Study points to payoff from cattle research, beef marketing

Economists use ‘econometric simulation model’ and find 
every $1 in checkoff investment generates a $14 return

A new study has found Canadian cattle producers receive a $14 benefit for every $1 in national checkoff fees invested in research and marketing activities.

The study, by University of Alberta ag economists James Rude and Ellen Goddard, examined the period from 2011-12 to 2013-14. It updates a similar 2010 study (covering the period from 2005-08) that put the benefit-cost ratio at $9 for every $1 checkoff.

“In a number of ways, the results from this study are even more encouraging than those from the earlier study,” the authors wrote in their report. “Although there are numerous sophisticated econometric analyses that could be applied to refine the BCR’s (benefit-cost ratios) reported in this study, that the impact is positive for Canadian producers is not in doubt.”

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The study uses an “econometric simulation model that mimics the beef and cattle markets in Canada and the U.S.”

“The model enables one to calculate retail and farm-level prices for beef and live cattle, respectively; final consumer demand for beef; production of beef; packer demand for cattle; supply of fed and non-fed cattle; and beef and cattle trade for a baseline situation and a variety of ‘what-if’ scenarios,” the authors stated.

The change in benefit-cost ratio for research, overseen by the Beef Cattle Research Council dropped from $46 to $34.50 during 2005 to 2008, while marketing by Canada Beef, had a benefit-cost ratio of $13.50, up from $7.55 in the previous study.

The Canadian Beef Cattle Research, Market Development and Promotion Agency — which oversees Canada Beef and the Beef Cattle Research Council — said the drop in the benefit from research dollars is a result of “‘diminishing marginal returns,’ which means as more and more money is spent on an activity, the marginal or incremental gains from it increase at a decreasing rate.”

Linda Allison, the chair of the agency, says there is a need for an increase in the national $1 checkoff.

“With the declining purchasing power of the national checkoff and reduced marketings in recent years, underinvestment is evident,” she said. “It is imperative that we continue to find ways to optimize the return for our producers across the country.”

“The work that the Beef Cattle Research Council and Canada Beef carry out continues to show great returns for our industry,” said Melinda German, the agency’s general manager. “By ensuring a sustained and increasing benefit-cost ratio, we can continue to work towards common industry goals laid out in the national beef strategy.”

In a separate report, Canfax said the $14 is better than what similar studies on the payback from research and marketing have found in the U.S. ($11.20 generated for every dollar invested) and Australia ($6.20).

The full report can be found online.

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