1 Managing for Today’s Cattle Market and Beyond Alliances and Vertical Arrangements By

Strategic alliances and various types of formal vertical arrangements have been of particular interest in the beef industry in recent years. Some believe these arrangements are the beef industry’s answer to a long-term decline in beef demand, unclear price signals, and lack of adequate profitability. Some industry participants are looking at alliances as the quick solution for increased returns and higher prices. Others believe alliances contribute further to industry problems, especially captive supplies. This fact sheet discusses some of the motivations and characteristics for these arrangements, and presents what is known about their growth and development. Strategic Alliances and Vertical Coordination Vertical coordination encompasses many broad and varied methods of harmonizing or synchronizing farm-level supplies with retail-level demand. Vertical coordination via market prices with no attribute information is at one extreme of a continuum of vertical coordination methods, while vertical integration is at the other extreme. Between the two extremes are numerous vertical cooperation arrangements, including various types of contracts, joint ventures, cooperatives, partnerships, and alliances. Vertical cooperation is defined as the relationship between individual firms or organizations in two or more adjacent stages of the production-marketing channel without full ownership or control by individual firms (den Ouden et al.). This broad but useful definition seems applicable to vertical arrangements in the beef industry. In essence, vertical cooperation participants or partners fundamentally maintain their independence but share information to more effectively price products and improve the flow of products and information among the vertical production-marketing stages. This definition generally describes many of the alliances and vertical arrangements in the beef industry even though some organizations do not classify themselves as a strategic alliance. They might use cooperative, partnership, program, or another term to describe their organizational structure and operation. The term “strategic alliance ” is used here in a broad sense to encompass many types of vertical arrangements