Nobody ever said the cattle business was going to be easy, but who knew even 20 years ago how complicated it would be to raise a calf and get it sent off to market. In fact, these days the word “market” means far more than a call from an order buyer or trip to the action barn.
And at every juncture, the beef industry is facing mounting and intense competition. Not long ago, the industry's only concerns seemed to be white meat and white-gloved environmentalists. Today, duking it out for market share with chicken seems like a snap.
Additionally, horizontal and vertical integration in food service and retail foods has everyone wondering where their food comes from. And don't be fooled into thinking there's no more room for mergers and acquisitions. Just watch.
The constant thought in the food chain, led by nearly every other consumer good, is globalization. Thinking back, the 1989 Canada/U.S Free Trade Agreement and the ensuing North American Free Trade Agreement were a cakewalk compared to the complexity of the new millennium trade picture.
In the shadow of the World Trade Organization, bi- and multi-lateral trade agreements have, interestingly, been the vehicles of “free trade.” And because the definition of free trade is so nebulous, and because ag often takes a back seat to other industries and issues in trade negotiations, we often feel like the fifth wheel.
No wonder many U.S. cattle producers feel abandoned by their government when it comes to trade issues.
Where the cattle are
The place to start assessing global competition in the beef industry is to look at where the cattle are raised (see Figure 1). India has the world's largest cattle herd by far. But cows are considered sacred by Hindu religion because of their milk.
Brazil, with the largest commercial cattle herd, is where cows are respected for the meat — and wealth — they provide. Estimated today at 180-190 million head, Brazil's cattle herd has grown by 5 million head/year the past decade. However, there are signs this growth is slowing due to competition for the better ag land in Brazil's southern regions.
Interestingly, China's cattle herd is third in size globally. Prior to 1980, only culled draft animals were harvested for beef. Today, in a country with millions of small farmers, families typically sell one or two calves each year to local abattoirs for slaughter. Thus, it's unlikely China will be a world player in beef trade.
And, there's a great deal of speculation — and not much agreement — as to China's future as an importer. The U.S. Meat Export Federation (USMEF) simply says the Greater China region, comprised of Hong Kong, Macau China and Mongolia, holds growth potential for U.S. beef and beef products.
The U.S., with the world's fourth-largest cattle herd, ranks first in beef production. Incredibly, the U.S. with nearly half as many cattle, produces more beef than Brazil.
Few other countries can boast the rate of production on a per-cow basis as the U.S. The combination of genetics, nutrition and animal health work well with our grazing and feeding infrastructure to make U.S. producers the envy of the beef world.
Consumption and imports
Not surprisingly, the U.S. is also the largest beef-consuming nation. Even with its production capacity, the U.S. — much to the consternation of many producers — is the world's largest beef importer. U.S. processing companies buy about 31% of all beef entering international trade.
But, what are the drivers of U.S. beef imports?
With the highest wholesale beef prices of any major trading country, the U.S. is a virtual economic sponge for global beef supplies (Figure 2). Last spring, when U.S. fed beef prices were hovering around $90/cwt., slaughter cattle in Uruguay fetched $42/cwt. Even given transportation costs, and in-quota and out of-quota import tariffs paid to the U.S. Treasury ($100 million in 2005), this price differential makes Uruguayan beef a great buy for U.S. importers.
Related to the economic driver is the insatiable U.S. appetite for ground beef. A recent national eating trends study shows ground beef makes up 59% of all fresh-beef eatings in the U.S., and shows no sign of slowing. Therefore, about half of all beef imports are lean (90% lean) beef trimmings used to blend with higher-fat domestic trimmings to produce typical 75%-85% lean ground beef for retail and food service (see “Making the case for trimmings,” p. 42, November 2006, BEEF).
The trend toward fewer dairy animals nationally (thus, fewer “lean” cull cows), a smaller domestic cow herd and high-fat trimmings from fed animals create a shortfall in domestic lean trimmings. Adding to the lean-trimmings shortfall is higher-value uses for chuck, plate, flank and other lean cuts that historically went to grinding.
U.S. vs. the world
U.S. beef production systems vary a great deal geographically as ranchers and farmers have adapted to varying environmental conditions. But overall, the U.S. has a highly differentiated beef-production system compared to most other beef-producing nations.
