There was, during the trends panel at the USDA/Department of Justice Livestock Workshop in Fort Collins, little disagreement that consolidation has happened in the beef business. But what the panelists had to say about that, and what it might mean for young people looking to get into agriculture, varied widely. Here’s a sampling of thoughts:
- Clem Ward, Oklahoma State University professor emeritus in ag economics: “What’s happened in the packing industry isn’t unique in our economy. It’s pretty much happened throughout most of the manufacturing and other sectors of the economy.
“Through the ’80s, we had some very, very sharp market structure changes (in the beef business). We had a number of plants that weren’t profitable close their doors. Some of these were purchased by other packers. Some were closed for a time, then came back with different labor contracts. Some of them expanded. But the driving force at that time was struggling to become more efficient. Studies suggest there are significant economies of size in the packing business, so the larger you are, the lower your average costs are.
“As concentration increased and we began to close plants, it was usually in areas where there weren’t a lot of supplies nearby. If you’re situated in the heart of cattle feeding, the concerns you may have with price discovery and concentration are probably going to be less than if you’re in fringe production areas.”
- Bill Heffernan, University of Missouri professor emeritus in rural sociology: “Those big firms, they’re not immune to being pushed out; or thrown out, as the case may be. It’s sort of like they’re running on a treadmill and they’ve got to run faster and faster. And if they stumble somewhere along the line, they’re gone.”
In addition, Heffernan reminded the audience that concentration is occurring in the niche markets, as well. Meyer Natural Angus has over time purchased its major competitors and by the end of the month will have shifted all its processing to Cargill.
- Mark Lauritsen, international vice president and director of food processing, United Food and Commercial Workers Union: “Consolidation at the retail side I believe is forcing consolidation all throughout the supply chain in the food industry. Wal-Mart has more retail stores than the next five retail competitors combined. And it does more grocery sales than its next three competitors.”
- Libby Cook, co-founder, Wild Oats Markets and Sunflower Farmers Markets: “No industry is more competitive than the supermarket industry, where we’re looking at a 2-3% profit margin. Typically the margins in the meat part of our business are some of the lowest.
“Small business owners need to be creative, have aggressive marketing strategies. Creating a niche, being creative in looking for opportunities where you might not think there are opportunities, that’s the way to succeed.”
- Armando Valdez, organic and natural cow-calf producer, La Jara, CO; “Our experience, working with some of these retailers, especially some of the organic, natural retailers, it’s much more difficult if you’re a small producer. If you come with 200 head, they don’t even want to talk to you.
“Efficiency is only one part of the equation. If we’re focusing on efficiency, consolidation is taking economic power and putting it in one place, what am I left with? I’m not left with much economic freedom.”
As a young cattleman himself, Valdez had some sage advice to other young producers. “Be efficient because (you have) slim margins and any errors are going to quickly wipe those away. Get a good education, understand risk management. Also, you need to watch cash flows – where that money is coming and where it’s going out.”
- Jerry Bohn, Pratt Feeders general manager, Pratt, KS: “We’re all here today because we don’t think we get enough for our product. Nobody’s talked about how we can build demand so we can sell beef at a higher price. Let’s get Japan open 100%. Let’s get China open 100%. Let’s grow demand. All of you will benefit if you sell more beef at a higher price.”
Bohn said there are marketing arrangements available that benefit small producers. Using U.S. Premium Beef as an example, he said, “If you look at the top 10% of the premiums, the members who delivered less than 250 head of cattle per year got $79.74/head. The second highest group was those who delivered under 100 head a year. They got $79.57/head premium.”
- Gilles Stockton, cow-calf producer, Range, MT: “Grow demand, huh? We can’t raise enough beef to feed the people in this country. The reason we can’t raise enough to feed the people in this country is because the people who do the hard work out on the land, and the people who work in the slaughter plants, are not getting their fair share of the consumer dollar.
“I don’t need JBS or Tyson to tell me how to raise good cattle. I raise good cattle. I’ve retained ownership and they fed in the top 10% in the nation. And there’s nothing special about me. I’m not smarter than my neighbors. They know how to raise cattle better than I do. So we don’t need a top-down corporate board of directors telling us what to do.”
- Mark Greenwood, vice president, commercial lending, AgStar Financial Services, Mankato, MN: “We look at marketing agreements in order to get access to capital. I have to go in front of a credit committee and try to explain (the financing proposal for a producer). Part of the things they are going to ask me is what kind of marketing agreement do they have in place to mitigate some of that risk?
“In Minnesota and the Midwest, we do have young (hog) producers who are successful today. I think we’ve worked together in developing marketing plans. We do extensive training in risk management, futures and options. We might do forward contracts with packers. It’s using all the tools in the toolbox to make sure that producer has a chance to be profitable. I prefer the government not to decide (what those tools are). I trust my producers to make those decisions.”
Editor’s note: For short videos of attendee comments on the GIPSA issue, go to beefmagazine.com/beeftv/usda-0902/.