When the notion of branded beef finally gained lasting traction in the beef industry at least a decade ago, it was easier to supply differentiated beef products than it was to convince skeptical retailers they should care about them.

In fact, Bill Mies, director of supply chain management for eMerge Interactive, explains, “When the first programs started, you could cooler-sort carcasses and come up with the candidates to fit a branded program. It wasn't difficult to match cattle to brands.” The total beef supply was that deep and demand for branded volume was that thin.

Today, some industry estimates peg total branded beef production at 25% of all fed cattle and expect it to command half of all production within a few years. With that growth as an impetus, both retailers and producers are scrambling to source or develop vertically coordinated systems capable of consistently supplying the specification beef retailers believe can differentiate them from the competition.

For perspective, the nation's big-four beef packers are fully engaged in providing customers with at least one brand choice. Tyson-owned IBP is churning out the Thomas E. Wilson Brand. Excel offers Cattlemen's Collection. Swift (formerly ConAgra Beef) is a brand name in itself, and National caters Farmland branded beef.

Furthermore, the nation's largest retailers are already teaming up with packers to provide them with specific brands on an exclusive basis.

“Retailers working with brands in one or two of their divisions are anxious to expand into other divisions,” says Mies.

As a rule of thumb, supplying beef to a single store within a division requires about 1,000 head each year, he says.

“When you start getting retailers liking branded programs, the numbers required for them to expand to all of their stores gets pretty astronomical pretty fast,” he says.

So as the total supply pie is carved up into more and smaller slices to guarantee consumers a specific branded product year-round, more attention is being paid to supply chains rather than the open market.

“These systems have been driven by both ends,” says Steve Hunt, CEO of U.S. Premium Beef (USPB), a self-contained, member-owned supply chain that owns an interest in National Beef and marketed about 700,000 head through its system last year. “Producers want to be rewarded for their efforts in management and genetics, and consumers say they want more of a specific product they are willing to pay more for.”

What's A Supply Chain?

Mies says each retailer wants to differentiate its brand. “He wants to be known for high-quality, big cuts, little cuts, whatever he believes will make his product more attractive to customers than the product at the retailer across the street. Whatever he's going to use as his draw, a supply system will have to source him the cattle that fit those characteristics,” he says.

In simple terms, Mies says a supply chain is any system that manages the logistics demanded by the product you're providing. It could be as simple as a cooperative of order buyers providing feedlots a guaranteed volume of cattle that fit certain specifications. Or, it could be as complex as a fully integrated system providing individual identification and source, gene and process verification for every cut of beef sold under a particular brand name.

For that matter, Mies points out the recently legislated mandatory country-of-origin labeling that's supposed to be in place in 2004 represents a supply chain in itself. “That will accelerate this whole process,” says Mies. “Beef products labeled for country of origin represent a brand, and that will require supply chain management.”

John Butler is CEO of Rancher's Renaissance, one of three suppliers to the Cattlemen's Collection brand. He says besides guaranteeing a consistent supply, a supply chain — what he calls a value chain — enables producers and customers to capture efficiencies across the production spectrum whatever the specific system. In the case of Cattlemen's Collection, as an example, the product encompasses 24 quality-control points from pasture to the retail meatcase. Whether or not individual components overlap between production segments, Butler explains coordination of the supply is what makes such comprehensive consumer assurances possible.

Without a system in place, these kinds of consumer assurances would either not be possible or would come at extra cost through duplication by each supply segment.

Moreover, with a brand, Butler says, “Our members are no longer selling a commodity product, we're selling a product with a promise.” Consequently, there's no room for failure, either in the consistency of supply or in the promised attributes of the product within that supply.

Opportunities And Challenges

Whether born out of alliances, cooperatives of alliances or systems built from the ground up, the challenges and opportunities of providing retailers with a consistent supply of branded beef are universal.

“The one characteristic retailers are unanimous about when it comes to delivering branded-beef products into their systems is volume,” says Mies. “If your truck doesn't back up and unload the proper amount of beef that day, you're gone.”

Unfortunately, maintaining volume in a branded system is more complex than matching cattle to the promised volume. Mies explains, “Dealing with specials becomes the huge issue in supply chain management. That's really the big speed bump.”

For instance, a supply chain may have the total tonnage it needs to meet a customer's needs. But the day that store decides to run a special on briskets, ribs or whatever, tonnage makes little difference; it's tonnage of specific cuts.

Each step of the way, Hunt explains supply chains are really a microcosm of the total industry. Having product year-round means having calves lined up to go into feedyards or out to grass, then coming out of the feedyard and going to the plant — all just in time to supply customers with the branded fresh beef products that were promised.