This difference can be summed up in one word — corn. The colossal feed-grain resources of the Corn Belt shape the large majority of domestic beef-production systems. From the genome on, producers put this unique advantage to work in creating beef products that virtually no one else in the world can enjoy — unless they trade for them.
Even in Canada, most grain-finishing systems center on barley. But, “barley-fed” beef just doesn't have the same ring to it, inside and outside the feedlot sector, as “corn-fed” beef.
Other cattle countries, mainly those in South America, Australia and New Zealand (Oceania), are relegated to growing and finishing beef cattle primarily on forages. They simply don't have the vast climatic resources and infrastructure to support a massive corn industry. Nor do they have the economic foundations that make raising corn for feed as feasible or practical.
It makes sense in developing countries, as well as developed countries where corn resources are lacking, that food crops for human use are grown on the best land first. While people will get the corn first, any leftover grain goes most likely to the best “converters” next — poultry and pigs, in that order.
If there's still corn available, and its feed value exceeds its cash value, it can be used for “finishing” beef cattle. Few countries have the literal luxury of being able to turn corn protein into beef protein on a scale large enough to define an industry.
A virtual tour of most other beef-producing nations often includes Oceania, Brazil, Argentina and Uruguay — all beef systems based mainly on grass finishing.
In Australia, the beef cattle industry can be defined by three major factors:
Relatively strong cattle prices, but hampered by persistent drought.
Export demand boosted by the absence of competitors.
Strong growth in the feedlot sector.
One can argue Australia's beef system is a hybrid of grass and grain. The cattle-feeding sector, which has grown threefold since 1996 to a capacity of 1 million head, is tied to increased export demand — particularly Japan and Korea. Nearly half of all Aussie feedlot cattle are finished for export.
In Australia, feed grains are mainly grain sorghum, wheat and barley. The mix underscores the fact that Australia is a very arid country, where persistent drought is a way of life. To some degree, lack of water might be the leading factor in restricting growth of many major industries nationwide.
While water is a limiting factor for long-term growth in Australia's cattle industry, U.N. Food and Agriculture Organization statistics indicate grazing land is limited and under pressure throughout Oceania. The good pastureland is being converted to cropland, leaving increasingly poorer land for grazing and farming.
Moving across the globe to Brazil, 180-200 million acres of land could be developed for grazing systems. But much of this vast resource lies in remote sub-tropical scrub and brush land in need of clearing, seeding to adapted forages, watering and fencing.
And, as Brazil's comparative global advantage lies in low-cost, grass-fed beef production, expansion into the frontier regions means more distance from terminal markets and packing/processing facilities. It also means infrastructure must follow.
Of course, the limiting competitive factor throughout South America is foot-and-mouth disease (FMD). Uruguay (12 million head) is the continent's only major beef-producing nation with FMD-free (with vaccination) status.
Brazil and Argentina (55 million head) have had recurring FMD outbreaks and are shut out of North American, and most Asian, fresh-beef markets. Until FMD is controlled continent-wide, most observers believe Brazil and Argentina will struggle to overcome the threat.
Brazil's beef industry will also struggle to overcome the challenges of a harsh tropical environment. Reliance on heat-tolerant Zebu breeds (mainly Nelore) will cause a productivity differential compared to English breeds raised in temperate climates. Most of Brazil's cows breed as two-year olds (vs. yearlings) with average calving rates below North American standards.
Brazil also takes a competitive hit in dressing percent of slaughter cattle (53% vs. 63% U.S.) and age of slaughter (30-40 months vs. 18-24 months). This is why the U.S. produces more beef with far fewer cows than Brazil.
In Uruguay, beef exports from its English-based breeds are the name of the game. A majority (80%) of Uruguay's beef production is exported — with 78% of it going to North America. Like Brazil and Argentina, anabolics and growth hormones — and animal protein in feed — are banned.
And, like Brazil and Argentina, Uruguay doesn't have a significant, grain-based cattle-feeding industry. In these countries, where cost of production is a comparative advantage, the added costs associated with concentrated feeding quickly erode this advantage.
Common to all the countries discussed is a working, or work-in-progress, national cattle ID and traceability system.
Australia is a world leader in cattle ID with its National Livestock Identification Scheme. Australia exports about 70% of livestock production and, while not all Aussie producers like the system, most agree whole-of-life traceability systems for livestock are necessary to maintain a competitive advantage in growing export markets.
