10. The series of questions 63 through 68 ascertains the total revenue derived for individual slaughtering facilities from other sourcesoffal and by-products, processed meat, fabricated meat, and all other non-beef sales. This information is needed to allocate general corporate costs to beef production.

11. Questions 69 through 93 ask for the same information as that described above-only it is for sales made directly from the individual slaughtering facility rather than the central corporate level.

12. Questions 94 thourgh 118 provide the same basic sales information as described above for all sales made from the branch houses for this slaughtering facility.

13. Questions 119 through 127 evaluate brokerage fees and other selling procedures for beef. This information is critical in assessing charges of unnecessary brokerage payments to non-existent wholesalers, as well as essential to a model of market organization.

C. FABRICATION

1. It is critical to obtain data on fabrication facilities separately from normal slaughtering facilities since the cost and revenue components relative to each facility's operations are thought to be different.

2. Questions 1 through 15 and 24 through 33 are similar to those appearing in other sections of the questionnaire. The purpose is to determine the expenses for each cost category incurred by the fabrication facility.

3. Questions 16 through 18 assess all costs for production materials used by fabricating facilities.

4. Questions 19 through 23 determine the revenue derived from each specific product produced by a fabricating facility. A detailed breakdown such as this one is needed in order to avoid problems arising from the averaging of data.

D. SLAUGHTERING FACILITY

1. All questions in this portion of the questionnaire are similar to those employed elsewhere and seek to ascertain the particular cost components of the slaughtering process, exclusive of any sales or procurement considerations.

E. TRANSPORTATION

1. Questions 1 through 22 attempt to discover total costs incurred for transportation of beef produced by the company for this facility. These costs are separated into distribution and procurement in order to assign them to the proper category.

2. Questions 23 through 31 seek to determine both the volume carried by and the revenue derived from each possible channel of transportation in procurement and distribution. The information is critical to a fuller understanding of market structure and organization, as well as the mix of transportation.

3. Questions 32 through 41 explore the expenses and costs incurred for modes of transportation other than trucking. Again, this is important in order to determine the mix of marketing channels.

APPENDIX II

PRICE SPREADS AND INDUSTRY MARGINS NOT THE SAME

Farm-to-retail price spreads for meat and other food products have widened sharply in recent times, particularly in 1974. But, while meat spreads widened, some retailers and meatpackers say their gross margins for meat either shrank or didn't increase as much as price spreads.

A contradiction? Not necessarily. Price spreads, gross margins, and net profit margins measure different aspects and components of the spread between what farmers receive and consumers pay. Though some people use these terms interchangeably, there are important differences among them.

USDA estimates the farm-retail price spreads and related marketing costs for foods originating on U.S. farms. Price spreads measure differences between price levels at subsequent stages in the marketing channel. They also give insight into the distribution of the food dollar and how retail prices respond to changes in farm prices and consumer demand.

Price spreads are normally greater than gross margins for any single marketing agency. Likewise, gross margins are greater than net profit margins. Using Choice beef as an example:

COMPONENTS OF FARM-RETAIL SPREAD

Source: Economic Research Service (ERS-607), U.S. Department of Agriculture.

The farm-to-retail price spread for Choice beef is the difference between the weighted average retail price per pound and the farm value of the quantity of live animal pounds equivalent to 1 pound of retail cuts less the estimated value of byproducts. Thus, it normally

includes all costs incurred as well as profits of the agencies involved in the marketing of 1 pound of Choice beef eventually sold at retail. These include charges for assembling, processing, transporting, cutting, packaging, and distributing products from farm gate to the consumer. The farm-retail price spread for beef is divided into two main components: (1) farm to carcass and (2) carcass to retail.

The farm-carcass spread includes approximate charges for marketing cattle, slaughtering, and transporting the dressed beef carcasses to the cities where consumed.

The carcass-retail spread includes not only the gross margin for retailing but also the charges for other intermediate marketing services, such as cutting carcasses into smaller portions, wholesaling, and local delivery to retail stores.

Gross margins (the difference between dollars paid and dollars received) of packers and retailers, on the other hand, don't take into account all marketing functions. Rather, they represent the tab for a packer's or retailer's labor cost, packaging, overhead, other costs and any net profit. They exclude some costs included in the spread, like charges for transportation and services performed by businesses other than meatpackers or retailers. Because such costs are included in what they pay for beef, gross margins of these firms are smaller than the overall USDA spreads.

Profit margins, before and after taxes, are a relatively small component of the gross margin and total operating cost for a firm. They are usually expressed as a percent of total sales or of stockholders' equity for a firm or group of firms, rather than for an individual product or group of products.

Price spreads for beef differ from specific industry operating gross margins in other ways.

