Alliances between participants in the beef industry have developed rapidly during
the past 10 years. Industry surveys reveal alliances are expected to grow larger in
number and become a more dominant part of the beef sector over the next 10 years. This
research centers on providing design specific information to managers and decision
makers involved with creating alliance organizations, thereby improving the likelihood of
future alliance success. A conceptual framework was created to better understand the
process of alliance formation. Each participant in the alliance first prioritizes economic
motivations for joining, creates unique governance structure designs reflecting
motivations, and then assesses results to decide on future participation. Simulations were
performed using empirical data from a private beef alliance to analyze various margin
sharing and premium allocation designs. Cattle owners were found to prefer equal
margin sharing, while packers would prefer to accept a transfer of cattle owner margins
rather than share packing margins with owners. Premiums were found to be substantial
for cattle grading higher than a Choice YG3 quality level. Premiums averaged $12/head,
$8/head, and $4/head when 75%, 50%, and 25% of cattle qualified for premium lines,
respectively. Premium rights were found to be good substitutes for equal margin sharing
agreements, allowing packers to accept equal margin sharing agreements while
maintaining an equivalent level of return from premium rights. Marginal rates of
substitution between changes in premium rights and changes in equal margin sharing
levels are identified, allowing for more informed negotiations between cattle owners and
packers.