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The Cost of Meeting Consumer Demand(s)

www.iowabeefcenter.org. The Cost of Meeting Consumer Demand(s). John Lawrence Extension Livestock Economist and Director, Iowa Beef Center Iowa State University. Increased demand. Increased demand for beef Grown steadily since 1998 Consumers pay more for same amount

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The Cost of Meeting Consumer Demand(s)

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  1. www.iowabeefcenter.org The Cost of Meeting Consumer Demand(s) John Lawrence Extension Livestock Economist and Director, Iowa Beef Center Iowa State University

  2. Increased demand • Increased demand for beef • Grown steadily since 1998 • Consumers pay more for same amount • Quality, convenience, carbs • Increased demand on beef • Moving from “trust me” to “prove it”

  3. Commodity to Product • Commodity world • All beef is beef • Minimum standard to qualify • Low cost producer of the minimum wins • Minimum standard is rising as are costs • Age verification, feed ban signatures, COOL • Grades define various minimums not products

  4. Commodity to Product • Product world • Some beef is different • Differentiated on attributes and brands • Consumers pay more for different • Attributes • Processes • Brands

  5. Certified programs • USDA lists 42 certified beef programs • 25 Angus programs • 3 Hereford programs with breed claim • 4 were process verified or require more than visual inspection • Red Angus feeder cattle • PM Beef • 2 Nolan Ryan branded beef

  6. Differentiated products • Detectable attributes • Marbling • Guaranteed tender • Grass-finished • Credence attributes • Content: nutrients, fatty acids • Process: natural, free-range, non-GMO

  7. Standardized Betas for Regression Variables by Choice-Select Spread Standardized Coefficients (%) Ch-Sel Std Dev Spread Net Ret FE HCW FC REA KPH MAR 4.00 50.36 -38.749.3-9.322.42.043.3 8.00 52.61-35.644.4-8.219.71.854.7 12.00 58.00-31.838.5-7.215.31.861.7 16.00 65.77-26.331.1-5.312.91.165.1

  8. Cow Cost vs. Feedlot Return

  9. Willingness to pay • Lusk, guaranteed tender steak • No label: 51% pay $1.23 premium • Label: 61% $1.84 premium • Feuz and Umberger, grass v grain fed • On average $1.61 more for grain-fed • 23% paid $1.36 premium for grass fed • Loureiro and Umberger, US Certified • Premium for US Certified over no label

  10. Verify label claims • USDA wants definition of terms • Protecting consumers from fraud • Branded product needs to assure compliance with stated claims • Reputation and liability • Cost of enforcement on top of cost to produce special attributes

  11. Meat Standards Australia • MSA Guaranteed Tender • Animal: Age, grain-fed, % Bos Indicus • Slaughter plant: Electrical shock, grading, aging • Retailer: Sale date, cooking • Enforcement and traceback if needed

  12. Retail sector changes • More powerful and demanding retailers • 10 firms with 49% market share • Walmart + Sam’s 17% • House brands and exclusive suppliers • Liability issues • Outsource inspection and compliance

  13. Retail sector changes • European influence • 2 of top 11 US grocers are European • 4 of top 10 world grocers are European • Chain Capitan model • Retailer is in consumer protector role • US consumers still trust USDA for safety • Others are not a trusting of gov’t

  14. European lessons • Chain Capitan model is costly • Safety is competitive issue • Must be audited to sell • Multiple audits • Multiple issues beyond safety • Feed use • Animal rights • Worker safety

  15. Animal welfare • McDonalds plant verification • FMI and NCCR guidelines • SWAP certification • TQA certification

  16. Growing demands • Widening Choice-Select spread • Consolidating retail sector • Brands with claims and liabilities • Consumers looking for choice • Rising commodity standards

  17. Victim or Opportunist • Most under manager’s control • Some changes require production response (genetics, nutrition) • Some changes require management response

  18. Quality management systems • A producer directed management system to assure that the producer • Capable of meeting the requirements • Document that requirements are met • Information to evaluate production and marketing opportunities when they arise.

  19. Quality management systems • Various models available ranging in complexity, cost, and flexibility • 3rd party verification to have value • Examples include • ISO 9000:2000 • USDA Process Verified • ISO 14001

  20. Quality management systems • Cost associated with developing management system, audits, and certification • Benefits include • Market flexibility • Better management • Lower costs

  21. Cost of not meeting demands • Commodity market will continue • The minimum will continue to rise • Missed opportunities if you are not eligible for value added markets • May lose to pork or poultry, and some beef producers will lose to other beef producers

  22. www.iowabeefcenter.org Thank You Are there any questions?

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