Transcript Document

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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Choice - Select Boxed Beef Price Spread ($/cwt)
$14
$12
$10
$8
$6
$4
$2
03
20
01
02
20
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00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
19
89
$-
Weekly Choice-Select Boxed Beef Spread
$36
1998-2002
2003
2004
$32
$28
$/cwt
$24
$20
$16
$12
$8
$4
$0
1
5
9
13 17 21 25 29 33 37 41
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49
Standardized Betas for Regression
Variables by Choice-Select Spread
Ch-Sel Std Dev
Spread Net Ret
Standardized Coefficients (%)
FE
HCW
FC
REA
KPH
MAR
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
Low
Feedlot
Return
$ 32.93
Cow
Cost
$ 148.50
High
$
$ 168.43
24.07
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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 + Sam’s 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 gov’t
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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
•
•
•
•
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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 manager’s 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 9000:2000
– 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?
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