Say what you will about demands from beef-export customers that U.S. beef be age-verified. At least one domestic packer has harvested more age- and source-verified cattle in the past six months than ever before simply due to growing domestic demand for natural beef.

“Natural is the umbrella process verification for us,” says Steve Williams, Swift and Company director of procurement. He explains demand for other verifications, such as age and source, fall beneath this umbrella. In fact, Swift's natural beef comes from cattle source- and age-verified to be 30 months of age or younger.

Understand natural beef is a niche market representing only about 1% of all fed-beef sales, Williams says. But Swift's vice president of marketing, Del Holzer, explains natural-beef sales across the industry have jumped the past six months as major packers adopted natural programs. Prior to that, a handful of smaller companies, such as industry pioneer Coleman Natural Beef, paved the way.

“Natural products have revitalized other categories such as produce and pasta,” Holzer says. Along the way, natural-food stores have taken a larger, albeit relatively meager, percentage of sales from mainstream retailers. With natural beef and other natural products, he says mainstream retailers hope to attract current shoppers of natural-food stores.

So, “natural” is an example of increasing product differentiation and branding, which is one impetus behind process verification. However, Swift representatives emphasize consumers — particularly younger consumers — are more interested than ever in knowing where the products they eat originated and what happened to them along the way, branded or not.

“Younger consumers are perhaps a bit less trusting of government verification programs,” Holzer says.

Dallied a wrap tighter, Dave Weaber, Swift director of market analysis, explains part of branding has to do with consumer desire for private verification programs, in addition to those USDA provides.

Verifications' value

Of course, what most producers want to know is how much process verification is worth.

“We're paying premiums for source- and age-verification, and seeing more ranchers than ever wanting more information,” Williams says.

In the case of natural, premiums are necessary to entice producers who typically have fewer pounds to sell in the absence of implants. The premium presumably also reflects losses in market efficiency when a few head get sorted off a producer's natural load at marketing time, or prior to that if cattle must be doctored with antibiotics. Such natural programs as Swift's disallow use of antibiotics and growth promotants.

But these premiums can fluctuate based on supply and demand.

When it comes to age- and source-verification specifically, rumors are rampant about who paid how much for one or the other. In broad terms, most reports were that age-verification was worth about $25/head when it looked like Japan was going to open. Depending on their needs, mega-buyers like McDonald's may need to pay a significant premium for source-verification, or nothing at all if source-verification is a by-product of a program selling cattle to them.

In every case, Weaber emphasizes, “Premiums for process verifications such as source and age are driven by supply and demand.”

On the supply side, the season impacts supplies of everything from the percentage of Choice-grade cattle to dark cutters to average carcass tenderness. Never mind the overall supply determined by macroeconomics, such as the stage of the cattle cycle, imports and exports and all the rest.

Demand, however, is even less predictable due to consumers' fickle nature and how risk-averse packer customers are, Holzer adds.

“Ask consumers if they want to eat healthier and lose weight, and they'll all say they do. Then, they'll go load up on a bunch of junk food…” he says. “It's no different from the late 1980s and early '90s with all the talk of lower fat and lower sodium products. Consumers said they wanted to eat better, but those products didn't move that well or that long.”

Consequently Holzer says retailers and food-service operators are usually more eager for the packer to assume the risk of committing to a program beyond the commodity mix of carcasses than they are themselves.

“We may find a customer with an interest in something out of the ordinary, but we need to work with them as a partner to procure their needs well in advance. We end up assuming a great deal of risk,” Holzer says. In the case of Swift's natural program, that means contracting supply 3-6 months ahead of when the customer needs it.

For perspective, much of the risk of any branded program revolves around constancy of supply and product utility.

First, supply has to be available every day of the year; no mean feat when most U.S. calves are born in the spring. Every added point of differentiation reduces the supply and makes maintaining a constant supply that much more challenging.

After that, it's one thing to sell the middle meats of a natural carcass that comes with higher production cost. But what percentage of the rest of the carcass can you market at a higher price point? Even then, Weaber points out, “We fight the battle, too, of helping our customers remain competitive from a pricing standpoint.”

Like it or not, all these are reasons why it's not easy or economically practical for a packer to pay steady premiums for one process verification or another, or to pay them at all.

Besides which, agree or not, Weaber believes it's up to each industry segment to figure out how to get paid for added value served up by common technologies. Take animal ID as an example.

A producer who individually IDs cattle spends money for the needed components. It's up to that producer to collect the production data tied to cattle identity for use in managing and marketing that animal in order to defray or exceed the costs incurred.

Likewise, packers have invested heavily to track cattle coming in by whatever ID technologies they come with — electronic ear tags, bar codes, retinal images, visual tags, etc. It's up to them to figure out how to use the data tied to those cattle to defray or exceed their costs.

More pointedly, Weaber says the packer doesn't expect the producer to share the added value producers can retrieve with carcass data tied to identity. Likewise, he doesn't understand why producers expect to be paid more for source or age tied to the identity if it's the packer who figured out how to retrieve more value from the information.

Bottom line, Weaber believes, “We're in a transition phase in the industry where incentives that exist for these verifications (source and age) will likely be expectations in the future.”

Incidentally, Williams says the lack of a standardized national cattle ID program is not a hindrance to process verification. Sure, life would be easier if every head at harvest was ID'd with the same technology, but Williams says tracking beef isn't as tough as some producers believe.

“This process really isn't that difficult. We make it simple,” Williams says.

Specifically, Swift suppliers provide the company with a signed affidavit verifying age, source and what have you. That means feedlots delivering the cattle are getting affidavits for pre-weaning verifications from stockers and producers.

Cooperative demand growth

“We're starting to partner up and down the value chain,” says Sean McHugh, Swift vice president of investor relations, public relations and communications. “We're working with our customers to better understand current and future trends and leverage partnerships. At the end of the day, we're all better off if we sell more beef.”

Spun differently, Holzer explains, “We work cooperatively with our customers trying to assess market strategies and directions rather than just trying to guess where the market will be.”

So, if Weaber's prediction that age and source incentives today may evaporate into standard expectations tomorrow, it's not just Swift talking, it's their customer — retailer and food service — talking.

That also means producers should probably listen when Holzer says, “Producers need to be aware that the packing industry will look more closely at tenderness in the near future.” That's just one of the added process verifications producers may see.

“Producers need to establish a dialog with us,” Williams says, explaining how cow-calf producers can best position themselves to exploit market opportunities. Though he says the volume of calls Swift receives from this segment is growing, he's surprised more don't try to learn about programs available for their cattle.

In the meantime, Shawn Claborn, Swift manager of premium program pricing, points out, “At the end of the day, we're all on the same team. We have to promote beef. The more of that we can all do, the better off down the road we all will be.”