Look around the beef industry and it's evident that beef demand isn't running rampant. If it were, the industry would be exploding trying to provide enough beef to satisfy consumers, and prices for everything from feeders, fed cattle and retail product would be out of sight.

But that's not happening. The size of the U.S. cowherd is shrinking, it's more difficult to enter the cow business, the Choice-Select spread has flip-flopped, and feedlots and packers are bleeding red. The good news is it's not as bad as it could be.

“In the long run, growth, or lack thereof, in aggregate beef demand determines how big this industry will be,” says Jim Mintert, assistant director of Purdue University's Extension Service and former Kansas State University livestock economist.

Up until the mid-1970s, when there were 132 million head of cattle and calves in the U.S., the beef industry grew in response to growth in aggregate beef demand, Mintert explains. Since that time, the industry has contracted sharply and today's all cattle and calves inventory is about 28% smaller than in 1975.

So, for three decades, domestic beef demand has been on the decline. “In response, the industry has shrunk in size to hold down the pounds of beef provided to consumers in order to sell products at profitable prices,” Mintert says.

Technology played a role, too, in that producers are more productive than 30 years ago. Still, when the beef industry is compared to the pork and poultry sectors in terms of pounds provided to consumers, poultry has nearly quadrupled, and pork almost doubled, whereas total beef production stagnated.

Recession's impact on beef

Consumer incomes and expenditures are important beef demand drivers, and the fact that consumer incomes and expenditures increased sharply from 1982 to 2007 supported beef demand. But that situation has changed with the onset of the recession in 2008. Mintert explains, “The macroeconomics situation has deteriorated and, as a result, consumer incomes are dropping and savings rates are increasing.

“As an industry, we can only respond to the macroeconomic environment,” Mintert says. “But it's important to remember that the downturn in both the U.S. and world economy is not going to last forever.”

Instead, Mintert says the beef industry needs to focus resources in the areas of health, nutrition, convenience and quality to improve beef demand. “These are the long-run demand factors that the beef industry can focus on and in 2010 or 2011, when consumer expenditures rebound, help ensure the industry is positioned for recovery.”

Don't erode quality

“Consumers are economizing, seeking ways to trade down. In the case of beef, they're going to lower-priced cuts and lower-priced proteins — poultry and pork,” says John “Jack” Allen, Michigan State University professor emeritus. He commends the National Cattlemen's Beef Association's value cuts initiative.

Also needed, however, is a program of product improvement, especially of the expensive middle-meat cuts. Here the beef industry should avoid the temptation to lessen the quality of steaks and middle meats by leaving fat, bone and connective tissue on the cuts in order to achieve an attractive lower price point. “When we come out of this recession, it's important that beef emerges with all the desirable attributes it has going into it, and then some,” Allen says.

Ultimately, the consumer is going to make a value judgment on the quality of the product. “It's important that we maintain and improve upon the favored eating experience,” Allen says.

He prefers the beef industry move more rapidly to centralized processing as a means to accomplish these recommendations. This entails relocating cutting and packaging from individual stores and putting it in the hands of processors, marketers and major retailers to fabricate a more consistent product more efficiently.

“There's an opportunity for greater adherence to standards as well as to spur the development of added-value products,” Allen says.

Allen says Walmart is now committed to central processing, which may spur more industry adoption. Other retailers are experiencing success, as well. Pork and poultry are both more advanced in central processing.

“Beef has always been king of the cuts — people love beef,” Allen says. “But we can't take that as an assurance they'll continue to build demand for it. We've got to make beef keep pace with other competing foods.”

Impeccable food safety

Graeme Goodsir, a meat industry consultant and North American British livestock and meat representative, credits the beef checkoff for improving beef demand. Still, he believes tenderness and food safety are two obstacles beef must overcome to improve demand.

Next Page: Food safety issues have also hindered demand