How in the world can we compete? That's what American cattle ranchers ask as they face the reality of producing cattle and beef in a global marketplace. And, it's the question BEEF magazine put to Gary Smith, the world-renowned researcher, professor and award-winning meat scientist who holds Colorado State University's (CSU) Monfort Endowed Chair in Meat Science.
Smith grew up on a crop and livestock farm in southwestern Oklahoma. His research interests include carcass evaluation and grading; composition, quality and red meat palatability; red meat safety; and packaging and retailing of red meat. He spearheaded research, first at Texas A&M University, and later at CSU, into carcass evaluation and grading; composition, quality and palatability; and safety, packaging and retailing of red meat.
Smith has worked in 63 countries on projects related to food merchandizing, especially the quality and safety of beef, pork and lamb. Most recently he was actively involved on the U.S./Japan BSE Technical Trade Team, which developed the Beef Export Verification program that will be used to get U.S. beef back into the Japanese market. He was also on the 14-member U.S./Japan BSE working group.
BEEF: First of all, how do you view today's beef industry structure?
Smith: Every segment of our industry is getting smaller in terms of the people involved, and there's more concentration. The supermarket chains, and an age of just-in-time inventory control, are driving concentration in the packing industry. That means when a steak crosses the cash register today, the retailer wants another right now to replace it.
Don't blame the packers for consolidation — they're simply responding to customers' demands. If you're in the retail food business, you want to find the best and most reliable suppliers and hold them responsible for safety, consistency and quality. In doing so, you want to develop relationships and have as few suppliers as possible.
BEEF: How does this structure impact our presence in global markets, and what does it mean for small- and medium-scale, cow-calf producers?
Smith: There are some viable options for adding value to your cattle. If you're going to sell calves at weaning, the first thing I always ask is: “Can you do a better job of management — particularly genetics, nutrition and health?”
Ranchers can also go beyond the island mentality and develop an affiliation through a partnership, specific production program or cooperative venture. All can provide opportunities to capture part of the 81% markup that occurs from the time a calf is sold at weaning to when the beef is sold to the end user. Not everyone can do it, but many can.
Beyond getting into an alliance organized by the meat packers, you can actually get into your own business — like Doc and Connie Hatfield in Oregon when they grew unhappy about the price they were getting for calves. Oregon Country Beef now involves dozens of families who harvest and market the beef from hundreds of cattle weekly.
There are other examples of “story beef” programs. These are operations that found a way to not only sell a product, but market a lifestyle that provides value-promises important enough to some consumers that they'll pay more in order to feel good about what they're buying. Many of these involve natural or organic beef, for which there's increasing market growth. Another opportunity is in guaranteed-tender beef.
But remember, you have to average out the years when you'll make more money, and when other sectors within the industry will make less, and vice versa. Bottom line, if you don't like meat packers or think they're making all the money, you can always, to one extent or another, buy into a packing plant and become part of their profit stream.
BEEF: But, outside of buying a packing plant, what can we do at home to compete in what many believe is still a commodity cattle business?
Smith: Commodity calves are always going to be worth commodity money. First, preconditioning calves is tremendously important, and is a practice that's withstood the test of time.
CSU economists found the Vac-45 program, for instance, on average over a period of years, returns to the rancher a net profit of $25/head. Other studies show if cattle are ever sick during their time on feed, on average they'll be lower quality and produce tougher meat. That should be incentive enough to add value to your calves and get beyond producing commodity cattle.
If you can provide herd health data, and if you have some carcass data, you can produce higher value calves. Buyers increasingly will have to build “insurance” into those calves to protect themselves against the ones that get sick or won't grade.
The big issue at the moment — and where we're getting whupped by the Canadians — is age and birth date verification. If we're going to compete in a global economy, we must provide calves that are source and age verified.
We're the only civilized country with no ability to trace our beef to the producer. It's embarrassing and it's costing us money in global markets.
BEEF: Do those programs necessarily have to be high-tech and costly to initiate at the ranch level?
Smith: Absolutely not. All you need is a pencil and paper. Most producers' recordkeeping systems will work. You have to keep those records for some period of time, and they have to be organized and presented in an orderly fashion. But they don't have to be sophisticated.
BEEF: Do you think there's value in country-of-origin labeling?
Smith: I believe there's a big upside to “USA” beef — born, raised, fed and processed in the USA. I don't think it should be mandatory, and I don't think everybody has to do it. If everybody does it, it has no value, as there's nothing unique about it.
BEEF: You say retailers are driving industry consolidation. Whatever the cause, do packers need captive supply to keep the chains moving? Shouldn't they have to go out and buy in the open market every day?
Smith: The reason we have 40-45% of all cattle already lined up by packers is the forces behind just-in-time inventory control. I know ranchers hate to see packers be allowed to have guaranteed supplies. But, what if I said you as a rancher couldn't line up the price and delivery date of your hay or feed ahead of time? Most would think that outrageous.
