“We can’t be a commodity competing with the vertically aligned systems in the pork and poultry industries,” says James Herring, president and CEO of Friona Industries LP, based at Amarillo, TX. “It’s not sustainable, and the sooner we understand that as an industry, the better off we’ll be.”
That’s why Herring believes the alliance concept must grow in the beef industry.
For a definition of beef industry alliances, think in terms of two or more beef industry sectors working together in order to provide consumers with more value. Implicit in this definition is the notion that folks participating in these alliances must derive more benefit than cost; otherwise, they wouldn’t participate.
Alliances take flight
The alliance concept took flight in the beef industry with the Strategic Alliances Field Study in 1993. It was undertaken to determine how much of the estimated $280/head of fed cattle — identified in the 1991 National Quality Beef Audit — could be recovered if industry segments worked together more closely. The savings revealed by the study were significant, including $43.50/head by doing things that improved beef quality, consistency and competitiveness, as well $31/head saved in feeding costs.
Since then, a bevy of players and pretenders have operated beneath a variety of alliance banners. They’ve come, gone, morphed, succeeded, failed, and become so enmeshed within the business fabric of the industry that they’re often taken for granted, if recognized at all.
Of the public, carcass-based programs in this year’s BEEF alliance listings, the 11 sharing volume accounted for about 3.4 million total head in 2012. The average premiums ranged from $20 to $175/head. The cost of participation ranged from free to a one-time membership fee of $3,000, plus an annual marketing fee.
Cattle feeding is the fulcrum
Friona has worked at developing and participating in alliances for the last 15 years. As one of the nation’s largest cattle feeding organizations, Herring explains, “We thought the value of our company was being a facilitator.” Today, he says, “We have a relationship with Cargill in a vertically aligned production system, with products channeled into a number of different brands based on tenderness.”
Although brands aren’t an alliance prerequisite, they do seem inherent in the ability of alliances to grow and retrieve added value.
Arguably, this focus on the end product satisfying specific consumer need represents the primary evolution in alliances over time. In the beginning, alliances had more of a push-through feel to them, borrowing from the industry’s past. By and large, the predominant alliance mantra seemed to be, “If we get enough of the same kind of cattle together to produce enough of the same kind of carcasses, they should be more valuable. So we should be able to command a higher price.”
For the most successful alliances, the opposite seems to be the guiding principle: “What do consumers want and what are they willing to pay for? If we can provide that to them consistently, then we have a chance to make them happier and find ways to benefit ourselves.”
A common characteristic of the most successful at employing strategic alliances seems to be a slavish devotion to delivering what they said they would. That is both born and begotten by a commitment to fostering and shepherding the kind of trusting relationship that can withstand the inevitable surprises that accompany a business founded on live cattle and the weather.
To the former, Herring explains, “A brand is a promise to consumers. A brand is only a brand if it delivers on the promise to consumers every time.”
In other words, products carrying meaningful brands must be as consistent as the sunrise. That means everything going into creating the product must be as reliable.
“Genetics, procurement, the delivery mechanism, management, everything must be consistent and deliver on that promise to the consumer,” Herring emphasizes.
Friona depends on 80 preferred suppliers and backgrounders it developed in six national regions. “We’ve grown a cottage industry of people who we trust and who trust us, people we have created big business with,” Herring says.
By developing and working with these preferred suppliers, Herring explains, “That allows us to dictate production and management further down the chain. That translates into more production efficiency and a clearer understanding of quality.”
Herring explains the production efficiencies are manifold: everything from reduced procurement costs to reduced morbidity and mortality in the feedyard.
At its core, the alliance means a dependable supply chain for customers and a dependable market for suppliers.
Trust underpins success
Along with adding value and efficiency, John Butler, CEO of Beef Marketing Group (BMG), explains that successful alliance relationships become something of a self-fulfilling prophecy. The more partners work together, the more they discover other opportunities by which they can benefit.
“We work continually to better understand what has value to our partners, and what we can do to contribute to that,” Butler says. He adds, “There continues to be opportunities for producers beyond their own segment that can provide benefit.”
BMG is a cattle feeding and marketing cooperative, with members in Kansas and Nebraska.
“For us, alignment is about relationships rather than vertical integration. That takes a lot of trust,” Butler says. “In the partnership we’ve developed with Tyson, we provide them consistent cattle on a consistent basis, and we receive a competitive price ... We’re also working with Tylson to develop unique relationships with their customers.”
Both Friona and BMG help customers develop and sustain competitive product differentiation. At the same time, they verify the management that goes into growing and feeding the cattle that become the differentiated product.
“With verification, we’re bringing them something that has more value,” Butler says. “It’s not just us saying it, we’re verifying it.”
Especially with the high cost of beef compared to alternative consumer proteins, Herring says, “We have to validate the value proposition for the consumer.”
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“I think alliances are a prerequisite for our industry to be sustainable. Other proteins aren’t sitting on their hands,” Butler says.
Thinking about the sometimes bumpy and relatively short history of beef cattle alliances, Butler adds, “There have been a number of alliance attempts that have been frustrating. As an industry, we must remain steadfast in our commitment to building a better mousetrap, if that’s what it takes.”
Herring adds, “I think the alliance concept has to grow. It’s the future of the cattle business in this country, if there is going to be one.”
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