Has vertical cooperation gone horizontal?

When folks began considering vertical cooperation in the beef industry more than two decades ago, it was as much about learning what had value to suppliers and customers as it was about creating new categories or products for the consumer.

The industry’s first National Beef Quality Audit (NBQA) uncovered about $280 of lost opportunity per head of fed cattle due to carcass defects and inferior performance. This was in 1991, when fed steers averaged about $74 per cwt versus the expected $159 to $165 (USDA World Agricultural Supply and Demand Estimates report) this year. The subsequent Strategic Alliance Field Study demonstrated that losses identified in the NBQA could be reduced significantly with increased inter-sector cooperation.

The veritable explosion of formal strategic alliances that followed —like those in BEEF’s value-based marketing listing — represent attempts by various sectors to work more closely together in order to understand more about what has value, what creates discounts and how to cleave inefficiencies from the system.

When successful, this cooperation yields a more reliable product to consumers, more dollars for alliance partners to share and information to achieve more consistency the next time around.

A glance in history’s rearview mirror suggests the success of vertical cooperation has so far been more uneven than a corner post set in mud.

Some promising formal alliances are hamstrung by a lack of understanding or commitment from one partner or the other. Some barely limp from the starting gate, burdened by unrealistic expectations. Sometimes, it’s simply timing and the vagaries of history that waylay an otherwise game-changing opportunity. When successful, though, the win-win opportunities demonstrated by some alliances are amazing.

In the broadest of cooperative definitions, consider Certified Angus Beef (CAB). It carved out an entirely new category of market value to the point that some now pay as much attention to the price spread between Premium Choice and Choice as they do to the gap dividing Choice and Select.

For my money, U.S. Premium Beef (USPB) is the most successful mainstream, specific industry alliance. Founded in 1996 and owned by producers, USPB harnessed the power of CAB and further bridged the gap between consumers and producers in terms of information, genetics, management and retrieving extra value. 

Last year, all USPB cattle marketed at National Beef’s Kansas plants earned more than $48 per head in premiums over the cash market. This is at a time when prices are at historic highs.

More recently, consider the partnership between Wulf Cattle at Morris, Minn., and neighboring Riverview Dairy LLP. Begun as a trial in 2010, their Breeding to Feeding program aims to help dairy producers add value to their bull calves using Limousin and Lim-Flex semen as a terminal cross. Dairy producers market the calves back for feeding and marketing on a negotiated grid.

Neither of these programs promises producers a profit. No system can. Both assure producers more options and additional opportunity.

Both of these examples also underscore the power of horizontal cooperation. While it’s true that cattle aggregators such as feedlots and packers often serve as alliance hubs, it’s too easy to forget that the horizontal cooperation borne by producers banding together serves as the essential driver.

In the examples offered here, enough producers perceived enough added opportunity to join forces to create enough volume of a specific product to satisfy consumer demands in such a way that they had the chance to make more money.

Such cooperation also provides consumers with more options and reliability. Though still lower than in 1990, domestic demand stabilized and began edging upward, as further beef differentiation and beef branding enabled by such cooperation took hold.

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