National Academies Press: OpenBook
« Previous: 3 Sheep Health Issues
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 169
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 170
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 171
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 172
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 173
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 174
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 175
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 176
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 177
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 178
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 179
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 180
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 181
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 182
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 183
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 184
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 185
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 186
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 187
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 188
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 189
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 190
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 191
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 192
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 193
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 194
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 195
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 196
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 197
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 198
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 199
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 200
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 201
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 202
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 203
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 204
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 205
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 206
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 207
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 208
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 209
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 210
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 211
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 212
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 213
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 214
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 215
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 216
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 217
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 218
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 219
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 220
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 221
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 222
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 223
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 224
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 225
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 226
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 227
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 228
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 229
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 230
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 231
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 232
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 233
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 234
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 235
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 236
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 237
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 238
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 239
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 240
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 241
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 242
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 243
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 244
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 245
Suggested Citation:"4 The U.S. Lamb Industry." National Research Council. 2008. Changes in the Sheep Industry in the United States: Making the Transition from Tradition. Washington, DC: The National Academies Press. doi: 10.17226/12245.
×
Page 246

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

4 The U.S. Lamb Industry T he largest downstream component of the U.S. sheep industry supply chain is the lamb industry. Lamb consumers represent the end users of the lamb industry component of the supply chain. Ultimately, production is driven by consumer demand. Signals provided by consumers determine in large part how much lamb moves through market channels. At the other end of the lamb industry component of the supply chain are a relatively few number of packers who transform the live animals to meat and byproducts. Between packers and consumers are breakers, further fab- ricators, wholesalers, retailers, and foodservice purveyors who transport and further transform the meat for sale to consumers. Not surprisingly, given the historical contraction of U.S. sheep invento- ries as chronicled in Chapters 1 and 2, U.S. sheep and lamb slaughter, along with lamb production and demand, have also declined over the years. Lamb production has declined more rapidly than lamb consumption, falling by over 80 percent from a high of nearly 0.50 billion kilograms in 1945 to the low of 84.4 million kilograms in 2006 (USDA, 2007a). Buoyed by growing imports in recent years, however, U.S. lamb consumption hit a low of 134 million kilograms in 1996 and has grown slowly over the last decade. The resilience of lamb consumption in the face of declining domestic production has arrested the slow decline in per capita consumption, which has held steady at 0.50 to 0.55 kg since the mid-1990s. Even so, as a share of total U.S. red meat consumption, lamb has dropped from over 5 percent in the 1930s to just under 1 percent since 2000. While these numbers accurately characterize historical changes in the U.S. lamb industry, focusing on these numbers alone fails to recognize the important contribution of the lamb 169

170 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES industry to the U.S. agricultural economy and the potentially industry- transforming changes currently in process, such as the emergence of direct marketing, growth in ethnic demand, and other market forces creating some optimism about the future of the industry. This chapter takes a close look at the U.S. lamb industry, with particular interest in the current status of and changes taking place in lamb produc- tion, marketing, consumption, and trade, along with the market forces and government policies that influence their patterns of change. The discussion is based on a wide range of research on the lamb industry, including supply issues (e.g., Whipple and Menkhaus, 1989; Purcell et al., 1991; Van Tassell and Whipple, 1994), demand issues (e.g., Whipple and Menkhaus, 1989; Williams et al., 1991; Byrne et al., 1993; Purcell, 1998), marketing margin and packer concentration issues (e.g., Menkhaus et al., 1989; Brester and Musick, 1995; Capps et al., 1995; Viator et al., 2007); trade issues and foreign lamb markets (e.g., Richie, 1979; Reynolds and Gardiner, 1980; Babula, 1996, 1997; U.S. International Trade Commission (US ITC), 1999; Vere et al., 2000; Muhammad et al., 2007); and the welfare implications of government policies (e.g., Whipple and Menkhaus, 1990). The chapter concludes with a summary of the major accomplishments, opportunities, and challenges facing the lamb segment of the U.S. sheep industry. LAMB SLAUGHTER AND PRODUCTION Even as slaughter has declined over the years, the average live weight of slaughter lambs has grown, particularly since the mid-1990s, so that lamb production has declined somewhat more slowly than slaughter (Figure 4-1). From 10.5 million head in 1970, federally inspected sheep and lamb slaughter dropped by more than half to 5.0 million head only 9 years later in 1979. Following a brief upsurge over the next few years to nearly 6.8 million head in 1984, slaughter began to decline once again, reaching only 2.5 million head in 2006 (USDA, 2007b). Over the same period, however, the average live weight of slaughter lambs increased from 47.5 kg to around 63.5 kg and dressed weight from 23.45 kg to about 31.75 kg (ASI, 2007). The heavier weights of the slaughter lambs helped slow the decline in lamb production from 250 million kg in 1970 to 80 million kg in 2007. One consequence of the decline in slaughter has been a decline in the number of packers buying sheep and a drop in public and non-public auc- tions by over 70 percent between 1980 and 2005 (Figure 4-2). In turn, the decline in the number of packers has led to both regional and structural concentration in sheep and lamb slaughter. Regionally, about three-quarters of the 2.5 million head slaughtered in 2006 were concentrated in the Mid- west and Mountain states (Table 4-1). Another 9.5 percent occurred in the Northeast, with the rest scattered among a large number of other states

THE U.S. LAMB INDUSTRY 171 12,000 600.0 10,000 500.0 8,000 400.0 1,000 head Pounds 6,000 300.0 4,000 200.0 2,000 100.0 0 0.0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 years Slaughter Average liveweight Production Fig 4-01.eps FIGURE 4-1  Lamb slaughter, production, and average liveweight, 1970– 2004. (1 pound (lb) = 0.4536 kg.) Source: USDA (2006). around this country. Structurally, only a few firms slaughter a large share of the sheep produced in the country. In 2005, the four largest slaughtering firms accounted for 69.6 percent of the federally inspected lamb slaughter (USDA, 2007c). The percentage of lambs slaughtered by the four largest packers, termed the four-firm concentration ratio (CR4), however, has declined from a high of 75 to 80 percent in the early 1990s, following a rash of mergers and acquisitions in the meat packing industry (Williams et al., 1991; USDA, 2007c). Most packing facilities are located strategically near lamb feeders, consumers, or both. Of 205 lamb packing plants, one is classified by the USDA Food Safety Inspection Service (FSIS) as large (500 or more employees), while 42 are classified as small (10 to 499 employees) and another 162 as very small (fewer than 10 employees or less than $2.5 million in annual sales). The majority of finished lambs (both grain-fed and grass-fed) are pur- chased by packers for slaughter. Packers separate the pelts and offal from the lamb carcasses, which are inspected by FSIS. Lamb carcasses are also usually quality graded by the USDA Agricultural Marketing Service (AMS). Packers have traditionally marketed their products as hanging carcasses

172 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 120 100 Number 80 60 40 20 0 1980 1985 1990 1995 2000 2002 2003 2004 2005 Year Packers Non-Public Markets Plants Non-Public Markets Packers Public Markets Plants Public Markets FIGURE 4-2  Number of lamb packers and plants by market type.a   aNonpublic includes all sources except terminal markets and auctions. Public includes terminal markets and auctions. Fig 4-02.eps Source: USDA (2007c). TABLE 4-1  U.S. Federally Inspected Sheep Slaughter by Region, 2006 Regiona 1,000 head    % Northeast 242.2 9.5 Southeast 36.9 1.4 Midwest 770.2 30.3 Central 43.4 1.7 Mountain 1,093.5 43.0 Northwest 23.9 0.9 Other States 335.3 13.2 Total U.S. 2,545.4 100.0   aStatesin each region: Northeast = DE, MD, NJ, NY, PA, VA, WV; Southeast = AL, FL, GA, KY, MS, NC, SC; Midwest = IA, IL, IN, KS, MI, MN, MO, NE, OH, WI; Central = AR, LA, NM, OK, TX; Mountain = CO, MT, ND, SD, UT, WY; Northwest = AK, ID, OR, WA; Other States = all states not in any other region. Source: USDA (2007e).

THE U.S. LAMB INDUSTRY 173 or boxed primals of carcass equivalents to breakers for further processing into consumer units. Secondary products include offal moving to rendering plants and pelts moving primarily to industrial leather processors. In 1990, only 38 percent of packer sales went directly to the traditional breakers, 36 percent directly to retailers (primarily supermarkets), 8 percent directly to foodservice (primarily hotels, restaurants, and institutions), and the remain- ing 17 percent directly to nonbreaking wholesalers marketing to both the retail and foodservice channels (Williams et al., 1991). As the demand for case-ready products has grown along with the demand for value-added cuts, packers are now doing much of this further processing themselves, although current data are not available. Lamb Carcass Yield and Quality Perhaps the most difficult challenge in lamb production is excess fat on lamb carcasses (Magagna, 1991; Williams et al., 1991; Tatum et al., 1992). The current market structure and pricing system reward producers and lamb feeders for weight rather than a value based on quality and yield grades. The factors that play an important role in the assessment of value of the lamb carcass include the relationship between weight (live and carcass), genotype, muscling (lean), and how they relate to fat (lipid content) of the carcass. Noticeably more lambs are being harvested when they are in the plateau of their growth curve (rather than in the positive plain of the growth curve), and as a result they are predisposed to depositing more fat than muscle. At the same time, some breeds, and individuals within a breed or population, should be harvested at lighter weights based on their individual maturity patterns to avoid excessive fat depositition whereas others (breeds, indi- viduals within breeds, or populations) are capable of being fed to heavier weights because they have a later maturity pattern that results in heavier carcasses with relatively more muscle and less fat. The tendency is to feed all lambs (regardless of maturity pattern) to about the same average live weight, which leads to excess fat in many breeds and individuals. Without a value‑based marketing system in the lamb meat industry, the tendency is to keep all lambs on feed for an extended period of time. In many cases this is done without consideration of lean gain per day. When discussing the importance of introducing a value‑based marketing system, it is crucial that the discussion include an assessment of the current USDA lamb grad- ing system. It is imperative that the lamb grading system be reviewed for its ability to accurately predict and/or assess lean versus fat. The standards for slaughter lambs, yearlings, and sheep were revised July 6, 1992, requiring the “coupling” of quality and yield grading to identify both quality and yield when carcasses are officially graded and to require removal of most of the kidney and pelvic fat prior to grading. In

174 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES addition, leg conformation score was eliminated as a yield grade factor, and the fat thickness range in each yield grade was shifted and narrowed (USDA, 2007d). The changes were made in response to requests by produc- ers as represented by the American Sheep Industry Association (ASI) “to provide an improved communication tool to efficiently reflect consumers’ preferences for lean meat products back to producers” (USDA, 2007d). The changes were overwhelmingly supported by all industry segments except lamb feeders and lamb slaughterers and processors (USDA, 2007d). Those two segments of the industry were split on the changes (USDA, 2007d). The purpose of the grading system is to aid in the pricing and marketing of lamb. Quality grades provide an assessment of two components that in- fluence carcass excellence: conformation and quality (fatness, maturity, and other indicators of differences in palatability of the lean flesh). Conforma- tion is evaluated by averaging the overall thickness and shape of the carcass in the rack, loin, and leg regions. The quality grades for lamb (12 months of age or younger assessed by physiological maturity) and yearlings (12 to 24 months of age) are prime, choice, good, and utility; for sheep (older than 24 months) quality grades are choice, good, utility, and cull. Quality grades are determined based on flank streaking, leg conformation scores, and lean maturity. Sheep must exhibit a higher degree of flank streaking than lambs or yearlings to grade choice. Lamb is more easily labeled as prime with the correct conformation and flank streaking (Purdue University, 2007). Prime is the highest and choice is the second‑highest quality grade demanded by consumers. Table 4-2 gives an example of lamb carcass quality grading based on flank streaking and age. TABLE 4-2  Lamb Quality Grading Age of Lamb Young Older Yearling Flank Streaking Lamb Lamb Mutton Mutton Abundant Prime Prime Prime Prime Moderately abundant Prime Prime Prime Prime Slightly abundant Prime Prime Prime Prime/Choice Moderate Prime Prime Prime/Choice Choice Modest Prime Prime/Choice Choice Choice Slight Choice Choice/Good Good Good/Utility Traces Choice/Good Good/Utility Utility Utility Practically devoid Good/Utility Utility Utility Utility/Cull Source: Based on data from Purdue University (2007).

THE U.S. LAMB INDUSTRY 175 Before 1992, yield grades determined the amount of proportional trimmed meat in comparison to fat and bone in the carcass. Yield grades were determined by measuring the external fat thickness between the 12th and 13th ribs of the carcass, an estimate of the kidney, pelvic, heart fat, and conformation of the leg according to the following equation: Before 1992 Yield Grade = 1.66 – (0.05 × leg conformation score) + (0.025 × percentage kidney, pelvic, and heart fat) + (6.66 × adjusted backfat thickness) The current equation that was approved for use on July 6, 1992 only uses adjusted back fat measured at the 12th rib, over the loin eye, Current yield grade equation = 0.4 + (10 × adjusted backfat thickness) Berg et al. (1998) reported that factors that influence the percent bone- less closely trimmed retail cuts (BCTRC) are carcass muscle mass, carcass weight, internal fat, subcutaneous fat, and intermuscular (seam) fat. They also concluded that the current cutability grades (estimation of the percent BCTRC) used in the three red meat species (beef, pork, and lamb) incorpo- rate one or more of these criteria to establish value associated with saleable product. Table 4-3 shows the differences in the current yield grading criteria for beef, pork, and lamb carcasses. Clearly, lamb yield grades are based on the least amount of information when compared to carcasses from beef and pork. Further, the lamb yield grading system is the only one for the three red meat species that does not account for muscling in the measurement equation. External fat is related to total carcass fatness. As the external fat increases, so does the numerical yield grade, resulting in a presumed TABLE 4-3  Comparison of Yield Grade Criteria for Beef, Pork, and Lamb Carcasses Yield Grade Criteria Measurement Beef Pork Lamb Size Carcass weight None None Muscling Ribeye area Muscle score None Trimmable fat 12th rib fat thickness Last rib backfat 12th rib fat thickness Internal fat Kidney, pelvic, and heart fat None None Source: Berg et al. (1998) adapted from Savell (1997). Copyright 1998 by ASI. Used with permission.

176 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES reduction in carcass value (Field et al., 1963; Carpenter et al., 1964; Garret et al., 1990; Harris et al., 1990; Fritz et al., 1995). The U.S. lamb grading system is a visual appraisal of carcass fatness that leaves room for error due to the subjective nature of the assessment. The original intent of the yield grading system was to assess carcass value based on factors relative to muscle, fat, and weight, but the current system only evaluates fatness of the carcass. When USDA graders evaluate lamb fatness, a subjective visual estimate of fat depth adjacent to the 12th rib, it is used as a predicator of percent BCTRC (Berg et al., 1998). The evaluation can be adjusted for body wall thickness and other indicators of carcass fatness. A single measurement based on a visual appraisal of fat depth can lead to the misclassification of lamb carcasses relative to retail yield (Berg et al., 1998). Heaton et al. (1993) found that visual estimation of a single fat trait (12th rib fat) was, at best, a marginal predictor of lamb carcass composition even when the most expe- rienced lamb carcass evaluators were used. Snowder et al. (1994) reported that backfat depth only accounts for 21–22 percent of the variation in the percentage of major and total retail cuts under commercial conditions. They also found that body wall measurement for fat depth was a better indicator of total carcass fatness, explaining more than 30 percent of the variability for yield of retail cuts as compared to the use of backfat measurement over the 12th rib. Although the yield grade calculation accounts for the fat that is trimmed prior to reaching the retail case, the calculation does not account for seam fat, which is seen by the consumer and possibly affects purchasing decisions at the retail case. If consumers make lamb-buying decisions based on the meat-to-waste ratio or on the perceived healthiness of the cut purchased, seam fat is a negative in the lamb retail case. Accurately predicting seam fat would help the lamb industry to sort and price carcasses that are desirable based on consumer acceptance and purchasing criteria. Although the current yield grading system is not the most accurate or the most useful in determining the value of lamb carcasses, it is easily implemented during the movement of carcasses from the cooler to fabrica- tion. Line speed in the packing plant is the largest hurdle to overcome in implementing new technologies to estimate the percent BCTRC. A number of new procedures to evaluate carcass value based on the relationship be- tween fat and muscle have been investigated. Berg et al. (1998) reported that warm carcass weight, loin eye area, and body wall thickness, when com- bined with external fat depth (12th/13th rib interface), predicted percent BCTRC better than any other measures they tested with the exception of an optical grading probe measurement of a chilled carcass. They concluded, however, that taking all of these linear measurements is time-consuming and labor‑intensive and would not be practical in today’s lamb packing plants,

THE U.S. LAMB INDUSTRY 177 particularly since carcasses are not ribbed, which allows the collection of loin eye area measurements. Championed by producer cooperatives and direct marketers, value- based marketing systems would benefit from an accurate evaluation tool to assess BCTRC or something similar. Such a system is designed to pay producers premiums for lamb carcasses that meet particular quality and yield specifications. Although a number of other procedures for estimating the percent BCTRC from lamb carcasses have been investigated, the change in the USDA grading system to require both yield and quality grading has focused research on measures that improve accuracy over the current sub- jective visual assessment. Cattle producers were reluctant to sell beef in a carcass merit system as an assessment of the grading system using humans rather than calibrated technology (Savell and Cross, 1991). Cross and Belk (1994) maintained that a true value‑based marketing system will not be accepted by producers unless carcass value is determined through objective mechanical instrumentation. Some of the more effective mechanical mea- surement techniques currently available include the following: • Video Image Analysis (VIA). Of the new technologies that have been introduced over the last decade, VIA, or more commonly referred to in the sheep industry as lamb vision system (LVS), seems to be the most promis- ing. It is relatively accurate and has inline capabilities that do not slow line speed in a commercial packing operation. The measurements that LVS can assess include carcass length, groin to right leg length, groin to left leg length, distance from groin to end of shank, red color score for shoulder, blue color score for shoulder, red color score for loin, blue color score for loin, distance between the two legs, groin area, carcass area, total carcass width, leg area, leg width, and groin angle (Brady et al., 2003). These mea- surements help to assess shape and size of carcass, degree of muscularity, and relative proportions of fat and lean (Brady et al., 2003). When compared to the current yield grade equation, LVS has a more detailed inventory of factors that predict lamb carcass cutability (BCTRC). Assessment of LVS in the United States (Brady et al., 2003; Cunha et al., 2004) has validated the prediction equations and determined that both the accuracy and precision of bone-in cut yields of lamb carcasses were improved by the use of LVS compared with the current grading system. Furthermore, the authors of these reports have reported that predicted accuracy exceeded that of other methods. This equipment is in use in commercial beef plants as a method of assessing and sorting beef carcasses. Brady et al. (2003) concluded that packers would benefit from the use of LVS combined with hot carcass weight by having tighter control on inventories and producers would benefit by receiving feedback regarding lamb carcass data. The Welsh Country Food Group (2007) also reported that LVS will offer considerable benefits to

178 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES both producer and processor. According a to validation study by Cunha et al. (2003) for USDA AMS, the use of LVS explained a greater proportion of the observed variation in yields of bone-in cuts from carcasses than did expert (whole number) USDA yield grades, expert (nearest tenth) USDA yield grades, or online (whole number) USDA yield grades. The equipment is being used in other countries to sort lamb carcasses and assess value. • Optical Grading Probes (OGP). The basic principle behind the OGP technology is that fat that is predominantly white reflects more light than lean muscle, which would be darker in color. The OGP technology has been used in the pork industry with considerable success over the last two decades. Berg et al. (1998) reported that, in an online industrial setting, the OGP technology (1) is simple to operate, (2) is relatively inexpensive, and (3) can assess carcass composition at rapid line speeds. Hopkins et al. (1995) reported the greatest limitation of the OGP technology is its reliance on a human operator, which creates the potential for error (see also Boland et al., 1995a). • Ultrasound. Although real-time ultrasound technology has been used successfully in the swine industry, the use of the technology with beef and sheep has been less successful due to the presence of hair or wool and/or variations in the thickness of pelt. The use of ultrasound is also dependent on a human operator who is highly trained and versed in interpretation of ultrasonic images. Ultrasound can be used successfully when the integrity of the image being captured is not hindered in any way prior to the image capture. Berg et al. (1998) reported that using ultrasound on carcasses after the pelt is removed introduces error in the measurements. The practice of pelt removal introduces air pockets in the subcutaneous layer of the fat, hin- dering ultrasonographic penetration and resulting in “noise” in the captured image. Using ultrasound on live sheep and lambs prior to harvest, while assuring an accurate reading, would require a patch of wool to be sheared to the skin at the 12th rib. Although this process would help in capturing a more accurate image, it would result in a discounted pelt credit as well as requiring additional labor to take the measurements. Ultrasound can be used as a tool for selection in a breeding flock where time and pelt credits are not at a premium. • Bioelectrical Impedance (BI). BI technology has been used success- fully for measurement of human body composition (Heitmann, 1994). Many of the applications of the BI technology in the livestock industry have been adopted from the human health field. With minor adjustments in programming, the same equipment is used to measure livestock carcass composition. Slanger et al. (1994) tested the BI technology to assess carcass composition in a commercial packing plant and concluded that the tech- nology had great promise for use in the lamb industry as a way to predict kilograms of retail‑ready product. Berg et al. (1998) reported that the BI

