Time Is Running Out On Beef Demand

Time Is Running Out On Beef Demand

I love the beef checkoff. Perhaps more accurately, I believe in the importance of building beef demand, and I think the programs that have been carried out by the contractors with our checkoff dollars have been tremendous.

Most people understand the good work the checkoff has done and is doing. Certainly, it has had its share of problems, but that’s to be expected with any government program; politics will creep in. But the overwhelming support for the checkoff program as expressed by regular producer surveys attests to the fact that producers understand the importance of building demand.

In fact, I contend there’s nothing more important to this industry than building demand, as it will ultimately determine how big of an industry we have. Yet the experts, even those of commodity groups, acknowledge a few truths:

  • First and foremost, the checkoff is underfunded. Not only is the actual dollar amount declining with shrinking cattle numbers and transactions, but inflation has reduced the buying power of every dollar to half of what it was when the checkoff was created.
     
  • Secondly, when the checkoff was created, a lot of issues affecting current demand weren’t even on our radar screen. The checkoff does a great job, but it’s restricted from doing a lot of things that are necessary to build beef demand. As a result, while the checkoff has been successful given its limitations, it has not been nearly as successful as other checkoff programs.

A look at other industries

The dairy industry is a great example. It was faced with per-capita consumption declining at a rate rivaling the decline in the beef industry. But the dairy industry not only reversed the trend but – like the poultry industry – is now seeing per-capita consumption increase every year almost like clockwork.

The dairy industry contributes nearly 10% of the total dollars amassed by the beef checkoff, but the average dairy cow in production contributes $35 to the dairy checkoff! I will allow that a dairy cow can produce $5,000 of milk compared to a $1,600 fed animal, but even considering that difference in value, the beef industry should be paying almost $7/cow to be commensurate with the dairy industry’s checkoff collections.

The latest price estimates and production totals tell the story. Beef production remains historically tight and is expected to decline in 2014. Meanwhile, both pork and poultry production are expected to grow by 3% and 4.5%, respectively. Those two proteins continue to export more and more of their production, while USDA projects beef exports to remain stagnant.

The numbers continue to tell a depressing story relative to the beef industry’s efforts to grow market share and demand. Perhaps most alarming is that we’ve become so conditioned to losing market share to our competitors (other protein sources and global beef suppliers), that we tend to celebrate that the rate of decline is not as fast as it once was. 

Admittedly, the last decade had four events that fundamentally and negatively changed the size and scope of our industry.

  • It began with the BSE case in late December 2003 which shut down our export markets. We’re just now getting to the point where we can begin once again to try and build export demand.
  • The BSE case was followed by a drought cycle that helped accelerate industry consolidation.
  • There was the massive subsidization of ethanol, which changed the structure of our industry and precipitated a dramatic contraction of our industry.
  • Finally, there was the inter-industry squabbling that led to the industry taking its eye off the prize of building beef demand, improving product quality and production efficiency. Instead, we focused our limited resources on counterproductive agendas like mandatory country of origin labeling, a GIPSA overhaul, etc. In essence, we shifted our focus from the ultra-important tasks of building demand, and improving product quality, and production efficiency. We need to get back to focusing on our challenges and opportunities.

The pork industry’s latest checkoff-funded advertising indicates just how vulnerable the swine industry believes we are. Few people recognize pork cuts, but beef cut names have both high recognition levels and a high consumer association with quality. Pork, however, will now market ribeyes, porterhouses, and the like, with the message that their cuts are cheaper, better, and even healthier than beef. In essence, the pork industry is utilizing the same tactic as its other hugely successful campaign – “The other white meat.”

It’s no secret that beef’s competitive position with pork and poultry has been deteriorating on a price basis; pork’s campaign is a full-out assault to try and wrest market share. The problem is that the U.S. beef industry is strictly in a defensive position, and losing ground.

It’s time for the industry to mobilize

Our industry needs to finds ways to supplement the efforts of the beef checkoff and overcome the program’s inherent weaknesses. These include insufficient funding, narrowly prescribed methods to build demand, and a governing structure that has caused it to become a political football instead of allowing it to concentrate on its intended purpose.

We must tackle the beef demand issue with the same aggressive plan and posture of the U.S. commitment to put the first man on the moon. We’re in a war, folks, and we’re losing battle after battle. We still have the advantage of having the best-tasting product, the capability to convert low-quality forage into a high-quality protein, and consumers who largely enjoy our product. We still have time to stop the decline, but the time to act is now. 

It doesn’t appear that changing the current checkoff is a viable option. The focus is on keeping the current checkoff operating as it has been, while developing other funding and governance structures that will allow the industry to attack the demand equation with the effort that is being demanded. It’s imperative, however, that the industry move back into an offensive mode, rather than playing defense. 

 

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