Ever since the industry took the first step toward a more value-based marketing system and away from commodity marketing, there has been discomfort among a subset of producers. This is not surprising—whenever the rules of the game change, you have new winners and new losers, and those who had the old rules figured out are naturally going to be against change.
It is probably impossible to underestimate the state of change in our industry. Take the big four packers, for example, three of which are under totally new ownership. Grids, alliances, forward contracting and all of the other alternative marketing arrangements have changed the shape of our business—some have benefitted, some have not. It could probably be argued that an industry without significant change in the way it looks at its business is going to be stagnant.
We need to be careful about being naïve enough to believe that competition is the issue. Recent studies indicate that the overall price of cattle is higher, not lower, because of these alternative marketing practices. Also, these are not debates about whether or not the industry needs to make improvement or has problems. Both sides would unanimously agree on these points.
Unfortunately, our current industry debates are being waged on false premises. Power and specific political agendas are the aim, and the debate over our marketing structure is simply a means to move those agendas. Nobody would argue that profitability levels aren’t acceptable, nobody would argue that industry consolidation, concentration, and contraction are positives.
However, just as the data are convincing on the alternative marketing arrangements and their effect on the market, the data are similarly convincing in describing our industry’s number one problem. This problem is such an overriding factor that it dwarfs all others in comparison. This problem is where the industry needs to be focused and where our efforts should be concentrated if we are serious about having a healthy, sustainable and profitable industry for the next generation.
That issue is beef demand. We have not seen the industry’s cowherd contract and the number of producer’s decline because of grids, branded programs, strategic alliances, or captive supplies. It has been a precipitous drop in beef demand.
Yes, we saw a small uptick in demand that fueled growth in the late 1990s. However, keep in mind that we never got back to the demand levels we enjoyed in the early 1990s, let alone the 80s or 70s. Demand growth got sidetracked by BSE and the loss of export markets, and then ethanol came along which dictated that our industry must become significantly smaller to be sustainable. So we have been mired in one of the longest periods of liquidation that we have seen, and there appears to be no end in sight.
To blame our profitability problems on the mechanisms that allow for risk management, for differentiated price based on value, and specification production for niche markets, is taking the industry’s focus off of where it needs to be—and that is building demand. If we are serious about having a healthy industry for our children, we will quit these games, stop focusing on side issues and focus on that which is truly important.
I do not know how to heal the industry divide, build back the trust that has broken, or stop the distortion of facts. Yet, I do know one thing with certainty—if we set out to recapture even half of the demand we have lost, we will have done something far more significant not only for our bottom lines but those of our children, then we will ever do focusing on these other issues.