THE U.S. LAMB INDUSTRY 179 technology is simple, affordable, nondestructive, portable, and a useful tool in live animal and carcass evaluations. • Electromagnetic Scanning or Total Body Electrical Conductivity (TOBEC). As the carcass is passed through on a conveyor, muscle tissue absorbs energy whereas fat and bone do not (Berg et al., 1998). Conse- quently, an electromagnetic absorbance curve can be determined and used to calculate the lean versus fat or bone composition of the carcass. The TOBEC measurement process is highly accurate for determining total body composition. Researchers have determined that this method of body compo- sition estimation is highly accurate for pork (Boland et al., 1995b) and lamb (Berg et al., 1994, 1997). The main drawback to the TOBEC measurement procedure is the amount of space required for equipment. The cost of con- struction and remodeling the slaughter line to allow for the equipment could be substantial for some operations. Also, the TOBEC equipment is more expensive than that required for any of the other measurement procedures previously discussed. Without an accurate assessment of lamb carcass yield (estimation of percent BCTRC), procurement of lambs based primarily on live weight will continue to encourage the purchase of lambs that are overfinished. However, identifying a method that will accurately assess the yield of a carcass has been the challenge. Berg et al. (1998) asserted that carcass procurement based on lean yield would be a strong deterrent to marketing overfinished lambs. They concluded that building producer confidence and packer ac- ceptance for quality grading procedures for lamb carcasses will require a carcass yield pricing system with an acceptable level of accuracy in carcass evaluation (percent BCTRC). Live weight has traditionally been used as a measure of market readi- ness. Many researchers have looked at the relationship between weight (live and carcass) and carcass lean versus fat yield. Wishmeyer et al. (1996) demonstrated that the correlation between harvest weight and measures of carcass fat is positive and moderately high and that there is a negative cor- relation between harvest weight and measures of carcass lean yield. They reported that live weight was highly correlated with whole-body lean tissue (r = 0.96), ether extractable fat (r = 0.86), and crude protein (r = 0.80). Jenkins et al. (1988) found that carcass weight accounts for 91 percent of the variation in fat‑free lean tissue. Slanger et al. (1994) found that carcass weight is a reliable predictor of total weight of retail cuts. Tatum et al. (1988) reported that increased carcass weight was highly associated with increased carcass fatness. Garrett et al. (1992) supported this finding and reported that yield grade 2 carcasses are significantly lighter than yield grade 3 and 4 carcasses. Berg et al. (1998) reported that live and carcass weight can explain moderate to high amounts of variation in the weight of total

180 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES lean, fat‑free lean, dissected carcass fat, and composition of whole body. A number of researchers (Edwards et al., 1989; Garrett et al., 1990, 1992; Berg et al., 1996, 1997) reported that the correlations between live/carcass weight and percent BCTRC, percent total dissected lean, and percent fat‑free lean are small and statistically insignificant, meaning that live and carcass weight are poor predictors of retail cut yield. Food Safety and Efficiencies Although food safety is of concern in the meat industry, the primary public health concerns have focused on beef, pork, and poultry-based products. These three species are also the focus of the Pathogen Reduction, Hazard Analysis and Critical Control Point (HACCP) Systems regulations (USDA, 1996). These regulations require slaughter plants to test for generic Escherichia coli to verify that they are preventing fecal contamination. To verify that HACCP systems are effectively controlling contamination of raw products, FSIS takes samples from slaughter plants and ground-meat plants for Salmonella and measures the results against performance standards de- veloped from nationwide microbial baseline surveys conducted before the regulations took effect (USDA, 1996; Morris, 2003). The requirements for developing and implementing sanitation standard operating procedures, a HACCP plan with clearly identified critical control points in the production system, and requirements for microbial testing for generic E. coli took effect at large meat and poultry plants (500 or more employees) in 1998, at small plants (10 to 500 employees) in 1999, and at very small plants (fewer than 10 employees or annual sales of less than $2.5 million) in 2000. Because lamb is considered a minor species, it was not covered initially by the 1996 HACCP regulations. In 1999, however, FSIS began requiring plants slaughtering minor species such as sheep, goats, horses, mules, and other equines, as well as those that slaughter ducks, geese, and guineas, to sample and test carcasses for generic E. coli (USDA, 1999). As summarized in comments to the final rule, some opposition surfaced with respect to sampling sites on the lamb carcasses, as well as the frequency of sampling rate (USDA, 1999). Some packers argued that the lamb industry, with a smaller animal (frame and weight) than cattle or hogs and more animal throughput should not have to be sampled at the same frequency as required of the major species. The final rule required lamb to be tested at the same frequency (1 out every 300 carcasses harvested) as cattle or at least once a week, whichever is greater. Further sample collection occurs at three sites: flank, breast (brisket), and leg (rump). Although foodborne illnesses have not plagued the sheep and lamb industry as has been the case for the beef, pork, and poultry industries, lamb packers appear to be responding to the changes in regulations in full

THE U.S. LAMB INDUSTRY 181 force. Most have implemented their own in-house laboratories on location at the packing plant or have contracted with outside agencies to sample and evaluate their sanitation operations. One reason that there are more incidences with foodborne illness related to the major species in the United States is the variety of products from those species available to the consumer. Most bacteria are associated with the exterior portion of the product (con- tamination of the subcutaneous layer of fat during pelt removal) since they are aerobic in nature. With the limited ways that lamb is presented to the consumer and with few of those items in the ground or further processed form, chances for a foodborne illness outbreak are reduced. Many of the food illness outbreaks related to meat are due to contaminated and under- cooked, ground, or further processed products (ground/chopped/flaked and then mixed) when bacteria can move from the surface of the product to the interior where they might be trapped in air pockets shielding the bacteria from heat during the cooking process. Foodborne illness becomes a problem when the product is not thoroughly cooked. In the case of lamb, the major- ity of the cuts offered are whole muscle cuts that are not further processed. Product development research leading to increased use of more of the lamb carcass will likely increase the incidence of foodborne diseases unless there is an associated research effort on pathogen control. Meat‑processing systems that focus on producing a safe, wholesome product delivered to the consumer include inverted harvest systems and technologies used in multiple hurdle applications. Although a popular meat‑processing system in Australia and New Zealand, only a few process- ing plants in the United States have introduced inverted chain harvesting, in which the lamb is hung by its front legs after harvest and prior to eviscera- tion. This process has been reported to have the potential to reduce labor cost using the natural weight of the pelt to pull away from the lamb carcass, reducing the amount of trim required (USITC, 1999). With less handling, there is a reduced risk of contamination (USITC, 1999). Also, with the weight of the pelt falling away from the carcass there is less opportunity for contamination from the pelt. Time of year plays a significant role in the level of potential contamination in a lamb harvest facility. Bacterial contamina- tion from pelt/carcass contact is reduced during dry seasons of the year since reduced pelt moisture reduces bacterial activation on the pelts. The opposite is the case during wet seasons of the year. Additionally, an inverted harvest system relies on the natural musculature of the lung which confines the viscera better than the esophagus. In addition to contaminants that might be present on the pelt, leakage from the rumen through the esophagus can contaminate the breast/shoulder region, elevating bacterial counts. These types of systems have been used in Australia and New Zealand with much success over the years in producing cleaner carcasses with less microbial load upon entering the initial chill cooler. A few American packing operations

182 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES have followed suit, adopting improved slaughter facilities that embrace the Australian and New Zealand design. Many lamb slaughter plants have implemented multiple hurdle systems to minimize pathogens. The pathogens of most concern in the meat industry include E. coli O157:H7, Salmonella spp., Listeria monocytogenes, Cam- pylobacter, Clostridium botulinum, Clostridium perfringens, Staphlococcus aureus, Aremonas hydrophilia, and Bacillus cereus (Huffman, 2002). These bacteria are the targets of food safety procedures of all meat‑processing facilities regardless of species. Leistner and Gould (2002) described the principles of hurdle technology and concluded that if the initial microbial load is substantially reduced as a result of carcass decontamination proce- dures, fewer microorganisms are present and will be more easily inhibited in any subsequent processing steps. Packers also have added in-line methods to reduce microbial load on carcasses prior to reaching the chilling cooler. One company has implemented a multiple hurdle approach for beef as a comprehensive means of reducing pathogen load that includes six steps: washing, steam vacuuming, prewash/organic acid rinse, double thermal pasteurization, thermal organic rinse, and cold carcass sanitizer. In the lamb packing industry, steam pasteurization, hot water rinses, and organic acid rinses (lactic or acetic acid) have been implemented nationally. Kochevar et al. (1997) reported that a 2 percent acetic acid (vinegar) wash at 74oC is the most effective in reducing total plate count and the effects of inocu- lated lamb adipose (subcutaneous fat) tissue with fecal contamination. The Kochevar et al. (1997) study compared varying temperatures (16oC, 35oC, and 74oC) and four different solutions (12 percent trisodium phosphate, 2 percent acetic acid, 5 percent hydrogen peroxide, and 0.003 percent avail- able chlorine). Other research on the preharvest reduction of bacteria on livestock includes analyses of reduced shedding and prevalence of E. coli O157:H7 and other pathogenic bacteria through dietary changes (rough- age vs. concentrate), the use of probiotic bacteria to reinoculate the rumen working on the principle of competitive exclusion, and drinking water treat- ments prior to harvest (Huffman, 2002). While the expense of these pathogen-reducing systems may be prohibi- tive to some smaller facilities, the payback to those able to implement these systems will be a safer product with a longer shelflife. The implementation of these systems presents problems other than the cost of the equipment as well. The systems can lead to added facilities and equipment maintenance costs because the chemical substances used are highly corrosive to metals other than stainless steel. Most lamb slaughter plants are somewhat dated and not likely to have stainless steel rails and equipment. In addition, high water temperatures, steam, and corrosive materials also create handling and human health concerns.

THE U.S. LAMB INDUSTRY 183 Processing to Enhance Value According to a recent survey (Harris Interactive, Inc., 2007), 73 percent of American consumers have not eaten lamb within the previous 12 months. The survey also indicated the reason that many people (42 percent) do not eat lamb is that they just do not think about lamb when they are making their food purchase decisions. A study conducted by Cryovac® reached a similar conclusion (Sealed Air Corporation, 2007). The study found many people do not eat lamb because it is simply not available for purchase on a regular basis when they shop. The study found only 65 percent of the supermarkets audited carry at the most a single lamb product in the re- tail case and lamb accounts for, on average, 1 percent or less of the space dedicated to fresh meat sales in self-service retail cases, which was about half the space allotted to nonmeat items in those same cases. This result is consistent with the findings of Williams et al. (1991). The Cryovac study also found < 1 percent of the total lamb displayed in grocery store meat cases is preseasoned or marinated. The consequence is few options for lamb consumers in retail stores. Poultry, beef, pork, and other protein sources that account for a substantially higher share of the retail case have also seen the rapid emergence of an increasing variety of precooked, easy-to-prepare, value-added products in recent years. Partially driven by dual-income households (65 percent of married women work outside the home) and longer work hours, almost 45 percent of Americans indicate that convenience plays a major factor in food choices because they have less time to prepare the family meal (Lyons, 2000; NPD, 2003). In response to a question regarding preparing lamb for dinner, participants in a national consumer focus groups study in 2001 responded that when they think of cooking lamb, they think of a lot of preparation time with oven cooking of three to four hours. The participants indicated that dinner needs to be prepared and on the table in 30 minutes to fit their schedules, which can be done with chicken, beef, and pork. Although the lamb industry has lagged behind the beef, pork, and poultry industries in responding to these and other markets forces and trends affecting consumer purchasing behavior, both researchers and pro- cessors in the lamb industry are increasingly focusing on developing new technologies and new product offerings to enhance the value of lamb by doing a better job of meeting rapidly changing consumer needs. Research is focusing on enhancing tenderness, flavor, juiciness, and ease of preparation; establishing consistency within a product line; new product development, including partial and precooked convenience items; and improving product packaging and appearance. The major overall objective is to make lamb a strong contender for the center-of-the-plate, not only for meals purchased in restaurants but also for those prepared in the foodservice industry and

184 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES in the home. The following are three areas where additional research and development are needed. • Controlled/modified-atmosphere packaging. A reduction in bacterial counts increases product shelf life and stability particularly if the product undergoes further processing or alternative packaging systems. International processors have been using controlled-atmosphere packaging for some years by replacing oxygen with 100 percent carbon dioxide. In the United States, 100 percent carbon dioxide packaging is being used to extend the shelf life of products in the holding cooler prior to retail display, which allows both large and small retail outlets to have a constant supply of fresh lamb in their retail cases. The advent of new packaging systems has made the develop- ment and marketing of new products more feasible since the only point of contact with the product is at the packing plant, which reduces the oppor- tunity for possible contamination or cross-contamination (with cuts from other species) and extends shelf life for up to several months. Lamb products would benefit from greater implementation of these new technologies. • Product development. The lamb industry is following the lead of oth- er meat industries in designing products that are quick to prepare, ready to eat, and shelf stable. Taking their lead from retail-level studies and “quality audits” related to beef and pork concluding that meat consumers want qual- ity, consistency, and convenience in preparation (Purcell, 1989), researchers are exploring processing techniques used in other meat industries, such as grinding, chopping, flaking, forming, and pressing for application to lamb. For example, one major lamb processor is developing product lines geared to clientele who have minimal time to plan and prepare a meal, while at the same time ensuring an enjoyable eating experience (A. Catelli, personal com- munication, 2007). Fox et al. (2003) concluded that a precooked lamb curry product compared favorably to a similarly prepared beef product in terms of consumer preference and could be a viable option in the marketplace. The researchers were concerned, however, that since their results were based on blind sensory trials, many consumers would perceive a difference between an all‑lamb and all‑beef product if the product were labeled as such (Fox et al., 2003). Additional product development will help meet new consumer interest in lamb as a convenient and alternative protein source. • Value-added retail cuts. The meat industry continues to look at new, enticing ways to present products to consumers in the retail meat case. Families are smaller today and most, aside from a desire for easy and quick‑to‑prepare meals, are interested in portion-appropriate food products. With the exception of a variety of chops, the majority of the lamb cuts in the retail case, primarily legs and shoulders, consist of large portions. Many consumers either do not know how to prepare large-portion cuts such as a bone-in leg or a square-cut shoulder or they simply do not have the time

THE U.S. LAMB INDUSTRY 185 to dedicate to the required preparation. Segmenting larger cuts into smaller portions that require minimal knife work and processing could more ap- propriately meet consumer needs and enhance their lamb-eating experience. Many lamb processors have developed products with portion size in mind. The top‑selling lamb subprimals and cuts continue to be shoulder/shoulder cuts and legs, cuts that are not consistent with current consumer trends to- ward smaller portions (Tables 4-4 and 4-5). Segmenting cuts like the bone-in leg and/or leg roasts into smaller single- or double-serving cuts and apply- ing postharvest applications to ensure a tender, flavorful, easy-to-prepare product could better meet consumer needs and enhance retail lamb sales. Nutritional and Sensory Issues Lamb meat nutrient profiles are similar to those of other protein sources with some minor differences. According to ASI, lamb compares favorably to chicken and beef and is superior to pork in terms of total fat, saturated fat, and cholesterol (Table 4-6). In contrast, Jamora and Rhee (1998) reported the total fat content of lamb (5.25 g/100 g separable lean) is about 17 per- cent lower than that of beef (6.33 g) and 22 percent lower than pork (6.75 g). Many of the animal proteins are reported to have a higher saturated fatty acid percentage when compared to fats of vegetable origin. However, like beef and pork, lamb fats are less than one-half saturated compared to their unsaturated fatty acid fraction. Jamora and Rhee (1998) also concluded that lamb saturated and polyunsaturated fatty acid percentages are between those of pork and beef. In addition, lamb is lower in monounsaturated fatty acids than beef or pork, but higher than veal or chicken. In terms of the protein levels, Jamora and Rhee (1998) found lamb is comparable to beef and pork. They reported similar findings for mineral levels, and in addition, they found lamb is a good source of zinc and phosphorus. Schweigert (1987) reported lamb is high in B vitamins, particularly B12, and it provides more niacin than beef or pork. Despite the comparable nutritional value of lamb and other animal protein sources, lamb consumption remains substantially lower than that of other protein sources in the United States. Part of the answer may relate to the distinct sensory properties of lamb compared to those of other ani- mal proteins (Sink and Caporaso, 1977; Cramer, 1983; Jones et al., 1988; Jamora and Rhee, 1998). Age, sex, diet, breed, pH, and the extent and type of cooking done have all been linked to the distinctive lamb flavor profile with which American consumers are largely unfamiliar (Jamora and Rhee, 1998). In a study by conducted by Rhee and Ziprin (1996) on ground meat samples (21 percent fat content) that were pan fried to an internal tempera- ture of 71oC, consumers as well as trained (experienced) panelists could differentiate lamb from beef and pork in blind taste tests. They concluded

TABLE 4-4 Top-Selling Lamb Subprimals, 2003–2005 186 Total North- Mid- Great South South- Subprimals U.S. Sales California east South Lakes Plains Central east West Total Ave. kg --------------------------------------------------- Percent of sales by cut ----------------------------------------------------------- Shoulder 700,967 15.4 38.6   8.6   9.9 2.0 2.3 16.2   7.1 100.0 Leg 700,636 11.5 39.2 11.4 11.0 2.1 4.2 13.4   7.2 100.0 Loin 253,059   9.7 36.2 11.0 11.4 2.6 4.5 16.9   7.6 100.0 Rib 129,486 11.0 51.0   6.7   5.2 0.8 4.3 14.3   6.7 100.0 Ground   68,076 10.7 31.4   7.9 11.2 3.3 7.1 14.4 14.0 100.0 Misc/Var  344,016 17.6 30.2   5.5 11.0 1.8 4.4 16.0 13.4 100.0 Source: The FreshLook Marketing Group (2007). TABLE 4-5  Top-Selling Lamb Cuts, 2003–2005 Total North- Mid - Great South South- Retail Cut U.S. Sales California east South Lakes Plains Central east West Total Ave. kg --------------------------------------------------- Percent of sales by cut ----------------------------------------------------------- Shoulder blade steak 497,435 15.5 42.4   9.2   7.2 1.6 1.7 15.7 6.6 100.0 Leg whole 383,351 11.2 47.9 11.2   8.4 1.9 3.9   8.3 7.0 100.0 Leg roast 250,718   9.4 30.1 11.4 16.6 2.1 4.1 20.3 5.9 100.0 Loin chops 237,852 10.3 32.8 11.6 12.0 2.7 4.8 17.8 7.9 100.0 Shoulder arm steak 178,032 16.4 30.4   7.1 12.6 2.6 3.8 18.4 8.7 100.0 Source: The FreshLook Marketing Group (2007).

THE U.S. LAMB INDUSTRY 187 TABLE 4-6  Nutritional Comparison of Animal Protein Sources, 3-oz Cooked Serving Trimmed of Visible Fat Calories Total Fat (g) Saturated Fat (g) Cholesterol (mg) Lamb Leg 162 6.58 2.4 75.7 Pork (Fresh Ham) 179 8.02 2.8 80.2 Beef Round 164 6.59 2.4 69.0 Chicken (dark and light) 162 6.32 1.7 75.3 Turkey (dark and light) 145 4.23 1.4 64.4 American lamb nutritional composite (Percentage of U.S. Recommended Daily Allowances provided by a 3-oz serving of cooked lean lamb): Protein: 43%; Vitamin B12: 74%; Niacin: 30%; Zinc: 30%; Iron: 17%; Riboflavin: 15%; Calories: 7%. Note: 3 ounces (oz) = 85 g. Source: ASI (2004). Copyright 2004 by ASI. Used with permission. that the reasons for this result were that (1) lamb inherently has the most intense flavor among the three species, (2) lamb flavor is unique or more distinct, and (3) lamb flavor is objectionable or unfamiliar to some consum- ers and easier to detect. Because the flavor profile appears to be the overriding factor in con- sumer acceptance of lamb meat, with tenderness as a secondary contribut- ing factor, a number of studies have explored the chemical composition of lamb as it relates to lamb meat flavor. Young et al. (1994) reported that even though lean tissue may make a minor contribution to the lamb meat flavor profile, the fatty tissue is the main source of lamb meat flavor. Kunsman and Riley (1975) indicated that lamb samples they evaluated were considerably higher in hydrogen sulfide than beef and could contribute to lamb flavor. The higher level of sulfur in lamb is associated with the production of wool and the sulfur compounds that are associated with the fiber protein (kera- tin). Although some sheep breeds may produce more mild‑flavored lamb, research has yet to provide conclusive evidence to substantiate this claim. Other factors found to play a role in lamb flavor intensity include chronological age (Sink and Caporaso, 1977), breed and gender (Young et al., 1994), diet (Field et al., 1983), and pH of the postmortem muscle tissue (Braggins, 1996). One factor found to affect lamb flavor over which the lamb industry has little control is consumer ability to cook lamb meat properly. The American Lamb Board (ALB) has produced educational ma- terials to help train consumers and hotel, restaurant, and institutional trade representatives on proper cooking procedures for lamb.

