The Cost of Meeting

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The Cost of Meeting Consumer Demand(s)
John Lawrence Extension Livestock Economist and
Director, Iowa Beef Center Iowa State University
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Increased demand

• Increased demand for beef
• Grown steadily since 1998
• Consumers pay more for same amount
• Quality, convenience, carbs
• Increased demand on beef
• Moving from trust me to prove it

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Commodity to Product

• Commodity world
• All beef is beef
• Minimum standard to qualify
• Low cost producer of the minimum wins
• Minimum standard is rising as are costs
• Age verification, feed ban signatures, COOL
• Grades define various minimums not products

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Commodity to Product

• Product world
• Some beef is different
• Differentiated on attributes and brands
• Consumers pay more for different
• Attributes
• Processes
• Brands

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Certified programs

• USDA lists 42 certified beef programs
• 25 Angus programs
• 3 Hereford programs with breed claim
• 4 were process verified or require more than
  visual inspection
• Red Angus feeder cattle
• PM Beef
• 2 Nolan Ryan branded beef

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Differentiated products

• Detectable attributes
• Marbling
• Guaranteed tender
• Grass-finished
• Credence attributes
• Content nutrients, fatty acids
• Process natural, free-range, non-GMO

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Standardized Betas for Regression Variables by
Choice-Select Spread
Standardized Coefficients ()
Ch-Sel Std Dev Spread Net Ret FE HCW FC REA KPH M
AR

• 4.00 50.36 -38.7 49.3 -9.3 22.4 2.0 43.3
• 8.00 52.61 -35.6 44.4 -8.2 19.7 1.8 54.7
• 12.00 58.00 -31.8 38.5 -7.2 15.3 1.8 61.7
• 16.00 65.77 -26.3 31.1 -5.3 12.9 1.1 65.1

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Cow Cost vs. Feedlot Return
Feedlot Return Cow Cost
Low 32.93 148.50
High 24.07 168.43
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Willingness to pay

• Lusk, guaranteed tender steak
• No label 51 pay 1.23 premium
• Label 61 1.84 premium
• Feuz and Umberger, grass v grain fed
• On average 1.61 more for grain-fed
• 23 paid 1.36 premium for grass fed
• Loureiro and Umberger, US Certified
• Premium for US Certified over no label

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Verify label claims

• USDA wants definition of terms
• Protecting consumers from fraud
• Branded product needs to assure compliance with
  stated claims
• Reputation and liability
• Cost of enforcement on top of cost to produce
  special attributes

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Meat Standards Australia

• MSA Guaranteed Tender
• Animal Age, grain-fed, Bos Indicus
• Slaughter plant Electrical shock, grading, aging
• Retailer Sale date, cooking
• Enforcement and traceback if needed

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Retail sector changes

• More powerful and demanding retailers
• 10 firms with 49 market share
• Walmart Sams 17
• House brands and exclusive suppliers
• Liability issues
• Outsource inspection and compliance

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Retail sector changes

• European influence
• 2 of top 11 US grocers are European
• 4 of top 10 world grocers are European
• Chain Capitan model
• Retailer is in consumer protector role
• US consumers still trust USDA for safety
• Others are not a trusting of govt

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European lessons

• Chain Capitan model is costly
• Safety is competitive issue
• Must be audited to sell
• Multiple audits
• Multiple issues beyond safety
• Feed use
• Animal rights
• Worker safety

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Animal welfare

• McDonalds plant verification
• FMI and NCCR guidelines
• SWAP certification
• TQA certification

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Growing demands

• Widening Choice-Select spread
• Consolidating retail sector
• Brands with claims and liabilities
• Consumers looking for choice
• Rising commodity standards

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Victim or Opportunist

• Most under managers control
• Some changes require production response
  (genetics, nutrition)
• Some changes require management response

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Quality management systems

• A producer directed management system to assure
  that the producer
• Capable of meeting the requirements
• Document that requirements are met
• Information to evaluate production and marketing
  opportunities when they arise.

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Quality management systems

• Various models available ranging in complexity,
  cost, and flexibility
• 3rd party verification to have value
• Examples include
• ISO 90002000
• USDA Process Verified
• ISO 14001

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Quality management systems

• Cost associated with developing management
  system, audits, and certification
• Benefits include
• Market flexibility
• Better management
• Lower costs

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Cost of not meeting demands

• Commodity market will continue
• The minimum will continue to rise
• Missed opportunities if you are not eligible for
  value added markets
• May lose to pork or poultry, and some beef
  producers will lose to other beef producers

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Thank You Are there any questions?