensure that they could bid whatever was needed to get the cattle to keep the plants running at ideal capacity. When they went into the state of Idaho, however, they changed their approach to sourcing cattle. In this area, there were fewer cattle in general' as a result, IBP purchase a minority interest in a feedlot.

Why did the firm acquire this upstream interest in Idaho and not in other states in the Great Plains?

The profits from feedlots in case with Idaho cattle would be not so high, compared to Middle East states, as the return would be relatively low on the area with fewer cattle.

PART TWO

In the 1990s and early 21st century, several meat packing firms sought to transfer the vertical integration techniques perfected by IBP in beef to the pork industry. Using the Internet, develop a flow chart of the activities in an economic system that takes a pig from its pen to the supermarket meat case. Once you have done this, continue your research so that you can answer the following question: Which activities have become vertically integrated in the pork business in the last 15 years and why?