188 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES LAMB MARKETING In any market system, consumers send signals through various channels regarding the quality, quantity, and value characteristics of the products they wish to purchase. How well the signals are received through the system de- pends in large part on the market structure, including the number of levels through which the product must pass, the number and types of groups in- volved at each level, and the functions each group performs at each level. In general, the fewer the number of levels through which the product must pass and the larger the number of participants at each of those levels, the more efficient markets are at translating and transmitting signals from consumers to producers. In the lamb industry, consumer-to-producer communication is weakened by the multiple levels through which the product passes, by the fact that certain market functions have become concentrated in the hands of a few firms, and by the relatively few consumers involved in purchasing lamb. Although the stages of lamb production have not been subject to ma- jor changes over the years, efforts at greater vertical integration within the industry are evident. For example, producer-owned cooperatives not only sell feeder lambs to feedlots but also sell finished lambs to packers, carcasses to breakers, and meat products to retailers and to foodservice purveyors. Lamb Marketing Channels The marketing channel for lamb is anchored in the live sheep industry where a large number of geographically dispersed producers market their feeder lambs to a relatively few number of lamb feeders or directly to an even smaller number of lamb packers (see Chapter 2 for more detail). Except for the lighter‑weight lambs that are marketed directly to end users, most lambs eventually are sold to packers. From packers, lamb primarily moves as carcasses or boxed primals and increasingly as boxed subprimals and further fabricated cuts into wholesale, retail, and foodservice operations. These operations involve distribution centers of major national retail chains, breakers, and many nonbreaking wholesale distributors and fabricators located closer to consumer markets. Packers also are increasingly servicing retail outlets and foodservice establishments directly with boxed primals, subprimals, or further fabricated cuts. Breaking and Wholesaling Breakers have traditionally played a key role in the lamb marketing system by further processing hanging carcasses or boxed primals into sub- primals and individual cuts or by fabricating a more user-friendly form of lamb cuts ready for final processing by the ultimate retailer. Little specific data relating to breaker and wholesaler activities are available. According

THE U.S. LAMB INDUSTRY 189 to a study by Williams et al. (1991), 31 percent of breaker lamb sales went to wholesalers, 37 percent to retailers (mostly independents and regional chains), and 25 percent to foodservice operators of all types in 1991. The study also indicates that 47 percent of breakers were concentrated in the Northeast; 20 percent were on the West Coast, mostly in California; and the remaining 33 percent spread throughout the country in 1990. Unfortu- nately, more recent data on both the distribution and roles of breakers are unavailable. By locating in or near major lamb consumption areas, primarily on the East and West coasts, breakers provide service and convenience to buyers because the few lamb packers are often too far removed from these areas to service them efficiently. Breakers also serve the valuable function of distrib- uting the various cuts across the market where individual retailers cannot generally purchase or sell lamb in carcass proportions. In addition, the low volume of sales requires the ability to purchase cuts in small lots or boxed cuts wrapped in smaller units, allowing the total purchase to be sequenced through the meat case matching the flow of demand. Even large buyers capa- ble of purchasing directly from packers find it useful to have alternative local sources for fill-in orders as demand spikes from time to time. In addition, the local services are increasingly important to the small or startup ethnic markets where lamb is even more popular than in the general population. Breakers, of course, charge for their services and the convenience provided, with the consequence that these costs are added onto the marketing of lamb before the product reaches the consumer. Increasingly, however, packers are performing much of the initial breaking and boxing of cuts. Wholesalers of various types are the primary suppliers for retailers and foodservice operators too small to run their own centralized purchasing operations and distribution centers. Although some specialty wholesalers may provide additional value-added processing for meat products generally or lamb specifically, such is not usually the case. Most distribute smaller quantity lots of the products they buy and function primarily to perform the services of pooling the buying power of many small customers, ware- housing, and transporting pooled truckloads efficiently. In many instances, wholesalers also provide a menu of services that might include technology support, accounting, facilities planning, and specialized training. These are highly diversified operations rarely capable of being classified along prod- uct lines specifically relevant to lamb and lamb products. Although current information is lacking, data from the Williams et al. (1991) study indicate that retailers accounted for 84 percent of the sales of nonbreaking wholesal- ers in 1990 and foodservice operators accounted for 15 percent, with the additional 1 percent going to various other wholesalers.

190 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Lamb Retailing and Foodservice Lamb retailers vary widely in type and include large national chain food stores, local chain and independent food stores, local butcher shops, and foodservice groups such as hotels, restaurants, health care and similar institutions, and even the government. Little recent, publicly available data on retail lamb sales are available. Most of what is known comes from a now‑dated study by Williams et al. (1991). According to that study, on av- erage, retail food stores accounted for an estimated 36 percent of the lamb sales of packers, 84 percent of the sales of wholesalers, and 37 percent of the sales of breakers in 1990. On the other hand, the study indicated that retailers purchased three-quarters of their lamb directly from packers in 1990 with the other one-quarter coming from breakers/wholesalers. Un- fortunately, no data exist to determine the share of total consumer lamb purchases accounted for by retailers. Although government data concerning lamb at the retail level of the marketing channel are limited, useful data are available from the National Meat Case Study (NMCS), a retail meat case survey taken regularly by the Cryovac Division of the Sealed Air Corporation (2007). During the first quarter of 2007, detailed meat case data were collected from 121 major chain supermarkets in 48 large metropolitan areas across 34 states. A total of 123,204 meat packages were included, covering all of the major protein groups. The NMCS is carried out on a 2-year cycle, with 2004 and some 2002 data available for comparison with the most recent 2007 survey data. Lamb products have increased their share of space in meat cases from 2002 to 2007, now standing at 2 percent of total linear feet, up from 1 per- cent in both 2004 and 2002. The average SKU (stock keeping units) count in 2007 was 4.7 per supermarket. Only veal was less among the major protein groups, at 3.2 SKUs on average. For beef, the average was 45.8, with pork at 30.9, chicken at 27.3, turkey at 8.9, and ground beef at 13.2. For lamb, the average kilograms per package continue to decrease slightly from 0.82 in 2002 to 0.73 in 2004 to the 2007 average of 0.68. Nutritional labeling was provided on 18 percent of the lamb packages. Natural claims of all types increased from 22 percent in 2004 to 27 percent in 2007 for lamb. Cooking information was provided on 30 percent of all lamb packages, down from 36 percent in 2004. Because of the increasing consumer demand for convenience products, the share of boneless product packages has been increasing. According to the NMCS, 59 percent of the total packages in meat cases now feature boneless products, up from 57 percent in 2004 (excluding ground meat packages). Beef had the largest share of boneless at 83 percent of all beef packages, followed by pork at 60 percent, veal at 59 percent, turkey at 56 percent, and lamb at 13 percent. Although chicken breasts are also shifting to bone-

THE U.S. LAMB INDUSTRY 191 less, the large portion of thighs, wings, and whole birds held the total share of boneless chicken packages to 42 percent. The lowest boneless share of packages continues to be lamb, with the share actually declining from 26 percent for all lamb in the 2004 sample. Products carrying some form of natural or organic labeling have also been growing in prominence in meat cases according to the NMCS at 57 percent of the total, up from 44 percent in 2004 and 34 percent in 2002. In 2007, some form of natural designation was carried on 88 percent of turkey packages, 77 percent of ground beef packages, 74 percent of chicken pack- ages, 53 percent of pork packages, 18 percent of lamb packages, 10 percent of veal packages, and 24 percent of whole-muscle beef packages. Lamb held steady from 18 percent in 2004 but increased from 10 percent in 2002. The NMCS also indicated that from 2002 to 2007, there was a strong shift toward case-ready meat packages prepared prior to shipment to the stores. In 2007, “case ready” accounted for 64 percent of all meat case packages from all protein sources, up from 60 percent in 2004 and only 49 percent in 2002. By species, case‑ready packaging was highest for turkey at 97 percent, followed by chicken at 94 percent, ground beef at 67 percent, pork at 56 percent, lamb at 60 percent, veal at 51 percent, and whole-muscle beef at 27 percent. All species either held steady or increased the case-ready share over this period. Lamb increased from a share of 47 percent in 2004 and 38 percent in 2002. In general, the increasing penetration of lamb in retail meat cases is good news for the lamb industry, especially since the growing custom and ethnic specialty markets are not captured in surveys of this type. Meat‑case mer- chandising is rapidly evolving as consumer tastes and preferences change. Over time, opportunities will exist to expand sales through increasing all forms of point-of-purchase consumer information and especially through on-pack consumer information such as cooking suggestions, recipes, and nu- trition information. Meat products that cannot be sold before they must be discarded are extremely costly to retailers. Therefore, of increasing impor- tance are case-ready packages allowing a portion of the shipping container to be merchandised in the case while holding the rest bagged or frozen. Lamb Marketing Arrangements Packers procure lambs primarily through either cash (spot) market contract transactions or various agreements that have come to be referred to as alternative marketing arrangements (AMAs) with producers (RTI, 2007). Cash or spot market transactions refer to auction barn sales; video or electronic auction sales; sales through order buyers, dealers, and brokers; and direct trades. The AMAs encompass all possible procurement alterna- tives to the cash or the spot market, including forward contracts, marketing

192 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES arrangements, procurement or marketing contracts, packer ownership, cus- tom feeding, and custom slaughter. In 2005, 42.2 percent of slaughter lambs were procured by packers through formula pricing arrangements, 39.4 percent through auction markets, 12.0 percent through negotiated pricing agreements, 4.9 percent as packer-owned animals, and 0.8 percent through contract production. Imports accounted for the remaining 0.7 percent of packer procurement (RTI, 2007). According to the RTI study (2007), the marketing arrangements used by producers to sell feeder lambs to feedlots and by producers and feedlots to sell slaughter lambs to packers have two key dimensions: (1) the owner- ship method (e.g., sole ownership, shared ownership, or owned by another entity) and (2) the pricing method used (Figure 4-3). Different types of pricing methods are used with each type of ownership method. Formula pricing requires the specification of a formula base price. Carcasses are typically priced on a per‑head basis but can be priced on a liveweight or carcass weight basis. The use of AMAs is one of the few risk-management tools available to operations because no futures market exists for lambs (Viator et al., 2007). In selling lamb products, packers also use cash (spot) markets and various AMAs using a variety of pricing methods (Figure 4-4). Packers sell directly to buyers through cash markets and individually negotiate prices or use sealed bids or other methods to establish prices. Packers also sell their lamb products through forward contracting or other marketing arrange- ments using various formulae to establish prices. Whether selling through cash markets, forward contracts, or marketing arrangements of some type, pricing often involves various practices such as volume discounts and bun- dling. Packers also custom slaughter for a fee and transfer lamb products within a vertically integrated system using some internal transfer pricing method (Viator et al., 2007). Lamb Market Structure and Pricing Understanding the pricing and procurement methods used in the lamb industry at each level provides insight on how the market functions but of- fers little in the way of understanding how prices are actually determined in the market and who, if anyone, in the system has the ability to influence prices. The particular way in which a market is organized determines its structure and heavily influences the competitive conduct of the firms in the 1The term “market structure” refers to the number, type, and size of firms in an industry. A market with one (or only a few) sellers has a monopolistic (or oligopolistic) structure. By the same token, a market with one (or only a few) buyers has a monopsonistic (or oligopsonistic) structure. A market with many small, homogeneous buyers and sellers is called perfect com- petition. A market with one or a few large sellers or buyers and many other smaller sellers or

THE U.S. LAMB INDUSTRY 193 Spot or cash market Alternative Arrangements • Auction barns • Video/electronic auctions • Dealers or brokers • Direct trade Pricing methods Lambs owned by the Lambs not owned by the Packer-owned producer producer operations • Public auction • Sealed bid • Forward contract • Custom feeding, • Packer feeding • Marketing agreement Shared marketed by the • Individually • Custom slaughter b ownership producer negotiated pricinga • Custom feeding, marketed by the feedlot Pricing methods Pricing method Pricing methods • Formula pricing with • Fee for service • Internal transfer one of the following (feeding) pricing using one of bases: the following: –plant average price –prices paid for fed –USDA live quote lambs –USDA cutout –reported market value prices –USDA boxed lamb –internal production price cost, with or • Fee for service without profit (slaughter) margin Valuation method • Per head • Liveweight • Carcass weight, dependent on grid • Carcass weight, not dependent on grid FIGURE 4-3  Marketing arrangements for sale or transfer of feeder and fed lambs by producers.   aIndividually negotiated pricing is often benchmarked against reported prices.   bCustom slaughter may be coordinated by a cooperative that schedules slaughter of lambs for its producer-members. 4-03 new.pdf Source: RTI International (2007). buyers is monopolistic competition on the selling or buying side. A perfectly competitive market structure is more likely to foster strong price competition. Firms in such an industry are price takers. A concentrated market (only a few large firms) often gives rise to market power and the ability of the firm or firms in the market to control prices. In such an industry, competition is often based more on nonmarket factors than on market pressures of supply and demand. Nevertheless, concentration is a necessary but not always sufficient condition for markets to be controlled by one or more firms in the industry.

194 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Alternative Arrangements Spot or cash market • Direct trade • Dealers or brokers Pricing methods Meat products sold by the Meat products transferred by packer the packer • Individually negotiated pricing a • Forward contract • Internal company transfer • Sealed bid • Marketing agreement • Custom slaughter b • Price list Pricing methods Pricing methods • Price list • Internal transfer pricing • Formula pricing with one using one of the of the following bases: following: –plant average price –reported market –plant average cost of prices production –internal production –USDA publicly cost, with or without reported price profit margin –retail price • Fee-for-slaughter –subscription service service price Possible pricing practices •Two-part pricing •Volume discounts •Exclusive dealings •Bundling FIGURE 4-4  Marketing arrangements for sale or transfer of lamb meat products by packers. 4-04 new.pdf   aIndividually negotiated pricing is often benchmarked against reported prices.   b Custom slaughter may be coordinated by a cooperative for its producer- members. industry, which, in turn, dictates how prices in the industry are established and behave. The ways in which prices are determined under different types of market behavior usually differ widely. If the structure of an industry and, therefore, competitive behavior, differ markedly at different levels in the industry, prices at each industry level will likely be determined in very different ways. Consequently, to gain insight into the particular process (or

THE U.S. LAMB INDUSTRY 195 processes) by which prices are determined in the lamb industry, the struc- tural characteristics and the associated competitive behavior at each level in the lamb industry must be understood. Producers, the original suppliers of the raw ingredients in the industry, either lamb meat or wool, closely resemble perfect competitors in economic jargon. Because of the existence of a large number of producers, the actions of individual producers typically have negligible market effects. Their col- lective independent actions constitute the market supply of feeder lambs and sheep. Producers sell a relatively homogeneous product (live sheep and lambs) and have some knowledge of market opportunities and prices. Because there are some differences in lamb and sheep characteristics and because they do not have perfect knowledge of all possible market condi- tions, producers operate within a near perfectly competitive market struc- ture. Lamb producers are basically price takers without much market power to affect the prices at which they sell their sheep and lambs. Consequently, producers must accept the price outcomes from the interactions of entities in the lamb marketing chain. A relatively smaller number of commercial feeders purchase lambs from producers. Commercial feeders account for a large percentage of the sheep and lambs fed. Consequently feeders operate as oligopsonists (relatively few buyers) in their actions with producers. As such, commercial feeders have some potential market power relative to lamb producers. On the selling side, commercial feeders act as oligopolists (relatively few sellers). However, as oligopolists, commercial feeders face a relatively smaller number of pack- ers who act as oligopsonists. Consequently the interaction of commercial feeders and packers constitutes a bilateral oligopoly in economic jargon. In a bilateral oligopoly, the forces of supply and demand generally are not the primary determinants of prices. Because there are relatively fewer packers than feeders, most feeders have few alternative buyers to whom they might sell their animals if they do not like the prices offered by their current buyer (packer). As well, once fed lambs reach slaughter weights, feeders must move them to market within a relatively short period of time. Commercial feeders subsequently contract to supply packers with a minimum number of slaughter lambs. The bargain- ing process with commercial feeders and packers often is one-sided, with the consequence that feeders act to a large extent as price takers in dealing with packers. Often, commercial feeders price the lambs they purchase from producers according to the prices they receive for slaughter lambs after deducting their costs and allowing for a “reasonable” profit. Packers operate within a market structure similar to that of com- mercial feeders. They behave as oligopsonists in buying slaughter lambs and as oligopolists facing retailers, foodservice purveyors, or breakers in selling processed lamb. However, packers are at a distinct disadvantage in

196 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES bargaining on price with large retailers and large foodservice buyers that buy in volume. Packers must operate at as close to full capacity as possible to be efficient in their operations and must move their processed lamb soon after slaughter and processing or face spoilage losses. Further, retailers and foodservice purveyors also may purchase lamb supplies directly from breakers. As a consequence, packers typically do not have much latitude in bargaining with oligopsonistic retailers. Further, lamb is a perishable commodity and a minor item among meat products carried by retailers and foodservice agents. Hence, in this bilateral oligopoly situation, retailers and foodservice buyers realistically can make “take-it-or-leave-it” offers to packers and leave packers holding a great deal of inventory if the asking price is not to their liking. Retailers and foodser- vice buyers handle a myriad of items and generally are more interested in competition with rivals than in bargaining with lamb packers. Consequently, the price‑determining behavior of retailers and foodservice purveyors occurs primarily as a result of interactions among rivals rather than in interactions among packers. Stated differently, whether or not a retailer has lamb in the meat case and whether or not a foodservice purveyor has lamb on the menu is much less of a problem for them than for packers for whom lamb often is either the only product or the major product of their business. Packers are in a more advantageous bargaining position when it comes to breakers. Similar to packers, lamb tends to be the only or major product handled by breakers. The goodwill of the packer, therefore, is essential to the business of the breaker. At the same time, the breaker plays a role in carrying inventory for many small wholesalers, retailers, and foodservice purveyors. Both the breaker and the packer must move their inventory in a relatively short period of time. The level at which price is set between pack- ers and breakers is indeterminate as in any bilateral oligopoly. But the price determination process depends more on the bargaining process than in the case of packers and retailers or packers and foodservice buyers. Over the last several years, importantly, packers have revolutionized the lamb distribu- tion system by moving away from selling carcasses to selling boxed lamb. Much of the initial breaking and boxing of primals and subprimals now is done by the packer, diminishing both the market role and price negotiating influence of breakers. Breakers operate as oligopolists in their interactions with lamb whole- salers and relatively small retailers and foodservice buyers. Because breakers act as oligopolists, competition among breakers is not on the basis of price but rather on the basis of service and convenience. Put another way, break- ers differentiate the products they offer to buyers through the service and convenience they add. Also in this way, breakers differentiate themselves from packers. Continuing upstream in the marketing chain, food retailers and food-

THE U.S. LAMB INDUSTRY 197 service purveyors operate as monopolistic competitors in various local areas facing a large number of consumers. Consumers act as near‑perfect competi- tors similar to lamb producers. There are large numbers of potential con- sumers who are the ultimate users of the lamb product that is fed, processed, fabricated, and prepared for retail sale. Because they face the monopolistic competitive behavior of the food retailing and foodservice industries, the important element in price determination is product differentiation. The different market structures and the price discovery processes at each level of the lamb industry create some difficulty for value preferences to migrate from consumers to producers. The oligopoly, oligopsony, bilateral oligopoly, and monopolistic competition behavior evident in the interme- diate stages of the lamb marketing chain means that competition at those points is based largely on nonprice factors. Consequently, price signals from consumers reach producers only with difficulty. Enhancing the pass-through of price and quality signals from consumers to producers would require ei- ther: (1) the removal of structural obstacles in the marketing system through the creation of a more price-competitive environment or (2) the creation of more pull (and, thus, more market influence) from the consumer end. Progress was made on the first task with the passage of the Livestock Mandatory Reporting Act in 1999 by Congress. With implementation be- ginning in April 2001 and ending in 2005 for lamb prices, the purposes of the mandatory price reporting (MPR) legislation were to provide market price and quantity information for cattle, hogs, lamb, and meat products that (1) could be readily understood by market participants; (2) provide in- formation on price discovery, quantity, and quality of livestock and livestock products procured and sold under alternative marketing arrangements; (3) improve USDA price-reporting services; and (4) encourage competition. The Mandatory Reporting Act recently has been reauthorized, but implementa- tion is not likely to occur until late 2007. Progress towards the second task (demand creation) is being made since the creation of the ALB in July 2002. The Lamb Promotion, Research, and Information Order, better known as the American Lamb Checkoff Program, was established under the Commodity Promotion, Research, and Informa- tion Act of 1996, following calls by virtually all segments of the domestic sheep and lamb industry for the establishment of a checkoff program to enhance demand. The Lamb Checkoff Program is designed to expand market share of American lamb by: (1) getting people to ask for American lamb year-round; (2) branding American lamb as the preferred choice in the marketplace; (3) differentiating American lamb from imported lamb through advertising campaigns; (4) minimizing the volatility of seasonal product sales through targeted promotions; (5) promoting use of the whole lamb, using all cuts; and (6) leveraging and expanding ALB resources via cooperative relationships with marketing partners. To the extent that ALB is

198 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES successful in enhancing the demand for lamb and increasing the number of lamb consumers, the volume of lamb moving through the marketing system will increase, which, in turn, will provide increased marketing opportuni- ties and competition at each level in the marketing chain. With larger lamb volume flowing through the system, the firm size and share of the market needed for efficient operation as well as capital investment requirements would be lowered. Lamb Marketing Costs and Margins In a properly functioning market, changes in retail demand for any product subsequently lead to changes in the demand for the product at the farm level. As a product moves from the farm gate to the consumer plate, value is added at various stages. Slaughter, processing, and related activities add form value by transforming live sheep and lambs into the final retail cuts purchased by consumers. Inventory holding by packers, breakers, and wholesalers adds time value to lamb by storing when supplies are more available and distributing the product when needed. Transportation adds place value to lamb by moving it from the farm through the system to its final destination. Transportation between each level of the industry, from farm to slaughter to breaking/further processing to wholesaling and to re- tailing, adds additional costs to lamb. Finally, convenience and service value (e.g., trimming fat of heavier lamb carcasses or providing case-ready lamb cuts) is added to lamb breakers, wholesalers, retailers, and others who are geographically located near buyers. The addition of all these values involves costs that force a wedge be- tween the price per kilogram of lamb at retail and the price per kilogram received by producers. Increases in these costs as value is added at each level of the marketing chain tends to push farm prices down and retail prices up, as well as to reduce the farmer share of the retail dollar. The difference in price at retail and the price at the producer level in terms of retail value equivalent is called the price spread or the marketing margin. The calculated margins generally include all the costs incurred and profits realized by all firms involved in the movement of lamb from producers to consumers. An analysis of the marketing margin between prices at each level in the industry is critical to a complete understanding of the process of price determination in any industry. Operating costs of intermediaries of the marketing chain involve labor, packaging, refrigeration, transportation, advertising, and other expendi- tures. In the food and fiber sector, increases in these operating costs of mar- keting intermediaries over time tend to exert downward pressure on farm prices. Given the aforementioned market structure of the lamb industry, packers, breakers, retailers, and foodservice purveyors typically pass the

