the winston churchill memorial trust of australia … · 2015-09-11 · supply chain collaboration...
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THE WINSTON CHURCHILL MEMORIAL TRUST OF AUSTRALIA
Report by - Emma Robinson - 2014 Churchill Fellow
The Samuel and Eileen Gluyas Churchill Fellowship to investigate beef supply chain
innovation with emphasis on achieving better returns for beef producers and a
viable beef industry into the future- UK, USA, CANADA.
I understand that the Churchill Trust may publish this Report, either in hard copy or on the
internet or both, and consent to such publication.
I indemnify the Churchill Trust against any loss, costs or damages it may suffer arising out of
any claim or proceedings made against the Trust in respect of or arising out of the
publication of any Report submitted to the Trust and which the Trust places on a website for
access over the internet.
I also warrant that my Final Report is original and does not infringe the copyright of any
person, or contain anything which is, or the incorporation of which into the Final Report is,
actionable for defamation, a breach of any privacy law or obligation, breach of confidence,
contempt of court, passing-off or contravention of any other private right or of any law.
Emma Robinson
19/6/15
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Acknowledgement
I wish to express my thanks and gratitude to The Winston Churchill Memorial Trust and
specifically the Samuel and Eileen Gluyas Trust for sponsoring my fellowship and providing
me with the opportunity to study an issue I am passionate about – the profitability of family
beef enterprises.
I would also like to acknowledge the numerous people, who have helped me with the
organisation and coordination of my fellowship, particularly my two fellowship referees
Greg Brown and Richard Raines, and Meg Gilmartin from the Churchill Trust. I am also most
grateful to all the people who generously gave me their time and insights during my
fellowship.
Last but not least I would like to thank my husband Michael Duckett and my three loud bush
kids for their whole hearted support and for so ably holding the fort while I was away.
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Contents
Background ............................................................................................................................................. 5
Executive Summary ................................................................................................................................. 6
Fellowship Program Highlights ........................................................................................................... 8
1.0 Key Country Industry and Market Insights ....................................................................................... 9
1.1 United Kingdom ............................................................................................................................ 9
1.2 United States ............................................................................................................................... 10
1.3 Canada ........................................................................................................................................ 13
1.4 Consumer demand ...................................................................................................................... 14
Population growth opportunities .................................................................................................. 14
Changing taste opportunities ........................................................................................................ 15
2.0 The shift from commodity beef to branded product ...................................................................... 18
2.1 Harris Ranch ................................................................................................................................ 19
2.2 Superior Farms ............................................................................................................................ 21
2.3 Celtic Pride .................................................................................................................................. 22
3.0 Consumer demand for certified and verified product .................................................................... 24
3.1 Protected Geographical Indicator ............................................................................................... 25
3.2 Red Tractor .................................................................................................................................. 27
3.3 LEAF Marque ............................................................................................................................... 28
3.4 McDonald’s Verified Sustainable Beef Project ........................................................................... 29
3.5 Grass Fed ..................................................................................................................................... 31
3.6 Certified Angus Beef ................................................................................................................... 33
3.7 Heritage Angus Beef.................................................................................................................... 34
3.8 Superior Livestock ....................................................................................................................... 35
4.0 Producers leveraging economy of scale through cooperatives and alliances ................................ 36
4.1 Mole Valley Farmers ................................................................................................................... 38
4.2 Beef Marketing Group ................................................................................................................ 39
4.3 US Premium Beef ........................................................................................................................ 40
4.4 Panorama Meats ......................................................................................................................... 41
4.5 Natural Country Beef .................................................................................................................. 42
4.6 North West Consolidated Producers .......................................................................................... 42
5.0 Supply chain innovation .................................................................................................................. 43
5.1 Blade Farming ............................................................................................................................. 44
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5.2 Beef Information Exchange System ............................................................................................ 45
5.3 Direct marketing ......................................................................................................................... 46
5.4 Niche processing ......................................................................................................................... 48
6.0 Government support for greater supply chain cooperation .......................................................... 49
6.1 United Kingdom .......................................................................................................................... 50
6.1.1 Scottish Agricultural Organisation Society. .......................................................................... 50
6.2 United States ............................................................................................................................... 52
6.2.1 Grain Inspection, Packers and Stockyard Administration .................................................... 52
6.2.2 United States Department of Agriculture - Agricultural Marketing Services ...................... 53
6.2.3 Capper-Volstead Act ............................................................................................................ 54
6.2.4 The United State Department of Agriculture – Cooperative Services Program .................. 55
7.0 Conclusions ..................................................................................................................................... 56
8.0 Recommendations .......................................................................................................................... 57
Appendix 1. Canada and U.S quality beef grading system. .......................................................... 59
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Background
When I applied for my Churchill Fellowship in January 2014, our family beef enterprise was
teetering towards the worst drought on record, and grappling with plummeting beef prices
and significant global debate about the long term sustainability of beef production.
What made this drought different was that the tried and tested strategy of selling off cattle
in the dry no longer stood. Meat processors were booked out six months in advance, Live
Export boats were fully booked within hours, feedlots were at capacity and demand for
store cattle was non-existent. If an Australian Northern beef producer had any doubt that
they were at the end of the food chain, this perfect storm of price and weather confirmed it.
Trying to market our cattle was no longer an option, we simply rode the roller coaster of
selling off classes of stock that were saleable and feeding cattle that weren’t.
While the scale and length of the drought drove the huge turnoff of cattle, it was only partly
to blame for the staggeringly low prices we were receiving. At times finished cows were
making little more than a bankruptcy inducing $1.00kg LW and bullocks up to $1.50kgLW.
The price freefall illustrates the vulnerability of the Australian beef producer (particularly
the Northern beef producer) to the power of consolidated global processors and livestock
companies in today’s meat market.
Our tough trading conditions coincided with strong global beef demand, record breaking
livestock prices in every country bar Australia and rising retail beef prices. These insights
underpinned the focus of my Churchill Fellowship which was to look at what “Family beef
producers are doing to increase their economies of scale and build a more profitable
future”. Underpinning this was a motivation to understand the global market environment
for beef and more specifically beef supply chains. My sense is that the future success of
family beef enterprises lies not only in being efficient, low cost producers but also in
working collaboratively with other producers to achieve an economy of scale that enables
us to drive improvement, create new value opportunities and meet the challenges of an
increasingly global and consolidated marketplace.
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Executive Summary
This report aims to capture key insights from my investigation into “Beef supply chain
innovation with emphasis on achieving better returns for beef producers and a more viable
beef industry into the future”.
The global beef industry is juggling complex challenges relating to consistent supply,
dynamic market demands and increased scrutiny of practices. These issues are driving
change throughout the beef supply chain, no more so then at the production end where
beef producers (still largely family farmers) are grappling with immediate issues of
profitability. While continued production efficiency and innovation will go some way to
improving farm profitability, issues of scale and capacity to leverage market opportunity
require a different more collaborative response. My investigation highlights the capacity of
supply chain collaboration to overcome many of the disadvantages of limited scale and the
consequent imbalances of market consolidation.
Globally beef producers are collaborating across the supply chain to deliver a consistent,
quality product that targets changing, and diverse consumer tastes and expectations. This
collaboration includes producers collectively sourcing farm inputs, volume marketing,
sharing production and processing data to drive improvement, and greater connection with
consumers that all helps to build and sustain greater value across the supply chain. In
Australia taking advantage of this opportunity will require new relationships and new ways
of doing business in an environment that is traditionally fragmented and cautionary with
respect to sharing information and working together.
Key themes
Global consumer demand for beef is increasingly diverse and dynamic. Established
markets are evolving as consumer tastes and expectations change. New and different
beef markets are emerging as increases in population and income levels converge.
In the short term, beef along with most other protein sources is largely in undersupply
with cow herds in key production countries at record lows. As a result beef prices
globally are at record highs and retail prices are also rising.
The dynamics of tighter supply and diversified consumer demand is driving new types of
producer/processor relationships as processors seek to shore up supply of consistent,
quality animals.
There is a decreased use of centralized, public markets toward more direct trading and
alternative marketing arrangements especially for finished livestock. While this is being
driven by a shift towards more value based grading it is raising concern about the level
of captive supply in the beef industry and the subsequent reduced capacity for price
discovery and open competition.
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Significant consolidation is occurring across the meat processing and retail sector. Both
beef processors and retailers are driving greater levels of vertical integration and
producers are also combining capacity to achieve greater economies of scale. There
remains however broad discussion about the imbalance between the ‘family farmer’ and
the countervailing power of global multinational companies.
Globally the demand for branded beef has outpaced commodity beef. In response beef
processors are shifting away from the marketing of a commodity towards more branded
and value added products. This is also driving new supply chain relationships as product
specifications become more tailored to different consumer tastes and expectations.
Consumers and retailers are demanding more source verified and certified product.
Certification requirements will place increasing pressure on some ‘everyday’ production
practices, but is also providing opportunity for market diversification particularly for
early adopters.
Government has an essential role in promoting market transparency and competition in
an increasing consolidated marketplace. Compulsory market reporting and legislative
support for producer cooperatives are two examples of the type of support being
undertaken by government in other countries.
Emma Robinson Caerphilly Station MS 984 Charters Towers QLD 4820 Phone- 07 47 876 495 [email protected]
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Fellowship Program Highlights
United Kingdom
Place Visit
London London Central Markets – Central Market Beef Retail Tour – Borough Market
Oxford
Real Oxford Farming Conference Oxford Farming Conference Dr Elaine Ingham Soil, Food Web Workshop Russ Carrington, UK Pasture Fed for Life
Shepton Mallet, Somerset Ed Green, Banks Farm
South Molton, Devon James Jackson, Mole Valley Farmers
Langport, Somerset Sedgemoor Livestock Markets Richard Jones, Blade Farming
Carmarthen, Wales Gareth Evans, Celtic Pride Maddocks Kemery Abattoir
Manchester Chris Walsh, The Kindling Trust UK Co-op Group The Co-operative - Food Graham Harwell, BASF
Edinburgh, Scotland Susie Carlaw, Quality Meats Scotland James Graham, Scottish Agricultural Organisation Society
United States
Place Visit
Washington, DC David Pietsch, Meat and Livestock Australia Gregg Doud, President, Commodity Markets Council James Wadsworth, , USDA Cooperative Program Bruce Reynolds, USDA Cooperative Program John Wells, USDA Rural Development Daniel Campbell, USDA Rural Development
Manhattan, Kansas Glynn Tonsor, Kansas State University Dr Brian Briggemann, Kansas State University John Butler, Beef Marketing Group
Fort Worth, Texas Fort Work Livestock Show Nolan Ryan Beef Nancy Gill, Superior Livestock
San Antonio, Texas National Cattlemen’s Beef Convention Cattlemen’s College Thomas Clark, CME Group Tracy Thomas, US Premium Beef Alan Adams, Illinois Beef Association Cattlefax National Cattlemen’s Beef Association
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Tulare, California World Agricultural Expo Tucker Knutz, Harris Ranch Elkhorn and Milky Way Dairies
Sacramento, California Shane Mackenzie, Vice President Operations, Superior Farms
Canada
Place Visit
Calgary, Alberta Larry Farrell, Senior Trader, Multi National Foods
Red Deer, Alberta Alberta Beef Producers Conference Ben Wilson, Farm On Foundation Ian Murray, Beef Producer, Shoestring Ranch Western Stock Growers Association Consolidated Beef Producers
Prince George. British Columbia
Jillian Merrick, Beyond the Market Project Coordinator Dave Abernethy & Anne Penner, Beef Producers, Summerfield Ranch Bar K Ranch Kawano Farms
Vancouver, British Columbia Vancouver Farmers Markets – West End, Kitsalano
1.0 Key Country Industry and Market Insights
1.1 United Kingdom
Grazing livestock accounts for around 20 percent of UK agricultural output. On average
though UK beef producers are unable to cover their costs of production and rely on
subsidies and non-farm income for profit1.
UK farmers are subsidised through the Basic Farm Payment, this amounts to £80 per
acre (paid to the farm owner, rather than the farmer), 18 percent of which must be
spent on environmental work. By 2019 this payment is likely to be reduced by 25
percent. The farm subsidy equates to £245 per year/ per UK tax payer.
The top 25 percent of grazing farms make a profit of £316/ha, compared with the
bottom 25 percent making a loss equal to £145/ha. The majority of the difference is
achieved through lower costs, especially fixed costs.
The current UK average deadweight price for an R4L steer (240-390kg dressed) ranges
from 300 – 380 p/kg (approx. $6.00 - $7.75 AUD).
Biosecurity outbreaks such as Foot and Mouth Disease (2001 & 2007), bovine
spongiform encephalopathy (1990s) and TB (ongoing) in addition to the Horsemeat
Scandal (2013) have driven rapid advances in the UK beef supply chain.
1 Andersons, 2015, The Best British Farmers – What gives them the edge? Oxford Farming Conference.
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Since the BSE crisis, all cattle must have barcode passports recording their movements.
The passport is scanned when the farmer books an animal for slaughter and is then
cross-checked when the animal arrives in the lairage.
Supermarkets are developing short, local beef supply chains. Both high end and budget
supermarkets are actively promoting targets of 100 percent locally sourced beef
(extending to beef manufactured products). With this initiative comes new producer
supply models that drive food source transparency and certification in addition to
bringing the story of beef production closer to the consumer.