Adding volatility to the challenge comes with the fact that none of these supply chains are the only game in town. Few, if any, demand that cow-calf producers or feedlots sign a binding legal document to ensure the supply.

“One of the biggest challenges is the market itself,” says Butler. “It sends signals to producers that may not be relative to what we're doing.”

In other words, rather than staying committed to a branded program's economic model and pricing system geared to offer more net return over the long haul, a producer can be tempted by spikes in the commodity market to bail out of a supply chain and back into the commodity market for a short-term gain. After all, the opportunity to make more than average is the crux of what led enough cattle producers to make alliances and supply chains possible in the first place.

“Clearly, I think the industry over the last five to six years has evolved toward some sort of value-based pricing whereby the producer has approached buyers and requested a pricing system that would provide a premium based on carcass performance,” says Hunt.

What's more, depending on the system, these premium opportunities are also derived closer to the consumer.

“We refer to ours as a designed supply system,” says Hunt. “We identify what the consumer is willing to pay a premium for, then we provide a pricing system to attract those kinds of cattle.”

USPB is unique in that not only does it offer a premium-based pricing system, but as a closed cooperative — you own a share for every head you market annually — members also receive an annual dividend. Last year, the average grid premium paid was $18.59/head, but the annual dividend added another $25.87/head.

Besides providing specific production targets, “one of the major values in these kinds of systems is that value is determined in the center of the consumer's plate as opposed to looking at the value of feeder cattle or fed cattle. That's a major shift,” Butler says.

As such, both Hunt and Butler say market transparency and producer communication are critical to making supply chains work.

As an example, Mies points out the laws of competition shift in a supply chain environment. Rather than a seller setting the goal of finding as many different bidders as he can, Mies explains the driving factor becomes finding the buyers who need your particular cattle the most.

“That will not be atypical when you get several supply chain management systems and brands competing for the cattle,” says Mies. “Competition goes from raw numbers to competition for the highest best use of a set of cattle.”

Think about that. Since a supply chain has promised to deliver a certain amount of product, they have no choice but to deliver. Since the branded products they promise to deliver are defined by non-commodity specifications, they have fewer options when it comes to finding cattle that fit. Mies says that in the future there's a very real possibility producers can receive money based on whether or not their cattle — fitting other required specifications — happen to be born at the time of year when the fewest cattle are available.

“As we move forward, I think we will see more interest in these integrated and aligned systems,” says Hunt.

Neither Hunt, Butler nor Mies believes producers will have to swear allegiance to a particular system, but they do believe playing in supply chains will require producers to understand the needs of each system. More importantly, it will require producers to know what their cattle are capable of providing, relative to those needs.

“Study the different systems. Each of us has different customers with different consumers demanding different products. We're always looking for the right kind of cattle. We never have all that we need,” says Hunt.

Middle Ground

Value-based marketing alliances appear to be becoming more alike than different.

By Wes Ishmael
Contributing Editor

More alliances are marketing more cattle for similar premiums, but reported requirements are loosening, and more are reaching back to the cow-calf producer to source the cattle their customers want.

Taking a read on the evolution of beef alliances is akin to charting the stars with a rubber band and thumbtack. Distance, dynamics and proprietary information mean you can't ever be sure about what you're seeing, yet the process can confirm previous conjecture and uncover new ideas.

There is nothing scientific about the alliance information presented in these annual BEEF Alliance Yellow Pages. The various programs participate if they want and provide the information they choose. Considering the information compared to the past, however, does serve up some observation and speculation worth tracking.

Based on the information reported by 34 consumer-based alliances this year compared to that reported by 36 organizations last year, here's what we're seeing: (BEEF's observations are in italics):

  • A total of 4.7 million head of cattle were marketed through alliances in 2001, a 20% jump over 2000. This number includes 2 million head reported by Certified Angus Beef.

    That's certainly in keeping with the increased volume of cattle trading away from the spot cash markets, as well as the growth of branded beef products.

  • Twice as many alliances (10) marketed 100,000 head or more.

    As major retailers begin establishing partnerships with supply chains, volume becomes its own reward.

  • A total of 38% of the alliances participating in this year's BEEF Alliance Yellow Pages report offering some sort of post-harvest premium to cow-calf producers who raise the cattle that ring the performance bell. This is regardless of whether or not those same producers retain ownership in their cattle through the feedlot.

    A couple of years ago, only a couple of programs offered economic incentives ahead of the feedlot. The growing use of this tool underscores how much added value the right kind of cattle in the right situation bring to the equation.

  • The premiums cited this year represent a dramatic widening in the range of value. The top premium cited this year is $270/head, compared to $60/head last year. Take a couple of these stratospheric premiums out of the mix, however, and the premiums are virtually the same, ranging from about $10/head to $60/head.