THE U.S. LAMB INDUSTRY 199 impact of increased costs back down to the producer in the form of lower live animal prices. The extent to which the costs can be passed from one level to the next in the industry depends on the market structure at each level in the industry as discussed in the previous section. Lamb producers eventually must sell lambs where the short-run direc- tion in prices is determined at higher levels of the marketing chain. There is virtually no opportunity for producers to influence price levels to any extent, and importantly, there are no assurances as to the security of margins above costs. In the lamb processing, wholesaling, retailing, and foodservice sectors, the market structure is different. Firms often possess some market power to influence price or other terms of trade. Consequently, in these sectors of the lamb industry, firms are better able to pass on increasing costs up or down the marketing chain and to secure margins above costs. The market power exerted in these sectors allows firms to set prices as follows: (1) cost-plus pricing or average-cost pricing, calling for the addition of some base cost as a margin to ensure profitability; (2) flexible markup pricing, calling for the markup to vary on the basis of demand considerations; and (3) price leadership, in which firms in the industry set their prices in relation to the price of a dominant firm. The dominant firm sets its price using either cost- plus pricing or flexible markup pricing. Empirically, Capps et al. (1995) analyzed the behavior of price margins at three levels in the lamb industry: (1) slaughter to retail, (2) slaughter to wholesale, and (3) wholesale to retail. Until this study, little previous work had been done with respect to lamb margins. Problems with data availability are often cited as the explanation for the lack of effort in the analysis of lamb marketing margins. The econometric model developed by Capps et al. (1995) allowed for an analysis of the transmission of price between various marketing levels in the lamb industry. As well, their analysis helped identify and measure the impacts of several key determinants of price margins in the lamb industry, including supply and demand conditions (as represented by movements in price and output), marketing costs, seasonality, and packer concentration. They estimated the elasticities of price transmission (EPT) from slaughter-to-wholesale, from wholesale-to-retail, and from slaughter- to-retail in the lamb industry to be 0.87, 0.65, and 0.57, respectively. The EPT indicates the responsiveness of the price at one level in the industry to changes in the price at a lower level in the industry. The EPT is calculated as the ratio of the relative change in price at one level to the relative change in price at the lower level. An EPT value of 1 suggests an equal response transmission from the lower level to the higher level of the marketing chain. This type of response is consistent with perfect competition. An EPT value of zero suggests no transmission of price signals from the lower level to the higher level in the industry. This type of response is symptomatic of imper-

200 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES fect competition. In this case, price competition is avoided and nonprice competition is the main strategy. The Capps et al. (1995) results indicated that price changes at the producer/feeder level are almost fully transmitted to the wholesale level, representative of a perfect competition situation. On the other hand, their results indicated that price changes are not well transmitted between the wholesale and retail levels. The potential causes for this breakdown in price transmission include (1) the low level of lamb handled by most retailers, (2) the lack of importance retailers attach to marketing lamb, and (3) the viability of non-price competition as a competitive strategy for retailers. The study also demonstrated that changes in packer concentration have relatively little effect on changes in price spreads or margins. Given that data across the 1978 to 1990 time period were used in the study and that notable structural changes in the lamb industry have occurred since 1990, this study needs to be done again with updated data to get a more current measure of price margin behavior in the lamb industry. The impacts of market concentration on prices and margins also war- rant continued investigation. Menkhaus et al. (1989) investigated the im- pact of market concentration on slaughter lamb prices. Brester and Musick (1995) considered the effect of market concentration on lamb marketing margins. Even though results from the literature provide limited evidence to indicate that concentration exerts a negative effect on slaughter prices, updates are needed to explore this issue more fully. The number of firms in a national market may not represent well the number of firms in a given re- gional market. In most regions, a handful of packers, at the most, represent the whole range of marketing opportunities for lamb producers and feeders. Consequently, research regarding the impacts of packer concentration on the lamb industry needs to account for the regional concentration trends of lamb packing. NATIONAL LAMB DEMAND The level of demand for lamb and the changes in that level over time are key determinants of the long-run economic viability of the lamb industry. Demand considerations assist in determining the long-range price outlook and provide the foundation for long-range investment decisions. In the livestock and poultry sectors, the demand for a product at the producer level is a derived demand, meaning that the demand for the live animals at the farm level is derived from the consumer demand for meat and other livestock products at the retail level. Changes in demand for meat and other livestock products at the consumer level are transmitted down the marketing channel to the producer. Understanding and promoting demand is necessary to the expansion

THE U.S. LAMB INDUSTRY 201 of any industry. By definition, demand is a schedule of the quantities that consumers are willing to buy at various prices at a given point in time in a particular market. The focus here is on lamb demand by consumers over the entire U.S. market. Analyses of national lamb demand typically attempt to quantify how sensitive consumers are to lamb prices as consumption moves from one point to another along the demand curve and to determine not only if shifts have occurred in lamb demand, but also why such shifts have occurred. The results are the bases of appropriate recommendations to improve the profitability of all segments of the lamb industry. Raising the demand for lamb is a key to the growth and expansion of the industry. Increasing demand translates into consumers purchasing more lamb at constant or higher prices, which, in turn, improves the economic viability of the entire sheep and lamb industry. The problem facing the lamb industry, and the feature that makes the lamb industry unique among U.S. livestock industries, is the unparalleled decline in lamb production and consumption since the mid-1940s. On a retail equivalent basis, per capita lamb consumption grew from a low of about 1.8 kg in 1917 at the beginning of World War I to 3.0 kg in 1945 at the end of World War II (Figure 4-5). In the years immediately following 8.0 7.0 6.0 5.0 Pounds 4.0 3.0 2.0 1.0 0.0 1909 1915 1921 1927 1933 1939 1945 1951 1957 1963 1969 1975 1981 1987 1993 1999 2005 Years Fig 4-05.eps FIGURE 4-5 U.S. annual per capita consumption of lamb, 1909–2005.a   aRetail equivalent basis. (1 pound (lb) = 0.4536 kg.) Source: USDA (2007e).

202 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES World War II, however, per capita lamb consumption dropped by more than half to only 1.4 kg in 1951. Following a slight recovery over the next decade to 2.0 kg in 1962, U.S. per capita lamb consumption began a slow, steady decline to 0.68 kg in the early 1980s, 0.59 kg in the early 1990s, and about 0.50 kg in most years since 1996. Until recently, imports were not an important part of the U.S. lamb industry, except during the 1960s and early 1970s when a rapid liquidation in the sheep industry reduced lamb production faster than demand, opening the door for imports to fill the gap (Figure 4-6). The surge in imports dur- ing that period dissipated when the rate of decline in consumption caught up to that of production in the mid-1970s. In the early 1980s, however, the rapid decline in lamb consumption halted. Since then, the annual volume of lamb consumed has stabilized at 159 to 181 million kilograms. As a consequence, domestic production also stabilized at about the same level until the mid-1990s, when production once again began a rapid 50 percent decline between 1990 and 2005. Despite the decline in domestic production, however, consumption has remained steady, which, once again, has opened 1,200 1,000 800 Million Pounds 600 400 200 0 2005 1909 1963 1945 1969 1999 1933 1939 1993 1927 1987 1957 1921 1981 1975 1951 1915 Years Consumption Production Imports Fig 4-06.eps FIGURE 4-6  U.S. lamb production, consumption, and imports, 1909–2005.a   aCarcass equivalent basis. (1 pound (lb) = 0.4536 kg.) Source: USDA (2007e).

THE U.S. LAMB INDUSTRY 203 a window for growing imports. Between 1990 and 2005, imports of lamb grew from 18.6 million kilograms, about 10 percent of domestic lamb sup- ply, to 81.6 million kilograms, nearly equal to domestic production and half the total domestic supply. The traditional argument that American tastes and preferences have moved away from lamb may no longer be applicable, given the steady level of consumption in recent years despite declining production. More appro- priate now may be the argument that lamb is consumed fairly consistently by a small group of consumers and not at all by most consumers. Indeed, recent research shows that only 20 percent of consumers can be considered “lamb consumers,” defined as those who have prepared lamb at home within the past 12 months or those who eat lamb but do not prepare it in their homes (Gross, 2007). Additionally, 35 percent of consumers have never eaten lamb, only 13 percent have prepared lamb at home during the past three months, and 16 percent no longer eat lamb. There is some evidence that lamb demand is actually increasing. Shiflett et al. (2007) concluded that lamb demand increased by 5.7 percent during the last 10 years after having declined for many years. Much of the increased demand has been met by increased imports. The western range sheep indus- try produces lambs primarily for the traditional market where the lambs are weaned and then fed to nearly 63.5 kg. These lambs compete with imported lamb based primarily on price. The result has been that sheep numbers in the western states have continued to decline. Total sheep numbers in the United States have stabilized somewhat during the past four years, with growth in numbers occurring in the Northeast and upper Midwest. Much of the growth that is occurring appears to be driven by the demand for halal lambs (see Chapter 7 for more detail). Halal lambs are purchased by individuals for immediate slaughter and typically are smaller (about 27 kg) than tradi- tional slaughter lambs. This observation suggests that the light-weight lamb market is really two markets—one where lambs are fed to heavier weight for slaughter with the meat going primarily into traditional lamb markets (i.e., retail stores and hotels, restaurants, and institutions [HRI]) and one where lighter lambs go directly to slaughter without further feeding and the meat either consumed for private use or sold through small specialty stores in large urban areas. This development is important because imported lamb appears to be continuing to gain market share from domestic lamb in traditional marketing channels, but domestic lamb is increasing in sales in specialty markets. The decrease in domestic sheep numbers and increase in lamb imports have resulted in significant shifts in market structure in the sheep indus- try in the United States since 1990. Livestock feeding and processing are dominated by economies of size; that is, average per‑unit production costs typically decline rapidly with volume. Consequently, most innovation in the

204 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES sheep feeding and processing industries has been geared to reducing costs by maintaining volumes in fewer and fewer operations. Thus, declining domestic inventories have placed significant pressure on firms to consoli- date or exit the sheep feeding and processing industries in order to remain competitive. Lamb Demand Research Despite its importance in potentially fostering growth and profitability in the sheep and lamb industry, research focused on understanding the economic determinants of U.S. lamb demand has been limited. Shiflett et al. (2007) provide a summary of prior lamb demand studies, including Purcell (1989), Byrne et al. (1993), Schroeder et al. (2001), and Capps and Williams (2005). The principal focus of these past investigations has been on economic and other factors affecting lamb demand. The respective de- mand functions are modeled using regression analysis and historical data to examine potential drivers of demand with an emphasis on measuring the elasticities of demand with respect to those demand drivers, including primarily the own-price, cross-price, and income elasticities. The factors most often found to be statistically significant in explaining changes in per capita lamb demand over the years include the real retail price of lamb, the real retail prices of beef and pork, and seasonality. Most studies have con- cluded that income has not been a statistically significant driver of changes on lamb demand. The own-price elasticity measures the percentage change in consump- tion of a particular product due to a 1 percent change in its own price, all other factors invariant. Theory suggests that the own-price elasticity is al- ways negative, indicating an inverse relationship between the retail level of consumption of a product and its market price. The greater the magnitude of the own-price elasticity (in absolute value), the greater the sensitivity of consumers to changes in the price. An elasticity measure greater than 1 in absolute value is considered “elastic,” meaning that a given percentage change in price results in a larger percentage change in quantity demanded. In this case, demand is considered to be highly responsive to price changes. Also, if the demand for any product is elastic, then a price discount (in- crease) generates not only a larger percentage increase (decrease) in the quantity consumed but also an increase (decrease) in total revenue to the seller. On the other hand, an elasticity measure less than 1 in absolute value is considered “inelastic,” meaning that a given percentage change in price results in a smaller percentage change in demand. Thus, demand is relatively unresponsive to price changes. For a product whose demand is inelastic, a price discount (increase) leads to not only a smaller percentage decrease (increase) in consumption, but also a decrease (increase) in total seller revenue.

THE U.S. LAMB INDUSTRY 205 Cross-price elasticities of demand refer to the percentage change in the consumption of one good due to a 1 percent change in the price of another good. If this measure is positive, then the two goods are considered substi- tutes. On the other hand, if this measure is negative, then the two goods are considered complements. If the cross-price elasticity is zero or not statisti- cally different from zero, then the respective demands for the two goods are considered independent of each other. While a change in own-price moves consumption along the demand curve, a change in the price of a substitute or complement, the so-called cross-price effect, actually shifts the demand curve, all other factors invariant. Income elasticity refers to the sensitivity of consumer purchases with respect to changes in income. With changes in income, the demand curve shifts as well, holding all other factors constant. The income elasticity of demand, by definition, is the percentage change in quantity demanded at- tributed to a 1 percent change in income, all other factors invariant. The estimated own-price elasticities of per capita lamb demand across most studies have been close, ranging from –0.5 to –0.8 despite the time period analyzed (Table 4-7). In other words, research provides evidence that there is an inverse relationship between retail lamb price and the quantity of lamb purchased and that the relationship is inelastic, implying that lamb de- mand is not highly responsive to price changes. Those studies that included more recent data, especially data after 1999, indicated a higher degree of elasticity (more sensitivity to price) than those studies using earlier data. This finding suggests that lamb consumers may have become somewhat more sensitive to changes in price over time in terms of their willingness to buy or not buy lamb based on its price. Most studies have found a statistically significant substitute relationship between lamb and beef, as well as between lamb and pork (Table 4-7). The estimated cross-price elasticities of lamb demand with respect to beef and pork price across most studies are also close, ranging from 0.5 to 0.6 for beef and from 0.1 to 0.4 for pork. At the same time, all but one study (RTI, 2007) concluded that lamb and chicken are independent commodities in consumption. Those studies using the most current data show greater sub- stitutability between lamb and the other meats, although the relationships are not consistent across studies. Indeed, a case can be made that goat meat could serve as a substitute for lamb meat, especially in the growing ethnic/religious segment of the market. But little information exists on goat meat consumption and goat prices to allow a formal determination of this supposition. At present, no research is available on cross-price elasticities between lamb and goat meats. Also, all but one study (Shiflett et al., 2007) concluded that income is not a statistically significant driver of lamb consumption. Shiflett et al. (2007) initially found that income is statistically insignificant in explaining changes in per capita lamb demand. But they then added a trend variable

206 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES TABLE 4-7  Estimated Elasticities of U.S. Per Capita Lamb Demanda Cross-Price Per Time Period Own Import Capita Study of Analysis Price Lamb Beef Pork Chicken Income RTI (2007) 1970–2003 –0.523 0.293 ns ns 0.35 ns Shiflett et al. (2007) 1980–2005 –0.665 — 0.486 0.179 ns 0.684 Capps and Williams 1978–2006 –0.700 — 0.562 0.394 ns ns (2007) Schroeder et al. (2001) 1978–1999 –1.09 — 0.57 ns ns –0.54 Byrne et al. (1993) 1978–1990 –0.62 — ns 0.131 ns ns Purcell (1989) 1970–1987 –0.51 — ns ns ns ns   aDependent variable in all cases is per capita lamb consumption except for RTI study, which uses per capita consumption of only domestic lamb (excluding imported lamb). Note: ns = not statistically significant and — = not considered in the analysis. to their model and found a positive and statistically significant relationship between per capita lamb demand and income. This result may be spurious due to collinearity of the income and trend variables used in their analysis. The lack of broad evidence of a statistically significant relationship between income and lamb purchases may be the result of either the relatively small amount of lamb purchased or the fact that most lamb is purchased for spe- cial occasions that traditionally feature lamb. Seasonality is another variable that all studies using at least quarterly data have found to be a statistically significant determinant of per capita lamb demand. Lamb consumption typically is highest in the first and fourth quarter of the year (e.g., see Byrne et al., 1993; Shiflett et al., 2007). Chapter 7 includes additional discussion about the effect of religious holidays on lamb demand. Lamb Advertising and Promotion In 1996, the Lamb Promotion, Research, and Information Order, better known as the American Lamb Checkoff Program, was established under the Commodity Promotion, Research, and Information Act of 1996, following calls by virtually all segments of the domestic sheep and lamb industry for the establishment of a checkoff program to enhance U.S. lamb demand. The 13-member ALB that administers the lamb checkoff program includes six producers, three packers or first handlers, three feeders, and one seedstock producer, all appointed by the U.S. Secretary of Agriculture. The board meets at least three times per year to establish goals and budgets for new lamb promotion programs and to evaluate the success of past promotional

THE U.S. LAMB INDUSTRY 207 efforts. Board policies are implemented by a three-member staff in Denver, Colorado. Under the order, lamb promotion programs are funded by an assessment on the sale of all feeder and market lambs and all breeding stock and cull animals. In general, the purchaser collects the assessment with a deduction from the sales proceeds of the seller. The funds are then carried forward to the point of slaughter or export, at which time the checkoff is collected and sent to the board. Those whose sales are subject to the assessment include producers, seedstock producers, exporters, feeders, direct marketers, ethnic slaughter operations, custom slaughter clients, and slaughter/packing plants (ALB, 2007). Imported sheep and lambs are assessed on weight gained in the United States. This assessment is collected from the domestic producer, seedstock producer, or first handler who takes possession of the imported animals. If sheep or lambs are imported into the United States for immediate slaughter, there is no weight assessment at the time of slaughter. The assessment is $0.011/kg ($0.005/lb) of live lambs (ovine animals of any age) sold by producers, seedstock producers, exporters, and feed- ers. For lambs purchased for slaughter by first handlers, the assessment is $0.30/head. A first handler is defined as an entity that takes possession of the lambs for slaughter (including custom or ethnic slaughter) or sale directly to the consumer. First handlers are primarily packing plants but also include some producers, feeders, and direct marketers. Marketing agencies (sale barns) are not assessed a checkoff fee but must collect assessments from the sellers and pass them on to the purchasers. Di- rect marketers, those who are both producers and first handlers, and those who process and market lamb or lamb products are assessed $0.011/kg ($0.005/lb) on the live weight at the time of slaughter and must pay an ad- ditional assessment of $0.30 per head. Each producer, feeder, or seedstock producer is obligated to pay its share of the assessment. The assessment is passed on to subsequent purchasers until it reaches the first handler or ex- porter, who then remits the total assessment. A person who is both producer and first handler is responsible for the remittance. Initiated on July 1, 2002, the collection of assessments provides the board an annual operating budget of approximately $2 million. Adminis- trative costs are limited to a maximum of 10 percent of collections in any fiscal year so that most of the funds are used for promotional purposes. The USDA has oversight responsibilities on the administration of the program. All activities funded with checkoff dollars must comply with the act and the order and must be approved by USDA. Before the lamb checkoff program was approved as a mandatory program, the American Lamb Council of the ASI operated a lamb pro- motion program using funds made available under the Wool Incentive Program. When the Wool Incentive Program, and thus, expenditures for

208 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES the promotion of lamb, were phased out in 1996–1997, an unsuccessful effort was made that year to pass a mandatory checkoff program through a producer referendum. The only funds made available for lamb promo- tion after the phaseout of the Wool Incentive Program in 1995–1996 and the establishment of the current lamb checkoff program in 2002–2003 was through a special grant resulting from a complaint based on Section 201 of the Trade Act of 1974. In 1999–2000, domestic petitioners alleged injury to the U.S. lamb industry from imports. The U.S. International Trade Commis- sion ruled in favor of the domestic complainants. As a result, a lamb import tariff and a one-time assistance package for the domestic lamb industry were established to remedy the injury and facilitate industry adjustments to import competition. Through this program, $4.8 million in Section 201 relief grants for 23 lamb marketing and promotion projects were funded between 2000–2001 and 2002–2003. American Lamb Board expenditures began in 2002–2003 and amount- ed to only $96,035 in real terms (adjusted for inflation) that year. Those expenditures rose to $2,433,196 in 2003–2004, dropped to $1,518,235 in 2004–2005, dropped again to $1,215,190 in 2005–2006, and dropped once more to $1,064,682 in 2006–2007. Prior to the establishment of the ALB, inflation-adjusted annual expenditures on lamb promotion by the ASI, ranged from zero to $4.2 million. Compared to the value of lamb pur- chases by consumers each year, the amount of funds that the lamb checkoff program collects for the promotion of lamb is extremely small. The lamb advertising-to-sales ratio (often referred to as the investment intensity ratio) over the 1978–1979 to 2005–2006 period ranged from a minimum of zero in 1999–2000 and 2000–2001 to a high of 0.23 percent in 1992–1993 and averaged 0.14 percent over the entire period. In other words, the amount of checkoff funds spent to promote lamb consumption in any given year on average has been no more than about one‑quarter of 1 percent of the value of lamb sales. To date, there has been little study of the responsiveness of lamb de- mand to the advertising and promotion activities that have occurred over the years. Capps and Williams (2007) developed an econometric model of lamb demand in which the effects of current and past lamb advertising and pro- motion efforts on U.S. lamb consumption at the retail level of the marketing channel were included using data for the 1978–1979 to the 2006–2007 time period. The analysis controls for the effects of the primary economic factors other than the lamb checkoff program that drive lamb demand, including (1) the retail price of lamb; (2) the retail prices of beef, pork, and chicken (3) personal disposable income; (4) population; and (5) inflation. In this way, the analysis isolates the specific impacts of advertising and promotion on lamb demand and allows a measurement of the change in lamb consumption

THE U.S. LAMB INDUSTRY 209 (and lamb sales at fixed prices) attributable to advertising and promotion dollar expenditures, holding all other factors constant. Capps and Williams (2005) incorporated the influence of the ALB checkoff program into their lamb demand model as a three-period moving average (current period and two lags) of inflation-adjusted ALB advertising and promotion expenditures. Using this model, they found that the ALB program had a positive but not highly significant effect on lamb demand. They reported an advertising elasticity of 0.022 between 1978–1979 and 2001–2002 (the pre-ALB period) and 0.031 between 2002–2003 and 2004–2005 (the ALB period). Though small, these advertising elasticities are consistent with those found by many other researchers across a wide variety of agricultural commodity checkoff programs (see Williams and Nichols, 1998). In a more recent analysis of lamb demand, Capps and Williams (2007) modified their earlier model by using a polynomial distributed lag (PDL) process to capture the advertising carryover effects, as is commonly done in analyses of commodity checkoff programs (see, e.g., Kaiser et al., 2005). In addition, a square root transformation of the advertising and promotion variable was employed in the demand model to allow for both diminish- ing marginal returns and zero expenditures in advertising expenditures at certain time periods The results suggest that the ALB checkoff program has had a statistically significant effect on per capita lamb consumption. Their updated model explains roughly 84 percent of the variability in per capita lamb consumption over the 1978–1979 to 2006–2007 period of analysis. Besides the ALB advertising and promotion program, other statistically significant economic drivers of U.S. lamb consumption were found to be the price of lamb, and the prices of beef and pork. Again, neither income nor the price of chicken was found to have any statistically significant effect on lamb consumption. The advertising elasticity in the more recent Capps and Williams lamb demand model was estimated to be 0.0394, which is consistent with those estimated for other checkoff commodities. Using the same model with data for only the 1978–1979 through 2001–2002 period prior to the existence of the ALB, the advertising and promotion elasticity was estimated to be 0.0386, implying that the ALB promotion activities have been slightly more effective compared to past efforts at increasing U.S. lamb demand. The study concludes that the ALB advertising and promotion program generated roughly 3.43 additional kilograms of lamb purchased or $41.59 in additional lamb sales per dollar spent on advertising and pro- motion. This relatively high benefit-cost ratio implies that the ALB lamb promotion efforts are underfunded, a conclusion that is consistent with the experience of other commodity checkoff organizations.