New supply chains are also being developed to consolidate the fragmented nature of
beef production particularly at the breeding to finishing end of the chain and include
direct to processor and retailer contracts. These supply chains are driving significant
improvement in the consistency of finished animals.
Government is playing a role in promoting greater supply chain cooperation. Programs
such as the Scottish Rural Development Programme make specific provisions for
producer cooperative initiatives.
The dairy industry is crucial to providing the volume of cattle necessary to support the
current demand for beef production. Dairy culls, Holstein male calves and dairy/beef
crossbreds form a significant component of the beef supply chain.
The UK/Europe leads the way in food branding. Food safety and farm assurance brands
are a given in the system and retailers are now using providence, breed and other
brands to differentiate beef product.
There is significant growth in the specialist food retailer. Retailers such as The Food Coop
are selling off bigger stores in favour for smaller local specialist stores. The number of
retail lines stocked is changing – Aldi stocks 1500 lines compares with over 5000 lines at
Tesco’s.
Since 2004 to 2014 average arable land prices have increased 248 percent to £9,814 an
acre. Pasture values are over £7,500 an acre in much of the West Midlands and South2.
The UK farmland is seeing increased interest from corporate investors and tenanted
farm land is achieving average annual returns of 12.7 percent. Land access, succession
planning and competing interests for land remain key issues.
1.2 United States
Cattle prices in the U.S. are at all-time record highs for every category of cattle (2014
average fed price $154 USD cwt3 - approx. $200 AUD cwt) this is expected to remain
until 2017 or later4. Increases in price have been driven by tight supply and strong
demand.
The drop credit values - all the parts that are not kept with the carcase, largely by-
products - per head have risen to $200 - $215 USD per head, this is a $36 USD increase in
two years from drop credit.
2 Strutt & Parker, Winter 2014/2015, Land Business.
3 Cwt = 100 weight i.e. Price per 100 pounds
4 CattleFax. Long Term Outlook. January 2015.
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Annual cattle slaughter has declined 6.7 million head since 2000, fed slaughter
represents 94 percent of the decline5.
Longer term projections for rebuilding of the U.S. cow herd are uncertain with some
industry experts suggesting increased competition for land means returning to the highs
of the 1980’s is unlikely.
There are concerns about the capacity of a declining beef herd to support the current
size of the U.S. beef processing industry. In 2014 three packing plants closed due to lack
of profitability. The U.S. has the capacity to slaughter up to 31 million steers and heifers
but at present is slaughtering closer to 28 million. Market pressures have also resulted in
69 large feedlots either closing or being repurposed into dairy heifer feedlots.
Like Australia power within the beef structure in the U.S. sits with the meat processor.
Tyson Foods (28,700 daily slaughter capacity6), Cargill (29,000 daily slaughter capacity),
JBS USA (26,600 daily slaughter capacity) and National Beef (14,00 daily slaughter
capacity) — control 85 percent of the nation’s beef supply.
The U.S. feedlot industry is also heavily consolidated, while only 5 percent of feedlots
have over 100 head of cattle, these 5 percent produce between 80 percent and 90
percent of all grain finished cattle. The 25 largest feedlots have a combined capacity of
5.15 million head.
The cow calf sector is largely small scale and disperse. Only 9 percent of cow calf
producers run over 100 head of cattle. Most calves are sold as weaners through auction
markets.
The undersupply of cattle, means processors are more open to alliances, agreements
and forward contracts to shore up the supply of cattle. Additionally the scale of the U.S
feedlot industry lends itself to greater supply coordination.
Captive supply remains a contentious issue with strong debate about the degree to
which this stifles open competition by limiting price discovery and market transparency.
Less than 20-30% percent of finished cattle are sold on a cash market. Restrictions on
processor ownership of cattle prior to slaughter is regularly debated in the Farm Bill,
while the U.S Senate has previously ruled in favour of restrictions, further support has
been blocked at the House of Representatives.
70 percent of finished fed cattle are marketed on the value based grid. As a result of this
trend feedlots have increased the number of days they are keeping cattle on feed from
an average of 151 days in 1995 to 175 days in 2014. Cattle are generally entering the
feedlot at 7 to 10 months of age.
In the U.S. the average hot carcase weight of a finished feedlot steers average 340kg.
Experts suggest the improvement in genetics has probably accounted for ½ to 2/3rds of
the increase in carcase weight7.
5 CattleFax. Long Term Outlook. January 2015.
6 High Country News. The big four meatpackers. March 21,2011.
7 Anderson, P. Midwest PMS. National Cattlemen’s Convention 2015.
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The U.S. beef industry is also reliant on the dairy cow inventory with 1 in every 5 pounds
of beef being derived from a dairy cow.
95 percent of cattle processed in the U.S. are United States Department of Agriculture
(USDA) graded. The USDA uses a Select, Choice and Prime Grade- with Prime being the
preferred - to determine level of marbling and carcase maturity.
Inconsistency of grading of finished animals is a key industry issue. In Texas for example
only 2.58 percent of animals grade Prime daily.
U.S. beef consumption has fallen to just under 23kg per person. An estimated 60 percent
of all beef consumed in the U.S. is ground beef. 8B pounds or roughly half of all beef
produced in the U.S. enters the food service industry and 64 percent or just over 5B
pounds of it is ground beef. Most of it ends up as hamburger patties, with 9B patties
sold annually in the U.S. This growth in both value and volume (ground beef volume is
also up 1.2 percent since 2012) of ground beef is in a large part due to the growth in
custom, higher end hamburger chains such as Smash Burgers and Shake Shack. Strong
demand from the food service industry drives new innovations in meat cuts and value
added products.
Some experts argue that the U.S. beef industry needs to focus primarily on the
production of ground beef to remain competitive with other proteins while others argue
that rather than grinding higher value muscle cuts, packers need to focus on exporting
the high value cuts and build a stronger reliance on the importing of lean trim8.
“The U.S industry is essentially producing an extraordinarily high grade product for
consumers who desire to purchase a commodity”
Don Close, Rabobank. Ground Beef Nation
In the U.S. there are over 140 branded beef programs, at least 70 percent of these
programs are classified as Angus programs.
Mexico is rapidly advancing its meat processing capacity. This will reduce the number of
feeder cattle entering across the U.S border.
U.S. Mandatory Country of Origin Labelling (MCOOL) has been deemed illegal by the
World Trade Organisation. Economic analysis suggests MCOOL has cost the US beef
industry $1.3bn since its inception in 2009. Countries including Mexico and Canada are
set to retaliate with tariff restrictions.
Exports are worth $300 USD per head to the U.S. beef producer.
U.S. exports still have BSE restrictions in some markets for animals over 30 months of
age.
The strike/slow down on West Coast shipping terminals is significantly affecting the U.S.
market – exports to Asia are affected with many companies air freighting beef to sustain
markets.
8 Speer, N; Brink, T; McCully, M. Changes in the Ground Beef Market and What it Means for Cattle Producers.
Presentation at NCBA Convention. February 2015.
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U.S. is the home of grain fed beef, 83 percent of the global grain fed beef population is
fed in the U.S – 13 percent of which is exported
The U.S. beef industry pay a $1 USD compulsory levy to the Beef Checkoff Program,
which provides marketing and research designed to increase domestic and international
demand for beef. Up to half of this amount can be retained by State Beef Councils to
invest in state based marketing and promotion activities. These activities are supported
by an extensive number of local rural beef advocacy groups such as California Cattle
Women Inc. that undertake grass roots lobbying and beef promotion.
While prices are currently at record highs there is growing concern about the long term
negative returns for cattle producers and the disconnect between cattle prices and beef
retail prices.
1.3 Canada
Like the U.S., Canadian beef prices have reached all-time highs over the past two years
with low feed grain prices, a declining dollar (every one cent decline in the Canadian
dollar versus the American dollar results in a five cent improvement in calf prices) and
tight supply helping to drive up cattle prices.
Canadian beef retail prices in 2015 are 18 percent higher than in 2014. Consumption
levels have dropped 2 percent to just over 16kg per person.
Canada has many relatively small beef enterprises with the average cow herd size just 63
head.
Canada currently supplies 5.8 percent of global exports as the world’s 11th largest
producer and seventh largest exporter of beef. 71 percent of Canadian beef exports go
to the U.S., this accounts for 4 percent of U.S. consumption. After the U.S., Hong Kong is
the second largest importer of Canadian beef - exports to Asia have doubled in the past
15 years.
PTIC Heifers selling for
$3000+ hd at the Fort
Worth Livestock Show,
Texas.
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The Canadian processing sector is highly concentrated involving a few large processors
such as Cargill and JBS (Tysons was sold to XL Food and later sold to JBS) who slaughter
95 percent of all cattle in Canada. The remainder of cattle are slaughtered at small
regional abattoirs throughout Canada.
In 2014 McDonald’s chose Canada as the location of it Global Verified Sustainable Beef
Pilot program. McDonald’s aims to start selling verified sustainable beef in its
restaurants by 2016.
Constraints in Canadian slaughter capacity have encouraged the flow of live cattle into
the U.S. . The number of cattle into the U.S is flexible with numbers adjusting according
to market and political factors.
Canada’s beef quality grading system is similar to the U.S with a Prime, AAA, AAA and A
grade dependent on maturity, marbling, fat colour and meat colour.
Two thirds of the Canadian herd has Angus/Hereford Bos Taurus bloodlines helping to
drive rapid genetic improvement.
EID tagging at birth is mandatory, this forms the basis of Canada’s Beef Information
Exchange System, which is a voluntary system promoting the sharing of animal data for
improvement across the supply chain.
Beef producers in Canada pay a $1 CAD compulsory non-refundable levy per head of
cattle sold, this goes into beef research managed through the Beef Cattle Research
Council and marketing managed through the Canadian Beef National Check off system.
In Alberta an additional $2 CAD per head service charge is paid to Alberta Beef
Producers, this is refundable (about 30 percent has been refunded since 2010).
1.4 Consumer demand
Population growth opportunities
“We will need 50 percent more food in 15 years” Lord Krebbs, Jesus College. Oxford Farming Conference 2015
The three conferences I attended during my fellowship reinforced the opportunity (and
production tensions) for beef that are being driven by increases in global population and the
convergence of urbanisation and wealth.
The global population is forecast to rise from 7.3B today to 9B in 2040, a population change
of about 80 million people each year. Parallel with this growth is the emergence of a truly
global middle class, rising incomes in Asia means its share of the global middle class will
more than double to 64 percent. By 2020 the world’s middle class is projected to increase
from 1.8b to 3.2b and further increase to 4.8b by 2030. As families become wealthier they
are also becoming more urban based, by 2050 - 70 percent of the world’s population will
live in urban centres.
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The convergence of these demographic and economic trends underpin the growing global
demand for beef, both in terms of demand for affordable animal protein and demand for
premium branded products. Globally the value of exports has doubled since 2009 to $37
billion U.S in 20149. These trends can be seen in the changing dynamics of beef demand in
China. The Chinese consumer eats comparatively small amounts of beef, 3.5 kg per capita in
2014. This is nearly half of the world average of 8 kilograms and far below the Australian
average of 30.9 kilograms. However the price that Chinese consumers pay for beef has
almost doubled, from $2.57 USD lb in 2011 to $5.06 USD lb in 2014, surpassing for the first
time U.S. retail beef prices10. Despite this doubling in price, the per capita consumption of
beef has also increased. Chinese beef consumption is projected to reach 10kg per person
over the next 15 to 20 years.
This increasing demand has been fed by large increases in China’s beef imports which rose
345 percent in 2014 to 314,000 metric tonnes. Considerable amounts of beef for the
Chinese market are also sourced directly from Hong Kong and Vietnam, which when
combined takes the total market to 1.30 million metric tonnes and makes China the largest
beef importer globally. Alongside these opportunities comes the complexity of doing
business in different markets, as an example it took six years for Italian brands to secure the
protocol for Parma Ham imports into China.
The scale of population growth and related pressure on arable land means by 2025 half of
the world will be reliant on imported food. Like China - Europe, Central America, Asia and
Africa will have food production deficits and will be reliant on importing. Countries including
South America, North America and Australia will have a food surplus and face increasing
pressure for production and food innovation to meet this growing demand. Additionally
jostling of Free Trade Agreements and national subsidy debates will occur as countries with
export capacity compete for markets where they can add value. As an example, 40 percent
of the global economy is up for access through the current Trans Pacific Partnership, with
potential to lessen the burden of being able to trade with those countries, opening up new
market opportunities.
Changing taste opportunities
While rising incomes and more expensive tastes are driving beef demand in developing
countries, consumers in most developed countries are reducing their consumption of beef.
Americans are known for their love of beef, but they will eat 63 percent more chicken than
beef in 2015. Globally poultry demand is outstripping other proteins. This shift in protein
demand is in part related to price - as the price of beef rises consumers are looking for
cheaper protein sources, but is also related to demand as dietary tastes change. In some
9 United States Meat Export Federation, 2015.
10 Global Agri Trends, Beef Demand in China, January 2015.
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cases consumers are buying less beef but spending more money on buying premium beef
brands.
