Much noise is being made throughout the industry today about various issues: packer concentration, price discovery, captive supply, etc. Whether real or perceived, all these issues would essentially evaporate if the industry could lick its demand problem.
Economist Bill Helming reports on page 69 of this issue that domestic consumer demand and market share for beef continues to decline and currently resides at an 18-year low. At the same time, the inflation-adjusted retail price of beef has fallen dramatically during that same period.
As Helming points out: Any time you have a product that consumers are buying less of, despite the fact that it's cheaper, it's obvious you have a serious demand problem.
An industry that can't provide a consumer-friendly product with a reasonable guarantee of eating quality is one poised for failure in today's consumer-oriented marketplace. Look in the mirror and say "hello" to that industry.
The solution lies in the cooperation of all segments of the beef industry - seedstock to retailer, Helming says. He points out three steps the industry must take to reverse today's demand trend.
* Go to a true value-based beef production and market pricing system involving both significant price premiums and discounts that reflect consumer eating satisfaction of beef.
* Privatize the beef quality grading system to force packers, processors and others to put their name on beef through branded products.
* Implement a beef quality value and price discovery system based on the carcass cutout value of each fed animal slaughtered. And, ensure all parties have access to that cutout data within seven days of slaughter.
Quality Can Raise The Boat "I'm only getting 65 cents/lb., and T-bones are running $6/lb. in the supermarket. Someone's robbing me," some folks might contend.
Using 1995 figures, Lawrence Duewer, senior ag economist with USDA's Economic Research Service, explains the $5.35 gap this way:
A 1,150-lb. steer sold for 65 cents brings the producer $747.50 for the animal. The packer dresses it out to a 724-lb. carcass, worth $1.03/lb. Cutting and packaging that carcass for the retail meatcase (removing bone and fat, plus some moisture and meat loss) leaves 478.4 lbs. of salable meat worth $1.35/lb. This doesn't include the by-product and hide value, which runs 21 cents/lb.
Add in labor costs of 22 cents for slaughter and boxing, 4 cents for transportation and 13 cents for warehousing and store delivery. Then, there's another $1.07 for packaging materials, advertising, refrigeration, firm overhead and cutting and merchandising.
Profit, if any, for each of the firms engaged in converting that steer into retail beef cuts increases the value to $2.84/lb. of salable meat, Duewer points out.
While the T-bone indeed might retail for $6/lb., only 18.4 lbs. of the 478.4 lbs. of salable meat is T-bone steak, Duewer explains. The other 460 lbs. are mostly lower-priced cuts: chuck steaks and roasts, ground beef, shanks, short ribs and stew meat. Calculate a weighted average of the T-bone steak at $6/lb., ground beef at $1.37/lb., the other cuts at their average prices and you get an average value of $2.84/lb.
Focus On The Consumer This is where the industry's lack of consumer orientation hits home - not enough products, not enough convenience, not enough quality. It all adds up to loss of market share and overall declining demand for beef.
The industry must employ practices that ensure a consistent, tender and flavorful product, Helming says. This requires sending the right economic signals for cow-calf operators, cattle feeders and beef packers - value-based pricing and branded beef. But, in addition, the industry must develop consumer-friendly products that will build demand for lower-quality cuts and raise the whole beef boat.
The industry is seemingly beset with many divisive issues, but they're basically background noise. The challenge is demand, and meeting it isn't a "maybe" situation. It's do or die.