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Abstract

This study examines prospective additional costs associated with identity preserved (IP) transactions and their allocation among participants in the wheat marketing system (farmers, grain handlers, and millers). Cost allocations for participants are computed across a range of potential specifications for IP transactions. As strategies become more specific (moved toward either location, variety, or variety and location), the probability of lots meeting quality specifications for the desired end-use characteristic (absorption) generally increased and changes in costs for mills declined. The exception is for strategies that include varieties which involve a premium paid by millers. As strategies become more specific, higher economic costs are imposed on shippers. These economic costs are substantial and provide incentives for shippers to develop techniques that would allow segregation of lots based on quality to recapture this unrealized value. The other change in costs among participants is the shifting of revenue to farmers from mills for variety specific strategies. This analysis indicates that when the desired quality characteristic is absorption, premiums paid for specific varieties quickly offset any reduction in procurement costs achieved by mills.

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