In the U.S. 65 percent of consumers say they are eating less beef because of health
concerns. The USDA Dietary Guidelines Advisory Committee this year sought to exclude lean
beef as part of the recommendations for a healthy, balanced diet. Even in Japan, consumers
are increasingly demanding leaner beef (as compared to Wagyu). The beef industry globally
is responding to these changes by developing new cuts and product attributes that aim to
satisfy changing tastes and appetites for beef at a range of budgets.
Compared with five years ago, consumers’ today make more international and ethnic dishes
this includes such dishes as kebabs, meatballs and tacos. In Japan for example there is
growing demand for pub, steakhouse and convenience foods alongside demand for
traditional dishes such as Shabu-Shabu. Argentinian and Brazilian steakhouses, demand for
traditional Mexican recipes are also examples of the internationalisation of beef meals.
At the same time there is significant growth in variety meats – with 30 different products
derived from the beef carcase - these are primarily used as protein sources in developing
countries but are also creating market premiums. The U.S. for example exports large
amounts of variety meats to Egypt, Peru and Mexico where tongues trade at an $8 USD hd
premium and livers at $4 USD hd premium over U.S. domestic market11 prices.
The growth in the Food Truck phenomena is seen as one way of keeping tabs on early
trends in new ethnic food. While not significant in volume of sales, they are significant in
being early adopters of new food innovations and trends that are likely to become more
mainstream.
Opportunities to emulate the U.S. ground beef market are also being looked at. Ground
beef is valued at over $13B USD in wholesale dollars, second to steaks which are valued at
just over $11B USD. Ground beef wholesale dollars are up by $1.2B USD since 2012 and
retail prices have subsequently risen 15.5 percent to $3.96 USD lb (compared with whole
muscle cuts prices up 13.5 percent to $6.04 USD lb).The success of ground beef in the U.S.
market lies in its ability to be customised. U.S. restaurants are offering fewer items on the
menu but allowing greater customer customisation so everybody in the family gets what
they want. In the U.S. of the ten fastest growing fast casual chains four are higher end
burger restaurants such as Smash Burgers. Parallel with the rise in high end burger chains is
the continued tough times for McDonald’s which has recently indicated the closure of up to
350 of its 36,000 restaurants globally. The closest competitor to ground beef is the chicken
breast though significant investment is being made in plant based meat substitutes that
claim significant taste, health and price advantages.
11
Agri beef Co. National Cattlemen’s Convention 2015.
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The rise in the influence of the Millennials - those born between 1980 and 2000 are a major
target for beef marketing because they consume the most beef both at home and in
restaurants of any generation and, given their age they will continue to be a major driver of
beef demand for the next several decades .
Highly affluent and educated consumers represent the strongest growth opportunity for
organic and natural beef products. These types of consumers tend to shop at higher end
retailers and eat out more often.
Statistics from the U.S. Agricultural Marketing Service (AMS) indicate 34 percent of all
consumers don’t know whether they’re cooking at home or eating out, even two hours
ahead of time and of those who decide to eat at home, 39 percent don’t know what they
are going to prepare12.
Local food movements are a significant force in urban populations both in the form of
collective food cooperatives such as Manchester Veg People and high end farm to plate
branded initiatives through farm shops, farmers markets and direct farm to retail sales. It is
estimated that 1/3rd of the worlds food needs can be met through urban agriculture13.
Many cities now have a local food policy and are mapping their food webs to better
understand where their food comes from.
12
Beef Check Off. National Cattlemen’s Beef Convention . 2015 13
Oxford Farming Conference
An illustration of some
of the issues and
concerns relating to
beef production.
18 | P a g e
2.0 The shift from commodity beef to branded product
“We can’t be a commodity competing with the vertically aligned systems in the pork and
poultry industries”
James Herring CEO Friona Industries (Feedlot owner, Texas)
Globally the product of beef is undergoing a shift from a commodity to a branded product,
catering to a range of different demand tastes and brand attributes. Behind this drive is the
recognition that consumer eating satisfaction and experience, as well as meeting changing
expectations is key to increased demand and industry growth.
This trend commenced with a shift in the 1980s towards greater product branding based on
the quality of grading specifications. In the U.S. the beef grades Choice, Select or Prime
(Refer Appendix 1. Quality Grade Standards) are used and Canada has a similar system.
Globally, grading standards have evolved to include a range of additional product and
quality parameters.
Consumer demand for more specific beef products requires greater supply chain
coordination which is played out through value based pricing and vertical integration. As
part of my fellowship I sought to identify producers and processors that have made the shift
from commodity producers to producers of a differentiated product through a coordinated,
vertically integrated supply chain.
I came across a multitude of different beef brands that fall loosely into three key categories
– breed specific brands such as Hereford and Angus, company specific brands such as Nolan
Ryan’s Beef and 44E Farms Premium Natural Black Angus and retailer specific brands
specific to the store. Many of these brands are then overlayed with certification and/or farm
assurance programs.
In 2014 in the U.S. there were 140 branded beef programs of which 43 percent had a USDA
Prime or Choice Specification. The growth in consumer demand for branded beef has
outpaced commodity choice beef, more than doubling since 201314.
The first certified program in the U.S. was Certified Angus Beef (CAB) which was launched in
1978. Since then a range of branding options have come to the fore including:
organic
free from/never ever: hormone and antibiotic free
lean
grass fed
grain
14
Speer, N.C. 2013 Consumer, business and breeding systems: Charting the beef industry’s path. Available:http://www.cabpartners.com/articles/news/2600/Nevil%20Speer%20whitepaper%20%288-13-2013%29.pdf (Accessed 10 February 2015)
19 | P a g e
free range
other beef breed brands – Hereford
In this section of my report I have sought to highlight some of the companies that have made the shift from commodity beef to branded products.
2.1 Harris Ranch
“We strive to be the most progressive, innovative and quality conscious beef producer”
Harris Ranch is a family owned vertically integrated branded beef company based in the San
Joaquin Valley in California. The company has evolved from a farming business to
feedloting, processing and today a service driven branded beef company which includes an
extensive restaurant and hotel facility, and a range of value added products.
My interest in visiting Harris Ranch was to better understand the producer alliance they
have formed that offers the cow and calf producers the opportunity to participate in a value
added program. Called the Quality Partnerships Program is offers producers the opportunity
to be paid premiums for different production attributes and assists Harris Ranch in shoring
up the quality and consistency of feeder cattle coming into their feedlot.
The Harris Ranch feedlot covers nearly 800 acres with the capacity to produce 250,000 head
of fed cattle per year. Their processing plant processes 4800 a week, equal to 200 million
pounds of beef a year of which 60 percent is sold as branded product.
The Harris Ranch buys in feeder cattle that typically spend 9 to 14 months grazing on range
or pasture, they are then transported to the Harris feedlot, where they spend 3 to 4 months
and reach a finished weight of approximately 560 kg.
Harris Ranch
120,000 head
feedlot.
20 | P a g e
The shift from a commodity to branded beef came in the 1980s when Harris Ranch pushed
to become more consumer orientated. Harris Ranch started to brand their product,
guarantee its quality and better address consumer concerns. Prior to this the boxed beef
business was primarily three to four different cuts with little differentiation. Variability of
product was identified as a key issue and drove the implementation of their Quality
Partnership Program. This program aims to shore up supply of consistent, quality feeder
cattle. Producers who supply under the program become ‘select suppliers and agree to a
range of set production protocols in return for certain price premiums depending on the
time of supply and how their cattle grade. Producers also have the option of selling cattle
direct to Harris Ranch as feeders or retaining ownership through to processing.
One of the key protocols in the Quality Partnership Program is standardised genetics, Harris
Ranch provides performance tested Bulls to the alliance at affordable prices and producers
receive a one dollar per hundredweight genetic premium for progeny from bulls meeting
the Harris Ranch Estimated Progeny Difference criteria.
Additional premiums are paid for timing of delivery - a dollar per hundred weight
seasonality premium is paid for cattle delivered to the feedlots during the off season from
November through to April 10. There are additional incentives for weaning, vaccination and
brand free hides. Since the implementation of the program the number of carcases grading
Choice to better has shifted from 35 percent to 95 percent. Through the alliance producers
share production and feedback performance data to drive improvements to production
practices and carcase quality. This system of premiums helps to provide a level of price
stability that enables the cow, calf segment to keep producing profitably.
Finished cattle are graded on a value based formula – using the top of the Texas Panhandle
or the Cattle-Fax three state averages. For forward contracts the futures market plus or
minus the Cattle Fax’s five year state average basis is used. Carcases need to fall within a
range of 260 to 385kg dressed weight, from a live weight of 414 to 611kg. Cattle above or
below this weight range are discounted $5 USD per cwt.
One current challenge to their Quality Partnership Program is the current drought in
California. This year Harris Ranch is expecting to be 60,000 hd short of its normal cattle
supply, sourced from its own pasture operations and partnering ranches. The company is
sourcing cattle from further East paying an additional $1.50 USD Ib to compensate for
higher transport costs and is expecting this to rise as high as $8 USD lb as the drought
continues.
The drought situation in California is having a significant impact, U.S. Congress has paid out
$100 million USD in livestock disaster assistance for losses incurred this year to date and as
much as $50 million USD for 2012 and 2013.
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2.2 Superior Farms
Superior Farms is one of the biggest lamb companies is the U.S. supplying 35 percent of U.S.
domestic lamb product. I was keen to visit with Superior Farms, firstly to better understand
their employee ownership model and secondly to explore some of the innovative ways they
are working with lamb producers to shore up long term supply.
Founded in 1964, Superior Farms has four facilities throughout the U.S. it is somewhat
unique in in that it is employee owned, this occurred in 1991 through an Employee Stock
Ownership Plan (ESOP). Management believe this model promotes a healthy workplace
culture, encouraging open dialogue about company and employee performance and a truly
vested interest in the success of the company.
Superior Farms has been an early innovator in a range of product technologies being one of
the first lamb companies in the U.S. to vacuum pack lamb, offer tray ready cuts and today
packages and labels lamb direct to the retailer. They have a range of product lines including
a no added hormone and no antibiotic program, pasture grazed and a source verified
program that validates the origin of the animal and tracks the animal’s movement history.
Like beef, lamb production in the U.S. has suffered under price volatility and a declining
herd. The challenges of declining production numbers has been met through a range of
supply models - 25 percent is owned by the company, 50 percent is supplied through long
term contracts and the remaining 25 percent are purchased on a spot price. The long term
Inside Superior Farms
processing plant where
lamb cuts are packaged,
labelled and distributed
direct to the retailer.
22 | P a g e
suppliers are offered two or five year contracts with a guaranteed floor price and any upside
being split with Superior Farms.
Independent producers are encouraged to work together through producer groups to
collectively share production data, market their lambs and secure a better price. One
example is the Pipestone Group in Minnesota which formed in 1972 and has progressed
innovative production techniques enabling a doubling in the number of ewes being run and
a 60 percent increase in lambing percentages.
Superior Farms is also actively encouraging a new generation of lamb producers by
supporting young farmers to grow the size of their flock. Superior Farms provides a low
interest loan of up to 50 percent of the value of the ewes that will be in the operation. In
return they get a guarantee of the offspring for three years and they get the same three
year period to pay off the loan.
2.3 Celtic Pride
Celtic Pride is an initiative of the Welsh Meat Company and is a joint venture between
Welsh beef producers, Welsh food wholesaler Castell Howell and UK feed company
Wynnstay Group.
The opportunity for this venture came about through consumer demand for a verified
Welsh beef product. Food wholesale Castell Howell stocked Welsh Pork, Welsh Lamb and
Scottish Beef, with consumers asking why a Welsh beef product was not available. The
opportunity was formalised in 2003 with the creation of the brand Celtic Pride – cattle born,
raised and processed in Wales. This origin enables Celtic Pride to carry the coveted
Protected Geographical Indication (PGI) status, awarded to food products that have full
traceability within their country of origin.
Cattle are grazed in a semi intensive grazing system, grazed on grassland during the summer
months (achieving .7kg/day) and during the winter months they are housed and fed an
identical hay and silage ration (achieving 1.5kg/day). The silage ratio is high in Vitamin E
which helps to reduce dark cutters and promote shelf life colour. Silage rations are regularly
tested and specific forage guidelines are provided to ensure the end carcase requirements
are met.
The program is not breed specific but cattle must be at least a 50 percent recognisable beef
breed (cattle are mainly a mix of Hereford, Limousin, Angus and Charolais breeds and must
23 | P a g e
be from a 100 percent beef sire). Cattle are held between 14 and 30 months (at about a 315
kg carcase weight) and slaughtered locally at one of four independently owned abattoirs
(within a 60km radius hence reducing travelling time to slaughter). Entire males will also be
accepted though must be between 12 and 14 months of age. Producer members follow a
production protocol and are subject to annual audits to ensure correct husbandry and
welfare standards. Protocols include a requirement that animals incur no more than four
movements in a lifetime.
A key plank in the supply chain is the construction of a purpose-built £5 million processing
facility outside Carmarthen. Here carcases are boned out and further processed into primal
and manufacturing cuts including a range of value added meat products. The facility has
three hanging halls with a holding capacity of 80 carcases each. Hip suspension is being
introduced and meat can be dry aged to further improve eating quality. Additionally
computer systems are in place to enable full product traceability.
