Certified Angus Beef has done more than stamp the industry with value-added reality. It has created its own market category.
When Phil Knight and his buddies started making running shoes, then selling them from the trunk of a car at track meets, they were trying to fill a void in the commodity tennis shoe business. They created shoes they as competitive runners would want to wear themselves.
As the new shoes picked up demand, retailers started offering them because of their reliability. Soon enough, Knight's brand - Nike - became its own market category, the benchmark to which other manufacturers aspired.
Like it or not, the Certified Angus Beef (CAB) Program is doing the same thing for the cattle business.
"The exciting thing is the potential for beef if you market the right kind of product," explains Larry Corah, CAB assistant executive director. "If you market what the consumer wants, there is no question in my mind that beef can be king."
Indeed, since a single vote by the American Angus Association (AAA) board of directors saved the CAB Program from the scrap pile soon after it began in 1978, CAB has grown into a branded beef juggernaut. Last year, 493.1 million lb. - 1.9 million head of cattle - were marketed as CAB product through 4,000 licensed restaurants and 4,000 licensed retailers in 46 countries. Keep in mind, rocketing CAB growth occurred at exactly the same time the beef industry overall was losing demand at the rate of 1% every year.
Corah says approximately 6.5-7.0% of all fed cattle in the U.S. currently end up wearing the CAB trademark. What's more, those cattle are adding dollars to the total beef system.
As an example, coming out of the feedlot, Corah says premiums for Prime grading cattle run $6-10/cwt. in most grids today, on top of the Choice/Select spread. Meanwhile, carcasses qualifying for CAB receive $3-5/cwt. on top of Choice premiums.
Moreover, Steve Suther, CAB director of industry information, points out CAB carcass premiums are beginning to trickle down to cow-calf producers. For instance, in an ongoing study including 10 auction markets across the nation that sell more than 1 million head annually, Suther says Angus- influenced calves (500 lb.) brought an average of $2-3/cwt. premium more than other similar weight calves last fall. He points out producers offering their calves with proven health and prior feedlot and carcass data can receive substantially more.
Given genetic variation within breed and the fact that so many breeds have taken to painting themselves black, Suther has this to say: "I don't know that anyone deserves more just for having Angus-sired calves that they know nothing about... If a person is sure his calves are worth more, then he needs to take some responsibility in proving that."
Milking Value From Information Ron Kramer, customer service representative for Irsik and Doll Co., Cimarron, KS, understands the value of proof.
"In the traditional way of doing business, cattle lose their identity. A guy can make all the promises he wants, but to make those claims, he has to develop a trusting relationship both ways... We're trying to build that bridge, fill that gap by going directly to the producer as much as we can so he can make changes to his genetics if he needs to," says Kramer.
Kramer explains the value of carcass data is one reason Irsik and Doll decided to become a licensed CAB feeding operation in 1998. All told, Irsik and Doll's five Kansas feedyards comprise a one-time capacity of 170,000 head.
"The only way we think we can keep our yards full is by offering customers a service they can't get somewhere else. We think that's something CAB offers us," says Kramer. "The CAB program doesn't guarantee a premium, but it does guarantee carcass data."
With that in mind, Suther says everything from consumer demand for source verification to growing price spreads between commodity and specification products is adding incentive for producers to define their production.
"It's folly to think the numbers in the cattle cycle are on our side right now, so why worry about it," explains Suther. "One thing that should drive producers to these alliances and to these licensed feedlots is so they can find out what they are producing so they don't get left behind in this information revolution when the cycle turns."
Building A New Mousetrap Really, understanding CAB is to appreciate the vision of its founders. After all, CAB is not an alliance that owns or controls product. It's more of a conduit of industry connectivity that has spawned a number of formal industry alliances by virtue of a fairly straight-forward set of carcass specifications that have withstood the test of time and consumer preference.
"The trademark is what we own and license. We try to really drive this product through the whole chain," explains Corah.
* Until the mid-1990s, CAB grew supply primarily by licensing more packers to utilize its trademark. Currently, more than 80% of all packers are licensed CAB suppliers.
* Moreover, feeding, harvesting or selling CAB beef isn't as simple as signing a piece of paper. Since the beginning, licensed packers, feedlots, restaurants and retailers have had to undergo extensive product training and agree to specific rules of the game. More than one licensee found out how serious CAB was about quality control when their licenses were revoked.
* These days, CAB has really become its own quality grade. If you doubt that, look at about any grid out there that pays for quality: Prime, CAB, Choice.
In a nutshell, cattle that qualify visually by breed type and color must grade in the upper two-thirds of USDA Choice - and meet seven other carcass specifications - to be eligible for CAB's stamp on the rail. Although some in the industry decry marbling as a poor indicator of palatability, Corah points out research indicates consumer acceptance decreases as marbling declines (Table 1). Bottom line, CAB identified early on a quality barometer that consistently serves their customers and Angus cattle.
Currently, about 19% of all the cattle that qualify for CAB visually meet carcass certification standards. Corah says the goal is to increase acceptance rates to 30%, while increasing the percentage of the total fed cattle supply qualifying for CAB to 25-30%.
If that sounds like pie in the sky, according to AAA surveys, 54% of all commercial producers report that Angus or Angus crossbreds are the central genetic components of their cow herds. AAA is shooting to push that percentage to 80% by 2007.
But, Suther points out, "It's not as easy as just getting more product. We have to show producers how to produce the product we need at a profit to them." That's one reason CAB started licensing feedyards in 1998.
"Feedlot licensing is where we will start and end in the production sector," says Corah. He explains targeting feedlots allows them to focus on the segment of the industry where most cattle end up before harvest. Besides, feedlots represent the primary opportunity to influence the management that impacts CAB acceptance. So far, about 50 feeding operations that collectively market 1 million head each year are licensed by CAB.
With supply and quality control in mind, AAA used CAB funds for a DNA research project at the Ohio State University (OSU) four years ago. Recently, they announced this research has served up an accurate measure of tenderness and marbling; OSU has applied for the patent and will license the technology exclusively to AAA.
Basically, the process works like this. A blood sample is pulled at any time in an animal's life. The test indicates how tough or how tender that animal's is and how much marbling it has. The potential is staggering.
Francis Fluharty, the OSU research scientist who worked with OSU molecular biologist Daral Jackwood to discover the process, says, "Coming into the feedlot, I can see where this test has immediate applications."
He explains cattle could be tested upon receiving, then sorted into outcome groups. They could then be fed and managed to their genetic potential rather than an average where some are underfed and some are overfed.
Before the feedlot, the test would also allow cow-calf producers to document the genetic ability of their cattle for marketing. For that matter, testing the calves should offer a genetic snapshot of carcass tenderness and marbling that isn't clouded by subsequent management. Plans call for making the test available for field study within a year.
"Whether or not it's this test, another one, or combined technology, I'm hanging my hat on total information and the speed at which we're receiving it," says Fluharty. "From an overall perspective, we have so many good people in so many different areas working on this that we're no longer in the realm of thinking the commodity cattle business won't change. We're within two or three years of potentially dramatic change."
No matter how the industry changes or how fast, Corah says, "The upside potential for beef is incredible, but it's not going to be business as usual... Independent of CAB, I think that's the real challenge for the beef industry.
"We talk about lots of things relative to the production of beef, but ultimately we are in the food business," Corah says. "We need to look at each production factor relative to how it impacts the consumer."