In October 2005, Brazil's traceability system helped contain a FMD outbreak to a few local regions in three states. Uruguay boasts its traceability system is tied to a national brand image that helps global consumers identify Uruguay as a “clean” and environmentally “green” source of beef products.
Last spring at the World Meat Congress in Brisbane, Australia, Marcos Fava Neves, University of São Paulo (Brazil) professor of food marketing strategy, summed up cattle ID in two short sentences:
“Traceability is the non-negotiable foundation of trust,” he said. “Without traceability, how can you be held accountable for what you produce? How else can you be rewarded for what you produce?”
Clint Peck is a director of Montana Beef Quality Assurance and a former Senior Editor of BEEF magazine.
To maintain a comparative/competitive advantage and address the challenges ahead, it's suggested U.S. beef producers consider:
- Become Beef Quality Assurance (BQA) certified
Participation in the BQA is totally voluntary — and isn't a “government” program. BQA links beef producers with livestock production specialists, veterinarians, nutritionists, marketers, animal-health companies and food purveyors interested in maintaining and improving the quality of cattle and beef produced in the U.S.
- Carefully monitor input and output
This means keeping better records and spending time developing cost-benefit analyses for every production enterprise. As part of BQA, verification of some production practices through auditable records will soon become a necessity.
- Evaluate your genetic package
Certain supply chains are already mandating adherence to specific genetic systems. Attention to beef-cattle genetics selection and management will become even more critical as “program” beef production replaces commodity beef production.
- Maintain a sound herd-health program
“Management over medicine” will become more critical as livestock use of pharmaceuticals comes under more scrutiny. U.S. beef producers must work with their veterinarians to learn more about disease management and reducing treatment for disease. Biosecurity programs, including judicious vaccination, must become a way of life on U.S. cattle operations.
- Evaluate your pre-weaning/weaning protocol
Likely the easiest way to manage weather-related variables, as well as address marketing opportunities, traditional weaning programs should be carefully and continually evaluated.
- Establish source/age verification
This doesn't have to be high-tech or costly. Work with your local sale barn or order buyer, or join a program or alliance to learn more. But don't expect market “premiums” to last forever — this niche will become the norm.
- Continually seek better market opportunities
Think “supply chain” management. Don't think you're simply a rancher who turns grass into feeder cattle — manage for the end-product and continually demand recognition and reward for your efforts.
As U.S. beef producers address the growing global competition, they face some good news-bad news scenarios, along with some “warning” signals.
The good news includes:
- Globally unique, grain-fed beef production
U.S. beef producers are boosting their attention to establishing and exceeding benchmarks for production of safe and wholesome beef that increasingly satisfies consumer expectations for eating characteristics.
- The world's leading infrastructure
No nation can match the U.S. private/public sector investment into programs and facilities that provide a foundation for beef production systems. U.S. producers are the envy of the world in transportation, storage and transfer, government production support and, historically, energy prices.
- Per-cow productivity
Related to infrastructure, U.S. producers, along with their Canadian counterparts, yield more beef per cow than producers virtually anywhere else in the world.
The bad news includes:
- Lack of organized traceability
The U.S., especially now that the federal government has reaffirmed a voluntary system, is the only major beef-exporting nation without organized traceability for disease management. That said, private market-driven ID systems are evolving, allowing producers to participate in domestic and global supply chains.
- Competition for land and water
Nearly every U.S. beef producer is troubled by increasing land prices and lack of water. U.S. producers aren't alone in this dilemma, though; competition for the better land by higher-return industrial, recreational and urban use is ringing a global ag alarm.
- A global outlook
For decades, the U.S. beef industry has been focused on the huge domestic market potential, fighting for market share against the poultry industry. USMEF has been the Lone Ranger in beef-export development — with little attention and relatively little assistance from beef producers and processors.
For U.S. producers, there are a couple of glaring warning signals:
- Increasing cost of production in the face of declining prices
Energy prices and prices for energy-related inputs lead the list. Machinery, parts and repair follow. U.S. producers must find ways to cut costs of purchasing and operating “rolling stock” on their operations — easier said than done.
- Uniformity and consistency of product
The 2005 National Beef Quality Audit identifies product consistency as a continuing concern. Consumers simply want every steak to eat the same every time, a huge challenge for producers and processors alike.