The joint venture currently has over 85 members supplying up to 115 head of cattle a week,
with the aim of 150 hd/week by the end of the 2015. Producers are quoted a base price plus
a grid premium based on EUROP grid carcase specifications. Cattle are not contracted but
rather sold on a cash market which helps to ensure prices offered remain competitive with
competing processors. Celtic Price is interested in moving to an eating quality based grid
similar to Australia’s Meat Standards grading system.
One of the key customers is pub chain SA Brain which purchases in excess of 80,000 steaks
and 30 tonnes of joints, mince and diced Celtic Pride beef every year. Celtic Pride products
can also be purchased directly from the Castell Howell wholesale shop front in Carmarthen
(as an extra bonus Celtic Pride producers getting automatic membership to shop at Castell
Howell).
Of the Celtic Pride member producers I met, many operated mixed enterprises including
cropping, beef and dairy. Not all member cattle are sold to Celtic Pride rather cattle are
selected to specifically target the Celtic Pride grid. Dairy based breeds were penalised and
Celtic Pride
brisket with PGI
and Welsh beef
branding.
24 | P a g e
hence were sold direct to other processors. An additional benefit was the opportunity to
collectively source their silage and supplements direct through the Wynnstay Group at a
much more competitive price then sourcing independently.
Producers have real ownership of their brand but also reinforced that the real benefits of
the Celtic Pride venture came when market conditions tightened enabling them to still
supply a guaranteed market at a price premium. The Celtic Pride model works on two fronts
firstly supplying a quality, consistent Welsh product and secondly using a relatively simple
business model to drive local efficiencies and partnerships.
3.0 Consumer demand for certified and verified product
Demand for certified beef products is being driven by consumer demand for quality, as well
as a need for greater confidence and assurance in what they are buying. Charlie Arnot CEO
of the U.S. Centre for Food Integrity says that 4 in 10 consumers have lost trust in the food
system, and other studies suggest as few as 20 percent of consumers think agriculture is
transparent enough.
The UK horsemeat scandal, highlighted many issues with the production and processing of
value added beef products. It revealed a complex global network of trading of the raw meat
materials that go into processed beef products. The Irish meat processor ABP which
supplied Tesco with the beef patties made from 29 percent horsemeat was using
ingredients from 40 different suppliers15.
Supermarkets are now driving the push for shorter supply chains and greater certification of
product. One abattoir in Scotland, Scotbeef is being held up as a model that many are
seeking to emulate. It buys animals on farm, direct from accredited farmers, slaughters
them and processes them, making value added products only from the meat from its
abattoir. The abattoir has been supplying Marks and Spencers for over 50 years and also
supplies McDonald’s. Tesco has invested £25m a year to redesign its red meat supply and
has been offering extra premiums to long term suppliers of Scotbeef.
15
The Guardian, 11 May 2013. Back to the futures – how company takes beef from farmer to burger.
25 | P a g e
Ultimately supply chains are becoming shorter and more specialised with greater
standardisation of processes to meet the desired product. This starts with the producer to
ensure the right production decisions, genetics and environmental standards are used. This
ensures the supply process is transparent enough that the consumer is, at the very least
aware and comfortable with the supply process.
A certified product means that it meets a certain criteria and is audited by a third party to
confirm this. Historically this has been undertaken through a user pays service through a
government agency such USDA but increasingly it is being done by private commercial
organisations. A verified program is slightly different in that it provides flexibility, allowing
producers to demonstrate how they meet the requirements of a program.
A key trend is the shift away from certified or verified beef products being the exclusive
domain of high end supermarkets and retailers. Increasingly these products are available at
mainstream grocery chains like Safeway, Walmart and Costco. This widens the market
opportunities for these products but also can erode any price advantage for differentiation
where the cost of certification or verification simply becomes the cost of doing business and
maintaining market share. This is most likely going the case in the McDonald’s Verified
Sustainable Beef Program, McDonald’s has said it won't be paying more for sustainable beef
- rather it helps promote and build demand for beef.
Of the three countries I visited, I was most impressed with the integrity of the Canadian beef
assurance system. A combination of compulsory electronic tagging, their industry driven
Verified Beef Program (VBP) and the (though voluntary) Beef Information Exchange System
seemed to, not only support product integrity but had real production and efficiency
benefits. The VPB program ensures on-farm food safety (similar to Australia’s Livestock
Producers Assurance) covering animal health management, cattle transport, medicated
feed, pesticide control and training/communications.
In this section of the report I have sought to highlight some of the key developments in beef
certification.
3.1 Protected Geographical Indicator
The value of ‘provenance’ is illustrated in the success of The Protected Geographical
Indicator (PGI) scheme which was launched in 1992 by the European Union to protect
products with a strong link to the areas in which they are produced. PGI acts like a Trade
Mark and stops manufacturers from outside a region copying a regional product and selling
it as that regional product. PGI can be granted by the EU to organisations that represent a
particular agricultural sector in a country or region but usually cannot be a country as such
(Scotland and Wales are both considered regions of the UK and so can be included). To date
a range of agricultural products and value added foods have PGI status including the Cornish
Pasty, Camembert, Champagne and Parma Ham.
26 | P a g e
The PGI has been granted in Wales and Scotland for lamb and beef and the South West of
England has a PGI for beef. To be granted PGI status the product is expected to have
characteristics associated with an area that make it unique. While there is always a degree
of artistic license to this, this ‘local’ factor can be achieved through tradition.
In the South West of England to qualify for West Country labelling under the PGI, the beef or
lamb has to come from stock born, raised and finished in the West country, and have had at
least a 70 percent forage-based diet.
Since the announcement of PGI status in 2014 over 30 abattoirs have signed on to become
preferred suppliers of West Country PGI product. UK supermarkets have shown strong
support with Tesco, Sainsbury’s, Waitrose and others stocking PGI beef and lamb. Tesco
have also recently announced that they would use the PGI West Country Beef on their
‘finest’ range including beef cuts and value added products such as steak pies.
Somerset beef producer and Chairman of West Country Beef Ed Green suggests returns to
producers are not always immediate, acknowledging that it can take 10 years to build a
brand. The PGI brand gives consumers confidence in knowing where their food comes from
and how it is produced, not just that it is a quality product.
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3.2 Red Tractor
“Ensures the food you buy is traceable, safe to eat and has been produced responsibly
– from farms to fork”
Red Tractor is a UK based food assurance scheme which covers a range of food production,
environmental and traceability standards including animal welfare, farm inputs and hygiene.
Established in 2000, today the Red Tractor logo can be found on a range of accredited food
products including grain, vegetable, fruit, dairy, lamb, beef and pork products. Nearly 90,000
farm enterprises are now assured – including 50 percent of UK beef producers - to Red
Tractor recognised standards.
Importantly the standards used by Red Tractor have evolved over time to address changing
legislative requirements, scientific evidence, industry best practice and consumer concerns.
Red Tractor surveys suggests over 64 percent of consumer now recognise the Red Tractor
logo which is in large part due to support from a range of major retailers including Tesco,
The Co-operative Group, Morrison, Asda and Aldi. Support ranges from the higher end
retailers through to budget retailers such as Aldi.
Post ‘horsegate’ more retailers are being proactive in their open commitment to be
transparent about the food they sell and where it comes from and the Red Tractor
assurance is part of this strategy. Support for Red Tractor has also extended to food
manufactures such as McCain’s and Fast Food Restaurants including KFC.
For beef producers Red Tractor have suggested assured UK beef was trading at a premium
of £80 a head over imported beef, primarily from Ireland. One sticking point is the current
definition of assurance for beef cattle is the rule they must spend only the final 90 days on
an assured holding. The focus when this rule was initiated was food safety and ensuring the
animal was free from all veterinary medicines prior to slaughter. There is increasing
Value added beef
product showing Red
Tractor and 100%
British Beef
assurance.
28 | P a g e
pressure from retailers to move for whole life assurance. For this to be achieved an
additional 14,000 beef producers would need to join the Red Tractor program. Consultation
is currently taking place with industry with many producer members opposed to the
concept and pushing for a rival assurance scheme to be established that can better meet
production needs. Some producers believe that lifetime assurance would increase costs
without any guarantee of improved returns from the marketplace.
Another development in the Red Tractor branding is the shift by some high end retailers to
remove the Red Tractor logo - while still maintaining the assurance scheme - and move
toward other PGI or breed branding as a means to differentiate from other retailers.
3.3 LEAF Marque
“Our vision….a world that is farming, eating and living sustainably”.
Like Red Tractor Leaf Marque is an assurance system recognising sustainably farmed
products. It is unique in that it was formed through collaboration between farmers,
environmentalists, food and agricultural organisations, consumers, government and
academics. The LEAF Marque assurance scheme looks at the whole farm and works on the
principle of enabling farmers from all sectors to achieve high productivity with low
environmental impact. Its assurance parameters are based on the LEAF integrated farm
management principles which include:
• Community engagement
• Organisation and planning
• Soil management and fertility
• Crop health and protection
• Pollution control and by product management
• Animal husbandry
• Energy efficiency
• Water management
• Landscape and nature conservation
Leaf Marque was formed in 1991; today there are 961 farms worldwide that are LEAF
Marque assured in 35 different countries16. Leaf Marque seems to have stronger presence
16
www.leafuk.org
29 | P a g e
on grains and horticultural farms more so than livestock though it is increasingly being
applied on pork and lamb farms. Two large retailers are supporting the program through
the purchase of LEAF accredited product. Waitrose announced it will source all of its UK
grown oilseed rape and wheat from LEAF Marque growers and Marks and Spencer also
supports the scheme. The pull from retailers is a key driver in the schemes success as well
as support from global brands such as Unilever as well as smaller scale artisan producers
such as Farrington Oils and Burts Chips.
The organisation also plays a strong sustainable farming advocacy role. In this role they run
the annual UK Open Farms Sunday which attracts over 200,000 visitors to participating
farms each year.
3.4 McDonald’s Verified Sustainable Beef Project
“Sustainability is not a choice – it’s here." Bob Langbert, former McDonald’s Director of Sustainability.
McDonald’s restaurants buy 2 percent of the world’s beef with 2.5 million customers a day
walking through their doors (Interestingly McDonald’s sell as much chicken as it does beef).
In Canada, McDonald’s purchases 30 000 tonnes of beef annually (compared with 70 000
tonnes in Australia) contributing to more than $25 billion USD in annual global hamburger
sales.
As part of McDonald’s 2020 Corporate Social Responsibility & Sustainability Framework, the
company has committed to begin purchasing a portion of verified sustainable beef in 2016.
The verified program aims to deliver on Mc Donald’s beef sustainability vision of beef that
comes from farmers and processors who create economic value and nutritious protein
through verifiable and diverse production systems that:
•Optimize cattle's impact within ecosystems and nutrient cycles
•Positively impact the lives of their employees and the communities in which they operate
•Care for the welfare of the cattle throughout their lives
In Red Deer, Canada I attended the Alberta Beef Industry Conference where Michele Banik-
Rake, Director of Sustainability - Worldwide Supply Chain, McDonald’s Corporation
announced that the pilot verification program would be run in Canada. Canada was chosen
over other countries for the pilot program because the Canadian beef industry was seen to
30 | P a g e
be utilising tools that would enhance the McDonald’s verified program – these include the
Canadian Verified Beef Production program, support for the Canadian Sustainability
Roundtable and the Beef Information Exchange System (BIXS).
“The time for telling our story has past – we need to prove our story”.
Michelle Banik-Rake, Director Sustainability McDonald’s.
The basis for the verification program is to respond to increasing consumer demands for
greater transparency around how beef is produced. McDonald’s aim is to build a program
that is both meaningful to consumers and promotes opportunities for continuous
improvement for producers. Ms Banik-Rake stressed that it is a verification program rather
than a certification program –“ it’s not policing rather it’s about producers demonstrating
how they meet the system”.
The sustainability criteria will include 40 ‘indicators’ to assess sustainability, and producers
will be scored on how well they demonstrate the criteria. The principles and criteria have
been approved by the Global and Canadian Roundtables for Sustainable Beef. Criteria may
relate to the number of times an animal is moved during a lifetime, level of producer
community engagement and a range of regional specific natural resource indicators
including evidence of protection of forests, grasslands and other native ecosystems.
Beef producers who sign up for the pilot will begin by filling out a self-assessment online.
That will be followed by a ‘pre-verification’ stage in which the verifier will see if there are
any areas for improvement. The third stage will be the official verification where producers
will be scored against the sustainability criteria. American verification company - Colorado-
based Where Food Comes From, Inc. has been chosen to undertake the verification.
“Verified sustainable beef from birth to burger”
McDonald’s is now looking for cow-calf producers, backgrounders, and feedlot operators
interested in participating in the pilot. As of June 2015, 100 Alberta ranchers have expressed
interest in participating in the pilot with 19 having completed verification and an additional
seven scheduling their verification.
McDonald’s has also undertaken processes to source all of their coffee, palm oil, fish and
packaging sustainably.
There has been much debate in the Australian beef industry regarding Australia’s role in the
Global Beef Sustainability Roundtable and the whether the scale of Mc Donald’s ground
beef supply chain means the isolation of sustainability beef over commodity is impractical
and impossible.
