Competitive forces affecting capacity decisions of South Dakota feedlot operations

A strategic management framework for the analysis of small and medium size firm behavior within a fragmented industry structure is developed. This literature predicts falling profits in the long run will drive out less efficient firms as the industry consolidates. This literature also predicts successful firms will engage in value-added production and/or adopt a cost reduction strategy to gain a competitive advantage through the development of niche markets. This framework is applied to the feedlot industry in South Dakota. A survey was conducted to collect feedlot operator responses on future capacity decisions. Empirical analysis identified linkages between future capacity decisions and competitive forces hypothesized in the agricultural management literature, which are responsible for driving consolidation in the U.S. feedlot industry. The survey also collected information on value-added production and management practices. These data were used to test the “niche market” hypotheses discussed in the strategic management literature. The analysis provides evidence that firms that engage in value-added practices have a lower probability of indicating they will decrease the capacity of their feedlot.