Policies and programs to facilitate effective price discovery for the agricultural sector can be developed, but the "public good component" of price discovery must be recognized, says Virginia Tech economist Wayne Purcell. "A failure to discover price consistent with final use value pushes the livestock sectors toward integration, contracting and other means of non-price coordination," he told USDA’s ag forum.
If producers and processors look for control and the opportunity to serve an "identified consumer market," especially in beef, such alliances will become more important. The trend toward alliances is in place, powerful and "will not be denied unless there is a significant shift in public support of facilitative programs in areas like market news," says Purcell.
A second alternative is to let the private initiatives "run their course with little or no policy-based effort to direct them," he adds. Price discovery, "as we know it," will disappear quickly if that option is taken. Price discovery "will linger in beef where integration and contracting are logistically more difficult but will more forward quickly in pork," he predicts. Where no policy directions persist, price discovery will take a different form.
"Large packers will get involved, perhaps, in `discovery’ of a base price for contracts and then apply a `price grid’ of premiums and discounts," said Purcell. "the same base price might be extended to all sellers, with some pricing to value being accomplished via the grids. This is not the traditional price discovery, but whatever form it takes in an industrialized livestock sector, it will be in the presence of other and non-priced means of coordination."
A "healthy research-based dialogue is needed" or the choice of directions will be made by "neglect and default," according to Purcell.