210 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Demographic Factors Affecting Lamb Demand Williams et al. (1991) provided the first published analysis of the de- mographics of lamb consumers. The study used the 1987–1988 Nationwide Food Consumption Survey (NFCS) to analyze the average weekly per person expenditures on beef, pork, poultry, fish and seafood, and lamb in 1987 and 1988 by geographic location, season of the year, income quartile, race, age, and urbanization. The report concluded that the primary demographic drivers of lamb consumption included region, race, age, and income. The report concluded that the average lamb consumer lives in the Northeast or on the West Coast, comes from an ethnic background (nonwhite, nonblack, non-Hispanic), is over the age of 55, and is in the middle‑ to upper‑income group, purchasing chops and legs most often. The only other analysis of the demographic characteristics of U.S. lamb consumers (Williams and Capps, 2005) was based on data collected by A.C. Nielsen through its HomeScanTM Consumer Panel, a multioutlet panel that captures all consumer packaged‑goods purchase information, as well as non-UPC‑coded random weight perishable products like meat, on a daily basis for 7,000 to 8,000 households. Using state-of-the-art, in-home bar code scanners, participating households record daily transactions made at retail grocery stores, mass merchandiser outlets such as warehouse clubs, convenience stores, drug stores, computer stores, and by mail order or over the Internet. Purchasing households are selected for the HomeScanTM Consumer Panel to be representative of all consumers over a wide range of demographic groupings. Because the HomeScanTM Panel is demographically balanced to rep- resent the household population of the mainland United States, the panel data can be considered to be representative of nationwide patterns of food consumption. Because the demographic information of the purchasing households is recorded along with their purchases, the purchase information can be stratified (sliced up) and viewed by the demographic characteristics of consumers. Data on purchases of lamb for away-from-home food consump- tion at restaurants or elsewhere are not collected through the HomeScanTM Panels. In their report, Williams and Capps (2005) summarized the HomeScanTM data for lamb purchases stratified by several demographic characteristics of the purchasing households, including (1) household size (number in the household), (2) household income, (3) age of the person primarily respon- sible for food preparation and meal planning, (4) employment status of the person primarily responsible for food preparation and meal planning, (5) education level of the person primarily responsible for food preparation and meal planning, (6) race, and (7) region where the household is located. The salient conclusions flowing from their analysis for the six years of 1998 through 2003 are the following:

THE U.S. LAMB INDUSTRY 211 Lamb Market Penetration • An average of about 9.7 percent of all households purchased lamb each year over the period; • Market penetration jumped from an average of 9.2 percent in the 3 years prior to the implementation of the lamb checkoff program to an average of about 10.5 percent in the two years of the dataset when the ALB began promoting lamb demand with checkoff dollars; • Market penetration is highest among households with the follow- ing characteristics: (1) smaller household size, (2) higher income levels, (3) more mature (older) food preparers, (4) more educated food preparers, (5) unemployed (outside the home) food preparers, (6) household race classified as “black”, and (7) located in the East region of the United States. Household Lamb Purchases • Lamb purchases per household tend to be higher for households with the following characteristics: (1) smaller household size, (2) more mature (older) food preparers, (3) unemployed (outside the home) food preparer, (4) food preparer with some college education or a high school education, (5) household race classified as “black”, and (7) located in the East or West regions. • Household income level is not strictly correlated with the quantity of lamb purchased per household. Prices Paid by Households Purchasing Lamb • The price per kilogram paid for lamb tends to higher among house- holds with the following characteristics: (1) large household size, (2) higher income, (3) lower education level, (4) age of the food preparer between 25 and 65, (5) full-time employed food preparer, (6) household race classified as “white”, and (7) located in the South or West regions. Lamb Demand Index One potential way to attempt to determine if the demand for a particu- lar commodity like lamb is changing over time is to compute what is known as a demand index. Popularized by Purcell (1998), the demand index is a function of retail prices, per capita consumption of lamb, and the own-price elasticity of demand. While beef and pork demand indices have been calcu- lated and available for some time (see, e.g., Kansas State University, 2007), Shiflett et al. (2007) provided the first effort to calculate a demand index for lamb. A demand index is calculated by first choosing an arbitrary base

212 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES year and then calculating the percentage change in per capita consumption from the base period to the current period using the real retail price of lamb and a measure of the own-price elasticity for lamb. Then, using the assumed own-price elasticity and the calculated percentage change in per capita consumption, the corresponding percentage change in price is calculated. This percentage change in price then is used to calculate the change in price from the base period that would have occurred if the demand curve did not change between the base period and the period of interest. This price is called the demand constant price (DCP). Finally, the observed price for the period of interest is compared to the DCP. If the observed price is greater than the DCP, then demand is concluded to have increased by the percentage difference in the prices between the base period and the period of interest. If the observed price is less than the DCP, then demand is assumed to have decreased. The demand index for the period of interest, therefore, is taken to be the observed price in the period divided by the DCP. The lamb demand index with a 1980 base year as calculated by Shiflett et al. (2007) for 1980 through 2005 under alternative lamb demand own- price elasticities is presented in Table 4-8. Although the lamb demand index is not invariant with respect to the own-price elasticity assumed, the dif- ferences in the calculated indices for the different assumed elasticities are not large. As calculated by Shiflett et al. (2007), the lamb demand indices indicate that lamb demand trended downward by almost 40 percentage points between 1980 and 1996 and then stabilized before recovering about 6–7 percentage points through 2005. Although the common understanding is that lamb demand has dropped precipitously over the years, a comparison of the lamb demand index from Shiflett et al. (2007) and the beef demand index published by Mintert (2007) using the same 1980 base year actually shows that beef demand has dropped even more precipitously than lamb demand, nearly 50 percentage points, between 1980 and 1998 (Figure 4-7). Even though the Mintert beef demand index indicates that beef demand has since recovered by some 10–14 per- centage points, beef demand is still lower compared to the 1980 base period level than is the case for lamb. Several structural changes in the early 1990s likely gave lamb demand a boost. First, the lamb processing industry updated its technology and improved its product offerings, as discussed earlier. Technology enhance- ments included spray washing of carcasses and gas-flush packaging, which has resulted in longer shelf life and improved meat color. At the same time, the United States, as well as Australia and New Zealand, began producing more consumer-ready, fresh products to fit better into modern consumer diets and schedules. Also, the sharp contraction of the U.S. sheep industry in the mid-1990s due to the repeal of the National Wool Act in November 1993 had bottomed out by the early part of the current decade, allowing

THE U.S. LAMB INDUSTRY 213 TABLE 4-8  Lamb Demand Index with Alternative Elasticities, 1980 = 100 (Base) Assumed Own-Price Elasticity Years –0.66 –0.56 –0.76 1980 100.0 100.0 100.0 1981 96.5 97.3 95.9 1982 95.7 98.1 94.0 1983 90.3 92.5 88.7 1984 90.8 93.7 88.8 1985 82.6 83.9 81.6 1986 78.8 79.3 78.4 1987 75.6 75.1 75.9 1988 82.5 83.2 81.9 1989 80.3 80.8 79.9 1990 81.9 82.8 81.3 1991 78.8 79.2 78.4 1992 73.5 73.2 73.8 1993 71.5 70.6 72.1 1994 62.9 60.9 64.4 1995 62.9 60.8 64.5 1996 61.8 59.4 63.7 1997 61.8 59.3 63.8 1998 66.5 64.4 68.1 1999 62.7 60.6 64.4 2000 62.0 59.7 63.8 2001 63.6 61.4 65.3 2002 69.8 67.7 71.5 2003 68.7 66.2 70.6 2004 68.9 66.4 70.8 2005 65.8 63.0 68.1 Source: Shiflett et al. (2007). Copyright 2007 by American Lamb Board. Used with permission. greater availability of lamb for consumption and lessened upward pressure on retail price. Finally, as mentioned earlier, the ALB began promoting lamb consumption in mid-2002. The various demand indices do not describe why lamb demand is chang- ing; they are merely measurement tools. Also, the demand index is often calculated using a single estimate of the own-price elasticity for a given time period. Estimates of own-price elasticities, however, can range rather widely and can be quite different for different time periods. No research has been

214 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 120 100 Index (1980=100) 80 Lamb Demand Index 60 Beef Demand Index 40 20 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Years FIGURE 4-7  Comparing beef and lamb demand indices, 1980–2006. Fig 4-07.eps Sources: Lamb Demand Index, Shiflett et al. ����������������������������������� (2007); Beef Demand Index, Mintert (2007). Copyright 2007 by American Lamb Board and AgManager.Info (Dr. James Mintert, Department of Agricultural Economics, Kansas State University). Used with permission. done to investigate the sensitivity of the various meat demand indices to changes in the own-price elasticity measures used. LAMB AND MUTTON TRADE International trade issues have and continue to be a fundamental com- ponent of the overall health of the U.S. sheep industry. The competitiveness of the U.S. sheep industry in a global market is important because relatively few trade restrictions are associated with sheep products imported into the United States. Also, at least on a global scale, the United States is also not a major sheep‑producing country and is not among the top 25 countries in terms of sheep numbers. In particular, the comparative advantage in pro- duction affords Australian and New Zealand lamb producers a competitive advantage over domestic producers. As a consequence, foreign competitors from Australia and New Zealand pose significant risks to the U.S. sheep and lamb industry. Despite the decline in U.S. lamb production since the 1940s, however, only recently have imports become a notable force in the industry. In the 1960s and early 1970s, imports grew to 20 percent to 30 percent of

THE U.S. LAMB INDUSTRY 215 the level of domestic production. During this period, the decline in domestic production outpaced the decline in consumption (see Figure 4-6). The rate of decline in domestic consumption eventually caught up to that of produc- tion, however, so that imports again disappeared. The elimination of the Wool Act in the mid-1990s precipitated another sharp decline in U.S. sheep inventories and lamb production that has not yet abated. Consumption, however, has not followed suit, leading to growing imports. Between 1990 and 2005, imports increased from roughly 18 million kilograms in 1990 on a carcass weight basis to approximately 81.6 million kilograms (see Figure 4-6). By 2005, lamb imports were almost equal to domestic production, making up half of the total domestic consumption of lamb. Over the period from January 2005 to January 2007, lamb imports var- ied from roughly 2.7 million kilograms per month to 8.2 million kilograms per month (Figure 4-8). Australia and New Zealand supply the majority of lamb imported to the United States. Relative to 2005, lamb imports were up 2 percent in 2006 to 66.8 million kilograms. Imports from Australia were up 4 percent in 2006 and imports from New Zealand were down 1 percent in 2006 (Figure 4-9). Over the quarterly period from January 2003 to January 2007, imports from Australia ranged from 1.81 million kilograms to nearly 6.35 million kilograms. Imports from New Zealand ranged from 0.91 mil- lion kilograms to 3.63 million kilograms over the same period. The import share of the U.S. lamb supply increased from about 35 percent in January 2002 to about 50 percent in January 2007 (Figure 4-10). 19,000 1,000 Lbs. Carcass 17,000 15,000 Weight 13,000 11,000 9,000 7,000 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2005 2006 2007 FIGURE 4-8  Monthly lamb imports, January 2005–January 2007. (1 pound (lb) = 0.4536 kg.) Source: USDA (2007f). Fig 4-08.eps

216 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 14,000 12,000 1,000 Pounds 10,000 8,000 6,000 4,000 2,000 0 Jan-06 Apr-06 Jul-06 Oct-06 Jan-04 Apr-04 Jul-04 Oct-04 Jan-03 Apr-03 Jul-03 Oct-03 Jan-05 Apr-05 Jul-05 Oct-05 Jan-07 Australia New Zealand FIGURE 4-9  Lamb imports from Fig 4-09.eps Zealand, January 2003–January Australia and New 2007. (1 pound (lb) = 0.4536 kg.) Source: USDA (2007f). 60 55 50 Percent 45 40 35 30 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 FIGURE 4-10  Imported lamb as a share 4-10.eps availability, January 2002– Fig of total lamb January 2007 (data line and trend line are shown). Source: USDA (2007f). Countervailing Duty on Lamb Imports During the 1985 to 1990 period, the U.S. Department of Commerce imposed a countervailing duty on imports of New Zealand lamb meat. The U.S. government determined that New Zealand lamb industry subsidies were at least partially responsible for increasing import market shares. Ba- bula (1997) investigated the effects of this countervailing duty on U.S. lamb supply, demand, and price at the meat packing-wholesale level. This econo-

THE U.S. LAMB INDUSTRY 217 metric investigation used monthly data from January 1981 to May 1994. The econometric results indicated that the countervailing duty increased domestic wholesale lamb prices by 10 percent; reduced domestic quantity demanded for lamb by 3.5 percent; decreased imports from New Zealand by 11 percent; and increased imports from Australia by 92 percent. Testimony by foreign producer interests, as reported by Babula (1996), maintained imported lamb is sufficiently different from U.S. domestic lamb so as not to displace U.S. quantities or to suppress the price of domestic lamb. On the other hand, testimony by domestic producers, as reported by Babula (1996), suggested domestic and imported lamb are close substitutes so that imports displace U.S. production and suppress prices of domesti- cally produced lamb. The questions that are begged, then, are (1) whether and to what degree lamb imports suppress price and displace quantities of U.S.‑produced lamb and (2) whether and to what degree U.S. consumers consider fresh domestic and frozen imported lamb as substitutes. Using a six-equation vector autoregression model based on annual data from 1961 to 1994, Babula (1996) found lamb imports had mild adverse effects of less than 1 percent on U.S. lamb meat output, price, and revenue. The implication is that imports during that period had little effect on the U.S. sheep and lamb industry. Consequently, import limits were an ineffec- tive means of bolstering domestic lamb production and price. Babula (1996) also found increases in domestic lamb production displace imports to a far greater extent than increased imports displace domestically produced lamb. Given this finding, it follows then that successful promotion efforts of the ALB could be effective in deterring imports. This situation could be the case if U.S. consumers prefer primarily fresh, larger-cut, and primarily grain-fed lamb over the primarily frozen, smaller-cut, and primarily range- fed imported product. Babula (1996) also found domestic and imported products are substitutes to a degree but are neither perfect substitutes nor independent products. A correlation analysis of lamb price and imports conducted by Babula (1996) provided some support for the conclusion that imports have a small negative effect on lamb price. Based on monthly data for January 2005 through January 2007 (Figure 4-11), the correlation coefficient between lamb imports and gross carcass value was found to be –0.07, implying a slight negative effect of imports on the U.S. wholesale price of lamb. Factors Affecting Recent Import Growth U.S. imports of lamb and mutton have increased rather substantially since the mid‑1980s, with very sharp increases after 1994. Imports, which currently account for nearly half of U.S. lamb consumption, are primarily from Australia and New Zealand. Imports from Oceania account for more

218 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 20,000 290 270 1,000 Lbs. 16,000 250 230 $/cwt 12,000 210 8,000 190 170 4,000 150 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Lamb Imports Gross Carcass Value FIGURE 4-11  Relationship between imports and U.S. wholesale values, January Fig 4-11.eps 2005–January 2007. (1 pound (lb) = 0.4536 kg; 1 hundredweight [cwt] = 45.36 kg.) Source: USDA (2007f). 3.10 3.00 2.90 $/Lbs. 2.80 2.70 2.60 2.50 2.40 Sep-05 Nov-05 Mar-06 Sep-06 Nov-06 May-05 May-06 Jul-06 Jan-05 Mar-05 Jan-06 Jan-07 Jul-05 FIGURE 4-12  Quarterly nominal unit values of lamb imports, January 2005–January 2007. (1 pound (lb) = 0.4536 kg.) 4-12.eps Source: USDA (2007f). than 98 percent of all U.S. imports (Muhammad et al., 2007). A number of factors likely are behind the recent surge in imports, including the continu- ing, rather stable level of consumption in the face of declining production. Also important are prices and exchange rates. The unit values of lamb im- ports have declined since early 2005 (Figure 4-12), providing some stimulus

THE U.S. LAMB INDUSTRY 219 6.00 5.00 $/Lbs. 4.00 3.00 2.00 1.00 Jan-06 Mar-06 May -06 Jul-06 Sep-06 Nov-06 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-07 Imported Legs Imported Loins U.S. Legs U.S. Loins Fig 4-13.eps FIGURE 4-13  Wholesale prices of domestic and imported loins and legs, January 2005–January 2007. (1 pound (lb) = 0.4536 kg.) Source: USDA (2007f). to imports. U.S. wholesale prices of domestic loins and legs typically move together with the prices of imported legs and loins (Figure 4-13). Imported lamb is differentiated by source of country of production (Australia or New Zealand) and by quality (frozen or chilled). In the early 1990s, chilled lamb imports accounted for about 25 percent of total lamb imports from Australia and New Zealand. Since that time, the share of chilled imports has been on the rise; currently, chilled lamb imports ac- count for roughly 45 percent of total imports. To be sure, the growth in chilled imports can be attributed in part to the improvement in distribution infrastructures (Boal, 2001). Own-price elasticities for New Zealand frozen, New Zealand chilled, Australian frozen, and Australian chilled lamb have been recently estimated to be in the neighborhood of –0.24, –1.21, –1.01, and –1.24, respectively (Muhammad et al., 2007). Given these recent es- timates, the demand for chilled imports tends to be relatively more elastic than the demand for frozen imports. Own-price elasticities associated with chilled imports suggest that Australia and New Zealand exporters of chilled products have the ability to increase their revenues with price reductions, all other factors invariant. The cross-price elasticities among Australia and New Zealand frozen and chilled imports are relatively small. As well, the signs of the respective cross-price elasticities suggest that frozen and chilled lamb imports from both countries can be either substitutes or complements. Consequently, this recent evidence on cross-price sensitivities suggests that increasing the price of one type/source of imported lamb has relatively little

220 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES impact on the demand for other types/sources of lamb. However, when rela- tive prices change, frozen lamb is more likely to be replaced with chilled lamb than the other way around (Muhammad et al., 2007). This finding underscores the preference of domestic consumers for the chilled product. The exchange rate—the number of units of a foreign currency that can be exchanged for one unit of domestic currency—is one of the most impor- tant factors affecting the level and the destination of agricultural exports. For those involved in making the decision of where to buy and where to sell in the global marketplace, the process is one of converting one currency to another at the prevailing rate of exchange and comparing the ensuing prices. In this light, trade economists unequivocally suggest the exchange rate be- tween the U.S., Australian, and New Zealand currencies is a potentially key determinant of the level of imports between the United States and Oceania. On the basis of Section 201 of the Trade Act of 1974, a tariff rate quota (TRQ) was imposed on lamb imported from Australia and New Zealand between 1999 and 2001. But despite the TRQ, currency exchange rates still made the U.S. market profitable for foreign exporters (US ITC, 1999). Over the period 1999 to 2001, the U.S. dollar appreciated against Australian and New Zealand currencies by roughly 20 and 25 percent, respectively. In situations where the U.S. dollar appreciates in value, Australian and New Zealand currencies decline in value. The cost of foreign exchange to U.S. importers subsequently decreases, thereby lowering imported lamb prices and increasing the quantity demanded of imported lamb in the domestic market. The appreciation of the U.S. dollar allowed Australia and New Zealand to effectively manage the TRQ even at tariff rates of 40 percent in 1999 and 32 percent in 2000 (Muhammad et al., 2007). Recently, the exchange rate between the U.S. dollar and Australian and New Zealand currencies has fallen. The exchange rate between the U.S. dol- lar and the Australian dollar (USD/AUD) fell from 0.762 USD/AUD in 2005 to 0.753 USD/AUD in 2006, a drop of about 1 percent over that period (Figure 4-14). Over the same period, the exchange rate between the U.S. dollar and the New Zealand dollar (USD/NZD) fell from 0.704 USD/NZD in 2005 to 0.648 USD/NZD in 2006, a drop of about 8 percent. In essence then, Australian and New Zealand currencies have risen in value relative to the U.S. dollar. Hence the foreign currency cost to U.S. importers also has increased, resulting in higher imported prices and a subsequent decline in quantity demanded of imported lamb, all other factors invariant. Relative to 2005, imports from Australia were up 4 percent in 2006 and imports from New Zealand were down 1 percent in 2006. Given that a sizable share of domestic lamb consumption comes from foreign sources, it is important to consider the exchange rate between the U.S. dollar and Australian and New Zealand currencies. Without question, changes in the aforementioned exchange rates can affect the quantity of