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3.5 Grass Fed
Beef from cattle grazed only on grass is in increasing demand. Most supermarkets I visited in
the UK, U.S. and Canada profiled a number of grass fed beef products and there is also a
strong grass fed beef presence on most steakhouse style menus. While initially grass fed
beef has been the domain of high end supermarkets such as Whole Foods it is now found
across the spectrum from HyVee to Walmart. There are also many grass fed farms selling
their product direct online and through farmers markets. In the U.S. there are over 1000
online websites offering direct from the farm, grass fed product (while labelled grass fed
product much of this product is not sold as a certified product).
In many supermarkets the grass fed product was being sourced primarily from Australia but
also from Uruguay and Brazil. While U.S. retailer Wholefoods a major buyer of grass fed
product suggests they buy very little imported product with no more than 3 percent
imported product being brought in. In the U.S. demand for grass fed burgers has increased
19 percent, steaks 50 percent and Mexican meals 120 percent since 2012, illustrating the
significant growth occurring in the grass fed market.
While price is still critical more consumers are demanding grass fed product for the health
benefits such as the healthier balance of Omega 3 and Omega 6 fatty acids which are similar
to those found in oily fish. Another driver is the shift to a more ‘natural’ product, being one
that is free from hormones and antibiotics.
A key growth area for grass fed beef has been in the fast casual segment. Chains such as
Subway, Planet Café, Canada burger chain A&W and Chipotle are now offering exclusively
grass fed beef product. Much of this grass fed product is being sourced from Australia
largely due to the availability of supply and significant price advantage. The ‘clean and
green’ image of Australian grass fed beef is also being promoted as a point of difference
from conventionally raised grain fed beef. These chains are also strongly leveraging the
‘family farmed’ brand, promoting an ethos of food that is freshly farmed by small family
farmers. In the U.S. and Canada there is strong criticism from both consumers and
producers about this reliance on imported over local product. In the longer term Chipotle
management have indicated greater support for U.S. grass fed product as more supply
becomes available.
“Years of research from our purchasing team suggest Australia is the best place to begin
sourcing grass fed beef at scale”. Chipotle Management 2014.
For certification under a grass fed program, cattle need to be fed only grass and forage and
must be raised on pasture without confinement to feedlots. Animals must also be antibiotic
and hormone free.
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The American Grass Fed Certification System: The U.S Grass Fed System commenced in
2003 and remains the only national grass fed certification system in the U.S. The American
Grass-fed Association (AGA) delivers the AGA certification program, provides market
support for certified AGA producers as well as playing a role in promoting the health
benefits of grass fed beef. AGA also aims to keep a transparent path from producer to
processer to distributor and to the end user.
AGA has an additional requirement that all animals are born and raised on American family
farms and that animals are not confined in feedlots.
AGA-Certified producers are audited annually by independent, third parties to ensure
continuing compliance with the standards.
Pasture Fed UK (Pasture for Life): The UK Pasture Fed Livestock Association has 140
members and 40 approved suppliers. The pasture fed certification mark was launched in
January 2015 providing a pasture for life logo. The stamp of approval guarantees the animal
it came from only ate fresh and conserved grass and forage its entire life, including during
the finishing period. By scanning a QR code which is also on the label, or entering a unique
number into their website, the meat can be fully traced – right back to the farm, the fields
and animal it came from. Approximately 4000 head of cattle and 6000 sheep are marketed
through the Pasture Fed Scheme annually. Many of the Pasture Fed suppliers are marketing
their product through their own farm shops or direct marketing relationships with butchers,
restaurants or other retailers ensuring any premium is captured.
Many UK organic beef producers are now also seeking certification under the Uk Pasture for
Life program. One such producer is Eversfield Organics. Eversfield has evolved from a small
farm using direct marketing to sell beef products to a major supplier of Organic meat –
including pork and lamb. Product is sourced from other certified suppliers and is processed
on farm at their EU licensed cutting plant. Product is sold direct to new, high end, online Uk
retailer Ocado as well as direct to restaurants and households.
Canada launched its first grass fed certification label in 2013. The label was developed by
U.S. certifying body Animal Welfare Approved (AWA).
Both the U.S. and UK grass fed programs seem more ‘grass roots’ then the Australian
Pasture Certified Program. This may be largely due to scale – 70 percent of Australian
producer product is a grass fed product compared with 3 percent in the UK but also relates
33 | P a g e
to the structure of the Australian industry where few processors and limited capacity to
direct market mean such programs need to be driven at the processor level.
3.6 Certified Angus Beef
“Our mission is to increase demand for registered Angus cattle through a specification-based,
branded-beef program that identified consistent, high quality beef with superior taste”
The U.S Certified Angus Beef CAB was initiated in 1978, after an Angus producer got a tough
steak in a restaurant serving Angus Beef. The program holds the distinction of being the
first USDA Certified Beef Program. The growth in CAB reflects the market demand for a
certified product with consumer demand doubling since 2002.
Today over 60 percent of U.S. cattle are Angus influenced. Over 15 million head of cattle
are identified annually through the CAB program and over 3.5 million head of cattle are
certified annually. The tighter supply of genetics and coordinated management program has
led to an increase in the overall acceptance rate from 15 percent ten years ago to over 25
percent.
CABs certification has 10 carcase specifications that must be met to grade CAB:
1. Modest or higher marbling – for the taste that ensures customer satisfaction 2. Medium or fine marbling texture – the white "flecks of flavour" in the beef that ensure consistent flavour and juiciness in every bite 3. Only the youngest classification of product qualifies as "A" maturity – for superior colour, texture and tenderness Consistent Sizing 4. 10- to 16-square-inch ribeye area 5. 1,050-pound (476kg) hot carcass weight or less 6. Less than 1-inch fat thickness Quality Appearance and Tenderness 7. Superior muscling (restricts influence of dairy cattle) 8. Practically free of capillary ruptures (ensures the most visually appealing steak) 9. No dark cutters (ensures the most visually appealing steak) 10. No neck hump exceeding 2 inches (safeguards against cattle with more variability in tenderness)
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The CAB program is driving improvements to the quality grade of cattle. Producers who are
able to hit the quality targets are being paid significant premiums. For the top 25 percent of
cattle, premiums in dollars per head have increased from $26.39 USD in 1998 to over
$117.94 USD in 2013.
While over 80 percent of CAB product is consumed domestically. International markets are
developing with the product shipped to over 80 countries. Of the 120 million pounds that
was exported in 2014, 60 percent was end meats, or items from the chuck and round,
compared to the strong domestic demand for middle meats such as strip loins and
tenderloins17. The top CAB international markets are Canada, Mexico, Hong Kong, Japan and
Korea, but in the last decade the brand expanded its presence in popular tourist areas in the
Caribbean and in South America.
In the U.S. 7 out of the 10 leading breeds of cattle have considered a branded beef
program. The Additional Angus related certification programs such as AAA’s Angus source
program which have also been developed for Angus sired cattle - must have a minimum 50
percent Angus genetics. Of the 140 branded beef certification programs audited by the
USDA, 79 are Angus related. Of course there are also non certified Angus products on the
market.
3.7 Heritage Angus Beef
Heritage Angus Beef started as a collective of 20 Ranchers in Alberta and British Columbia,
Canada concerned with increasing consolidation and scale of the beef commodity business.
Founded by Dr Christope Weader Heritage Angus Beef offers a sustainably produced, free
from hormones and antibiotics, verified Angus product, promoting a closer connection
between the family ranches and the end consumer. Previously some ranchers were direct
marketing their product through farmers markets and Heritage Angus provided a natural
next step enabling members to achieve greater scale while retaining independence and
product integrity.
Approximately 8500 hd of cattle are sold annually and 51 percent are verified Angus, cow or
sire based, and include red Angus. Members pay a one off annual membership fee and an
annual pool price is paid, with forward contracts used to manage risk. The collective owns
17
Corah, L. CAB. Cattlemen’s College 2015.
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no assets, no offices, and no tax is paid as it is a zero net company with profits distributed to
members. Dr Weader, manages all the sales and marketing for a check off payment of $40
Canadian per animal killed, consisting of $20 CAD for his time and $20 CAD for admin.
Heritage Angus remains one of the few Canadian beef brands exporting to the EU. Ranch
members are actively involved in the promotion and marketing of their beef products, with
sales increasing by more than 140 percent when ranchers undertake in store promotions.
In 2014 Heritage Angus Beef became a product of its own success and was purchased by
One Earth Farms, a Canadian based corporate agri-food entity funded by a number of
private fund investment companies. One Earth Farms who also owns beef brand Black
Apron Beef and meat processor Canadian Premium Meats Inc. in addition to a range of
other niche organic production and food brands.
Interestingly while McDonald’s rolls out its sustainable beef program, Heritage Angus
already sells a certified sustainable burger – 100 percent Angus, free range, free from,
following sustainable environmental stewardship - through the Canadian Hero Burger
franchise.
3.8 Superior Livestock
Superior Livestock Auction provides real time load lot online and satellite video marketing of
cattle, marketing over 1.5 million head of U.S. cattle annually. In the U.S. up to 80 percent
of store cattle are sold online, opening producers up to larger national markets and gives
flexibility to create unique terms of sale. While online auctions aren’t new (Australia has a
comparative system in Auctions Plus) Superior Livestock is a leader in this field and has
recently expanded its business to include a number of certification and assurance programs.
Superior Livestock has 8000 registered buyers and 11 000 registered sellers who are a
mixture of smaller producers selling calves and feeder cattle (approximately 60 percent) and
feedlots selling finished cattle (approximately 40 percent). Increased scrutiny around the
conditions in which animals are raised is driving a shift away from auction houses towards
online sales.
Video footage of each lot is filmed prior to the sale, footage is then streamed live during the
auction sale. The date of collection is advertised at time of bidding and approximately 35
percent of cattle are forward sold for delivery up to three months in the future. Cattle are
weighed the day before the day before the sale and drafted into batches. A 3.5 percent
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shrinkage is taken off these weights for gut fill. Superior Livestock acts as a clearing house
for payments and purchases are paid for on the day they are delivered.
Cattle sold through can now be value added through verification of a range of treatment
and genetic programs. These include:
Superiorvac – calves are vaccinated with approved vaccines
Superior verified – calves are age and source verified
Non hormone treated cattle – cattle have not been treated with hormones
Certified natural – the seller verifies that cattle have never received antibiotics, growth
promotants or beta agonists
Superior progressive genetics – identified cattle sire by leading genetics
Additionally feeder cattle can be independently verified by genetics, production history and
age through the Reputation Feeder Cattle Program which aims to identify the better
performing feeder cattle before they go into the feedlot. Additionally sellers can leverage
from Superior Livestock to source bulk buys of on farm supplies such as the vaccines
required as part to the Value Added Program. Into the future there is the potential for more
producer driven supply coordination whereby standardised production protocols and
genetics enable producers to group their cattle together for sale into larger lots, providing
greater market leverage.
4.0 Producers leveraging economy of scale through cooperatives and alliances
“How can producers cooperate to build greater profitability?”
There are many examples of farmers responding to the pressure of market consolidation in
the agricultural, processing and retail sectors by working collectively to achieve similar
economies of scale and bargaining power. In most cases the initial drive to work collectively
starts with producer angst over prices and a belief that greater scale and coordination of
supply can leverage a greater price. From this producers either move towards a decision to
direct market their own product or partner with a processor and provide a direct supply. I
found that in most cases collective relationships endure if there is a strong symbiotic
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relationship – at the end of the day they need each other! Most telling is the
producer/processor alliance – where producers are prepared to stay with the cooperative
and ride out a flat market, despite prices possibly being higher elsewhere because in tough
market conditions they are happy to have an outlet to sell to – and vice versa – where
processors may at times pay more to the collective because in the longer term they
acknowledge the benefit of captive supply.
I explored both farm input cooperatives as well as supply cooperatives and increasingly
found that they were merging into both roles, using their membership for greater leverage
and opportunity. While scale and negotiating power were key reasons in initiating the
cooperative relationships most members were unanimous in the ‘efficiency’ benefit
cooperatives were able to leverage through improved production standards, enabling the
delivery of a higher quality, consistent product.
It was made clear that it isn’t always an easy strategy to pursue alliances in an industry that
is often fragmented and fraught with contentious issues. The often unpredictable nature of
climate and challenges of animal production further exacerbates the complexity. I explored
many success stories, but also found examples of failure. These examples reveal some
common pitfalls namely the challenge of delivering a consistent, quality supply; the
challenge of riding the supply demand cycle; the challenge of raising capital and lastly the
challenge of building member commitment and support.
One such example I researched is the Tall Grass Prairie Producers Cooperative, which
operated from 1995 to 2000 marketing grass fed beef from 10 Kansas ranches. At the peak
of their success beef was marketed in 23 states through three large natural food
distributors. Their key operating challenge was maintaining volume and seasonal supply
and processing low volumes of product at an economically viable cost. Another example is
Ranchers Beef a farmer owned processing plant in Alberta, built in 2005 by producers in
response to the BSE crisis when live export to the U.S. were closed. The plant shut down
just 14 months after opening, struggling to maintain enough equity during periods of low
operating margins. The plant is due to reopen next year under the private ownership of
Harmony Beef.
This section of the report explores a number of cooperatives that are quite different in size
and focus. Many of the cooperatives are now new generation or closed cooperatives. They
have evolved from a small group of initial members with operating costs largely financed
through members retained earnings, to larger, more integrated, value adding organisations
that are funded through the sale of delivery rights.
