Options for Improving Profit: Adding Value and Beef Niche Marketing

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Options for Improving ProfitAdding Value and
Beef Niche Marketing

• Cattlemans Workshop, January 29, 2005

• Dr. Laura R. Gow
• Livestock Economist
• Agriculture and Resource Economics
• Oregon State University

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Outline Adding Value and Beef Niche Marketing

• What does adding value mean?
• How has this traditionally been done?
• Alternative Strategies for Adding Value to Beef
• Niche Marketing
• Organic vs. Natural Markets

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Value-Added Concept

• Options for providing additional value to the
  products we are producing and selling
• Value from time, place, form, and possession
• Traditionally focused on weight, price, and
  timing to add value to our cattle
• Backgrounding animals before feedlot placement
• Stocking animals on pasture or rangeland
• Retaining ownership of animals until finished

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Alternatives for Adding Value to Beef Production

• Producing a consumer product (MEAT TO EAT)
• You control the quality of the final product
• You have control over the attributes that the
  consumer wants
• NOT a commodity to be processed/changed (animal)
• Not a generic product
• Value is not added by middleman
• Quality is not controlled by middleman

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Alternative Value-Added Methods

• HOW?
• Taking control of
• providing what the customer wants
• where they want it
• how they want it
• when they want it
• Maximize the price theyre willing to pay
• Consumers
• Buyers

• GOAL
• Keep more of the consumers

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How do we do this?Niche Marketing

• What is Niche Marketing?
• Serving a unique market
• OR
• A unique portion of a common market with existing
  products

• Typically
• Smaller than commodity markets ()
• Can grown into multi-millions dollar market
  segments
• Can become mainstream

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Niche Markets

• Results of Niche Markets
• When producers can meet a set of required
  specifications (demands) of a niche market
• Result will be premium prices paid to the
  producer (Bastian, C and D.J. Menkhaus, 1997).

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Considerations for Niche Marketing Beef

• The type of product you produce
• Alternative production systems
• Better utilize resources (natural and human)?
• What are potential cost savings?
• What are the additional costs?
• Finishing, arranging slaughtering and process,
  and additional time and management commitments

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Considerations for Niche Marketing Beef
Benefits vs. Costs?

• Implant vs. Non-implant
• Implants reduced carcass prices
• Increased feedlot costs
• Increased ADG and feed efficiency
• Non-implanted graded choice and above a higher
  of the time

• Feed Additive vs. No Feed Additive
• No significant difference in ADG, feed
  efficiency, and grading
• Did not significantly affect feedlot costs

(Sawyer et al., 2003)
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Alliance Niches

• Producers tap into niche markets that have been
  discovered
• Producer responsible for delivery of product
• Specified date and characteristics
• Marketing left to the alliance
• Serve markets too large for individual producer
  to serve
• Coops, producer alliances, grower groups, breed
  associations, branded products

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Micro-niches

• Small market segment that can be served by an
  individual producer
• Specific geographic regions
• Selling meat directly to producers
• Farmers markets
• Specialty retail stores
• Freezer trades
• Local restaurants

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Beef Niche Markets

• Organic beef
• Natural beef
• Variety of programs
• Pasture/Grass finished beef
• Branded products
• Breed programs
• Lean beef programs

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Organic vs. Natural

• 75 of American consumers think that
  all-natural and organic mean the same thing
  (Starch, 2001).
• 21 of Americans believe that organic and
  low-calorie were the same (Starch, 2001).
• Clear definition of these markets were needed.
• USDA 2002 organic standards

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Beef Niche Markets Organic
To be sold, labeled, or represented as organic

• Cattle must be
• Under continuous organic management
• Completely Traceable
• Fed
• Organic rations (pasture and forage)
• No urea/manure
• No mammalian or poultry by-products (fish ok)

• Provided
• Approved vaccines
• Approved veterinary biologics when ill
• Access to pasture - no confined feeding

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Beef Niche Markets Organic

• Cannot be Given
• Feed supplements beyond adequate nutrition and
  health maintenance
• Growth hormones
• Antibiotics
• Animal drugs w/o illness
• Any unapproved substance

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Beef Niche Markets Natural

• USDA Definition
• Does not contain any artificial flavoring or
  coloring, chemical preservative, or synthetic or
  artificial ingredients
• Product is not more than minimally processed
• Says nothing about
• How the animal was raised
• How the animal was fed
• How the animal was processed

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Beef Niche Markets Natural

• Gone to communicating to consumers what natural
  means for their product.

Common Approved Label Claims
Antibiotic/Hormone Claims None Used No
sub-therapeutic Antibiotics Breed Claims
Certified Hereford Free Range Claims Grass
Fed Claims
Geographic Claims Oregon Country Beef Location
of Raising or Finishing Raised in
Montana Nebraska Fed Beef Source
verified Processed verified (USDA Certification
available)
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Natural Beef Markets
Rocha et al., 2003
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Examples of Natural Beef Programs
Rocha et al., 2003
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Future of Beef Niche Markets

• Market grew 24 from 1997-2002 (Natural Food
  Merchandiser, 2002).
• Mainstream sales of natural/organic beef
• Costco, Wal-mart
• National Fast Food Chains
• Middle Class Restaurants

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Future of Beef Niche Markets

• Traits that continue to appeal to consumers
• Food Safety (Antibiotics, hormones, traceability)
• Humane treatment and slaughter
• Environmental (sustainable production practices)
• Enhanced nutrients (fatty acids, anti-oxidants,
  beta-carotene, vitamin E)
• Rural sustainability family farms

• 74 of consumers are concerned about the presence
  of antibiotics in meat
• 27 of consumers are aware of the anti-biotic
  resistance issue.
• 6/10 would be likely to buy natural meat after
  aware

Rocha et al., 2003
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Future of Beef Niche Markets

• 38 of general consumers will pay 10 for
  natural steaks
• 57 will pay 12 for natural ground beef
  (Grannis et al, 2002).

NICHE MAINSTREAM?
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QUESTIONS?