Efficient Distribution of Grain to Meet the Quality Needs of End-Users

Currently, United States grains within a grade are traded as a homogeneous commodity when, in fact, they are heterogeneous. Biotechnology will present the market with a myriad of quality special grains, placing great pressure on the current distribution system to handle differentiated grains. Forcing the current distribution system to handle quality differentiated grains may have a significant impact on producer, elevator, and processor operations and revenues. The basic purpose of this study was to examine the economic impacts of shifting from a commodity based logistics system to a quality differentiated logistics system. An extended input characteristic model provided the framework to analyze the implications of shifting from a commodity based grain distribution system to a quality differentiated grain distribution system. Results were estimated from a linear programming representation of the problem. The first significant result was the fact that production of specialty grain localized around the target specialty market. Another striking feature was the limited role that elevators and railroads played in the model. Gains to market agents from segregating quality differentiated grain vary depending on end-use and the degree of market power exerted by grain processors. In order to determine whether the U.S. should pursue opportunities to shift from a commodity based logistics system to a quality differentiated logistics system, the short-run model was run where the generic varieties of corn and soybeans were the only varieties available. System profits increased in both the short-run and long-run solutions when the system shifted from a commodity based to a quality differentiated logistics system.