To demonstrate how complicated the beef business has become, just look at Cargill Meat Solutions. They currently buy something like 170,000 head/week, and sort them 103 different ways. This is mostly because they sell so much branded beef — much of which comes from producer alliances. Can you imagine buying cattle on the open market to fit 103 different slots in your production system?
BEEF: There have been proposals to initiate large-scale, grass-fed beef programs in the U.S. and Canada. What about grass finishing?
Smith: It's difficult to figure out how those ideas can work halfway to the North Pole. It could be done on a large scale — you just can't make a living at it.
Besides, why on Earth would we want to use North American resources to finish cattle on grass? There are 50 other countries that can kill us economically in that market. It can work in the U.S. on a small, niche scale, but the demand on this continent for grass-fed beef just isn't there to support large-scale grass finishing.
BEEF: From your experience, with the initiation of new trade agreements, what's the possibility that Central America will inundate the U.S. with beef?
Smith: There's virtually no capability in that region of the world to grow feed grains, so they'll never be a threat to the U.S. in the production of high-quality beef. If Central America sends us anything, it will be in the form of forage-fed lean beef for trimmings. In that case, they might be a threat to Australia and New Zealand with their freight differential.
BEEF: That said, there's a lot of concern about U.S. imports of lean trimmings. What do you tell those folks?
Smith: About 48% of all beef we consume in the U.S. is in the form of ground beef. A great majority of the beef we import is in the form of lean trimmings. We use it to mix with the fat trimmings from our domestic beef.
In order to sell the fat we generate on the outside of steer and heifer carcasses in our feedlots, we have to bring in lean beef from somewhere else. We get some lean from our cull cows. We formerly got a lot of lean trimmings from Canada's cull cows, but not anymore. We'll continue to import lean beef from Australia, New Zealand and Uruguay.
BEEF: There are questions about sanitary conditions in many of the foreign plants that export beef to the U.S. In visiting meat plants around the world, do you see this as a problem?
Smith: If you look at a meatpacking plant anywhere in the world that exports to the U.S., it's held to a higher standard than our own plants. They're clean and use a lot of our research and food safety technology — and we do a good job of monitoring their safety protocols.
BEEF: So, if we produce grain-fed beef well, what's to keep other countries from following our model?
Smith: What sets us apart from the rest of the world is the size and scale of grain-based feeding systems. Add in our cattle quality, and we have the most tender, flavorful, safest beef supply in the world. It's a very efficient system that's hard to compete against on a global scale.
Early on, most countries that develop their feed grain industries are going to first feed it to poultry and pigs because of the better efficiencies. It will take some of those countries many, many years to compete — if they ever do.
An example is Brazil, which will never send us what we consider fed beef. They have virtually no interest in grain feeding, and they've just had a foot-and-mouth disease outbreak that will hamstring their exports for another year or two.
BEEF: So where is the global competition?
Smith: The biggest drawback we have today is that there's no information on our beef supply. We argue, for example, that we can look in an animal's mouth and assure customers we can export beef from animals no older than a specific number of months. We're horribly behind countries like Brazil, Uruguay, Japan, South Korea and the European Union in that regard.
For example, beef tongue in the U.S. is worth 25¢/lb.; in Japan, beef tongue is worth $19.75/lb. But, that doesn't do us a lot of good if we have to look at the carcass to determine if it's A-40 maturity. By the time the age is determined in a packing plant, the tongues will have already been disposed of, and we've captured little or no value from them.
But, we'll be asked for validation for what we do to our cattle — by a third party. We'll be held accountable for how we treat and handle our cattle.
By the way, I'm more concerned about traceability for our export market than I am for our domestic market.
BEEF: What's your assessment of the current BSE situation in the U.S. and Canada, and with regard to our export opportunities?
Smith: We've overreacted. I believe what the Canadians have done to remove the materials considered dangerous to cattle populations and humans are sufficient to remove the risk of BSE. It's recently been shown that if you get rid of the brain and spinal cord from cattle carcasses, you'll not amplify BSE in the cattle population or cause health problems in the human population.
Canadian cattle are safe from BSE, and our cattle are safe. And I'm about to believe that everyone's cattle — even those in the United Kingdom — are safe from BSE.
As a CSU colleague has said, “We'll look back a few years from now and say this was the greatest overreaction in the history of the beef industry.”
If we can find enough cattle of known age in the pipeline, we can get back into the Japanese market. But, we've lost some of those foreign markets forever.
Meanwhile, we've allowed Canada to develop its packing industry to the point we're going to lose packing capacity in this country. Coupled with their traceability system, the Canadians will become a formidable global competitor. With some of those issues, we've cut off our nose to spite our face.