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4.1 Mole Valley Farmers
“Owned by farmers for farmers”
Mole Valley Farmers was formed in the 1960’s, established by a group of farmers concerned
by the discriminatory practices and the large margins being taken by many of their input
suppliers. The cooperative was formed to enable farmers to combine scale to drive down
the price of farm inputs in the south West of UK. Todays it is the UK’s largest farm supply
cooperative with a business that supplies everything for the “farmer and the farmer’s wife”.
It has over 35,000 members, 8,000 farmer shareholders and has expanded business to
include 50 farm stores, a significant on line capacity, feed mills, mineral plant, farm vet
practices, farm building division and renewable energy solutions. The Mole Valley Farmers
trading footprint has expanded to include a range of other rural brands as opportunity for
expansion occurs.
Mole Valley Farmers has a team of specialist purchasers who source supplies and handle the
negotiations on price. Collective purchasing power is used to facilitate better pricing on
everything from four wheel drive vehicles to work boots. While industry consolidation
means there are fewer businesses to negotiate with, strategic supply relationships can
enable long term collaboration.
The majority of profit made is rebated to members; last year, more than £1m of the £1.1m
profit was rebated. The cooperative deliberately aims to keep its profit margin low, so that
members benefit from the lowest possible prices at time of purchase. It is estimated
members can save up to 20 percent on the costs of farm inputs by purchasing through the
cooperative.
Mole Valley Farmers have further leveraged cost efficiencies through their own range of
‘Mole Valley’ branded productions. Additionally the ‘Mole Valley’ farm extension work has
the potential to include working with beef producers to develop supply chains.
Mole Valley Farmers is just one of a number of farm input supply businesses in the UK.
Another significant farm supply cooperative includes Anglia Farmers. Anglia Farmers
provides farm supply products to largely grain farms, but has also recently formed a
strategic partnership with First Milk, one of the UK’s largest dairy cooperatives. This
partnership enables First Milk’s 1800 members to make farm and business inputs through
Anglia Farmers. The subsidiary Anglia Farmers Affinity also offers discounted prices to non-
members and, among other things, helps rural communities develop bulk fuel purchase
schemes. As well as farmer cooperatives there are also numerous purchasing partner groups
that provide discounted rates on product and services for members.
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4.2 Beef Marketing Group
The Beef Marketing Group (BMG) is a cooperative of 19 feedlots based in Kansas and
Nebraska that cooperate to market cattle directly to Tyson Packers. Operating for over 23
years, BMG collectively has 250,000 hd of cattle on feed at any one time and markets up to
550,000 finished cattle a year. Despite the scale and turnover of BMG it owns very few
assets and operates out of a small non-descript office in rural Kansas.
Like many cooperatives BMG was formed due to dissatisfaction with the treatment of
smaller operators who did not have the volume to individually compete with larger feedlots.
Smaller feedlots found themselves being paid less for their cattle than larger suppliers
because they had fewer cattle available. They formed a group and worked to sell their cattle
under one agreement and became one of the first operators to work directly with Tyson
Packers to develop their own quality marketing grid.
Today BMG is a vertically aligned marketing cooperative forming direct relationships with
backgrounders, farm input suppliers and most importantly Tyson Packers, food retailers and
end consumers. These direct relationships add value; for example the savings made through
coordinating farm input supplies are now worth up to $30 USD per head.
BMG is unique in that their focus is on driving demand for their product with end users.
While they do not do their own branding, they do identify opportunities for better meeting
changing consumer demands. One example is their HACCP based verification system
Progressive Beef which includes animal welfare, environmental, feed and veterinary
standards. This system had added value to the end product as well as driving efficiencies
and savings at the feedlots through standard operating procedures.
CEO John Butler stressed that trust and transparency is a key factor in the success of BMG.
Working with a packer in a collaborative rather than a combative way. The model works
because ranchers and feeders can earn more for the quality of their efforts; packers are
ensured a consistent supply of high quality beef; retailers can command a premium by
offering consumers branded beef products and communication about the benefits of a
verified production program.
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4.3 US Premium Beef
US Premium Beef (USPB) is the largest producer owned beef marketing company with over
2000 producer members located in 36 States throughout the U.S. Like many cooperatives
USPB was formed on the back of dissatisfaction with the downward pressure on pricing.
Independent ranchers were also dissatisfied with their ability to negotiate private marketing
arrangements that paid on quality of carcase rather than simply a live weight price on the
cash market.
In 1995 USPB was formed as a closed cooperative with the mission of - “Increasing the
quality of beef and the long-term profitability of cattle producers by creating a fully
integrated producer-owned beef processing system that is a global supplier of high quality
value-added beef products responsive to consumer desires”.
Members also sought to create a system where risks and rewards were more equitably
shared at each stage of the supply chain. Membership required a payment of $500 USD and
an additional fee of .50c USD per head of cattle delivered to USPB.
In 1997 USPB formed a joint venture Farmland National Beef. A stock raising was held with
one share valued at $55 USD per head. USPB also required a $50 USD per head in debt to
finance the investment. More than $38 million USD was raised enabling USPB to become a
part owner of Farmland National Beef (which was also a producer cooperative hence used
to dealing with cooperatives). A second stock offering increased ownership to 29 percent of
the company giving USBP the opportunity to expand their scale and build a recognisable
brand.
When Farmland Industries declared bankruptcy in late 2002, USPB and a minority partner
bought the remaining 71 percent (value at $232m USD) becoming a majority owner.
In 2014 USPB purchased 11.6 million head of cattle from its cattle members and made an
average premium of $46.28 USD per head above the cash market. In additional members
realise additional earning through the profits of USPB. Today there are 500 original unit
holders and 2400 associates. Members are still required to buy a share for each head of
cattle they have in the system. Share ownership ranges from 100 to 100,000, where one
stock represents the annual right and obligation animals per month (even slots) or to deliver
animals during one or more months each year (odd slots). Importantly voting entitlements
remain one vote per member of the cooperative.
USPB successfully provides access to volume markets for small producers. USPB’s
acquisition of a processing facility is central to this and its ability to drive premiums through
a value based grid. USPB has a field team that works directly with producers to improve
carcase traits through better production and genetic decisions. They have also implemented
an EID program to help producers translate carcase data feedback into paddock decisions.
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4.4 Panorama Meats
Panorama Meats Inc., began as Western Ranches Beef Cooperative in 2002. It is a unique
alliance between a group of organic and grass fed ranchers who have grown their business
from a small 2 to 12 head a week enterprise to today, selling 200 head a week to the
Wholefoods retailer in addition to a range of restaurants and markets. Panorama Meats
were early innovators in the grass fed and organic arena first starting in 2001.
Chairman Darrell Wood indicated that the group literally pounded the pavement with an ice
chest full of beef, encouraging restaurants and retailers to try their product18. Like many
other beef start-ups their toughest challenge was selling the whole animal – nose to tail- Mr
Wood stressed the middle meats were easy to sell but remaining cuts proved more
challenging and to overcome this these cuts were frozen for flexibility of marketing. The
business called on the expertise of a retired marketing expert to assist in growing their
brand and demand strategies. They realised they had to sell the whole animal at once
because they could not draw on a large inventory like other suppliers.
Retailer Wholefoods approached Panorama Meats to supply a grass fed product and then
later encouraged the group to undertake organic certification and supply an organic
product. This organic product is achieving a 25 percent premium above the commodity
market. Panorama Meats have achieved a Step 5+ on the Wholefoods Market Animal
Welfare Rating – developed by Global Animal Partnership. This is the highest animal welfare
standard given to beef and assures that animals raised to Step 5+ standards – are born and
live their entire life on one farm, are not branded, dehorned, castrated or ear marked,
spend their entire life on pasture or range, are naturally weaned and are slaughtered
locally19.
18
National Cattlemen’s Beef Convention, 2015. 19
http://www.globalanimalpartnership.org/
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4.5 Natural Country Beef
Formed in 1986, Natural Country Beef (NCB) started with a supply of just 5 head a week,
and today processes over 45,000 finished cattle from over 120 ranches. Its formation was
largely driven by the need for family ranches to be more profitable and they were early
adopters of a natural, antibiotic free, branded product that aimed to promote the holistic
management ethos shared by its members.
Today 70 percent of its annual sales go through the retailer Wholefoods, with other key
buyers including Burgerville Restaurant Chain and New Seasons Markets. NCB has
developed its own set of Holistic Management Principles called Grazewell which includes
soil, water and habitat conservation. Each ranch is independently certified by Food Alliance
and new members must be sponsored by existing members and undergo a two year trial
period before becoming full members. NCB believes this standardisation of practices has
helped with quality control and ensures the delivery of a more consistent quality product.
CBN uses costs from 24 different ranches to determine the cost of production each year and
a cost plus method to determine the product price. The entire carcase is forward sold, with
the price locked in for a twelve month period. Members receive three payments – an
animal placement fee, the basic price per pound with bonuses for quality specification – and
a bulls eye fee for those carcases that meet narrower specifications. Members pay a per
head marketing fee and insurance for out of specification cattle.
Like many other cooperatives NCB owns minimal infrastructure and its operating costs
amount to 4 percent of revenue20. While historically many of the technical roles such as
marketing and finance have been performed in house the group has transitioned to a new
management structure, while still working to retain the traditions of equality and
transparency.
4.6 North West Consolidated Producers
North West Consolidated Producers (NWCP) was formed in 2006 with 13 feedlot enterprises
from Alberta and Saskatchewan, Canada. By 2010 it had grown to 143 members and
marketed over 150,000 finished cattle, in addition to cows and bulls. While NWCP is no
longer in operation it does provide a useful study into how producers can work together to
20
Pullman, M, Zhaohui, W. Country Natural Beef – A Maturing Co-op at the Crossroads. 2009.
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achieve benefits through volume marketing. At the time of operation NWCP was achieving
an increase of over $19 CAD on the market spot price.
A not for profit company, the aim of NWCP was to promote timely marketing information to
its members and promote greater competition between livestock buyers. Developed as an
alternative to captive supply, NWCP aimed to promote the sale of finished cattle on a cash
market in numbers that attract the attention of processors.
The NWCP model created a ‘sell list’ of the finished cattle available for sale each week –
generally between 2500 and 10,000 head of cattle. Price negotiation then commenced with
processors, with field reps checking each pen of available cattle and estimating the grade
and yield. All lots, unless there is significant difference between lots (some for example may
be better suited to a branded beef program) were then listed with the one asking price. By
mid-week trading ranges were estimated and owners were contacted to confirm
agreement. Cattle not sold were offered for sale to the highest bid or cattle were retained
for sale the following week. NWCP charged a marketing fee of $4.50 or $6.00 CAD per head
depending on the client’s membership category. Membership required a one off
membership fee, which varied depending on the level of service required.
NWCP was not without its opponents, in 2010 IXL (now owned by JBS) actively offered high
prices direct to individual NWCP members in an effort to break the marketing pool.
The NWCP model was based on the U.S. Consolidated Beef Producers (CBP) model which has also been replicated by Canadian feedlot group Highway 21 Feeders. CBP markets 1 million grain finished cattle per year through a range of different marketing methods that aim to promote greater competition.
5.0 Supply chain innovation
The push for greater supply chain competitiveness is driving new businesses that can build
efficiencies and create new value. These businesses promote different ways of working
together that include the sharing of information, aggregating scale and innovation. While
the might of the retailer and processors will continue to dominate the buying power in
periods of tight supply they are increasingly open to new relationships as they seek to shore
up supply. This arrangement effectively enables the farmer to hand the price risk over to the
retailer and enables the farmer to focus on efficiently feeding and housing the cattle. All
costs are worked into the daily head rate plus a negotiated margin. This seems to be fairly
transparent arrangement where the retailer is aware of the farmers feed costs and agrees
to pay costs plus a margin. This opportunity was a direct response to food supply concerns
on the back of biosecurity issues including TB (ongoing), BSE (detected in 1996) and foot
and mouth outbreaks (in 2001). These biosecurity issues required food retailers and
processors to rethink their beef supply chains and look at controlling a larger percentage of
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their supply. At the same time they also had to look at how production models can be
replicated to provide a more organised and consistent supply of cattle.
This section of the report highlights some of the companies developing new supply chains or
creating new value in existing chains.
5.1 Blade Farming
Blade Farming started in 2001 with the idea of taking what was essentially a waste class of
stock - the bull dairy calf and feeding it to a specified retailer requirement. Today Blade
Farming is the largest purchaser of bull calves from dairy farmers in the UK, it is currently
feeding approximately 16,000 head of cattle through various feed contract supply models
for a number of different target markets.
The Blade Farming feed supply model starts with retailers to understand their needs and
then seeks to identify the type and breed of cattle, and the production standards that will
best suit this requirement. This is a more strategic approach to the traditional ‘produce an
animal and then market it for sale on an open market’.
