As vice president of ConAgra Beef Co. Don Willms oversees the firm's cattle feeding and fed and feeder cattle procurement programs. Willms sat down recently with BEEF contributing editor Wes Ishmael to discuss what the ConAgra executive sees for his industry sector.
ConAgra Beef Co. includes five feedlots with a one-time capacity of 420,000 head and seven packing plants that harvested more than 6 million head last year, including cull cows. The firm is a subsidiary of ConAgra, contributing about one fourth of the total revenue to the company, approximately $7.5 billion in 2000.
Q. What are the major challenges facing beef packers and cattle feeders today?
A. As a packer, it is differentiating ourselves from the competition. Differentiating the quality of our products and trying to de-emphasize the commodity aspects of the business and instead emphasize the branded aspects of the business. Currently, ConAgra Beef Co. offers retailers and food service customers seven different brand lines, including those within the Armour brand, which ConAgra owns.
Labor continues to be a major challenge. Turnover continues to be a big problem, and it's always a challenge to maintain an adequate pool of qualified employees.
As a cattle feeder, the challenge is always the availability and economic availability of a pool of feeder cattle that fit our buying parameters, cattle that are available in a consistently adequate number, regardless of seasonality. As an example, there is a problem finding enough of certain breed types at certain times of the year.
Q. What has changed most in the packing and feeding industries over the past five years and how do you see it changing in the next five?
A. In both industries I think we are trying to connect the consumer with the cow/calf producer. The old adage of conception to consumer is taking on added significance. As an industry, we have given it lip service in the past and now it is finally a true reflection of what the industry is trying to address.
Certainly, one of the most significant changes we've seen is an upward shift in true beef demand for the first time since the early 1970s.
Really, maintaining and growing this increased demand goes hand-in-hand with our priority on differentiating our product through brands. The more ways we can do that and the more effectively we can do it, the more consumers we can bring back to the beef case.
The bottom line is economics and survivability. Either we do that or we don't survive. And, we've been forced to do that because of the new products offered by pork and poultry.
Alliances and grids start getting at this differentiation and increased product consistency, but I think a great deal of it has to do with realizing that supply chain management is a very significant development in today's industry. We've finally begun to realize that we should no longer continue to challenge one another but should work hand-in-hand toward a common goal.
We have finally figured out that we all need to work together to produce the right kind of product that cannot only save money in production practices but can also provide the product demanded by consumers.
Q. How do these changes impact feedlots and ultimately the commercial cow/calf producer.
A. With increased demand the consumer is willing to pay more for a given quantity of product. It allows us to make needed technological advances up and down the production chain. Declining demand meant that a consumer would only buy the same amount of product at a lower price, so it was really a matter of resources exiting the industry.
As efficiencies increase in the packing and feeding sectors, we'll be able to look for more innovative ways to take more costs out of the system and move production closer to the consumer.
Q. Do you plan to implement instrument-augmented grading?
A. Very likely. We already have a protocol set up to test instrument grading to see whether or not it can be installed and operational at current chain speeds and if it can be economically feasible. When the technology can offer as much speed and accuracy as our graders, we want to be there. It's realistic to assume that it will probably occur within the next few years.
Q. What is your philosophy on branded products versus commodity?
A. It all boils down to the consumer. Brands can make a consistent and consistently satisfied consumer out of an occasional, often dissatisfied one. It makes every one of us responsible for the standards represented by the brand and makes us accountable. After all, if we don't consistently deliver on the promise of a brand, it won't mean anything.
Q. Some producers have traditionally viewed the packer as an adversary. What do you wish every feedlot manager and cow/calf producer could understand about your packing business that you don't think they understand?
A. Many producers maintain there is a lack of competition in the packing industry. Actually, just the opposite is true. Producers need to recognize that the packing industry is fiercely competitive and the per-unit margins are extremely low.
It's very important for us to operate extremely efficiently if we are going to operate at a profitable margin. It takes high volume and high efficiency to capture what margins there are.
Q. Is increased retail consolidation a growing challenge to all segments of the beef industry, or is it a benefit?
A. As retailers consolidate, servicing each customer on a day-in and day-out basis certainly becomes more important. We think it could be a benefit if it takes costs out of the system.
It should reduce the margin between the live animal and retail price and should give producers and processors an opportunity to increase their share of the pie. And, it will probably give us an opportunity to work with retailers in developing branded products.
Q. What about market access. Will cow/calf producers be limited on marketing opportunities in the future if they aren't part of a system aiming for consumers with branded products?
A. Producers need to be aware of the changes taking place in the industry that require customization. In the future we will see greater premiums paid for producing the right kind of product and larger discounts for producing the wrong kind.