Consumers determine beef’s fortune and future

June 23, 2016

3 Min Read
Consumers determine beef’s fortune and future

“Each individual customer will become more important,” explained Glynn Tonsor, agricultural economist at Kansas State University (KSU), during the recent annual meeting of the Beef Improvement Foundation (BIF).

Tonsor was part of a BIF panel exploring opportunities for the beef value chain. Specifically, he and fellow KSU agricultural economist, Ted Schroeder, offered a glimpse of how the U.S. beef industry could look two decades down the road. The economies of scale and increasing vertical cooperation Tonsor envisions suggest fewer operations and fewer cattle producing more beef than today.

The importance of the customer also gets at the fact that beef’s economic sustainability begins and ends with consumers.

“The only sustainable flow of dollars from which to continue to build the beef business comes from the consumer,” says John Stika, president of Certified Angus Beef (CAB), another member of the BIF panel. “This is real money. Consumers spend real money and send real signals about what is important to them.”

“The prosperity of our entire industry rests on our consumers,” Schroeder explained. “As an industry, we absolutely cannot be complacent in meeting consumer demands.”

Stika points to the advent of periodic industry Beef Quality Audits as the start of the industry focusing more intently on consumers. Though he believes the industry is more consumer-centric today than at anytime in history, he stresses that the paradigm shift must continue.

“We need to change our perspective from, ‘I’m in the cow business,’ to ‘I’m in the food business,’” Stika says.

Taste continues to dominate beef purchase decisions, but Stika emphasized that consumers are increasingly interested in how it is produced. “Consumers care about our story,” he says. “Buying beef is an economic decision made with emotion.”

“It is not enough to know our consumers, but we must also understand the motivations behind why they are buying red meat and what they want from the experience,” explained Brad Morgan of Performance Food Group, another member of the BIF panel. “Obviously, consumers desire a consistent eating experience and one way of motivating protein sales is creating a branded program that tells a story.”

According to Stika, there were 41 USDA-certified branded beef programs in 2000. There are 178 today.

Brands make a promise to consumers. Their success hinges upon fulfilling the promise, which usually has to do with increasing value to the consumer.

“If we expect consumers to continue buying our product, we have to continue to up our game,” Stika says.

CAB serves as a salient example. CAB demand grew 98% since 2009. Both volume and price premiums continue to grow, despite coming through the Great Recession and the smallest cowherd in modern history.

Increasing consumer value is magnified by the growing relative price of beef to its protein competition. For perspective, Stika points out the price of beef was 7% more than pork in 2000 and 78% more than chicken. In 2015, beef price was 57% more than pork and 207% more than chicken.

As it is, Tonsor says the key comparative advantage U.S. beef enjoys—its promise, if you will—is global trust, particularly when it comes to safety.

Tonsor explained other comparative advantages include the nation’s grain-finishing system, research discovery and recognition of property rights, which fosters investment.

There are disadvantages, too. In Tonsor’s view, they include cost of production, too little intra-industry communication and coordination, as well as fragmentation surrounding key industry issues such as traceability and the importance of global marketing.

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