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The beef industry must work together to devise a way to grow the pie and fairly share it, or risk losing market share to competitive proteins.
- See more discussion on industry alliances in our August 2012 issue of BEEF.
“Poultry margins are worse than they’ve ever been, and consumers aren’t responding particularly well to its comparatively lower price,” Byers says. But poultry returns are still about twice that of beef.
Consequently, Williams believes there has never been more incentive for cow-calf producers to expand their herds.
Sure, JBS wants more cattle coming through its doors. But Williams’ point is that consumer demand is strong domestically and internationally – the market is there.
That’s one reason JBS has been working more closely with cow-calf producers and feedlots. JBS assembled a group of leading players from each sector to discuss how JBS can work with each to mutual benefit. For the past year, JBS has shared carcass data with suppliers for free; there used to be a nominal charge.
Beef will remain consumers’ premium protein choice as long as the product can deliver tenderness and flavor on a consistent basis, Byers says. Meeting that need is one reason that beef brands and their tighter product specifications continue to grow.
“All cattle are not created equal, all boxed beef is not created equal,” Rupp says. “If you’re marketing on the average, you’re going to get the average in return. The end of any industry alliance or alignment has to stand for something. If the end only stands for a commodity product, then you can’t hope to get any more out of it.”
That’s one reason Rupp isn’t a fan of current promotion and advertising conducted with beef checkoff dollars. He thinks the message promotes beef on the average, which runs counter to the above-average eating experience that consumers expect with higher prices.
“There’s a variety of ways for producers to differentiate their product,” Byers says. “The key is to be consistent.” Incidentally, he says natural and organic beef sales industry-wide are about 3% of all beef sales currently, and could comprise 10% within the next decade.
Byers adds that much of the growth in that area stems as much from the eating experience associated with carcass specifications of natural and organic particular brands as meeting those brands’ natural and organic requirements.
“I think of value-added as putting the right product, in the right-sized portion, in the right packaging, at the right time, in front of the right customer who perceives the added value and is willing to pay for it,” Rupp says. “Every year we all go to these industry meetings and procrastinate. We have to grow the pie if each of us wants more. If we want to grow the pie, we have to make some changes.”
Packer costs skyrocket
Harvesting an animal and converting it into boxed beef has doubled in the last 20 years, more than $150/head today. And freight costs have doubled in the last two years. “We (industry) often think of freight as a pass-through cost, but it’s a significant cost,” Rupp says. It makes beef less price-competitive.
JBS is exploring ways to keep cattle production and beef processing closer to one another and to large population centers. For instance, it’s considering building a ground beef plant near its Tolleson, AZ, processing facility. Besides freight savings, Byers says it would allow customers to receive product more quickly, thereby reducing customer inventory needs.
Likewise, JBS has been chatting with producers near its Souderton, PA, facility about how to keep more cattle there for feeding and processing.
“Why can’t we sit down at the table, understand the costs deployed and make the supply chain more efficient?” Rupp wonders. “We don’t have all the answers, but, as a company, we’re certainly willing to be part of the dialogue.”