Value-based pricing:
Packers are increasingly using this method of determining how much to pay cattle and hog producers for animals. Rather than simply paying a fixed rate based on the weight of the animals, value-based pricing attempts to establish the individual merits of each animal (or lot) purchased, factoring quality characteristics such as yield, fat thickness, likely grade (such as choice, select, etc.) into a formula to arrive at the price that will be paid. Under this system, the producer assumes the financial responsibility that the animals, once slaughtered, will meet these criteria. In traditional pricing methods, it is the packer that bears the greater financial risks associated with the uncertain quality of the animals purchased.
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