Consumer Demand Drives Beef Industry

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Consumer Demand Drives Beef Industry
Ted C. Schroeder Professor of Agricultural
Economics Kansas State University tcs_at_ksu.edu
National Beef Industry Development Fund
Workshop September 19, 2002 Calgary, Alberta
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U.S. Beef Demand Index
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Lack of Coordination
Markets at each stage coordinated chain, but
worked poorly

• - highly varied product
• little price-quality distinction - no incentives
  to improve
• huge loss of market share

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Consumers Demand
1. Tender 2. Flavorful 3. Consistently High
Quality 4. Convenient to Prepare 5. Healthy
Nutritious 6. Safe 7. Competitively Priced
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Tenderness Brands Matter

• Spring 2002 K-State
• consumer beef
• preference study
• - 363 consumers
• bid to exchange
• real , actual steaks

K-State 2002 Study
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Tenderness Brands Matter
K-State 2002 Study
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Flavorful?
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Convenience Matters
Source AC Nielsen and NCBA
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Convenience Matters
Shredded Cheese Sales Increase 84
Source AC Nielsen and NCBA
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Convenience Matters
Bagged Lettuce Sales Convenience
Source AC Nielsen and NCBA
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Wheres the Action?
Beef industry will have segmented markets with
both similar and divergent needs for each
segment Key to success will be to determine
role of producers in effectively and
profitably meeting needs of the sectors
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1. Fresh Branded Case-Ready Products
Vertical alliances abound some 60 or more in
U.S. USDA has 50 beef certification programs
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Producers Changing Marketing
Schroeder et al. 2002 cattle feeder survey
Kansas, Texas, Nebraska, Iowa
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Producer Motivations
Schroeder et al. 2002 cattle feeder survey
Kansas, Texas, Nebraska, Iowa
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Cash Market Disappearing
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Retail Steak Prices
Ribeye Steak Prices in Kansas City April 1, 2000
Source Lusk
 
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2. Meal Packages
Single dish quick fix meal consumer expenditures
expanded 83 in 2001 to 141 million AC
Nielsen 472 beef products introduced in
2001 Compared to 70 in 1997 - NCBA
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3. Food Service
Food service continues to grow Diversity of
product needs Quality control in volume are
critical Contracts
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What do they require?
Product integrity High level of accountability
of input supplier Product safety assurances
mega responsibility/risk Production practice
assurances (including location?) Traceability Co
nsistent continuous supply
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Critical Research Questions

• How can the beef producer (seedstock, cow-calf,
  and feedlot) position their operation to be part
  of the new food environment?

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Critical Research Questions

• How can the beef producer (seedstock, cow-calf,
  and feedlot) position their operation to be part
  of the new food environment?
• What form of business ownership, risk sharing,
  valuation, and financial arrangements are most
  likely to be successful in meeting the needs of
  the consumer? In other words, what is the most
  efficient way to provide the products demanded?

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Critical Research Questions

• How can the beef producer (seedstock, cow-calf,
  and feedlot) position their operation to be part
  of the new food environment?
• What form of business ownership, risk sharing,
  valuation, and financial arrangements are most
  likely to be successful in meeting the needs of
  the consumer? In other words, what is the most
  efficient way to provide the products demanded?
• How will incentives to add value, innovate, and
  invest in development and research be rewarded?

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Critical Research Questions

• How can the beef producer (seedstock, cow-calf,
  and feedlot) position their operation to be part
  of the new food environment?
• What form of business ownership, risk sharing,
  valuation, and financial arrangements are most
  likely to be successful in meeting the needs of
  the consumer? In other words, what is the most
  efficient way to provide the products demanded?
• How will incentives to add value, innovate, and
  invest in development and research be rewarded?
• How will producers manage increased risks
  associated with greater accountability/liability?

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Primarily grass-fed beef imports for ground or
processed beef
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Primarily offals and high-quality fresh table cuts
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U.S. Beef Exports to European Union
EU bans import of beef produced using synthetic
growth hormones (95 of U.S. fed beef)
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U.S. Food Drug Administration (FDA) U.S.
Department of Agriculture (USDA) World Trade
Organization (WTO) Lamming Group (European
Scientists)
Growth Hormones
All say growth hormones not food safety concern
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U.S. Food Drug Administration (FDA) U.S.
Department of Agriculture (USDA) World Trade
Organization (WTO) Lamming Group (European
Scientists)
Growth Hormones
All say growth hormones not food safety concern
Yet, 54 of EU consumers indicated in 1998
survey that food must not have hormone use to be
safe (INRA, Europe) Consumer is King!
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Is Feeding GMO Grains a Problem?
No credible scientific evidence suggests it is a
problem. Vast majority of U.S. consumers not
concerned with use of GMO crops in food or animal
production However, Only 30 of German
consumers, 60 of France, and 63 of United
Kingdom consumers unwilling to buy food produced
with GM crops. 57 of German, 38 of France, and
39 of U.K. consumers view GM crops as a health
risk. (Source Hoban)
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Estimated Premiums Average Consumers Indicated
they would Pay for Steaks
United Steak Attribute France Germany
Kingdom U.S. No Growth 9.94/lb. 7.29/lb.
7.39/lb. 8.12/lb. Hormones Not fed
GMO 9.32/lb. 7.67/lb. 6.31/lb.
3.31/lb. Grain Source Lust et al., 2002
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What about Margins?
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Farm to Wholesale
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Wholesale to Retail
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Are USDA Retail Prices Wrong?
Error range 2 Top Round 18 for
Porterhouse (8 for ground beef)
Source Lensing, Jones, and Purcell, 2002
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Consolidated Beef Producers