    On the extreme end, it makes sense that cattle that must fit a tighter window should be worth more. A similar range across years might underscore the fact that there's a point at which cattle aren't worth any more, no matter what you do to them.

  • A total of 44% of the alliances this year cite a minimum number of cattle as a requirement, compared to 53% last year.

    Rather than moving away from the efficiencies of moving loads of cattle, this might indicate more pooling and commingling of calves so that operations of all sizes have more opportunity to participate.

  • Of this year's programs, 56% cite some type of management or identification requirement, compared to 65% last year. Of those, 37% require that cattle be managed to meet natural beef specifications.

    While the numbers are similar, possibly some requirements once deemed as an added-value luxury, such as health management, are becoming a standard of admission.

  • A total of 82% report offering pricing grids — either yield-based, quality-based or both — compared to 94% last year.

    Certainly, there seem to be more systems transcending pricing models based in the commodity market and moving closer to the consumer; typically working more closely with the packer and retailer to determine value.

  • Choice Yield Grade 3 is cited by 63% of the programs as the par point in their pricing system, compared to 56% last year.

    True to the past, this continues to be the middle ground of value for the majority.

Alliance Web Address

Contact

Year estab.

Cattle in
alliance
in 2001

Average
premium
paid/head

Cost

Minimum
head

Grids
geared to
QG, YG or both
(see key)

Par point
on grid

Consumer-Based Programs

Angus America
www.angusamerica.com

Mark Nelson
402/462-2057
mark@angusamerica.com

1996

120,000

$13/hd

$1-6/hd

35

QG

Choice YG3

Angus Gene Net
www.genenetbeef.com

Ken Conway
785/628-3004
genenet@ruraltel.net

1998

100,000

$19.64/hd

$3/hd

20

both

Choice YG3

B3R Country Meats
www.b3r.com

James Henderson
940/937-3668
b3r@childress.tx.com

1986

30,000

$60/hd

none

40

both

Choice YG2

Beef Advantage Project
www.beefadvantage.com

James E. Herring
806/374-1811

1996

confidential

confidential

none

one load

both

confidential

Brangus Gene Net
www.genetbeef.com

Ken Conway
785/628-3004
genenet@ruraltel.net

1999

100,000

$19.64/hd

$3/hd

20

both

Choice YG3

Caprock Industries

Sharing Total Added Value

Ben Brophy
806/371-3711
ben-brophy@cargill.com

2000

40,000

$23/hd

none

120 hd, one sex

both

Choice YG3

Certified Angus Beef LLC
www.cabfeedlots.com

Steve Suther
785/889-4162
ssuther@certifiedangusbeef.com

1978

2 million

Ch/Se + $3/cwt.

none

1

both

vary with packer

Certified Hereford Beef
www.herefordbeef.org

Rob Ames
816/842-3757
rames@hereford.org

1995

93,821

N/A

none

1

both

YG 3 or less
Select or better

Charolais Gene Net
www.genenetbeef.com

Ken Conway
785/628-3004
genenet@ruraltel.com

2002

100,000

$19.64/hd

$3/hd

20

both

base-Choice YG3

Coleman Natural Products Inc.
www.colemannatural.com

Jim or Scott Coakley
303/297-9393
jim@colemannatural.com
scott@colemannatural.com

1979

60,000+

N/A

none

1

QG

Choice YG2 & 3

ConAgra Better Beef LLC
www.conagra.com

Al Perez
970/506-7798
aperez@conagrabeef.com

1995

250,000

N/A

no cost group data
$1-3 individual data

load lots

both

Choice YG3

Country Natural Beef
www.countrynaturalbeef.com

Doc & Connie Hatfield
541/576-2455
marketing@countrynaturalbeef.com

1986

33,000

cost of production/return on investment

member of co-op

NA

both

high Select, low Choice YG1 & 2

Decatur Beef Alliance
www.krvn.com/decaturfeedyard

Warren Weibert
785/475-2212
warren@decaturfeedyard.com

1994

40,000

Confidential

$12/hd

load lot of same sex

both

N/A

Farmland Supreme Beef
www.agribeef.com

Dusty Turner/John Parker
620/624-6296

1995

40,000

$18.01/hd

$2.50-4/hd

one load or 70 hd

both

Select YG3

Five-State Beef Initiative
www.5statebeef.org

Ron Lemenager
765/494-4817
rpl@purdue.edu

1998

8,000

N/A

None

1

both

N/A

Future Beef Operations LLC

Ronnie Green
303/209-1866
rgreen@futurebeef.com

1998

420,000

N/A

none

one load of either sex

both

depends on which grid; Angus grid/muscle grid

Gelbvieh Alliance
www.gelbvieh.org

Dennis Fennewald
303/465-2333

1995

44,000

$9.69/hd

$1/hd

1

both

regional averages

Glacier Beef Inc.
www.glacierbeef.com

Bill Nice
815/772-4386
aimnub@essexl.com

1999

14,000

$20/hd

$10/hd

500 - all steers

both

Select YG3

Iowa Quality Beef
Supply Network

Phil Core
515/296-2266
phil@isabbe.com

1999

125,000

$23/hd

up to $5/hd

30

Both

Choice YG3A

Lean Limousin Beef Co.

