I had an hour-long discussion this week with someone who sees the world in black and white on virtually every subject, and he doesn’t let facts that refute his stance get in his way. The conversation began over beef demand and per-capita consumption, which economists will tell you are two vastly different metrics.
Building demand has to be the industry’s focus. By building demand for our product we can also increase per-capita consumption. We can also increase per-capita consumption by increasing production. The main issue is at what price that extra production moves.
I have heard two minority views expressed regarding demand. Some are content with a shrinking industry if it means increased profits. Others are open to increased production and/or lower prices in order to grow the industry, even if that equates to decreased profitability. Most people, however, take a third view, which is that we need a growing industry and growing profits.
But what is more profitable – having 100 cows that make $10,000, or 200 cows that make $10,000? Margins change but profits are consistent; is that a good thing or a bad thing?
It depends somewhat on your perspective. Is a decline in domestic per-capita consumption a bad thing if it occurs because we export more beef and the domestic population is growing, which results in higher margins? Conversely, is increasing per-capita consumption a good thing, if it’s accompanied by declining margins and profitability?
The industry’s problems, challenges and opportunities are complex; they contain a whole host of variables, and they don’t fit into nice tight boxes. Some things are so simple that black and white answers exist, but in today’s world that is rarely the case.
The individual I was talking with this week seems to view every issue in black and white. For example, he believes that one size of cow is the most profitable, and that the majority of producers, academics, etc., are ignoring economic realities. In reality, the data tell a much different story – moderate cows work best in most instances. However, in some production environments, big cows are the best; in other production environments, little cows rule.
Of course, profitability rankings of cows vary depending upon the costs of inputs, and prices received for calves, cull cows, etc. If you sell your calf at six months of age, you might find one optimum; if you sell those calves as backgrounders, feds, or take them all the way to the retail case, and the economic models show that animals (ideals) dramatically re-rank.
As an industry, we know that the silo approach to economics, where we only consider our own economics and pay no attention to the segments above or below us, doesn’t work. I think the number-one reason we have failed to keep up competitively with pork and poultry is that they’ve been much better at improving efficiency of production and quality of the product from a total systems approach.
Meanwhile, our industry has tended to measure those metrics within each segment. We maximize these metrics within segments, which often results in decreasing values for the other segments in the production chain.
Wouldn’t it be great if we could merely decrease production costs and buy back lost market share, or produce a certain size of cow to fix all our problems? Unfortunately, we’ve moved beyond the simplistic; there are no simple black-and-white answers to these questions. The answers require lots of information and knowledge, and usually involve finding a balance of competing interests in an ever-changing environment. What is right for today may not be right for tomorrow. The model in a pre-ethanol world is not the model for a post-ethanol world.
Building demand goes beyond continuing to increase exports, growing branded and value-added differentiated products, and stopping the decline in commodity beef demand. It means putting together a marketing structure, a business model, and industry infrastructure that will facilitate those things.
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Perhaps more importantly, it means changing our silo mentality and segment paradigms, and increasing our knowledge of the thousands of factors that drive profitability from conception to consumption. We then need to create the decision models that will allow us to make the right decisions and adapt to an ever-changing environment.
It’s a multi-faceted program that will allow us to deal with attacks from groups like The Humane Society of the United States, focus on meeting the needs of baby boomers in retirement, and improve beef consumption among our youth. Broad efforts at beef demand are good, but the market is becoming so segmented that broad campaigns may have lost their effectiveness. Or perhaps we just don’t have the resources to carry out broad-based efforts anymore.
We live in a world today where the answers lie in the gray, not in the black and white. While the challenges are great, the opportunities are just as vast, but we won’t capitalize on them with black-and-white edicts. Today’s issues simply aren’t that simple anymore.
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