THE U.S. LAMB INDUSTRY 221 0.85 USD/AUD and USD/NZD 0.80 0.75 0.70 0.65 0.60 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 USD/AUD USD/NZD FIGURE 4-14  Exchanges rates between the United States and Oceania over the period January 2004–March 2007. Fig 4-14.eps Source: Antweiler (2007). Copyright 2007 by Werner Antweiler. Used with permission. imported lamb from Australia and New Zealand. Currently, the exchange rate is favorable to domestic lamb producers, given the decline in the value of the U.S. dollar relative to Australian and New Zealand currencies. Lamb and Mutton Exports The volume of U.S. lamb exports over the period 1990 to 2004 pales in comparison to the volume of imports. Exports typically consist of mutton or lower-valued cuts that are not desired by domestic consumers. The majority of exports (about 75 percent) historically have gone to Mexico. Japan is the other main importer of U.S. lamb. Lamb and mutton exports increased 97 percent in 2006 to 8.3 million kilograms (Figure 4-15). Competitive Advantage in Global Sheep and Lamb Markets Models of competitive advantage suggest that factor conditions or en- dowments, demand conditions, firm strategy and rivalry, related industries, government, and chance or uncertainty determine the competitive advantage a firm or country possesses in the global marketplace. In reference to inter- national trade, the “principle (or law) of comparative advantage” suggests that countries gain by producing those commodities in which they have the greatest comparative advantage or those in which they have the least comparative disadvantage. The following is a brief discussion of various points as they relate to the competitive position of U.S. sheep products. Factor conditions are related

222 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 20,000 18,000 16,000 1,000 Lbs. 14,000 12,000 10,000 8,000 6,000 4,000 2,000 1/2007 2005 2003 1981 2001 1999 1985 1983 1995 1989 1993 1987 1997 1991 FIGURE 4-15  U.S. lamb and mutton exports from 1981 to January 2007. (1 pound (lb) = 0.4536 kg.) Fig 4-15.eps Source: ASI (2007). Copyright 2007 by ASI. Used with permission. to costs of production related to factors such as human resources, physical resources, knowledge resources, capital resources, and infrastructure. The United States has a large land base with rangeland located primarily in the West that is well suited for sheep production. Given that Australia and New Zealand are the primary global competitors with the U.S. sheep industry, then clearly those large competitors are also well suited to sheep production. This is especially true for New Zealand with its temperate climate and ac- cess to 12-month grazing. Australia has temperate as well as dry locations with large populations of sheep. Specialized labor related to sheep produc- tion is more abundant in New Zealand and Australia than in the United States because of the size and importance of the sheep industry in these two countries relative to the United States. The capital structure associated with sheep production is larger in Australia and New Zealand than in the United States with approximately 95 million and 40 million head of sheep existing in Australia and New Zealand, respectively, compared to just over 6 million head of sheep in the United States. Infrastructure related to logistics favors the United States in the domes- tic American market because of the vast distances lamb carcasses must travel from New Zealand and Australia to reach the American market. However, New Zealand is an island nation with all locations relatively close to the availability of relatively cheap ocean transportation. Australia’s logistics are complicated by the sometimes long distances that sheep and/or meat must

THE U.S. LAMB INDUSTRY 223 travel to reach ocean ports. Ocean freight is a relatively cheap method for shipping commodities and the proximity of New Zealand and Australia to Asian markets have made them dominate in those markets. All three countries have a relatively highly educated workforce that can support the sheep industry. Although domestic demand for sheep products is strong in New Zea- land and Australia, compared to the United States, both countries have relatively small populations (about 20 million in Australia and more than 4 million in New Zealand, compared to slightly more than 300 million in the United States). Domestic annual per capita consumption of sheep and goat meat in the United States is about 0.51 kg compared to 14.05 kg and 22.14 kg in Australia and New Zealand, respectively (FAO, 2007). This observation suggests a much stronger domestic market for sheep meat in Australia and New Zealand. This continuing strong domestic market as well as the importance of exports translate into a greater influence of the sheep and lamb industry on the overall agricultural economies and agricultural policy making of these countries relative to the United States. The presence of related industries is an important component of competitive advantage. Related domestic firms allow for easier communication and cooperation in developing products and services that can support industry. Although all three countries have large capital investments in livestock systems (e.g., beef, dairy, and poultry), the U.S. system is by far the largest of the three. Other supporting industries include input providers such as veterinary services, livestock feed companies, and public and private sector research. Consequently, all three countries appear to have a strong set of supporting industries. However, the United States is the home base for many important technology and input providers. Along with the relative size of the U.S. livestock sector, the supporting infrastructure provides some advantage to the U.S. sheep industry over its global rivals. Issues related to firm strategy and rivalries appear to favor the Australian and New Zealand sheep industries over the United States. Both Australia and New Zealand have well‑organized and dedicated export infrastructures. They are also both export dependent in terms of their sheep industries and are aggressive exporters. Although recent growth in the dairy industry in New Zealand has reduced sheep numbers somewhat, New Zealand has a well-organized marketing plan for its livestock products (see Meat New Zealand, 2007). Both Australia and New Zealand are actively marketing their products as being natural from animals that are allowed to graze freely throughout their lives. They are also large producers of Halal products with large amounts of live animals and carcasses being transported to the Middle East. The U.S. lamb industry historically has had a much less well-funded campaign to promote its products, although the ALB has made progress in this regard in recent years, as discussed elsewhere in this chapter.

224 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Thus, the American sheep industry has some advantages in producing sheep in terms of a natural resource base and a strong cadre of supporting industries. However, it faces strong international competition from countries that are at least as well suited for producing sheep, have much stronger domestic market bases for their sheep industries, and have well-organized marketing efforts. Consequently, successfully competing with New Zealand and Australia will require the U.S. lamb industry to focus on differentiat- ing American lamb from imported lamb, either by quality or some other characteristic in the minds of American consumers. LAMB BYPRODUCT MARKETS In addition to lamb carcasses and cuts, packers sell a number of byprod- ucts that are used in many commercial applications (Table 4-9). Most lambs dress from 48 percent to 52 percent, meaning that 48 percent to 52 percent of the live weight is the hanging carcass after removal of the pelt, viscera, organs, and other parts. Williams et al. (1991) indicated margins tend to be thin in the lamb packing industry so that the profit in lamb packing is often in the sale of the byproducts. Such tends to be the case across all livestock meat‑packing operations. Consequently, the meat industry and specifically the lamb industry actively work to develop ways to market byproducts and rendered products. The primary byproducts of lamb slaughtering include pelts and/or wool, fats and fatty acids, viscera (especially the intestines), manure, and bones, horns, and hooves. Wool as a byproduct is a relatively frequent phenom- enon. As discussed in more detail in Chapter 5, the declining fortunes of the U.S. sheep industry over the years resulted in a corresponding decline in the relative return to wool production so that lamb and mutton production eventually became the primary product of sheep production. Besides wool, which is discussed extensively in Chapter 5, some of the major byproducts are the following: (1) edible byproducts, (2) rendered byproducts, (2) pet- food products, (3) pelts, and (4) lanolin. Edible Byproducts A number of lamb byproducts are considered to be edible, depending on the ethnic background of buyers, including blood, blood plasma, bone, in- testines (large and small), cheek trimmings, fat, hearts, liver, kidney, spleen, sweetbreads, tail, testicles, tongue, and tripe (stomach). This list may differ depending on the region of the United States or the ethnicity of buyers.

THE U.S. LAMB INDUSTRY 225 TABLE 4-9  Uses for Sheep and Lamb Byproducts Pelt and Wool • Lanolin • Rouge base • Felt, carpet • Clothing • Insulation • Footwear • Drum heads • Rug pads • Woolen goods • Yarns • Asphalt binder • Baseballs • Artists’ brushes • Textiles • Upholstery • Sports equipment • Ointment base • Pelt glue • Fabrics • Tennis balls • Paint and plaster binder • Pelt products • Worsted fabric Fats and Fatty Acids • Explosives • Rennet for cheese • Dog food • Solvents • Industrial oils • Protein dog food • Chewing gum • Industrial lubricants • Mink oil • Paints • Stearic acid • Oleo • Makeup • Cosmetics • Margarine • Ceramics • Antifreeze • Oleo shortening • Medicines • Crayons • Herbicides • Shoe crème • Floor wax • Shaving cream • Dish soap • Tallow for tanning • Protein hair conditioner • Tires • Chemicals • Protein hair shampoo • Paraffin • Rubber product • Creams and lotion • Chicken feed • Insecticides • Biodegradable detergents • Candles Intestines • Sausage casings • Surgical sutures • Tennis racquet strings • Instrument strings Manure • Nitrogen fertilizer • Phosphorus • Minor minerals • Potash Bones, Horns, and Hooves • Syringes • Bone jewelry • Bone charcoal for high- • Gelatin desserts • Bone meal grade steel • Rose food • Emery boards and cloth • Plywood and paneling • Piano keys • Ice cream • Shampoo and conditioner • Marshmallows • Laminated wood products • Dice • Potted meats • Horn and bone handles • Collagen cold cream • Pet food ingredients • Collagen/bone for plastic • Crochet needles • Bandage strips surgery • Cellophane wrap and tape • Bone charcoal pencils • Bone china • Glycerin • Gelatin capsules • Wallpaper/wallpaper paste • Photographic film • Adhesives/adhesive tape • Dog biscuits • Fertilizer • Phonograph records • Steel ball bearings • Neatsfoot oil • Combs and toothbrushes • Malts and shakes • Abrasives • Buttons

226 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Rendered Byproducts Over time, the rendering industry has developed to dispose of nonedible portions of the slaughtered animal. One-third to one-half of each animal produced for meat, milk, eggs, and fiber is not consumed by humans (Meek- er and Hamilton, 2006). The most valuable use of most animal byproducts is as feed ingredients for livestock, poultry, aquaculture, and companion animals (Meeker and Hamilton, 2006). The Food and Drug Administration (FDA) regulates the use of animal wastes in animal feeds. Currently, the FDA bans the use of ruminant-derived MBM in feeds intended for ruminants as a precaution against the spread of transmissible spongiform encephalopathy (TSE). The restriction has limited the opportunities for the use of beef and lamb byproducts in the ruminant feeds. Taylor et al. (1995) reported that while rendering lowers the infectivity of the prion protein associated with TSEs, the infectivity is not totally inactivated. Rendering is the process of cooking that inactivates bacteria, viruses, protozoa, and parasites, usually by the introduction of steam at tempera- tures of 115.5o to 143.3oC (Meeker and Hamilton, 2006). In general, ren- dering separates the fat from the protein and solid materials associated with bone. With further processing, a large portion of the moisture is released in the rendered product. Meeker and Hamilton (2006) also reported that the rendering industry in the United States produces approximately 5.08 billion kilograms of animal-derived proteins and 4.94 billion kilograms of rendered fats yearly. Further, they reported that about 85 percent of this production is utilized as animal feed ingredients and that the use of rendered animal fats in the chemical, rubber, and oleochemical industries make up the second‑largest market. Not all of the rendered lamb byproduct used in the United States is produced domestically. In fact, a fair amount of rendered products are imported from Australia and New Zealand to meet the domes- tic demand for lamb- and sheep‑derived rendered byproducts. Pet Food The global pet food and products industry is growing rapidly and expected to continue growing. Aldrich (2006) estimated pet food is a $53 billion industry globally. Dog and cat food sales in the United States have reached a combined total of $14.5 billion with exports of nearly $1 billion. Aldrich (2006) also indicated lamb meal has been a popular ingredient for the better part of the last 15 years. The popularity of lamb meal as a pet food ingredient escalated over the last decade with increasing concerns about animal nutrition, health, and well‑being. Lamb meal is thought to be easier for most animals to digest and results in a lower level of hypersen- sitivity (food-related allergies). The demand for lamb‑derived byproducts initially outstripped the supply due to the novelty of designer pet foods.

THE U.S. LAMB INDUSTRY 227 “Lamb meal analogs,” made of other protein meals, were rumored to have entered the market but tight controls due to BSE and scrapie issues and new DNA‑typing technology (see Kremar and Rencova, 2003) have eliminated this potential competition (Aldrich, 2006). There is limited information about lamb meal and the analytical compo- sition that it offers to pet diets. The protein quality of lamb meal is reported to be comparable to MBM and about 75 percent of chicken byproduct meal (Johnson and Parsons, 1997; Johnson et al., 1998). Johnson et al. (1998) also reported the digestibility of the essential amino acid lysine and threo- nine and the nonessential sulfur amino acid cystine were low in lamb meal diets, possibly as a result of a high concentration of wool contamination in the lamb meal. Cystine, a sulfur‑based amino acid, is elevated in keratin- based products, such as wool, and is not highly digestible. Aldrich (2006) reported that the effects of lamb meal in dog or cat diets on palatability, shelf life, aroma, or appearance are lacking in the literature. Nevertheless, the pet food aisle of most supermarkets suggests that lamb meal is a popular ingredient in pet foods. Pelts Sheep pelts are one of the more common, and most lucrative, byprod- ucts of the lamb packing industry. Pelt prices have been positively associ- ated with slaughter lambs prices because pelt sales represent the largest component of byproduct income for lamb packing operations (Greer and Ward, 2000). Variations in average pelt prices across the grading scale have been extreme over the last 15 years (Figure 4-16). With the introduction of hair sheep into the United States and the increase in small producers on the eastern seaboard that are favoring these type of sheep (considered to be easy-care sheep because there is no need to shear), high-quality wool pelts are harder to secure in the packing industry. Using hair‑type sheep in a cross- breeding program with wool-type sheep may result in wool pelts, but with a lower fiber quality and in some cases with kemp fibers (hair type). The differences in pelt prices are not as great as they used to be in the industry. However, they do play a role in the price determination of harvest-ready lambs. Much of the tanning industry is outside the United States. Many of the pelts are initially processed and shipped to tanneries outside the United States and then returned as finished products. According to ASI (2006), there is only one raw skin processor in the United States that has a tannery processing approximately 5,500 lambskins a day (4,500 to 6,000) from do- mestic lamb production. In addition, this facility processes approximately 1 million Australian skins and 200,000 Irish/English skins that move through the plant annually.

228 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES 15 10 US $ 5 0 2000 2004 2005 2003 2002 2001 1990 1996 1999 1998 1994 1995 1992 1993 1997 1991 FIGURE 4-16  Pelt prices, average of fall clips (No. 1, No. 2, No. 3, and No. 4). Source: USDA (2007g). Fig 4-16.eps Lanolin Lanolin, sometimes referred to as wool wax, wool fat, or grease, is a substance that is secreted from the sebaceous gland that is associated with the fiber follicle under the surface of the skin. This type of greasy substance can be used as a skin ointment, a waterproofing agent, and an ingredient of shoe polish. The benefits that lanolin gives to the sheep, as viewed by humans, are seen as potential benefits to humans. For example, the ability of greased (lanolin) wool to wick moisture allows its use as a waterproofing agent. During the scouring process, raw wool is stripped of the natural grease that is associated with the fleece. This waxy substance, known commercially as lanolin, is most commonly used in the cosmetic and pharmaceutical industries. Lanolin must be refined and purified to be used for these purposes. Further, lanolin can be used in some industrial ap- plications in the lubrication industry (such as motor oil, auto lubrication, ink, and adhesives). Pharmaceutical and Research Uses According to the USDA, more than 24,000 sheep are used each year in research in the United States and even more worldwide as research institu- tions and government agencies look for ways to improve various aspects of the human existence. For example, Protherics is an Australian company using 4,500 Merino × Border Leicester wethers to produce antibodies used

THE U.S. LAMB INDUSTRY 229 in medical research (Adelaide Bio News, 2005). Also, sheep blood, which is used in some cases in the production of biomedical supplies, tradition- ally has been collected at slaughter facilities. Transgenic animals are being developed that have a gene replacement or alteration in their genetic code for a specific purpose. Dr. Esmail Zanjani, for example, has been working with transgenic sheep in the area of stem cell research in the hope that sheep will be able to incubate organs that one day will be transplanted into hu- man recipients (Reno Gazette Journal, 2005). The use of sheep and lambs in research related to orthopedics (BBC News, 2001) and artificial organ technology (MC3, 2006) has also been reported. Miscellaneous Uses Sheep have been shown to be able to make contributions to waste management both as consumers and producers (Glenn, 1994). Wool has been identified as a sorbent for oil spills. With its high tensile durability and ability to retard flame, wool has been identified as an excellent choice for oil spill contamination cleanup (Millsaps Sorbent and Environmental Laboratory, 1993). Glenn (1994) reported that wool mats, for use in the landscaping industry as an alternative to mulch, have become commercially available. In addition to other properties that mulch provides, the wool mats biodegrade in 2 to 5 years and provide nitrogen, potassium, sulfur, and other trace minerals, aiding in both plant and environmental health. The wool mats provide an outlet for low‑grade, pigmented wools and serve as an environmentally friendly alternative to herbicides and plastic sheet- ing often used in the landscape industry. Pilot studies over 11‑week periods have been conducted using sheep manure to treat and successfully reduce petroleum contaminates (Kamnikar, 1992). The Department of Energy has investigated the use of water-soluble coal compounds in conjunction with rumen fluid to produce industrial and liquid fuels. Organisms isolated from the sheep rumen have been found to biodegrade pyrolizidine alkaloid toxins that have been found in tansy ragwort plants (Glenn, 1994). A probiotic is being developed as a result of this finding to protect cattle, saving the industry close to $20 million annually in Oregon, northern California, and Washington (Wachenheim et al., 1992a,b). POLICIES AND REGULATIONS RELATED TO THE LAMB INDUSTRY A number of policies directly impacting the sheep industry were dis- cussed in Chapter 2. In this section of Chapter 4, policies and regulations related to the lamb industry are discussed. In general, the U.S. livestock meat industry is faced with a wide array of governmental regulations. These

230 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES governmental regulations typically affect either directly or indirectly various aspects of the marketing system (McCoy, 1981). The justification for such regulations is the enhancement of the general welfare, a broad term con- strued to include health concerns, economic well-being, food safety, social conditions, and other factors. Meat Inspection Meat inspection is concerned with the wholesomeness, cleanliness, and truthfulness in labeling of meat and meat products. The purpose of meat inspection is to safeguard health by (1) eliminating diseased and otherwise unwholesome meat from human consumption, (2) maintaining sanitary conditions during slaughtering and processing, (3) preventing the addition or use of harmful ingredients, and (4) preventing false or misleading label- ing of meat and meat products. Historically, prominent pieces of legislation in this regard include the Meat Inspection Act of 1906 and the Wholesome Meat Act of 1967. The cost of federal meat inspection is about $0.55/kg of red meat (McCoy, 1981). Packers and Stockyards Act The Packers and Stockyards Act was enacted in 1921 to provide re- lief for livestock producers from anticompetitive practices of packers and market agencies. The act originally was administered by the Packers and Stockyards Administration but now is administered by the Agricultural Marketing Service of the USDA. In general, the act is designed to regulate the business practices of those who engage in the buying and selling of livestock and meat that enter interstate and international trade. Given the oligopsonistic/oligopolistic nature particularly of packers in the marketing channel for lamb, this act is important to the lamb industry. Barriers to Trade—Import Quotas and Tariffs Congress enacted the Meat Import Law (P.L. 88-482) in August 1964, which allows import quotas for fresh, chilled, and frozen beef, veal, mutton, and goat meat. The purpose of the law was to limit annual imports of speci- fied meats, including carcass and boneless meat. Importantly, this bill does not pertain to pork or lamb products. However, as discussed previously, during the 1985–1990 period, the U.S. Department of Commerce imposed a countervailing duty on imports of New Zealand meat. Additionally, on the basis of Section 201 of the Trade Act of 1974, a tariff rate quota (TRQ) was imposed on lamb imported from Australia and New Zealand between 1999

THE U.S. LAMB INDUSTRY 231 and 2001. Currently, no U.S. import quotas or tariffs on lamb are in effect. Most countries with exportable surpluses are actively engaged in efforts to stimulate trade. With regard to the lamb industry, key promotional agencies are the Australian Meat Board and the New Zealand Meat Board. Mandatory Price Reporting Before 2001, information on livestock and meat market transactions reported by USDA was based on data voluntarily submitted by market participants. However, an increasing number of livestock transactions were being made under long-term marketing arrangements (LMAs) that set sales terms well before delivery of the animals for slaughter (Perry et al., 2005). Because the terms of LMAs were not reported during that period, USDA livestock price and volume data were increasingly based on a declining number of transactions. Concerns emerged that the cash market prices re- ported by USDA did not reflect an increasing share of livestock sales. Along with growing concentration in the meat packing industry at the time, the increasing lack of transparency in livestock transactions fueled concerns of packer manipulation of markets. The Livestock Mandatory Reporting (LMR) Act of 1999 (P.L. 106-78) was the legislative response to these concerns. The LMR Act required major meatpackers to report all transactions covering hog, cattle, and lamb pur- chases and commitments to USDA. The act also required packers to report the details of fresh wholesale beef and lamb transactions. In implementing LMR, the intent was to facilitate price discovery in the industry. Initial producer response to the LMR Act was negative primarily because of imple- mentation problems that severely reduced the amount of price and volume data reported. At the same time, the data did not show that contract prices were higher than cash prices, as many in the industry expected. A recent study by RTI (2007) found that the primary effect of the LMR Act for the lamb industry has been to reduce price risk rather than to influence the level of the price paid for slaughter lambs. The study found that implementation of the LMR Act in 2001 increased the slaughter lamb price by only 0.129 percent. Further, the study concluded that LMAs have had only a small ef- fect on slaughter lamb prices. The study found that a 10 percent increase in slaughter lamb purchases through formula pricing increases the slaughter lamb price by an estimated 2.54 percent. In contrast, a 10 percent increase in slaughter lamb purchases through cash markets increases slaughter prices by an estimated 2.68 percent. On the other hand, a 10 percent increase in packer ownership was found to reduce slaughter lamb prices by only an estimated 0.23 percent.

