I recently was forwarded a blog by one of the industry’s experts on low-cost production methods who argued that his management principles are more important than genetics. I know many people who credit this person’s philosophies and management paradigm with transforming their operations.
While he made valid points in his blog entry, it made me laugh because it reminded me of a longtime debate I find fascinating. That is the debate between genetics and value-added production vs. commodity and low-cost production.
I find the debate amusing because I believe both camps are 90% right in their arguments, but end up being 90% wrong because of the basic fallacy they both accept. The fallacy is that these concepts are aligned against each other. While there are some antagonisms, in general, they are anything but mutually exclusive. Rather they are two components of the same equation.
A Closer Look: The Low Cost Vs. High Quality Debate
My background has given me an up-close and personal view of the ludicrousness of both positions. I first saw this debate up close in grad school when the economists and range guys had such a drastically different view than the animal breeders and meat guys. It simply worked better for the economists to treat cows or steers, or whatever was being analyzed, as interchangeable pieces.
And it certainly makes it easy to decide things like whether to buy or raise replacement heifers. Of course, anyone who has ever made that decision understands that can be comparing apples to oranges. It’s possible to see more than $300 in differences in both annual cow costs and in fed-steer profitability, but the values are not that high for most producers.
The difference in outlook exists within segments as well. It’s true even in the seedstock segment, where some producers focus almost entirely on output and quality, and others focus on reducing inputs and increasing efficiency.
Both philosophies have proven to be fatally flawed if taken to extremes. While the margin operators can succeed in contrast to fixed-cost producers by focusing on just one side of the equation, we still see the low-cost guys paying attention to quality and vice versa.
The commodity system used to let low-cost producers get away with producing a low-quality product. Meanwhile, the value-based marketing revolution allowed producers to get away with not being concerned with costs of production. Those days are gone.
It makes the experts happy and it certainly would be simple if we could just focus on managing our grass, marketing our cattle more effectively, managing our risk, using the right genetics, or making the right decision based on financial metrics, etc., but we can’t! In today’s hyper-competitive environment, managers must integrate all of these things.
The experts in all these areas understand the impact that their particular area can have, and they are right about the importance of what they are preaching. Yet, almost without exception, they also fail to understand the importance of the other areas and the tradeoffs that must be considered.
They are all evolving to focus on managing one’s resources, marketing one’s product, or building a breeding program from a more holistic and systematic approach, but it is a difficult transition. There are still those who embrace the segmented approach, believing that the marketing system will continue to not assign values properly for the product as it moves forward in the chain. It could be argued that they are right today, but those types of decisions hopefully will look terribly shortsighted in the future.