For instance: (1) price spreads reported by USDA are estimated U.S. averages for Choice carcass beef, whereas gross margins cited by industry usually apply to the operations of single firms or a specialized group of firms . . . (2) price spreads are differences between prices at different marketing levels, whereas gross margins are for specific activities of a firm at a particular level and include only differences between dollars paid and received for beef. . . (3) spread estimates assume Choice beef sold in carcass proportion while margins represent all beef handled by a firm, regardless of grade and form in which purchased or sold-carcass, primal, subprimal, or cut . . . and (4) spreads are based on "standard yields" for Choice beef, while margins may represent cutting yields for a mix of other grades as well as Choice.

An article by USDA's Economic Research Service, entitled “Facts on Farm-Retail Price Spreads for Beef and Pork," gives more details. It appears in ERS-597. For a free copy, write the ERS Publications Unit, Room 0054, U.S. Department of Agriculture, Washington, D.C. 20250.

APPENDIX III

PROPOSALS IN DETAIL

A. PROPOSAL 1

This proposal is essentially what was already planned and would have been done even if criticisms had not been voiced. Continue the present Choice beef and pork price spread series with certain revisions and additions. These revisions would include a thorough review of the procedure for computing the price and volume effects of specials; probably the elimination of the farmer marketing costs allowance, which is used to adjust market prices of live animals to a farm gate. level; a widening of the geographic base for carcass and wholesale prices which would eliminate the need to adjust for transportation to consuming centers; and to assure a constant product over time the addition of yield grade as well as quality grade in price series used for live cattle and carcasses. The question of whether there should be a time lag between price levels will be studied. The addition of a primal value for beef between the carcass value and retail price would also be examined and if adopted would result in caracass-primal and primalretail spreads.

B. PROPOSAL 2

Develop a retail meat department margin series to supplement the spread series. Data for this series would come from a sample of retail firms supplying from their accounting records the total dollars paid for all meat purchased and the total sales of all meat sold (from their meat key). This would include the entire meat department, which may include fish, poultry, lunch meat and other products in addition to beef and pork. USDA would develop a series by weighting data from the sample firms. This proposed series would supplement the spread series and the revisions and additions in Proposal I would be completed as well as the meat margin series listed in Proposal II.

C. PROPOSAL 3

Measurement and publication of separate margin series for retail chains and packers for each of two products-all beef and all pork sold. In addition poultry margins could also be included as the additional submission of data required would be small, particularly at the retail level. These series would estimate actual U.S. average retailer and packer margins for all cuts and grades moving through the system. No farm value would be calculated, nor would the packer and retailer margins for a specie be additive. The packer margin would include meat sold to restaurants and institutions as well as to retailers.

The data needed would be collected from a statistical sample of retailers and statistical samples of both beef and pork packers. Retailers would be asked to submit prices paid not only for each specie but for all items purchased, cutting tests for items purchased, and prices of all cuts sold. Prices paid would be cost delivered to the store back door. Packers would be asked to provide prices of all carcasses, primals, subprimals, and byproducts sold along with quantities. They would also be asked for prices paid and volume of all animals purchased. The agreement of packers and retailers to submit these data on a continuing basis is a crucial determinant of whether this proposal could be adopted. This proposal series would supplement the present spread series. Proposal I would be completed along with Proposal III with data from Proposal III helping with the spread revisions. As Proposal III would appear to be the most comprehensive proposal that could reasonably be expected to be achieved additional details follow:

SPECIFICATION OF PURCHASE AND SALE POINTS

For retail we would specify cost into the back door of the retail outlet and what the consumer pays to take it out the front door as the points to compute values and the resulting margins. This would be regardless of form, i.e. carcass or primal for beef or for pork whether fresh loins, canned hams, or one-pound packages of sliced bacon. All fresh and processed products would be included except for luncheon meat items and items that contain other products, like chili or TV dinners.

The packing plant specification of purchase point would be purchase price whether at the plant door, terminal, or at the farm. Packer sale price for beef would be for carcass beef-even if this had to be an internal transfer price with a fabrication area of the same plant. The pork sale price would be for hogs after slaughtered and cut to primals such as hams, loins, bellies, etc. No processing would be included. Sale of all byproducts would also be included for both beef and pork.

DATA REQUIRED

A complete detailed list of quantities bought and sold by packers would be required along with the price of each item. Retailers would be asked to supply a complete listing of all items purchased along with their prices and quantities so that the purchase price could be calculated. If retailers have the quantities of each cut or item sold available we would prefer this, but in the absence of such information detailed cutting tests could be provided and we would make the computations. A complete price list of all items sold would be needed regardless of the method used to report quantities sold.

Note that for both packers and retailers either beginning and ending inventories would be needed or have to be taken into consideration by the firms in the data provided.

Data required would be for all beef and all pork primarily, but consideration is also being given to requesting data for poultry from the retailers as the additional amount of work required by the retailers would be small. A retail margin series for poultry would be a valuable addition to the poultry spread statistics.