Carlton Noyes
308/234-9787

1988

6,000-7,000

$3/cwt.

none

1

YG

N/A

Maverick Ranch
Natural Lite Beef

www.maverickranch.com

Bob Rolston
303/294-0146
bobrolston@maverickranch.com

1985

35,000

N/A

none

load lots

both

Select YG1

Nebraska Corn-Fed Beef
www.necornfedbeef.com

Jo McElwain
402/475-2333
jo@necornfedbeef.com

1997

25,000

$12/hd

$4/hd

1

both

Choice YG3

Nolan Ryan's Tender
Aged Beef

www.nolanryanbeef.com

Charlie Bradbury
936/436-1622
cbradbury@nolanryanbeef.com

2000

60,000

N/A

none

1

N/A

N/A

Painted Hills Natural Beef
www.paintedhillsnatural-beef.com

Glenda or Mehrten Homer
541/763-2333
glenda@natural-beef.com

1996

6,000

N/A

none

1

QG

Choice YG3

Performance Plus-Retained Ownership

Don Cain Jr.
888/269-8387
performance@alltel.net

1993

confidential

$29.49/hd

$7.50/hd

1

both

N/A

Performance Plus-Sale Barn

Don Cain Jr.
888/269-8387
performance@alltel.net

1993

confidential

$22.33/hd

$8/hd

1

both

N/A

Power Genetics
www.powergenetics.com

Jason Anderson or Mark Tracy
308/493-5604

1993

confidential

confidential

none

35

both

confidential

Premium Quality Foods Inc./Red Oak Farms Premium
Hereford Beef

www.pqfinc.com

Pete Hudgins or Steve Berendes
712/623-9224
steveb@pqfinc.com

1996

41,000

N/A

none

1

QG

Select YG3

Ranchers Renaissance

John Butler
303/662-1945

1997

100,000+

confidential

confidential

confidential

confidential

confidential

Red Angus Feeder Calf Certification Program
www.redangus.org

Ann Holsinger or Blake Angell
940/387-3502
ann@redangus.org
blake@redangus.org

1995

96,000

depends on location

$1.25/hd

1

QG

Choice YG3

U.S. Premium Beef Ltd.
www.uspremiumbeef.com

Tracy Thomas
866/877-2525
tlthomas@uspb.com

1996

700,000

over $25/hd average, top 251 = $45/HD

membership and share access

20

both

50% Choice YG3

Western Beef Alliance Inc.

Terry O'Neill
406/373-6016
tomahawk@mcn.net

1994

2,200

$58/hd

$0-7/hd

40

both

YG2.8 and Choice - Select +

WRB All Natural Premium Beef

Carolyn Carey
530/233-2334
Carolyn@hdo.net

1998

N/A

$130/hd

$3/hd

1

both

Choice YG3

Western Grasslands Beef

Carolyn Carey
530/233-2334
Carolyn@hdo.net

2002

N/A

$270/hd

$3/hd

1

N/A

N/A

Calf-Based Programs

Agri-Beef
www.crinet.com

Jon Janssen
715/526-7551
jjanssen@crinet.com

2000

6,000+

$4.50/cwt. over market

none

none

CAB/Both

N/A

Land O' Lakes/Farmland Beef Connection

Doug Stanton
620/276-0992
dstan@landolakes.com

1999

15,000/hd
2001-2002

work with several grids

$3/hd

20

N/A

N/A

MFA Health Track Beef Alliance
www.mfahealthtrack.com

Mike John
573/876-5573
mjohn@mfa-inc.com

1998

41,000

$27

none for members

1

N/A

N/A

Montana Beef Network
www.mtbeef.org/beefnetwork

Adrienna Hines
406/442-3420
adrienna@mtbeef.org

1999

8,000

N/A

$2/hd

1

N/A

N/A

Piedmont Cattle Producers Association
www.pcmabeef.com

Phil Slay
334/864-0407
slayfarm@mindspring.com

1994

2,100

8¢ over market

$1.25/hd

20

N/A

N/A

KEY:
Grids geared to QG = quality grade, YG = yield grade, Both = quality and yield grade
Practices Required: S = source verification, W = weaning, P = preconditioning, N = natural (i.e., typically prohibit the use of antibiotics and growth hormones)