232 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Country-of-Origin Labeling (COOL) In 2002, Congress mandated COOL for beef, lamb, pork, poultry, and fish. COOL has been an issue strongly supported by livestock producers but generally opposed by meat packers, processors, and retailers. Congress amended the Agricultural Marketing Act of 1946 and enacted this legisla- tive act as part of the Farm Security and Rural Investment Act of 2002. The economic impacts of COOL for the beef industry have been examined (Anderson and Capps, 2004), but virtually no information exists regarding the economic impacts of COOL for the lamb industry. Livestock Risk Protection (LRP)-Lamb Insurance Policy The Livestock Risk Protection (LRP)-Lamb Insurance Policy is a new price risk management tool that provides producers and feeders of lambs with the opportunity to insure lambs they own against unexpected price declines. Implemented in September 2007, lamb producers may select cov- erage prices for 13-, 26-, or 39-week insurance periods. The LRP policy provides coverage to lamb producers in 27 states (Arizona, California, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, New Mexico, Nevada, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming). To date, about 300,000 lambs have been covered by this insurance policy. For additional details, see the USDA Risk Management Agency (RMA) website, http://www2.rma.usda. gov/livestock. There is currently no other type of price insurance, exchanges offering futures contracts, or derivative contracts on lamb prices for lamb producers. MAJOR ACCOMPLISHMENTS, OPPORTUNITIES, AND CHALLENGES OF THE U.S. LAMB INDUSTRY This chapter examined the U.S. lamb industry with particular interest in the current status of the industry and changes taking place in lamb pro- duction, marketing, consumption, and trade, as well as the market forces and government policies that influence their pattern of change. To close this chapter, the major accomplishments, opportunities, and challenges of the U.S. lamb industry are discussed. Major Accomplishments of the U.S. Lamb Industry Major accomplishments of the U.S. lamb industry may be delineated primarily into two broad categories: (1) the development of technological innovations designed to more accurately assess the value of carcasses, to

THE U.S. LAMB INDUSTRY 233 improve food safety, to extend shelf life in the retail meat case, and to create more convenient products; and (2) the development of ways to stimulate demand such as centering attention on new uses of lamb products, product promotion and advertising done through the creation of the ALB, direct marketing of lamb, and niche marketing of lamb. A third major accomplish- ment deals with the aforementioned LRP-Lamb Insurance Policy. • New technologies to accurately assess the value of carcasses. These developments will be instrumental in the adoption of some sort of value- based marketing plan. If the industry can accurately assess the true value of a lamb carcass, producers and feeders may have the opportunity to be paid for lambs that are superior in carcass conformation. The current pricing mechanism generally rewards producers primarily on the basis of weight. The level of superiority will be set forth by the minimum criteria of the grid, which may change depending on the market requirements and which, in turn, are likely to change over time. While there are methods for sorting car- casses in the commercial lamb industry, there are concerns about consistency and accuracy. Both of these criteria need to be met in order to maximize production of truly superior products on a consistent basis from production run to production run, as well as plant to plant. With the adoption of these technologies and the facilitation of value-based marketing systems used by some cooperative organizations in the lamb industry, producers and feeders can be compensated for superior lamb carcasses. • Improved safety of lamb products. Modernization and inverted kill systems along with intervention programs for bacterial contamination have improved the safety of lamb products in the retail sector. Also, the industry has achieved a marked increase in product longevity in storage. Food safety is one of the major concerns of consumers about meat products. Implement- ing these aforementioned intervention programs helps to assure consumers that lamb is a safe alternative in the retail meat case. The industry will need to continue educating consumers about food safety issues in regard to lamb. • Improvements in packaging and shelf life. New technologies in the area of packaging have improved shelf life of lamb products. The meat in- dustry has seen a change in the retail case related to packaging and display of red meat products. With the advent of new packaging technologies, meat products in general and lamb in particular are experiencing extended shelf life, allowing an increase in retail shelf display time. These new package systems currently are being used in packing plants, resulting in reduced chances for bacterial (pathogenic or spoilage) contamination. Consequently, the lamb industry stands to benefit from improvements in packaging and extended shelf life. • Improved convenience of lamb products at retail. Meat processing companies are producing products that are more convenient, reducing time

234 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES spent in meal planning and preparation. Partially or fully prepared retail meats are on the rise. Catelli Brothers, for example, is striving to develop preseasoned products with cooking instructions included to help consumers when purchasing and preparing lamb for at-home consumption (A. Catelli, personal communication, 2007). Others in the industry are looking at ways to assure consumers that they can purchase lamb, successfully prepare it at home, and have a positive eating experience. Consumer tastes and prefer- ences for convenient meat products are not to be ignored. Keeping up with consumer signals to the meat industry is both a challenge and an opportu- nity. Segments of the lamb industry have shown a desire to meet consumer tastes and preferences regarding product convenience dimensions. • Additional uses of lamb and lamb byproducts. The sheep and lamb industry has focused on developing additional alternative uses of lamb and lamb products. The lamb industry continues to look at ways to utilize the post‑production and processing of waste material in the byproducts indus- try. Products from the lamb industry currently are being used in health and beauty supplies, waste management, environmental management, medical research, and other places. The continued development of ways to use the entire lamb pre- and post-harvest increases the value of the sheep to produc- ers as well as consumers. • Creation of the American Lamb Board. The establishment of the ALB to promote lamb is one of the most important self-help efforts ever undertaken by the lamb industry in an attempt to turn around the long-run decline of lamb consumption in the United States. While the funds made available for promotion are modest compared to most major checkoff commodity organizations, research has shown that the funds are being ef- fectively invested to maximize the impact of each dollar spent. • Growth of direct marketing. Many lamb producers are taking pro- active approaches to selling their own products directly to customers and foodservice operators and bypassing traditional marketing channels. The number of individual sheep and lamb producer websites is rapidly increas- ing. Freezer market lambs are another growing direct marketing method. Lambs are sold live to customers and arrangements are made with a custom slaughter facility for processing and packaging. The growth and importance of this market is considered in more detail in Chapter 7. • Growth of the organic lamb market. A number of sheep and lamb producers are converting to organic production systems. There was rapid growth of this part of the industry during the period 1997 to 2002, although numbers today have been growing less rapidly. Organic lambs are raised in production systems that promote and enhance biodiversity and biological cycles and minimize the use of off-farm inputs. Lambs are raised without the use of antibiotics and growth hormone stimulants. Lambs intended for meat markets must be raised organically from the last third of gestation.

THE U.S. LAMB INDUSTRY 235 Although lamb may be well suited for organic production, limited capacity and availability of processors who handle organic lamb products may play a role in limiting the growth of the market for certified organic lamb. A large portion of the western range lambs would qualify as organic or natural lamb products, but no major lamb packer is certified for organic or natural production and processing. The growth and importance of the organic lamb market is considered in more detail in Chapter 7. Major Opportunities and Challenges Facing the U.S. Lamb Industry Opportunities and challenges are two sides of the same coin. The key opportunities and challenges facing the U.S. lamb industry pertain to inter- national trade issues, emerging ethnic markets, understanding of the com- petition, improvement of the competitive position of domestic producers, adoption of technology, and product promotion. The primary opportunities for growth, development, and enhanced competitiveness of the U.S. lamb industry appear to be the following: • Recent depreciation of the U.S. dollar and use of alternative mar- keting arrangements. Imported lamb is differentiated by source country of production (Australia or New Zealand) and by quality (frozen or chilled). As the consumption of lamb in the United States becomes increasingly dependent on sources from Oceania, the responsiveness of importers to domestic and foreign prices gives insight into the behavior of importers in the presence of a declining domestic industry. Without question, lamb quality is a key issue for the U.S. market. Chilled imports currently are preferred to frozen imports. U.S. producers are in a prime position, from a transportation cost standpoint, to capitalize on consumer preferences for chilled and fresh lamb. As well, from the standpoint of current exchange rates, Australian and New Zealand currencies are appreciating against the U.S. dollar, thus making imported lamb relatively more expensive relative to domestically produced lamb. Further, the use of AMA, such as forward contracts or marketing agreements, as opposed to the use of cash transac- tions, may enable U.S. operations to more effectively compete with increas- ing foreign imports. Besides the LRP-Lamb Insurance Policy instituted in fall 2007, the use of these AMA is one of the few risk management tools available to operations given that no futures market exists for lambs. • Promotion of lamb as a tasty, healthy, convenient, and safe meat pro- tein source. As the industry continues to look at ways to develop products for consumers to enjoy a palatable eating experience, concerns for a tasty, healthy, convenient, and safe product are a priority. Although lamb is not much different from other protein sources, relatively speaking, with regard to nutritional attributes, finding ways to differentiate lamb and elevate it

236 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES in the eyes of the consumer indeed presents opportunities to increase the demand for lamb. • Better positioning of lamb in the U.S. meat market. Knowledge of cross-price elasticities allows the identification of competitors to lamb, namely beef and pork in that order, in the retail meat case. With this in- formation, opportunities exist to better position lamb vis-à-vis chief com- petitors. Knowledge of consumer sensitivity to changes in retail prices also permits the opportunity to implement pricing strategies designed to increase revenue to retailers and packers in the lamb marketing chain. • Large potential market expansion. Opportunities also are evident through the ALB to persuade consumers who have not consumed lamb previously to consume lamb for the first time. Nearly one-third of all U.S. households have never eaten lamb at all. Developing profiles of households who have not yet eaten lamb could be useful for targeting these households in promotion campaigns with the hopes of improving market penetration of lamb. • Emergence of new lamb markets. The emergence of new markets for lamb products presents arguably the best opportunity for growth of the lamb industry. The growth in the number of Muslims who reside in the United States is one example. According to a recent study conducted by JWT, an advertising agency, these Muslims are, on average, wealthier and better educated than the general population (The Economist, 2007). At the same time, nontraditional markets for lamb serving several ethnic groups appear to be growing rapidly as discussed in more detail in Chapter 7. Several major challenges face the lamb industry from the production side, including the following: • Improving the competitive position of domestic producers. The elastic demand for chilled lamb imports suggests that Australia and New Zealand exporters of chilled products have the ability to increase their revenues with price reductions, all other factors held constant, which will create additional pressures on domestic producers of chilled/fresh lamb. Given the current open U.S. borders to lamb imports, U.S. producers will be challenged to increase their production efficiency and lower their costs in order to improve their competitive position in the domestic market. • Adoption of a value-based grading system that accurately sorts carcasses based on quality and yield. Developing a system that accurately assesses value on which packers and producers/feeders can agree and trust will be a major challenge. Whatever system is developed will likely be automated and have the capability to uniformly assess carcass value from processor to processor and from day to day within a processing plant. Such

THE U.S. LAMB INDUSTRY 237 an automated system will have to fit into current plant designs and must be in keeping with current processing plant line speeds. A number of challenges also face the U.S. lamb industry from the con- sumer side that affect not only production and profitability, but also the abil- ity of researchers to conduct needed analyses of lamb demand to enhance decision-making in the sheep and lamb industry, including the following: • Lack of a long-standing retail price series. A major problem for both research on lamb demand and decision-making in the lamb industry is the absence of a long-standing retail price series. As a consequence, research on lamb demand has considered only limited time periods or has used proxy data series for retail price, such as wholesale prices (Purcell, 1989) or im- puted retail prices (Byrne et al., 1993; Schroeder et al., 2001). The USDA collected monthly lamb retail prices from 1950 to 1981. The American Sheep Industry Association then continued the collection of retail prices on a bimonthly basis from January 1986 to June 1992 and again from September 1993 to December 1995, leaving holes in the price series between 1981 and 1986 and between June 1992 and December 1993. The USDA commenced collecting monthly prices again from January 2001 to August 2005 under the umbrella of the MPR program, leaving another hole in the retail price data from December 1993 to January 2001. The USDA has once again dis- continued reporting a retail lamb price, so that the latest data on the retail price of lamb are from August 2005. The U.S. Bureau of Labor Statistics (U.S. BLS, 2007) reports monthly price indices for lamb and organ meats, as well as for lamb and mutton. The former series runs from December 1977 to the present while the latter series only runs from December 1997 to December 2005. Efforts in dealing with gaps in retail prices are a key need for conducting effective analyses of lamb consumer behavior. • Measurement and reporting of per capita consumption of lamb. Per capita consumption often is thought to be synonymous with demand. Per capita consumption, however, is calculated by USDA as cold‑storage lamb stocks at the beginning of the year plus production plus imports minus end- ing stocks divided by the population of the United States. Consequently, this measure is more akin to disappearance than to consumption. As Shiflett et al. (2007) noted, there is no precision in measurement of the per capita lamb demand series. The USDA publishes per capita lamb demand with only one significant digit. The result often is a series that shows very little variability. Such lack of measurement precision (or variability) complicates any efforts to estimate demand models. Shiflett et al. (2007) and Capps and Williams (2005, 2007) used quarterly measurements of per capita lamb consumption posted on the Livestock Marketing Information Center (LMIC) website, which carries a number of significant digits.

238 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Another problem with the reported data on per capita lamb demand is that the data do not differentiate between American lamb and lamb from either Australia or New Zealand. The imported share of lamb in the U.S. market has risen steadily in recent years, up to 45 percent currently. Break- ing out and reporting lamb consumption by country of origin is necessary to understand changes occurring in consumer lamb‑purchasing behavior. For example, ALB promotional activities are intended to enhance the demand for domestically produced lamb. Without separate data on the consump- tion of domestic and imported lamb, however, research cannot determine whether the ALB lamb promotion program has a generic impact on lamb consumption or primarily impacts the consumption of domestically pro- duced lamb as intended. These and other issues related to imported lamb, such as the extent to which consumers consider domestic and imported lamb to be substitutes, cannot be reliably addressed unless separate series on lamb demand by country of origin are available. • Consideration of other factors potentially influencing lamb demand. Most research on lamb demand has considered the demand effects of re- tail lamb prices, competing retail meat prices (specifically, beef, pork, and chicken), income, seasonality, and advertising. A case can be made that goat meat could serve as a substitute for lamb meat, especially in the growing ethnic/religious market segment, but not much information exists on goat meat consumption and goat meat prices. At present, no research is available on cross-price elasticities between lamb and goat meats. The effects of diet, health, and nutrition information on lamb consumer purchasing behavior also have not been explored to any degree. Addition- ally, neither away-from-home consumer lamb purchasing behavior nor the demographic characteristics of lamb consumers has been explored adequately. • Increasing the presence of lamb in the foodservice/HRI sector. Shiflett et al. (2007) suggested that the foodservice sector accounts for an estimated 37 percent of domestic lamb volume and is growing. Potential opportunities may exist for increased lamb demand in the foodservice sector, or hotels, restaurants, and other institutions. In the United States, the share of the food dollar spent away from home is nearly 50 percent (Jensen, 2006). Increased training of chefs and overall increased awareness of American lamb could increase lamb offerings in the foodservice sector (Shiflett et al., 2007). Con- sequently, targeted marketing efforts aimed at the foodservice sector would likely prove effective in increasing the demand for U.S. lamb. • Improved understanding of the demographic characteristics of lamb consumers. There exists a pressing need to extend beyond the traditional price and per capita consumption series to provide improved and more detailed socioeconomic profiles of consumers in different market areas so that product offerings can be tailored to meet the desires of consum-

THE U.S. LAMB INDUSTRY 239 ers. The only published study documenting demographic characteristics of lamb consumers used the 1987–1988 Nationwide Food Consumption Survey (NFCS) data to build a profile of lamb consumers (Williams et al., 1991). The demographic characteristics considered included geographic location, season of the year, income quartile, race, age, and urbanization. The study provided information on average weekly per‑person expenditures of households by those demographic characteristics for beef, pork, poultry, fish and seafood, and lamb in 1987 and 1988. As well, the study provided a definitive picture of the profile of a lamb consumer in the United States. Region, race, age, and income were the major demographic factors found to influence the probability of consuming lamb in the United States. The Williams et al. (1991) analysis, however, needs to be updated with more current information. Importantly, ethnic markets need to be considered as well in order to better understand the demand for lamb. • Research on the demand for specific cuts of lamb. Most research on lamb demand has considered lamb in the aggregate. Little research has been done regarding the retail demand for specific cuts of lamb, such as legs, chops, shoulder cuts, racks, shanks, ground lamb, and stew meat. Williams et al. (1991) examined the demand for selected individual lamb products in Houston using weekly retail scanner data. The cuts included various types of lamb chops, leg of lamb, lamb shank, and ground lamb. In most cases, the demand for each individual cut was found to be quite responsive to changes in price with own-price elasticities ranging from –1.66 to –3.17. This finding is consistent with demand theory in which the demand for specific compo- nents of a product (e.g., lamb versus all food and lamb cuts versus lamb in the aggregate) is expected to be more price responsive than demand for the product itself. The more price elastic response of lamb cuts than lamb demand in the aggregate to price changes largely reflects the greater degree of substitutability among cuts of lamb than among lamb and other types of meat and foods. This type of information is needed to assist retailers and foodservice purveyors in pricing and price-based promotion of lamb cuts so as to maximize lamb sales revenues. Retail scanner data will be highly useful in conducting these types of analyses in support of retail lamb marketing efforts. REFERENCES Adelaide Bio News. 2005. Harvesting the antibodies. Online at: www.bioinnovationsa.com.au. Accessed April 30, 2008. ALB (American Lamb Board). 2007. How the checkoff works. Online at: http://americanlamb- board.org. Accessed June 7, 2007. Aldrich, G. 2006. Rendered products in pet food. Pp. 159–178 in Essential Rendering: All About the Animal By-products Industry, D. Meeker, ed. Alexandria, VA: National Ren- derers Association.

240 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Anderson, D. P., and O. Capps, Jr. 2004. Country-of-origin labeling and the beef industry. Choices 19(4):1–2. Antweiler, W. 2007. Pacific Exchange Rate Service. Saunder School of Business. The University of British Columbia, Vancouver, British Columbia, Canada. Online at: http://fx.sauder. ubc.ca/. Accessed April 10, 2008. ASI (American Sheep Industry Association). 2004. Fast facts about American lamb. Online at: http://www.sheepusa.org/index.phtml?page=site/text&nav_id=06b30b9c925056e3635d 644c8ae9a29b. Accessed April 30, 2008. ASI. 2006. Sheep industry news: ASI board tours industry businesses in Greely. Online at: http://www.sheepusa.org/index.phtml?page=site/newsandevents&nav_id=82ee74b2354 b223f831548af9ef21f5a. Accessed April 30, 2008. ASI. 2007. First-quarter 2007 sheep industry in review. Report prepared for the American Lamb Board. Babula, R. A. 1996. An empirical examination of U.S. lamb-related import and domestic mar- ket relationships near the farmgate. J. Int. Food Agri. Marketing 8(2):65–82. Babula, R. A. 1997. Economic effects of a countervailing duty order on the U.S. lamb meat industry. Agr. Resource Econ. Rev. 26(1):82–93. BBC News. 2001. Sheep yield osteoporosis clues. Online at: http://news.bbc.co.uk/1/hi/sci/ tech/1480925.stm. Accessed August 8, 2007. Berg, E. P., J. C. Forrest, D. L. Thomas, N. Nusbaum, and R. G. Kauffman. 1994. Electromag- ����������������� netic scanning to predict lamb carcass composition. J. Anim. Sci. 72:1728–1736. Berg, E. P., M. K. Neary, J. C. Forrest, D. L. Thomas, and R. G. Kaufman. 1996. Assessment of lamb carcass composition from live animal measurement of bioelectrical impedance or ultrasonic tissue depths. J. Anim. Sci. 74:2672–2678. Berg, E. P., M. K. Neary, J. C. Forrest, D. L. Thomas, and R. G. Kauffman. 1997. Evaluation of electronic technology to assess lamb carcass composition. J. Anim. Sci. 75:2433–2444. Berg, E. P., M. K. Neary, and J. C. Forrest. 1998. Methodology for identification of lamb carcass composition. Sheep Goat Res. J. 14(1):65–75. Boal, F. 2001. Sheepmeat: a niche meat product or acceptable world animal protein source? Agribusiness Consulting and Research Services, Rabobank, Wellington, New Zealand. Boland, M. A., E. P. Berg, J. T. Akridge, and J. C. Forrest. 1995a. The economic impact of operator error using optical probes to predict pork carcass value. Rev. Agric. Econ. 17:193. Boland, M. A., K. A. Foster, A. P. Schinckel, J. R. Wagner, W. Chen, E. P. Berg, and J. C. Forrest. 1995b. Alternative pork carcass evaluation techniques. I. Differences in prediction of value. J. Anim. Sci. 73:637–644. Brady, A. S., K. E. Belk, S. B. Levalley, N. L. Dalsted, J. A. Scanga, J. D. Tatum, and G. C. Smith. 2003. An evaluation of the lamb vision system as a predictor of lamb carcass red meat yield percentage. J. Anim. Sci. 81:1488–1498. Braggins, T. J. 1996. Effects of stress-related changes in sheepmeat ultimate pH on cooked odor and flavor. J. Agric. Food Chem. 44:2352. Brester, G. W., and D. C. Musick. 1995. The effect of market concentration on lamb marketing margins. J. Agric. Appl. Econ. 22:145–156. Byrne, P., O. Capps, Jr., and G. W. Williams. 1993. U.S. demand for lamb: The other red meat. J. Food Distrib. Res. 24(1):69–86. Capps, O., Jr., and G. W. Williams. 2005. Measuring the effectiveness of lamb advertising and promotion: An updated analysis. Commodity Market Research Report No. CM-01-05. Texas Agribusiness Market Research Center, Texas A&M University, College Station. September. Capps, O., Jr., and G. W. Williams. 2007. Is lamb promotion working? Commodity Market Research Report No. CM-01-07. Texas Agribusiness Market Research Center, Texas A&M University, College Station. November.

