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The Cost of Negotiated Trade and True Price Discovery

By Andrew Griffith

There was a question last week about all the different methods that have been proposed to achieve adequate negotiated trade and true price discovery in the finished cattle market. There has been proposed legislation as well as efforts by NCBA that is a voluntary framework, but NCBA’s voluntary framework could lead to them pushing for a policy framework if packers and cattle feeders do not meet minimum thresholds.

For those interested in the specifics, this information can be found from several sources online. However, it is important for interested parties to understand that any type of mandate or policy will increase costs to the industry directly in two ways.

The first way is that it will increase transaction costs between packers and feedlots as they will be forced to negotiate prices each and every week. This does have a cost. The second cost will be in enforcing the mandate and regulations.

There is always a cost associated with the enforcement of mandates, and it could get expensive. 

Source : osu.edu

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