While many in the industry dither on their participation in — and the payoff of — value-based marketing programs, those actually playing the game tend to be satisfied with their experiences, according to an exclusive survey of BEEF readers.
By the way, value-added production is defined as anything beyond traditional management, and then selling in a manner aimed at retrieving the added value. Some examples would be VAC-45, Certified Angus Beef, hormone free and Cargill Cattle Feeders' Sharing Total Added Value (STAV) program.
The survey conducted in late June found that of the 43% of respondents who reported being current participants in value-based production and marketing programs, 84.7% believed their participation had increased net return relative to any added cost. That's saying a lot considering the faltering markets of late.
More participants (44.6%) in such programs felt premiums in such value-based programs have remained static since their initial participation, while 33.7% of respondents said premiums received have increased, and 18.1% said premiums have decreased. Still, 94.8% of those participating in such programs reported themselves as likely to continue to participate.
Such participation ranged from age and source verification to preconditioning, specific genetic makeup, and restricted management protocols on the use of implants, antibiotics, etc. (Figure 1).
“It's notable that nearly 85% of the respondents indicating participation in value-based marketing programs believe their participation has resulted in a net return increase over how they were doing business before,” says Scott Grau, BEEF research manager. “In fact, they cite that aspect as the most important factor in their participation in value-based marketing programs. What's more, 95% of participants say they will continue to participate. That is very significant in terms of these producers feeling that the value is there to go the extra steps.
“Conversely, respondents who are non-participants overwhelmingly felt the premiums offered by such programs are too small or the opportunities too narrow to warrant the extra effort,” Grau continues. “This may be a perception issue, as participants in such programs are overwhelmingly in favor of their participation. It could also be that some non-participants just don't feel they are in a position to handle calves beyond their traditional methods, either because of time, facilities or capital.”
The survey consisted of an email survey sent to 15,208 BEEF readers in mid June, with a follow-up e-mail on June 26. Usable completed surveys numbered 577 for an effective response rate of 3.8%. Readers were asked to characterize their operations, their participation in value-based marketing and why they did or did not participate in such programs.
Of respondents, 86.5% indicated they were involved in the cow-calf sector, with 14% in stocker cattle, 10.1% in backgrounding, 10.1% in the seedstock sector, and 13.2% in the feedlot/farmer-feeder sectors. Among participants in such programs, members of the seedstock/purebred sector indicated the highest participation level at 57% of respondents, followed by the pre-conditioning, backgrounding and stocker segment at 54%. The finishing/feeding sector (feedlots and farmer/feeders) registered a 48% participation rate, and the cow-calf sector 44%.
A geographic crosstab on the survey results indicates the highest proportional participation in value-based programs was in the West (Montana west to the coast and south to New Mexico), with 56% of respondents participating. The Northern Plains states (the Dakotas, Nebraska, Kansas, Missouri, Iowa and Minnesota) were essentially tied in participation with northern states (states east of the Mississippi River and south to the Mason-Dixon Line) at 44% and 43%, respectively. The Southern Plains (Texas and Oklahoma) followed at 36%, with states in the South at 35%.
“Increased net return” (75.5%) was most cited by participants in value-based marketing programs as among the primary advantage to participate. Second at 49% was “more information about the cattle,” followed by “more information about the customer” at 23.3%. Other advantages cited included:
A better understanding of the whole beef business,
Healthier cattle and repeat buyers,
Increased weaning weight and health,
Pride in doing things right,
A uniform herd and
Removing reasons for the buyer to discount your cattle.
Interestingly, 10.4% cited “no advantage.”
Conversely, 39.5% of participants in value-based marketing programs cited no disadvantage to participating in such programs compared to how they were marketing calves before. However, another 19.7% cited that value-based marketing necessitated a change in normal production flow, while 14.5% cited limited marketing options, and 13.7% cited required retained ownership post-weaning as a disadvantage.Continue on Page 2
Among participants in value-based marketing programs, 40.6% reported that retained ownership of calves beyond weaning was required to capitalize on the added value attributes of their cattle; 57.8% said they were not required to retain ownership of calves beyond weaning in order to receive compensation for the added value attributes of their cattle.
Among respondents not currently participating in value-added production and marketing programs, “too little premium offered relative to the cost and risk” was cited as the most influential factor in their decision not to participate. The next most-cited cited reasons were:
Too few opportunities,
Too little information offered about available opportunities and
The requirement to retain ownership beyond weaning.
These same non-participant respondents indicated live auctions of their weaned calves were their primary marketing method (43%), followed by live auction of post-weaned calves (27.1%), direct trade as weaned calves (10.7%) and direct trade as post-weaned calves (10.1%). Another 2.7% relied primarily on video auction of their weaned and post-weaned calves, respectively.
Meanwhile, of respondents participating in value-added marketing programs, 27% reported retaining ownership of their calves through the feedlot. 19.3% were involved in direct trade as post-weaned calves, 16.5% sold post-weaned calves at live auction.