THE U.S. LAMB INDUSTRY 241 Capps, O., Jr., P. J. Byrne, and G. W. Williams. 1995. Analysis of marketing margins in the U.S. lamb industry. Agr. Res. Econ. Rev. 24(2):233–240. Carpenter, Z. L., G. T. King, F. A. Orts, and N. L. Cunningham. 1964. Factors influencing retail carcass value of lambs. J. Anim. Sci. 23:741–745. Cramer, D. A. 1983. Chemical compounds implicated in lamb flavor. Food Technol. 37:249. Cross, H. R., and K. E. Belk. 1994. Objective measurements of carcass and meat quality. Meat Sci. 36:191. Cunha, B. C., K. E. Belk, J. A. Scanga, S. B. Levalley, J. D. Tatum, and G. C. Smith. 2003. Vali- dation of regression equations that utilize lamb vision system (LVS) output to predict lamb carcass fabrication yields. USDA-AMS. Online at: http://www.ams.usda.gov/AMSv1.0/ getfile?dDocName=STELPRD3319271. Accessed May 1, 2008. Cunha, B. C., K. E. Belk, J. A. Scanga, S. B. Levalley, J. D. Tatum, and G. C. Smith. 2004. ������ Development of validation of equations utilizing lamb vision system output to predict lamb carcass fabrication. J. Anim. Sci. 82:2069–2076. Edwards, J. W., R. C. Cannell, R. P. Garrett, J. W. Savell, H. R. Cross, and M. T. Longnecker. 1989. Using ultrasound, linear measurements and live fat thickness estimates to determine the carcass composition of market lambs. J. Anim. Sci. 67:3322–3330. Field, R. A., J. D. Kemp, and W. Y. Varney. 1963. Indices for lamb carcass composition. J. Anim. Sci. 22:3322–3330. Field, R. A., J. C. Williams, and G. J. Miller. 1983. The effect of diet on lamb flavor. Food Technol. 37(5):258. FAO (Food and Agriculture Organization of the United Nations). 2007. FAOSTAT— consumption. Online at: http://faostat.fao.org/site/345/default.aspx. Accessed April 30, 2008. Fox, J. A., L. S. Vander Wal, P. Udomvarapant, D. H. Kropf, E. A. E. Boyle, and C. L. Kastner. 2003. Consumer evaluation of pre-cooked lamb. Sheep Goat Res. J. 18:65–68. Fritz, K. D., M. D. Menzies, S. L. Boleman, J. W. Savell, and C. L. Skaggs. ���������������� 1995. Effect of breed type, sex class, and antemortem evaluation of yield grade on carcass components of market lambs. Proc. Int. Congr. Meat Sci. Techn. 41:206–209. Garrett, R. P., J. W. Savell, S. G. May, H. K. Johnson, and H. R. Cross. 1990. Role of yield grade and carcass weight on the composition of lamb carcasses. J. Anim. Sci. 68:1299–1310. Garrett, R. P., J. W. Savell, H. R. Cross, and H. K. Johnson. 1992. Yield grade and carcass weight effects on the cutability of lamb carcasses fabricated into innovative style subpri- mals. J. Anim. Sci. 70:1829–1839. Glenn, J. S. 1994. The role of sheep and sheep products in waste management. Sheep Goat Res. J. Special Issue: The Role of Sheep Grazing in Natural Resource Management. Online at: http://www.sheepusa.org/index.phtml?page=site/newsandevents&nav_id=601e0a31 bbf6a0ef56f1f0591aa0dc78&volume=Special%20Issue:%201994%20--%20The%20 Role%20of%20Sheep%20Grazing%20in%20Natural%20Resource%20Management. Accessed May 2, 2008. Greer, H. C., and C. E. Ward. 2000. Regional differences in slaughter lamb marketing and prices. Sheep Goat Res. J. 16(2):52–57. Gross, J. B. 2007. American lamb attitude and usage study 2006. Presentation made at the American Lamb Board Meeting, San Antonio, TX, January 25. Harris Interactive, Inc. 2007. Trends survey—shopper. Online at: http://www.harrisinteractive. com. Accessed May 2, 2008. Harris, J. J., J. W. Savell, R. K. Miller, D. S. Hale, D. B. Griffin, L. C. Beasley, and H. R. Cross. 1990. A national market basket survey for lamb. J. Food Qual. 13:453–465. Heaton, K. L., J. B. Morgan, J. D. Tatum, J. W. Wise, R. P. Garrett, H. G. Dolezal, H. D. Loveday, and G. C. Smith. 1993. Field studies to document efficacy of visual assignments of lamb carcasses to appropriate yield grades. Sheep Res. J. 9:7–15.

242 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Heitmann, B. L. 1994. Impedance: A valid method in assessment of body composition? Euro. J. Clin. Nutr. 48:228. Hopkins, D. L., M. A. Anderson, J. B. Morgan, and D. G. Hall. 1995. A probe to measure GR in lamb carcasses at chain speed. Meat Sci. 39:159–165. Huffman, R. D. 2002. Current and future technologies for the decontamination of carcasses and fresh meat. Meat Sci. 62:285–294. Jamora, J. J., and K. S. Rhee. 1998. The uniqueness of lamb: Nutritional and sensory proper- ties. Sheep Goat Res. J. 14(1):53–64. Jenkins, T. G., K. A. Leymaster, and L. M. Turlington. 1988. Estimation of fat-free soft tissue in lamb carcasses by use of carcass and resistive impedance measurement. J. Anim. Sci. 66:2174–2179. Jensen, H. 2006. Consumer issues and demand. Choices 21(3):165–169. Johnson, M. L., and C. M. Parsons. 1997. Effects of raw material source, ash content, and assay length on protein efficiency ratio and net protein ratio values for animal protein meals. Poult. Sci. 76:1722–1727. Johnson, M. L., C. M. Parsons, G. C. Fahey, Jr., N. R. Merechen, and C. G. Aldrich. 1998. Effects of species raw material source, ash content, and processing temperature on amino acid digestibility of animal by-products meals by cecectomized roosters and ileally can- nulated dogs. J. Anim. Sci. 76:1112–1122. Jones, D. K., R. Leu, J. T. Kemp, J. W. Savell, and H. R. Cross. 1988. Consumer evaluation of sodium reduced, restructured lamb roasts. J. Food Qual. 11:235. Kaiser, H. M., J. M. Alston, J. M. Crespi, and R. J. Sexton (eds.). 2005. The Economics of Commodity Promotion Programs: Lessons from California. New York: Peter Lang Publishing. Kamnikar, B. 1992. Bioremediation of contaminated soil. Poll. Eng. (November):50–52. Kansas State University. 2007. Livestock and Meat: Marketing. AgManager.info. Online at: http://www.agmanager.info/livestock/marketing/graphs/. Accessed May 1, 2008. Last updated, January 22, 2007. Kochevar, S. L., J. N. Sofos, S. B. LeValley, and G. C. Smith. 1997. Effect of water tempera- ture, pressure and chemical solution on removal of fecal material and bacteria from lamb adipose tissue by spray-washing. Meat Sci. 45:377–388. Kremar, P., and E. Renova. 2003. Identification of species-specific DNA in feedstuffs. J. Agric. Food Chem. 51:7655–7658. Kunsman, J. E., and M. L. Riley. 1975. A comparison of hydrogen sulfide evolution from cooked lamb and other meats. J. Food Sci. 40:500. Leistner, L., and G. W. Gould. 2002. Hurdle Technologies: Combination Treatment for Food Stability, Safety and Quality. New York: Plenum Publishers. Lyons, K. 2000. How America’s eating has changed since the beginning of the 20th Century. EFood Rap Vol. 10, No. 15, Purdue University School of Consumer and Family Science, West Lafayette, IN. Magagna, J. 1991. Value-based marketing—A panel discussion. Proc. Rec. Meat Conf. 44:133. MC3. 2006. Product pipeline: MC3 artificial lung (Biolung®). Online at: http://www.mc3corp. com/case_studies/artificial_lung_bio/. Accessed May 1, 2008. McCoy, J. H. 1981. Livestock and meat marketing, 2nd Ed. Westport, CT: Avi Publishing Company, Inc. Meat New Zealand. 2007. Production information. Online at: http://www. meatandwoolnz. com/guide/en/product_info.htm. Accessed May 1, 2008. Meeker, D. L., and C. R. Hamilton. 2006. An overview of the rendering industry. Pp. 1–16 in Essential Rendering: All About the Animal By-products Industry. Alexandria, VA: National Renderers Association.

THE U.S. LAMB INDUSTRY 243 Menkhaus, D. J., G. D. Whipple, and C. E. Ward. 1989. Concentration in the lamb slaughter- ing industry: Impact on lamb prices. SID Sheep Res. J. 6:25–29. Millsaps Sorbent and Environmental Laboratory. 1993. Final report on sorbency evaluation for western textile products. Mintert, J. 2007. Annual choice retail beef demand index. Department of Agricultural Econom- ics. Kansas State University. Online at: http://www.agmanager.info/ livestock/marketing/ graphs/Meat%20Demand/Beef%20Demand/Annual%20Beef%20Demand/RetBfDmnd- IndexCPI.htm. Accessed May 2, 2008. Morris, C. E. 2003. Multiple hurdles minimize pathogens. ���������������������������������������� Food Engineering. Online at: http://www. foodengineeringmag.com/CDA/Archives/3ffe92e5a22f8010VgnVCM100000f932a8c0__ __. Accessed March 28, 2007. Muhammad, A., K. G. Jones, and W. F. Hahn. 2007. The impact of domestic and import prices on U.S. lamb imports: a production system approach. Agr. Res. Econ. Rev. 36 (2):293–303. NPD. 2003. Eating Habits in America. NPD Group. Online at: www.npd.com. Perry, J., J. MacDonald, K. Nelson, W. Hahn, C. Arnade, and G. Plato. 2005. Did the man- datory requirement aid the market? Impact of the Livestock Mandatory Reporting Act. Outlook Report No. LDPM13501. Economic Research Service, U.S. Department of Ag- riculture, Washington, DC. September. Online at: http://www.ers.usda.gov/publications/ ldp/sep05/ldpm13501/. Accessed May 2, 2008. Purcell, W. D. 1989. Analysis of demand for beef, pork, lamb, and broilers: Implications for the future. Research Bulletin 1089. Research Institute on Livestock Pricing, Virginia Polytechnic Institute and State University, Blacksburg. Purcell, W. D. 1998. Measures of changes in demand for beef, pork, and chicken, 1975–1998. Research Bulletin 3-98. Research Institute on Livestock Pricing, Virginia Polytechnic Institute and State University, Blacksburg. Purcell, W. D., J. Reaves, and W. Preston. 1991. Economics of past, current, and pending change in the U.S. sheep industry with an emphasis on supply response. Research Bulletin 6-91. Research Institute on Livestock Pricing. Virginia Polytechnic Institute and State University, Blacksburg. Purdue University. 2007. Lamb, from producer to consumer: Lamb meat product market- ing. Online at: http://ag.ansc.purdue.edu/sheep/ansc442/Semprojs/marketing/LambMeat ProductMarketing.htm. Accessed May 1, 2008. Reno Gazette Journal. 2005. Stem cell work raises hope for organ transplants. Online at: http:// corporate.recruitingnevada.com/newsarticle.php?id=1099. Accessed May 1, 2008. RTI (Research Triangle Institute International). 2007. Livestock and Meat Marketing Study. Volume 5: Lamb and Lamb Meat Industries. RTI Project No. 0209230. Final report pre- pared for the Grain Inspection, Packers and Stockyards Administration, U.S. Department of Agriculture, Washington, DC, February. Reynolds, R. G., and B. Gardiner. 1980. Supply response in the Australian sheep industry: A case of disaggregation and dynamics. Austr. J. Agr. Econ. 24:196–209. Rhee, K. S., and Y. A. Ziprin. 1996. Identification and acceptance of lamb versus beef and pork by consumers and experienced sensory panelists. J. Muscle Foods 7:243. Richie, M. M. 1979. New Zealand beef and sheep supply relationships. Austr. J. Agri. Econ. 23:102–115. Savell, J. W. 1997. Animal Science 307 lecture notes. Texas A&M University, College Station. Savell, J. W., and H. R. Cross. 1991. Value-based marketing: Current status. Proc. Recip. Meat Conf. 44:117–120. Schroeder, T. C., R. J. Jernick, R. Jones, and C. Spaeth. 2001. U.S. lamb demand. Sheep Goat Res. J. 17:14–19.

244 CHANGES IN THE SHEEP INDUSTRY IN THE UNITED STATES Schweigert, B. S. 1987. The nutritional content and value of meat products. Pp. 127–165 in The Science of Meat and Meat Products, J. F. Price and B. S. Schweigert, eds. Westport, CT: Food and Nutrition Press, Inc. Sealed Air Corporation. 2007. National meat case study. Cryovac Food Packaging Division. Online at: http://www.sealedair.com/products/food/nmcs.html. Accessed May 2, 2008. Shiflett, J. S., W. D. Purcell, D. Marsh, and P. Rodgers. 2007. Analysis of lamb demand in the United States. Report to the American Lamb Board, January. Sink, J. D., and F. Carporaso. 1977. Lamb and mutton flavor: Contributing factors and chemi- cal aspects. Meat Sci. 1:119–125. Slanger, W. D., M. J. Marchello, J. R. Busboom, H. H. Meyer, L. A. Mitchell, W. F. Hendrix, R. R. Mills, and W. R. Warnock. 1994. Predicting total weight of lamb retail-ready lamb cuts from bioelectrical impedance measurements taken at the processing plant. J. Anim. Sci. 72:1467–1474. Snowder, G. D., R. A. Field, and J. R. Busboom. 1994. Efficacy of body wall thickness and backfat depth for estimating percentage yield of retail cuts of lamb. Sheep Goat Res. J. 10(3):153–159. Tatum, J. D., J. W. Savell, H. R. Cross, and J. G. Butler. 1988. A national survey of lamb carcass cutability traits. SID Res. J. 5:23. Tatum, J. D., M. S. DeWalt, S. B. LeValley, J. W. Savell, R. P. Garrett, F. L. Williams, Jr., and J. W. Wise. 1992. Development of lamb classification and production systems to facilitate marketing based on carcass cutability. 1992 Sheep Research Highlights. Fort Collins: Colorado State University. Taylor, D. M., S. L. Woodgate, and M. J. Atkinson. 1995. Inactivation of the bovine spongiform encephalopathy agent by rendering procedures. Vet. Rec. 137:605–610. The Economist. 2007. Marketing to Muslims: food, fashion, and faith. August 2. The Freshlook Marketing Group. 2007. Data for lamb for 2003–2005. Online at: http://www. freshlookmarketing.com/. Accessed May 1, 2008. U.S. BLS (U.S. Bureau of Labor Statistics). 2007. Lamb price indices. Online at: www.bls.gov. Accessed May 1, 2008. USDA (U.S. Department of Agriculture). 1996. Pathogen reduction; hazard analysis and criti- cal control point (HACCP) systems; final rule. Fed. Reg. 61(144):38805–38989. July 25. Online at: http://www.fsis.usda.gov/OPPDE/rdad/FRPubs/93-016F.pdf. Accessed July 25, 2007. USDA. 1999. Generic E. coli testing for sheep, goats, equines, ducks, geese, and guineas. Fed. Reg. 64(228):66547–66553. Online at: http://frwebgate1.access.gpo.gov/cgi-bin/wais- gate.cgi?WAISdocID=179567267383+0+0+0&WAISaction=retrieve. Accessed November 29, 2007. USDA. 2006. Red Meat Yearbook. Economic Research Service, Washington, DC. Last updated January 2006. Online at: http://usda.mannlib.cornell.edu/Mann Usda/viewDocumentInfo. do?documentID=1354. Accessed May 2, 2008. USDA. 2007a. Agricultural Outlook: Statistical indicators. Economic Research Service, Washington, DC. August. Online at: http://www.ers.usda.gov/Publications/AgOutlook/ AOTables/. Accessed May 2, 2008. USDA. 2007b. Quick Stats: National Agricultural Statistics Service. Online at: http://www.nass. usda.gov/Data_and_Statistics/Quick_Stats/index.asp. Accessed May 2, 2008. USDA. 2007c. Packers and Stockyards Statistical Report: 2005 reporting year. GIPSA Report No. SR-07-1. Grain Inspection, Packers and Stockyards Administration, Washington, DC, February. Online at: http://archive.gipsa.usda.gov/pubs /2005_stat_report.pdf. Ac- cessed May 2, 2008.

THE U.S. LAMB INDUSTRY 245 USDA. 2007d. United States Standards for Grades of Slaughter Lambs, Yearlings, and Sheep. Effective date July 6, 1992. Agricultural Marketing Service, Washington, DC. Online at: http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELDEV3062573. Accessed May 2, 2008. USDA. 2007e. Food availability data system. Economic Research Service, Washington, DC. Last updated February 15, 2007. Online at: http://www.ers.usda.gov/data/foodconsumption/ FoodAvailIndex.htm. Accessed May 2, 2008. USDA. 2007f. Market and trade data. Foreign Agriculture Service. Online at: http://www.fas. usda.gov/markettradedata.asp. Accessed May 2, 2008. USDA. 2007g. Summary livestock and grain market news reports. Agricultural Marketing Service. Online at: http://amsdev.ams.usda.gov/lsgtest/NewMN/NatSum.htm. Accessed May 2, 2008. USITC (U.S. International Trade Commission). 1999. Lamb meat industry adjustment plan. Investigation No. TA-201-68. USITC Publication 3176. Washington, DC. Van Tassell, L. W., and G. D. Whipple. 1994. The cyclical nature of the U.S. sheep industry. J. Agr. Resour. Econ. 19:267–279. Vere, D., G. Griffiths, and R. Jones. 2000. The specification, estimation, and validation of a quarterly structural econometric model of the Australian grazing industries. CRC for Weed Management Systems Technical Series No. 5, University of Adelaide, Glen Osmond, Australia. Viator, C. L., S. C. Cates, M. K. Ruth, S. A. Karns, and G. Brester. 2007. Cash versus contract marketing in the U.S. lamb industry. Sheep Goat Res. J. 22:32–41. Wachenheim, D. E., L. L. Blythe, and A. M. Craig. 1992a. Effects of antibacterial agents on in vitro ovine ruminal biotransformation of the hepatoxic pyrrol-izidine alkaloid jacobine. Appl. Environ. Microbiol. 58(8):2559–2564.. Wachenheim, D. E., L. L. Blythe, and A. M. Craig. 1992b. Characterization of rumen bacte- rial pyrroli-zidine alkaloid biotransformation in ruminants of various species. Vet. Hum. Toxic. 34(6):513–517. Welsh Country Food Group. 2007. An evaluation of the use of video image analysis to predict the classification and meat yield of sheep carcasses. http://www.hybucigcymru.org/up- loads/MediaRoot/416.pdf. Accessed May 1, 2008. Whipple, G. D., and D. J. Menkhaus. 1989. Supply response in the U.S. sheep industry. Amer. J. Agr. Econ. 71:126–135. Whipple, G. D., and D. J. Menkhaus. 1990. Welfare implications of the Wool Act. Western J. Agr. Econ. 15:126–135. Williams, G. W., and J. P. Nichols. 1998. Effectiveness of commodity promotion. Consumer and Product Research Report No. CP-01-98, Texas Agribusiness Market Research Center, Texas A&M University, College Station. May. Williams, G. W., and O. Capps, Jr. 2005. Household level lamb consumption patterns. Com- modity Market Research Report No. CM-02-05, Texas Agribusiness Market Research Center, Texas A&M University, College Station, September. Williams, G. W., O. Capps, Jr., R. Dietrich, J. W. Edwards, R. A. Field, H. L. Goodwin, Jr., D. B. Griffin, K. Litzenberg, J. P. Nichols, J. W. Savell, G. Smith, D. Tatum, and J. B. Ward. 1991. Assessment of marketing strategies to enhance returns to lamb producers. Commodity Research Report No. CM-1-91, Texas Agribusiness Market Research Center, Texas A&M University, College Station. Wishmeyer, D. L., G. D. Snowder, D. H. Clark, and N. E. Cockett. 1996. Prediction of live lamb chemical composition utilizing electromagnetic scanning (TOBEC). J. Anim. Sci. 74:1864–1872. Young, O. A., G. J. Cruickshank, K. S. Maclean, and P. D. Muir. 1994. Quality of meat from lambs grazed on 7 pastures in Hawkes Bay. N. Z. J. Agric. Res. 37:177–186.

Next: 5 The U.S. Wool Industry »
Changes in the Sheep Industry in the United States: Making the Transition from Tradition Get This Book
×
Buy Paperback | $80.00 Buy Ebook | $64.99
MyNAP members save 10% online.
Login or Register to save!
Download Free PDF

The U.S. sheep industry is complex, multifaceted, and rooted in history and tradition. The dominant feature of sheep production in the United States, and, thus, the focus of much producer and policy concern, has been the steady decline in sheep and lamb inventories since the mid-1940s. Although often described as "an industry in decline," this report concludes that a better description of the current U.S. sheep industry is "an industry in transition."

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  6. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  7. ×

    View our suggested citation for this chapter.

    « Back Next »
  8. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!