One of Blade Farming’s biggest operations is the feeding of Black and white
Friesian/Holstein bull calves which are produced for McDonald’s under the McDonald’s
Flagship Farm Scheme. These dairy calves are purchased at two weeks of age and placed
into contract feeding units where the calves are fed for twelve weeks on a mixture of milk
powder, straw and feed nuts. All cattle are fed and managed to a strict set of nutritional and
veterinary protocols which builds efficiency and consistency into the system. At a weight of
about 140kg they are sold to finisher units, where cattle are fed on a forage silage diet and
are then sold at around 16months. Blade Farming provides a guarantee offer to buy the
cattle back at the current grid price plus a premium. Alliances have also been formed with
key feed and veterinary suppliers including Mole Valley Farmers which assists in managing
input costs.
Friesian vealer
calves in a Blade
Farming feeder unit
at Langport.
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Blade Farming standardises cattle production providing direct support to farmers to manage
feed rations and nutrition issues. They also provide access to a software package to record
and benchmark production performance with other suppliers.
“If there are any grey areas in a supply chain it will fail, because it allows the potential waste
and unnecessary costs created by less capable or committed producers to undermine the
entire program.” Richard Phelps, Managing Director of Blade Farming Ltd.
The success of the Blade Farming Model was reinforced in 2011 with its purchase by ABP
food group a significant meat processor in the UK. Blade Farming provides farmers with a
valuable revenue stream and a support model which can drive efficiency and greater
profitability. Blade Farming reinforces the trend towards better supply management from
the retail or processor end, driven by the need for a more organised and consistent product.
The key message is that there are opportunities for producers to work with end consumers
to identify opportunities and requirements and work back to develop the appropriate
supply and production models.
5.2 Beef Information Exchange System
The Canadian Beef Information Exchange System (BIXS) is designed to facilitate the sharing
of animal data from cattle breeder, backgrounder, to feedlot and processor. Data is linked
to the individual animal’s unique electronic ID tag number; known as the CCIA (Canadian
Cattle Identification Agency) tag or RFID (radio frequency identification) tag. The voluntary
systems enables supply chain participants to improve animal performance, better target
beef to different markets and improve the overall efficiency and quality of the beef herd
nationally.
At the production end producers record animal production, performance, health and
genetic/genomic information, carcass data is then added by processors which can then be
used for precise targeting of beef to markets as well as fine tuning production and genetic
improvement. A producer can also compare their animal data with industry bench marks
across the national system. Processors using a Computer Vision System to electronically
grade are further adding to the detail of data available and this information can be
automatically added to the BIX database.
The system has been heralded as a great example of the ability of the Canadian beef
industry to collaborate and is intended to be the cornerstone of the Verified Sustainable
Beef Program that McDonald’s is currently piloting in Canada. Despite this support,
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producer uptake has been relatively slow. To date only 1000 producers have signed up to
use the currently free system. Both Cargill and JBS plants are supporting the system with
data from 2.8million carcases currently available. For cow and calf producers this data
provides an opportunity to follow their animals through the background and feedlot process
even after they have been sold.
While initial funding has been provided by Canadian Government and industry funding
different funding models including a private partnership are being looked at which may
include a free basic access but a cost for more complex data.
5.3 Direct marketing
“By reducing the number of steps in the supply chain, the producer is always better off”.
Laurence Olins, Chairman of Poupart, Ltd. Oxford Farming Conference 2015.
Beef direct marketing is the sale of beef direct from the producer to the consumer with
minimal interference or outsourcing involved. It enables the producer to better influence
the price they receive for their product and provides the consumer with a farm fresh
product and the opportunity for a two way exchange with the producer to provide feedback
and build a market relationship.
While the complexities in slaughtering and processing cattle means direct marketing of beef
is not as common as the direct marketing of fruits or vegetables, there is growing market
demand and it is providing price premiums for producers. The type of customer is generally
concerned with food safety, environmental impacts of food production, animal welfare,
production practices and strongly supportive of local agriculture.
Farmers markets have emerged from an informal marketing opportunity to highly
organised, established and profitable marketing ventures. Other direct avenues include
farm shops, online and consumer buying clubs.
In the U.S. there are over 8000 farmers markets operating most weeks, with many offering a
selection of both fresh and frozen beef products. In the UK there are over 700 farmers
markets and in Canada a recent report into the value of farmers markets suggest they
return over $3B CAD to local economies and contribute to over 1/3rd of vendors produce
income. Many producers who are direct marketing their produce promote an organic or
more sustainable production ethos; in the U.S. over 40 percent of organic farmers direct sell
some of their produce.
Many cities are now actively promoting community supported local agriculture, for
example the city of Oxford has establish Good Food Oxford to promote a healthy, fair,
ethical and environmentally sustainable food system in and around Oxford.
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I visited many farmers markets and farm shops throughout my travels. Interested to not
only source some local produce to eat but also keen to see the different approaches
employed by producers to sell their product. In addition to organic, natural and grass fed
products there were also beef products that promoted specific breeding, sustainable
production attributes and different eating assurances such as tenderness and high marbling.
In the UK the success of direct marketing is evidenced through the success of the
organisation FARMA – National Farmers and Retailers Marketing Association - which is a
cooperative of 500 businesses focused on promoting food that is grown and sold with the
same hands. The organisation provides expert advice on direct marketing, helps to promote
direct farms sales and manages the UK’s farmers’ markets certification scheme.
In the U.S. an innovative online farmers market called Good Eggs illustrates the popularity of
the “farm to fork” concept. Good Eggs is farmers market meets online groceries, offering
farmer’s market-quality goods without the having to actually go to the farmer’s market.
Customers can order a range of fresh, baked and other produce items online from over 600
local farmers and food makers. Once ordered items are freshly harvested, prepared and
delivered direct to the customers door. Good Eggs achieves scale by combining goods from
a large number of different vendors, it also provides vendors access to customers seven
days a week.
Good Eggs operators have a mantra of building authentic relationships with their producers,
employees and community. They promote transparency about how they operate and how
food is produced and prepared. Good Eggs recently raised $21million USD in funding to
enable it to expand its operations to San Francisco, Los Angeles, New Orleans and New York.
In Canada I visited Summerfield Farms, run by Dave Abernethy and Anne Penner. Dave and
Anne run a small farm on the outskirts of Prince George a town of 70,000 people in British
Columbia, Canada. They market one beast a week, which is marketed at the weekly Prince
George Farmers Markets. Their Limousin herd is grass/hayfed throughout the year and free
from hormones, antibiotics and other pharmaceutical inputs. Their livestock is processed
by Kawano Farms a small family owned Prince George abattoir where it is dry aged for
fourteen days and cut to a range of specifications, pepperonis and other sausages are also
manufactured here. The abattoir charges a $90 CAD hd slaughtering fee for animals under
30 months and has a processing fee of $1.00 CAD lb for cutting and cryovacing.
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The market impacts of BSE in the late 1990’s convinced Dave and Anne that they needed to
retain more control over their product and the end price they are receiving. Dave indicated
he is doubling his revenue through direct marketing; there is strong local demand for their
product and scope for expansion. With a herd of about 50 cows, Dave and Anne’s venture
illustrates how small farmers can be highly profitable by producing a quality niche product
and taking the time to direct market their own product.
One of the most sophisticated direct marketing initiatives I saw is brand 44 Farms, located at
Cameron, Texas. 44 Farms is a family run enterprise which has evolved from an Angus
commercial beef herd and stud, to operating a high end direct marketing program. Cattle
are supplied direct from 44 Farms but also through an innovative calf buyback program,
where clients who use 44 Farms genetics can sell feeder cattle into the 44 Farms program.
Cattle bought through this program must also be certified through the Rightway Program –
which provides animal health, welfare and stewardship protocols. This creates great
opportunity for scale while ensuring product consistency and quality through the use of
shared genetics and standardised production practices.
5.4 Niche processing
The shift from small local abattoirs to large processors limits the opportunity for flexibility in
having cattle custom killed and marketed locally. A number of producers in both the UK and
U.S. are seeking to address this issue by collectively purchasing mobile slaughtering units.
These mobile units can be transported direct to the cattle with benefits both to animal
welfare, carcase quality and ultimately eating experience. This concept has the capacity to
localise food production, helping facilitate producer direct marketing, the reduction of food
miles and a greater opportunity for community supported agriculture.
A fully self-contained 36ft mobile unit can process up to 8 head of cattle a day with two
butchers, however there are larger units processing up to 20 head a day, boning out and
further processing is generally done on site using other facilities. While the cost of locally
Meeting with beef direct
marketer Dave Abernethy
of Summerfield Farms,
Prince George Canada.
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processing animals through a mobile or small local unit can be nearly double that of a large
commodity processor there are strategies for both reducing and offsetting this cost.
Regular throughput (including multi species processing), value adding of the drop credit and
product marketing will build greater profitability of locally produced and processed beef.
One advocate of the mobile processing unit is beef direct marketer and industry innovator
Mike Callicrate. Mike markets Callicrate Beef direct through a distributor called Ranch Food
Direct and actively promotes the quality eating experience and savings that can be passed
onto the consumer by buying direct. With retailers such as Wholefoods promoting the
animal welfare benefits of local processing 21 and a general push for more locally sourced
and responsibly raised food this an opportunity they will develop in scale.
6.0 Government support for greater supply chain cooperation
Historically the development of supply chain cooperation is in part related to the support
from government in developing the structural and legislative frameworks to enable
cooperative models. The U.S. Government has arguably the most comprehensive package of
cooperative support, and the EU while not specifically studied in this report has made a
strong commitment to the restructuring of the agricultural sector to enable a greater
number of farmer driven organisations.
While Canada does not provide the same level of cooperative support that the U.S.
government provides there are a number of market related programs that are supported to
promote greater development of local beef opportunities for direct marketing and small
scale beef processing hubs. One such example is the Beyond the Market – Regional Beef
Value Chain Project in British Columbia.
In Australia there is minimal dedicated assistance for cooperative agriculture, though there
is rising debate as to the role of government in enabling farmers to better manage the
bargaining imbalances across the supply chain. As part of my Fellowship I sought to explore
some of the government organisations tasked with supporting cooperatives as well as
better understanding the legislative measures that are being used to encourage the creation
and performance of agricultural producer organisations such as cooperatives. More
generally I also looked at some of the important risk management tools being used by
farmers, of note is the extensive futures and swap market in the U.S. and the significant
level of insurance support for livestock and also weather. Weather insurance is directly
supported through the U.S. Farm Bill – this includes direct policy discounts for young
farmers, support for non-insured loss and premium payment assistance for multi-peril
weather insurance.
21
Wholefoods 5+ Animal Welfare Standards require slaughtering to occur on ranch or at a location the animals can easily and safely reach by walking.
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This section of the report highlights some of the key ways government in the UK and the
U.S. are supporting farming enterprises and more specifically supporting producers to work
together more collaboratively.
6.1 United Kingdom
While the UK does not enjoy the same level of government support for farmer collaboration
as the U.S. does there are a number of Government supported and private initiatives that
provide worthy support and help build a greater ethos of collaboration. These initiatives
include:
The Plunkett Foundation – Founded in 1918 through the bequest of farmer and
cooperative champion Sir Horace Plunkett, the Plunkett Foundation provides a range of
support services to encourage the development and growth of producer marketing
cooperatives. Specific support includes funding grants, training, consultancy and helping
to build the cooperative movement globally.
The Kindling Trust – Formed in 2007 and funded through a number of grants and funds
that support community driven change projects. The trust aims to bring together
farmers, communities, activists and policy makers to challenge the dominant models of
agricultural production and promote more inclusive and sustainable food alternatives.
While not specifically about farmer collaboration is does support a number of food
cooperative projects which although are not significant in agricultural scale do provide
innovative insights and ideas for more mainstream collaborative models.
Cooperatives UK – Formed in 1869 and today has 600 cooperative members.
Cooperatives UK, is a secondary cooperative, owned and controlled by its members. Its
role is to campaign for cooperation and works to promote, develop and unite
cooperative enterprises. It provides an extensive range of resources, training, events and
support for co-operatives.
One of the most significant examples of cooperative support in the UK is the Scottish
Agricultural Organisation Society, which was established as a direct result of the initiative
shown by Sir Plunkett.
6.1.1 Scottish Agricultural Organisation Society.
“To strengthen the profitability of Scotland’s farming and related industries through the
development of co-operation”
The Scottish Agricultural Organisation Society (SAOS) exists to help agricultural businesses
benefit from the commercial advantages that are achieved through cooperation and
collaboration. There is a real belief (and evidence to back it up) that farmers and food
businesses can secure additional value by working cooperatively rather than acting
independently of each other.
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SAOS is funded by a collection of 65 rural cooperatives, consultancy income and an annual
Scottish Government grants process. SAOS delivers a range of awareness and advisory
services to their cooperative members as well as seeking out new opportunities for
agricultural cooperatives to better exploit local, UK and export market opportunities.
CEO of SAOS James Graham suggests a cooperative needs two things to get started, firstly a
group of committed farmers motivated for change and secondly specialists that can guide
the group through the process. Of course a strong business case is also essential, focusing
on what the market demands and a clear value proposition for the end consumer. SAOS
delivers specialist advice to directors and managers of established agricultural cooperatives
as well as assist new and formative groups. Other advice areas include strategy review and
development, membership and loyalty development, rules and membership agreements,
governance, capital arrangements and Cooperative law.
The 20 largest cooperative members of SAOS collectively had an annual turnover of over
£3B in 2014. One of the biggest Scottish beef cooperatives is the ANM Group Ltd.
