Slide 1

Improving Information Signals in Beef Supply Chain Ted Schroeder Professor of Agricultural Economics Kansas State University tcs@ksu.edu Canadian Cattlemens Association August 14, 2003 Moose Jaw, Saskatchewan http://www.agmanager.info/

Slide 2

U.S. Beef Demand Index (1980=100)

Slide 3

U.S. Chicken Demand Index (1991=100)

Slide 4

Markets at each stage coordinated chain, but worked poorly - highly varied product - little price-quality distinction - no incentives to improve - huge loss of market share Lack of Coordination

Slide 5

1. Safety Assured 2. Tender 3. Flavorful 4. Consistently High Quality 5. Convenient to Prepare 6. Healthy & Nutritious 7. Competitively Priced Consumers Demand

Slide 6

Slide 7

Wheres the Action? Beef industry will be segmented Divergent needs for each segment Key to success will be to determine role of producers in effectively and profitably meeting needs of the sectors

Slide 8

1. Fresh Branded Case-Ready Products Branded beef used to be nonexistent Now common USDA has 50 beef certification programs Original Alberta Beef

Slide 9

2. Meal Packages Single dish quick fix meal consumer expenditures expanded 83% in 2001 to $141 million AC Nielsen 472 beef products introduced in 2001 Compared to 70 in 1997 - NCBA

Slide 10

3. Food Service Food service continues to grow Diversity of product needs Quality control in volume are critical Contracts

Slide 11

What do they require? Product integrity quality, consistency High level of accountability of input supplier Product safety assurances mega responsibility/risk Production practice assurances (including location?) Traceability Consistent continuous supply

Slide 12

How will producers get the signal? What Wont Work: 1.Marketing fed cattle on average live or dressed weight basis for same price 2. Relying on visual sorting for quality differentiation 3. Buying cattle without knowing how they will perform.

Slide 13

How will producers get the signal? What can work: 1.Increase Vertical Alignment cow/calf - feedlot - processor - retail/food service 2. Objective information measured and accounted 3. Responsibilities & Rewards clearly identified System must be set up to: penalize nonperformance reward superior performance 4. Commitment to a common goal is essential

Slide 14

Consolidated Beef Producers Beef Alliances abound 60 or more in U.S.

Slide 15

Goal Attainment is three-step process 1.Significant goals are set based on priorities 2.A well-constructed plan is put into place 3.A just do it attitude is adopted Goal attainment is always a balance between a focus on long range goals and daily improvement Coach Bill Snyder Kansas State Football: -One 10-game win season in 100 years -Ended 1980s 1-36-1 -Snyders first year 1-10 -Last six years 61-15 -6 of last 8 years 10 or more wins

Slide 16

Schroeder et al. 2002 cattle feeder survey Kansas, Texas, Nebraska, Iowa Producers Changing Marketing

Slide 17

Source: Schroeder et al. 2002 Feedlot Survey Weighted-Average Percentage of Respondent Fed Cattle Marketing Using Live or Carcass Weight, Grids, and Other Pricing Methods, by Year 82.3% 52.5% 33.1% 15.6% 45.4% 62.1% 2.1% 4.9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 19962001Expect in 2006 Year Percentage of Cattle Live or Carcass Weight Grids Other Cash Market Disappearing

Slide 18

Ribeye Steak Prices in Kansas City April 1, 2000 Retail Steak Prices Source: Lusk

Slide 19

Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment?

Slide 20

Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment? 2.What form of business ownership, risk sharing, valuation, and financial arrangements are most likely to be successful in meeting the needs of the consumer? In other words, what is the most efficient way to provide the products demanded?

Slide 21

Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment? 2.What form of business ownership, risk sharing, valuation, and financial arrangements are most likely to be successful in meeting the needs of the consumer? In other words, what is the most efficient way to provide the products demanded? 3.How will incentives to add value, innovate, and invest in development and research be rewarded?

Slide 22

Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment? 2.What form of business ownership, risk sharing, valuation, and financial arrangements are most likely to be successful in meeting the needs of the consumer? In other words, what is the most efficient way to provide the products demanded? 3.How will incentives to add value, innovate, and invest in development and research be rewarded? 4.How will producers manage increased risks associated with greater accountability/liability?

Slide 23