Distribution Chainsby Robert J. Melchior
(Market Coordinator for the Northeast Sheep and Goat Marketing Program at Cornell University from 2000 until his death in 2002)
Livestock progressing from producer to consumer can pass through many hands. For purposes of illustration, we will call the process the supply chain, with each handler considered a link in the chain. A typical supply chain for Northeast sheep or goats would appear as follows:
Each participant in the chain has a specific function to serve. The function can, however, be assumed by another participant, bypassing in this way some of the links on the chain. For example, the producer may finish his lambs to a marketable weight and condition, thereby eliminating the need for the feeder.
Moving beyond the feeder, let's look at each of the links in the chain and determine the function that each contributes in moving the lamb or goat to its place on the consumer’s table.
Most rural small producers market their lambs and kids at the local auction barn (Country Auction). The function of the local auction is to concentrate enough livestock in a single location to interest buyers in venturing out to the country to supply their needs. One Pennsylvania country auction used to advertise its weekly sales as the place “where buyer and seller meet”. In this day of specialization, it is important to note that while a particular auction may be successful in attracting beef buyers, those buyers probably have little interest in sheep or goats. So producers should be alert to deal with country auctions that have an active trade in their species of livestock. Also, in addition to attracting buyers, the local auction becomes a banker of sorts, absorbing the credit risk of out-of-area buyers. The conscientious auction house should be ever alert to actively attracting new buyers interested in local production and should be looking for a steady year-round flow of supply to meet the needs of these buyers.
Frequently, the principal buyers at country auctions with concentrations of sheep and goats are livestock dealers. This is because the slaughter facilities that are doing much of the regional processing tend to be located near the urban centers they are serving. As they tend to be small, these firms do not have the manpower to send buyers out to the numerous distant country auctions that exist in the region. These slaughterhouses tend to buy weekly and prefer to attend the large “terminal auctions”, which have sufficient supply for them to meet their entire needs at one place. Alternatively, they may buy from dealers or producers who are willing to ship directly to the plant.
The dealers serve several functions. The first is to relocate the product to where the demand is. A second and crucial step is to sort the product to position it for sale. With our diversity in the Northeast, different population groups prefer different products. Some consumers prefer lean meat, others prefer some finish; some prefer young animals, some yearlings and some adults; some prefer small animals and some heavier. The farmer, when he decides to sell his output, usually decides to ship the culls along with the good production, and probably that tail ender who didn’t grow so well, also. The dealer then will direct these to locations that will be receptive to that particular product.
Dealers may move their purchase direct to slaughterhouse customers or into a terminal auction. The terminal auction is basically the same as the country auction discussed above, except that its customers are the end users of livestock in their current state (slaughter facilities), hence the name terminal. For the sheep and goat trade in the Northeast the principal terminal market is New Holland Sales Stables. Several other smaller auction houses located near metropolitan hubs also fill a similar function of supplying local slaughterhouses or retailers. In the beef trade in the Northeast, dominated by large packinghouses, the country auction buyers are very likely to be representatives of the slaughterhouses. In this circumstance the country auction can also be considered to be a terminal auction.
We have already briefly discussed the slaughterhouse. In the Northeast sheep and goat trade, these businesses tend to be fairly small and supply specialty shops in metropolitan areas. In addition to processing the livestock, they are also distributing them. Much of the lamb and goat meat is distributed as whole carcass, and the specialty store then either further processes or sells the whole carcass to its customer.
There is also a trade concentrated mostly in the “meat districts” or food distribution centers of the metropolitan areas that consists of breakers and distributors (wholesalers). These firms buy whole carcass animals and break them down and distribute them to retailers and restaurants. They depend on large volumes of consistent product and more often than not are utilizing sheep or lamb brought in from outside the region. They tend to distribute to the larger stores and high volume restaurants.
The retailer usually maintains a fixed location with a variety of products intended to attract local consumers. Retailers who are the recipients of Northeastern produced lamb and goat are likely to be specialty stores concentrating on meat or ethnic products. They are very likely to be buying whole carcasses. Goat is a specialty product rarely carried in a full line supermarket and so these specialty stores are not directly competing with the larger stores, as they do with lamb.
Each of the participants in the marketing chain fulfills a function for you as a producer, but each also exacts a price. If you can determine that price, you can balance it against the responsibility and decide whether you might want to take on the job yourself. The auction costs are usually quite clear. Commission charges may be flat fees or percentages. Your alternative to the auction is to work directly with dealers and/or slaughterhouses and exact a competitive price. You will also then have to collect your money.
Determining the cost of a dealer may involve only comparing prices at a local auction with a terminal auction. For example, if the price for an 80 lb lamb at your local auction is $.90/lb and at New Holland it is $1.00/lb, you can figure that you are paying the dealer $.10/lb (minus the New Holland commission and possible shrink of the animal in transit) to transport, sort and collect the proceeds. He may be marketing elsewhere, but the price he receives will be closely related to that market. This explanation is simple, but in the real world it will not be as clear-cut. Does the local auction report its prices and if so, are the prices of products like yours clearly specified (e.g. 80 lb lamb-prime)? The prices at the terminal auction are published, but with a price and weight range. It is also important to note the grade on published prices and to evaluate realistically the livestock you have to sell.
Finally, slaughterhouses and retailers are both expensive operations to maintain and far beyond what most producers could attempt to substitute for on a large scale. One could determine the total value of cuts from a lamb or goat, or the carcass price and subtract out the cost of the live animal at a terminal auction and come up with the value added by these organizations, but such a procedure isn’t practical for most producers.
In summary, our livestock pass through many hands on the path to the consumers’ table. Each handler performs a function, and each exacts a price. The producer should be aware of what the functions are and which, if any, he could economically accomplish himself.