It can be argued, justifiably so, that as an industry we have no impact on the overall macroeconomics that are the biggest drivers of demand. Thus, our focus simply must be to build demand relative to the competing proteins.
While demand is the key to the future of our industry, our dilemma is that our structure weighs against us. We are an industry that loves independence. But the overwhelming majority of our industry has no desire to move toward the more integrated approach that would be more conducive to building beef demand and brand equity.
In addition, the segmented nature of our business is also problematic. Every segment of our business beyond the cow-calf segment is a margin business. Thus, the actual price doesn’t ultimately affect their profitability; rather it’s the difference between the buying and selling price that matters.
In fact, for most margin operators, throughput (capacity utilization or simply volume) becomes such a major factor that reduced prices are seen as good because they tend to equate to more volume. In other words, the segments most reliant on beef demand are those farthest removed from the actual consumer.
The mandatory beef checkoff has been a tremendous success story, and continues to do great things. But marketing experts will tell you that the program has been underfunded from the start. And, since then, inflation has continued to erode its buying power.
Nonetheless, we’ve made inroads on the nutrition front and had tremendous success in bringing new products and cuts to market. But the impact of the checkoff by its very nature is destined to decline.
While there has been talk for some time about potentially raising the checkoff assessment beyond $1, industry leaders have been hesitant to address the issue. And, while doubling or tripling the assessment would provide a great boost to the efforts of building demand, eventually it, too, would be swallowed up by inflationary pressures.
Referendums in and of themselves are highly expensive. Perhaps there’s a way to index the checkoff assessment to inflation, or to cattle prices. But that’s a conversation few want to enter into.
Then there’s the natural conflict that simmers just below the surface between the National Cattlemen’s Beef Association and the Cattlemen’s Beef Board. Both entities would see their effectiveness greatly reduced without the other’s presence, but when there are more good efforts than dollars, hard choices will always be part of the dynamic creating a healthy tension.
Individual producers face even tougher decisions. Beef demand may be the key to their profitability and sustainability, but cost containment and efficiency gains can be influenced at the individual level and they are tangible, so that’s where the emphasis is being placed. As a result, beef demand is something largely left to others and grossly underfunded. A large part of our future will be determined by how we reconcile these conflicts.