Established in 1872, ANM today has an annual throughout of over £230 m, and over 6000
members. It provides leading livestock marketing and facilities services for finished livestock
in Scotland. Its group comprises estate agency, specialist auctions, events and food service
business. Included in this mix is the delivery of the Scotch Premier Meat brand which sells
through a network of butchers.
SAOS has recently been part of an industry group tasked with building recommendations to
facilitate sustainable and long term growth in beef production in Scotland)22. Central to the
recommendations made in this report is supply chain cooperation and producer
organisations. The report recommends building greater understanding and trust
throughout the supply chain but also acknowledges that producers’ capacity to influence
price can only be achieved through the strength that comes from having a significant
volume of stock to trade. In Scotland there are over 7,000 farm businesses producing cattle
for sale either as stores to other farmers or finished stock into 22 Scottish beef abattoirs,
like most farmers capacity to influence price is negligible. The report recommends
government support for producer organisations to help facilitate greater supply chain
cooperation. At the very minimum the report suggests collaboration could be focused on
driving improvement to better meet consumer requirements. At higher levels, collaboration
may extend to joint planning, shared investment and long term commitment to common
business objectives. The report promotes a truly shared vision; it is a refreshing read and
promotes a range of practical recommendations on how to move the whole industry
forward.
Also while in Edinburgh I met with Suzie Carlisle from Scottish Meats (Scotland’s equivalent
to Meat & Livestock Australia). Interestingly both meetings were held at The Rural Centre
22
The Beef 2020 Report www.gov.scot/Publications/2014/08/2085
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(just next door to the Edinburgh airport), this facility houses a range of innovative rural
organisations creating a fantastic collective of ideas, contacts and networking opportunities.
6.2 United States
Rural America has a strong co-op culture, with cooperative businesses ranging from farm
input supplies, to health and electricity. While many cooperatives have a long history of
operation there is also a new wave of cooperatives forming to take better advantage of the
scale and opportunity that can come from working collaboratively. These cooperatives are
being enabled through both legislative structures that promote more open cooperation and
completion and specific organisations that provide training and consultancies of a range of
cooperative related issues.
6.2.1 Grain Inspection, Packers and Stockyard Administration
“Facilitates the marketing of agricultural products and promotes a far and competitive
marketing environment”
The Grain Inspection, Packers and Stockyards Administration (GIPSA) first enacted in 1921 is
a fair trade practice and payment protection law that promotes fair and competitive
marketing environments for agricultural products for the overall benefit of consumers and
American Agriculture.
In the beef, livestock and meat industry it serves two major roles:
Firstly it provides payment protection by requiring prompt payment for product (in most
cases next day payment for sales.
Secondly it oversights trading practises and brings action against unfair, deceptive,
discriminatory or monopolistic practices within the industry.
In the U.S. like Australia there is heavy processor consolidation with four processors
slaughtering four out of five beef cattle. Also like Australia the role of processors has
expanded to include significant ownership of livestock, land and the operation of feedlots.
And just like Australia there is concern that this market dominance and ‘captive supply of
cattle’ gives processors significant leverage over small cattle producers and enables a
greater opportunity to drive down prices paid to producers by significantly reducing cash
price sales which forms the market basis.
“This squall between the packers and the producers of this country ought to have blown over
forty years ago, but we still have it on our hands”
Senator John B. Kendrick of Wyoming, 1919.
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In 2010 the USDA outlined proposed changes to GIPSA’s Fairness Rule to attempt to counter
some of these concerns. Some parts of the U.S. industry lobbied heavily for the banning of
processor ownership of livestock and the enacting of captive supply reforms so that
contracts are transparent, publically offered and limit providing unfair advantage to some
producers over others. There were many including the National Cattlemen’s Beef
Association that felt this move would return producers to simply being paid on a price
average and would provide little incentive to produce the quality beef products consumers
prefer. In 2011 the rule was finalised with some changes to livestock marketing
requirements and procurement but without the key recommendations regarding processor
ownership and captive supply.
6.2.2 United States Department of Agriculture - Agricultural Marketing Services
“Support the efficient and fair marketing of U.S. agricultural products”
Livestock price discovery is an important tool for producers in the marketing of livestock. In
Australia beef producers have limited market information beyond saleyards reports and the
Eastern Young Cattle Indicator – which is based on an average price for vealers, steers and
heifers across three States. In the U.S. I sought to better understand the role of the
Agricultural Marketing Service and how it facilitates open and transparent price discovery.
U.S. Federal Government funding for the reporting of livestock began in 1914 through the
Agricultural Marketing Service (AMS), since then it has largely relied on voluntary
participation by market participants to provide daily supply, demand and pricing
information. In 1999 the Livestock Mandatory Reporting Act (LMR) was passed introducing
a mandatory requirement for processors to report the details of all transactions of livestock
and meat. The introduction of this Act was largely driven by producer concerns about price
transparency after the collapse of hog prices (down to $8 USD cwt) in 1998 which occurred
primarily due to a bottleneck at processing facilities.
For beef (there are different rules for lamb and pork) LMR requires the reporting of pricing
of all livestock purchased and contracted for purchase (includes daily, weekly, monthly and
annual Livestock slaughter summaries by class and region, feeder and stocker sales twice
daily), as well as all transactions involving domestic and export sales of boxed beef cuts and
drop value products. The premise is that this information encourages greater competition
in the marketplace through greater pricing transparency.
The LMR Act covers processors who process more than 125,000 head of cattle a year. Each
covered processor is audited a minimum of once every six months. The majority of these
audits encompass the review of randomly sampled lots selected through statistical
sampling, fines of up to $10,000 USD are made for reporting infringements. Audits have
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revealed some processors have omitted as much as 9 percent of cattle transactions, which
was statistically significant in influencing price reports.
Although controversial at the time, most analysts agree that LMR has promoted greater
transparency and accuracy in pricing and has been helpful for the U.S. livestock market.
Most producers I spoke to confirmed this and acknowledged the role of LMR in providing
greater price transparency and insight into the true variability of market prices. The
continued shift away from spot prices towards more coordinated marketing arrangements
may raise questions about the value of this information into the future. Additionally
questions have been raised regarding the degree to which increased transparency leads to
strategic anticompetitive or reduced competitive behaviour. For example certainty of
competitors’ prices could lead to reduced bidding competiveness. The information
generated through LMR information could be used to monitor anti-competitive behaviour
between processors. However the authority to undertake this role lies with GIPSA and not
AMS and while information could be coordinated between the two bodies differing legal
frameworks makes it difficult to do so.
Price reporting is not mandatory in Canada, nor is there GIPSA style regulatory support for
market competition however there have been over four inquires initiated by Canadian
Cattleman as to its application in Canada. In Australia, Meat and Livestock Australia has
recently undertaken a study to identify the application of such a system in the Australian
marketplace.
6.2.3 Capper-Volstead Act
“Farmers may act together”
The Capper-Volstead Act signed in 1922 provides the legal foundation for the American
farmer cooperative movement. It provides protection to agricultural cooperatives from
government anti-trust action thereby enabling farmers to work together to collectively
market their product. Prior to this Act, farmers were liable to prosecution for acting
together to market their product.
The Act goes further to enable producers to work together with their own associations or by
joining other association to build a common marketing agency.
The Act places two conditions producer associations must meet. Firstly they must operate
for the mutual benefit of its members in so far as they are producers of agricultural
products. Secondly they must not deal in the products of non-members in an amount
greater in value than such products that it handles for its members.
In addition to these conditions the Act requires associations to allow no more than one vote
per member and many require associations to limit dividends on stock to no more than 8
percent per year.
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6.2.4 The United State Department of Agriculture – Cooperative Services Program
“Almost every farmer in the U.S belongs to at least 2 cooperatives”
The USDA Cooperative Services Program helps promote understanding and use of the
cooperative form of business as a viable option for organisations marketing and distributing
agricultural products. The program plays an important facilitation, education and
development role that supports new and established cooperatives to become more
effective and profitable. This role also includes the publication of research and education
material, annual survey and statistical analysis of cooperative performance and the
administration of a grant fund. Grants are available for up to $200,000 USD for assistance in
the startup, expansion or operational improvement of rural cooperatives. Additional grants
can be accessed for value added programs. The program currently has 15 full time staff and
supports 8 regional Rural Cooperative Centres. Over 20 Rural Cooperative Centres are
located throughout the U.S. While not all are federally funded they share a common theme
in the support of the development and success of rural cooperatives.
The staff I met with from the Cooperative Services Program summarised the four key
strengths of cooperatives as:
1. A business case – being better as a group than as an individual.
2. A critical mass of producers – with ‘champions’ to sell the idea.
3. Good management – people that understand co-operatives.
4. The right board – financial, marketing and public relations experts.
As part of my fellowship I visited the Arthur Capper Cooperative Centre (ACC), at Kansas
State University. The Centre was established in 1984 as a partnership between the Kansas
State University and the Kansas Cooperative Council. Its purpose is to develop and deliver
research and education for the cooperative community. ACCC has a particular emphasis on
helping agricultural cooperatives to innovate and improve. Associate Professor Dr Brian
Briggeman reinforced that for cooperatives to succeed a slightly different mindset is
needed, with the focus on how the cooperative can maximise value for members.
While not specifically run by the USDA cooperatives program, the U.S. Farm Credit System
plays an important role in providing financial support to U.S. cooperatives. The Farm Credit
System was formed by the U.S. Congress in 1916 to provide sound and reliable credit to U.S.
agriculture and rural Americans. The Farm Credit Banks operate as cooperative structures
that are owned by their affiliated associations.
Recognising that investment capital is a major challenge in the formation of cooperatives
the Farm Credit System has a ”Guaranteed Loans Program” that exists to provide loan
guarantees for loans up to $40m USD for existing co-ops and loan guarantees to individual
farmers of up to $400,000 USD to enable them to buy equity in their cooperatives. Farm
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Credit is the leading lender to U.S. farmers, ranchers and agricultural cooperatives, with
more than $201 billion USD in loans outstanding as of December 31, 2013.
7.0 Conclusions
1. Family beef enterprises are at a crossroads – increasing costs, reduced market leverage,
greater scrutiny and global supply and demand dynamics are having immediate impacts
on the profitability of faming farmers. Despite these challenges there are real prospects
for growing market demand and tangible opportunities for those producers who can be
both efficient producers and innovators in the marketing of their cattle.
2. Market dynamics and consumer demand for beef is rapidly evolving; beef exporters
globally are manoeuvring to understand and meet this opportunity. Australia’s reliance
on exports magnifies the need to be agile and innovative in responding to these
changing demands both as a low cost producer but also with the capacity to understand
different consumer demands and create new value opportunities in niche and premium
markets.
3. Changing and diverse consumer needs is creating the opportunity for more specific,
differentiated beef products. To meet these demands greater supply chain coordination
is required which will challenge some of the traditional often disconnected producer,
processor and retailer relationships.
4. Beef producers can better meet the challenges of market consolidation by working more
cooperatively in order to achieve greater scale, production efficiency, consistency of
product and market leverage. The longevity of a small scale commodity producer is
increasingly diminished.
5. Consumers are increasingly interested in the providence of their food purchases,
producers own this ‘story’ and can use it as leverage in the marketing and development
of their products.
6. Scrutiny of beef production systems and practices will continue, and will influence the
use of ‘everyday’ production practices such as branding, castration and transportation.
This challenge should be used as an opportunity for greater technological innovation,
market differentiation and a merging of advocacy and understanding of community
interests.
7. The inefficiencies in small scale family beef production are to the benefit of the greater
beef supply chain. There is great opportunity for producers in working collectively to
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standardise production parameters and market cattle to better meet higher value
markets and leverage value added opportunities.
8. Governments globally are actively supporting the ‘family farmer’ as both a valuable
contributor to economic development and an essential contributor to food security,
rural development and environmental outcomes.
8.0 Recommendations
1. Beef producers need to assess their supply chain strategy and look at the opportunities
that can arise through greater collaboration with other producers to pool cattle
numbers and achieve efficiencies through larger economies of scale.
2. Producers and processors need to adopt new ways of working together collaboratively
and sharing data to enable faster improvements in carcase quality as well as driving
greater supply chain efficiencies.
3. The beef industry has a leadership role to play in promoting an ethos of cooperative
agriculture. Support could include facilitating supply chain networking opportunities,
advisory roles and helping to bring the supply chain together in new collaborative
ventures.
4. Beef producers need to standardise regional best practice including nutritional, genetic
and management parameters to achieve greater production efficiencies and remove the
inefficiency associated with inconsistently finished carcases.
5. Beef Producers need to ‘own’ and ‘advocate’ their production story, and drive greater
adoption of certification and assurance programs. This ownership will help producers
create new market opportunities and capture, and retain the price premiums that come
with better meeting consumer expectations.
6. Beef producers need to work more closely with consumers to understand as well as
identify new market opportunities particularly for value added and differentiated
products. Value added products with full traceability is one area of opportunity that
should be explored further.
7. Australian beef producers need additional risk management tools, futures contracts or
swaps, alternative marketing strategies and livestock insurance schemes should be
considered.
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8. Government has a role to play in supporting producers to work more collaboratively.
Additionally in the light of growing marketing consolidation in the beef industry
Government needs to be active in ensuring fair competition and market practices.
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Appendix 1. Canada and U.S quality beef grading system.
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