The quest for steady profits has spurred many beef producers to cut out the middleman by seeking a niche in the growing grass-fed cattle movement.
By offering a value-added, ranch-raised product, they believe they can get higher prices and keep more money for themselves than selling conventionally managed cattle.
It isn't that easy, says Annie Wilson, former business manager of The Tallgrass Prairie Producers Co-op, a coalition of 10 Kansas families that helped pioneer the grass-fed movement between 1995 and 2000. In 2000, the co-op members cut their losses and went back to raising and selling cattle the conventional way.
Initially, they saw the co-op as a way to divert some of their cattle production to grass-fed beef, where they hoped to get higher prices. They planned to raise their cattle all the way to slaughter and then cooperatively market the grass-fed finished product themselves.
But, the high costs associated with running a small-volume operation eroded profits, and the enormous workload drained them. By the end of the experiment, they faced a difficult choice — mortgage their operations to raise the capital needed to attain the size necessary to make a profit, or get out of the business.
They chose to get out rather than bet their operations on a risky expansion. “It's not just a lark to start one of these things. It can put you out of business.” Wilson says.
As a result of the experience, Wilson identified a series of problems associated with running a small grass-fed beef operation. But, she adds, many of these lessons apply to any type of specialty beef operation.
PITFALL 1 Low volume means high butchering fees
“It was very labor intensive,” Wilson says. “Because our beef was special, the butcher had to do a huge wash-down of his facilities before processing our beef.”
And, the production runs for a co-op that produced just 400 head of grass-fed beef a year were too small to gain an economy of scale, she says.
PITFALL 2 Finding markets was a never-ending challenge
They not only needed customers who wanted grass-fed beef but those customers' demands had to roughly match the co-op's production. Often, the hitch was that the co-op was too small, Wilson says.
“The big supermarkets back East were interested,” she says. “But, we couldn't produce that much. You need to be very big to get the price break on processing and access to the larger buyers. The dilemma lies in how to make that leap up in scale.”
PITFALL 3 Too few potential customers appreciated the nutritional benefits of grass-fed beef
And, ironically, a lot of the people who best understood the advantages of grass-fed beef were vegetarians, she says.
Wilson admits this concern may have eased some as a result of recent publicity about the health benefits of omega-3 fatty acids, which are found in grass-fed food animals and many types of fish.
“Another problem was that many health-conscious consumers resort to taking nutritional supplements rather than seek the health benefits from whole foods such as grass-fed beef,” Wilson adds.
PITFALL 4 Good markets often don't last
“Most restaurants are short-lived,” Wilson says.
Food club co-ops provided a big outlet for Tallgrass Prairie beef for a time, but the popularity of co-ops was waning, Wilson says. “People are so busy these days. Many don't have time for the work involved in a buyer's co-op,” she explains.
PITFALL 5 Learn to appreciate the middlemen.
“Farmers want to malign the middlemen.” Wilson says, “But, once you play the middleman, you discover they earn their money. They're not parasites. Doing the middleman's job yourself is time consuming, and it's especially expensive because you're running low volumes.
“We thought (a successful grass-fed operation) would be something that would make the ranch more viable for our children. And, we thought it would bring a fair price for our beef,” she says. But, it didn't work for them.
“Maybe there's a better way to do this. I'm sure there is. But whenever people give you these glowing reports on their value-added operations, dig deep for answers. Are they really making it, or just trying to put on a good face?” she asks.
Doug McInnis a freelance writer on business management topics and is based in Casper, WY.
Hire A Business Manager
Members of the Tallgrass Prairie Producers Co-op handled management chores themselves. They learned, in hindsight, that the tactic didn't save money. In fact, having farmers manage their own food processing and marketing cooperative is a risky idea, says Annie Wilson, the co-op's former business manager.
“Farmers would be well-advised to hire a professional to handle marketing and operations,” she says. “By the time you've learned all the lessons the hard way, you may have missed critical opportunities and may be out of capital.”