Table 1. Comparative Retail Prices and Sales Vol-
umes OfFrankfurters by Type, 1978-1980
____________________Type of Frankfurter_________________
Beef . Meat Poultry
12 Month Period Volume Price Volume Price Volume Price
: OOO lbs $/lb 000 lbs $/lb 000 lbs $/lb
Dec. 1977-Nov. 1978 343,332 1.45 494,363 1.37 46,208 1.03
Dec. 1978-Nov. 1979 304,185 1.74 500,178 1.57 74,916 1.12
Dec. 1979-Nov. 1980 257,946 1.84 545,294 1.58 90,362 1.11
10 million pounds or about 1 percent. But these figures
mask significant changes that were taking place in this
market, largely in response to the adoption of the me-
chanical deboning technology by poultry processors
and the significant increase in MDP production that
followed. Retail sales of poultry franks increased by
96 percent, while retail sales Ofbeef franks decreased
by 25 percent.
Part of this dramatic change in the frankfurter mar-
ket might be associated with a shift in consumers’ tastes
and preferences. However, most is attributable to the
considerable price∕cost advantage of poultry franks
made with MDP. Over the 3-year period, the average
retail price of poultry franks was 30-40 percent lower
than the average retail price of beef franks and 25-30
percent lower than the average retail price of meat
franks. While the retail price of poultry franks rose by
less than 8 percent over the 3-year period, the retail
price of beef franks rose by over 27 percent, and the
price of meat franks rose by 15 percent. The result was
that the poultry frank share of this frankfurter market
doubled from 5 percent in 1978 to 10 percent in 1980.
According to industry sources, use of hand-deboned
poultry-meat trimmings rather than MDP to make
poultry frankfurters would eliminate the price advan-
tage of chicken and turkey franks relative to beef and
meat franks. Sun’s estimate of an own-price elasticity
for poultry franks of — 1.7 and cross-price elasticities
of 1.1 for beef and 0.2 for meat franks reinforce the
hypothesis that the relative price advantage of poultry
frankfurters with low-cost MDP was a key variable in-
fluencing changes in consumer purchases.
Conceptual Model
Studies by Bullock and Ward, McNiel, and Wil-
liams analyze the economic impact of the increased
supply of edible red meat that could result from me-
chanical deboning. In each study, the increased supply
of red meat is more or less exogenously determined as
a result of various assumptions and rules of thumb about
the obtainable yield per carcass and the number of car-
casses processed under different regulatory condi-
tions. These exogenously determined supply shocks are
then applied to models of the table and processed beef
and pork markets (McNiel), to beef and pork price
equations (Williams), or simply to relevant beef and
pork elasticities (Bullock and Ward) to analyze the
134
possible impacts. In none of these studies is the supply
response itself modeled or endogenous in the sense that
it is estimated from data reflecting the market response
of producers. The reason for this is that no reliable his-
torical data on the production of mechanically de-
boned red meat exists. An important contribution of this
study is that it analyzes MDP production data not pre-
viously available and endogenously estimates the MDP
supply response of poultry processors. Consequently,
it adds to our knowledge about the determinants of a
key variable, which in previous studies were treated
exogenously or in an ad hoc manner.
Only a few processors specialize in the production
of MDP. Most of the poultry processors who have
adopted the mechanical deboning technology have
flexible production capacity, which can be used to pro-
duce boneless, comminuted, cut-up, and whole-poul-
try products. It is assumed that processors allocate their
production capacity among competing products to
maximize expected profits. Under free market condi-
tions, aggregate production of MDP may be viewed as
a function of its own price, the prices of other substi-
tutes in production, variables reflecting the availabil-
ity of potential poultry inputs for producing MDP, and
the rate of adoption of the technology.
A simple aggregate MDP supply-response function
may be hypothesized as follows:
(1) QMDP = f(PMDP, PSUB, QINPUT,
ADOPT)
where QMDP represents the quantity of MDP pro-
duced, PMDP represents the price of MDP, PSUB
represents the price of substitutes in production for the
raw material inputs used in making MDP, QINPUT
represents the quantity of poultry raw material inputs
potentially available for producing MDP or substitutes
in production, and ADOPT represents the adoption rate
for the technology. For most establishments cutting up
and further processing poultry, MDP production is an
alternative way of utilizing byproducts generated in
their primary-poultry-processing operations. Since few
firms specialize in producing MDP from raw materials
collected from other firms, the supply of MDP is con-
tingent upon how many of the over 1000 poultry-pro-
cessing firms adopt the technology, the quantity of
potential poultry inputs available to be processed by
these firms, and the extent to which available poultry
inputs are processed into MDP. If the price of MDP
rises relative to the prices of alternative final food and
nonfood product uses for MDP ingredients, not only is
a larger portion of the potential-byproduct raw mate-
rials of firms utilizing deboning machines likely to be
processed into MDP, but additional firms are likely to
adopt the technology. On the other hand, if the relative
prices of alternative final product uses of these raw
materials increase, production of MDP is likely to be
curtailed. For example, if the wholesale prices of backs
and necks, the two poultry parts most commonly me-
chanically deboned, rise, processors will find it more
profitable to market these parts bone-in and let the pro-
duction of MDP decline.