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Hooking Up

eMerge Interactive is building an electronic bridge between segments and across distance to increase the industry's up-side potential while reducing cost.It's fair to say a Premium Sale at the Jordan Cattle Auction in San Saba, TX, "isn't your grandpa's cattle auction."Every string coming across the scales is so uniform that 75 lbs. or less separates each calf in the pen. Each one has been weaned

eMerge Interactive is building an electronic bridge between segments and across distance to increase the industry's up-side potential while reducing cost.

It's fair to say a Premium Sale at the Jordan Cattle Auction in San Saba, TX, "isn't your grandpa's cattle auction."

Every string coming across the scales is so uniform that 75 lbs. or less separates each calf in the pen. Each one has been weaned and preconditioned according to strict standards. Every head wears an electronic eartag that makes weighing, grading, sorting and commingling them possible.

The entire process is verified, and the source and management of each head is transferred automatically to the new owners via the Internet before the calves are even loaded on the truck. Some of the cattle marching through the premium sale at the CattleInfoNet Interactive Facility are bid on by buyers watching the sale unfold through the Internet. Meanwhile, buyers sitting at the auction are placing their bids by clicking a wireless device that looks for all the world like the handle of a keyhole saw.

During the sale of these Internet lots, the auctioneer isn't even on the block. He's in a war room calling the sale as he watches a computer screen that tells him each time a new bid is submitted. By the end of the sale, these cattle bring $8-14/cwt. more than similar weight, similar class cattle sold during the regular auction the same day.

But, even during the Internet portion of the premium sale, this auction barn looks for all the world like your grandpa's cattle auction. Folks still bring their cattle to town, share information with the neighbors and hope the market is in their favor. Bidders still determine the price paid. Cattle are still loaded out after they sell. And, the pie in the cafe afterwards is still just as sweet.

A Simple Revolution This sale is just one example of how eMerge Interactive, the company behind CattleInfoNet, is using the Internet to enable producers to get their arms wrapped around all kinds of elusive opportunities.

"The vision is that we want to facilitate improvements in the production process that result in better beef quality and safety and a lower cost to participants," says Chuck Abraham, eMerge CEO. "We are trying to establish a national cattle business infrastructure that allows commerce and information to flow throughout the production chain."

On one hand, their notion is simple. It's to manage cattle from one end of the beef production system to the other, track cattle identity and source, document each management practice, share information with each new owner, reduce cost through added efficiency and add value, in part, by building current and future branded beef supply.

On the other hand, transforming this concept to reality is so complex, requires so much non-traditional mind-bending and so many new shared gateways for the flow of information and commerce that no one has ever figured out how to skin the cat.

How do you provide common opportunity, equal access between industry segments and adequate incentive for at least a portion of the 850,000 or so beef operations in this country, an untold number of stocker programs and at least 700 feedlots?

First, veterinarian Scott Crain, eMerge executive vice president of strategic planning, explains there must be a common bridge connecting what have long been us-against-them islands of interest. He likens it to the need for a logistics company in the cattle business similar to what MasterCard provides the financial community. Invisible to users, there is a conduit that allows stores, banks and consumers to interact seamlessly.

Breaking The Mold In this case, eMerge is building an infrastructure of information exchange powered by the Internet that allows users to do everything from trading cattle direct and at auction to tracking and reviewing individual animal management.

For instance, 179 feedyards with an annual marketing capacity of 10 million head are already accessing the eMerge Interactive Platform[TM] (EIP) or the CattleInfoNet Interactive Manager[TM] (IM). EIP includes real-time commodity pricing, local weather and access to interactive cattle buying and selling. IM is a benchmarking and decision-support service that currently monitors consumption, pulls and deads along with cattle inventory and recent placement and shipping patterns in customer yards.

Abraham envisions the day when consumers will buy a product based on specific genetic design and management, or by any other preference. For instance, maybe your taste buds have discovered the steak it craves comes from a 14-month-old Angus X Limousin X South Devon steer that was fed 120 days in the Midwest.

In other words, Abraham explains, at every stage of production and consumption, cattle and management can be evaluated for success and failure in order to replicate the process or discard it. "Virtually every other manufacturing process in the world has the capability to do that," he explains.

Rather than own portions of the beef industry, Crain says, "We are the white space between the industry assets. We are the production channel that flows between them." By the same token, eMerge is creating products that make all this possible, such as handheld computer interfaces and automated sorting systems.

Scale Or Fail "Our goal is to facilitate the exchange of 8 million head of feeder cattle, and at least a third of those will be preconditioned and process-verified," says Abraham, and they aim to do it within the next five years. For perspective, depending on the year that would be 25-30% of all feeder cattle trading in the nation. By the end of 2000, eMerge expects to handle 3 million head through its expanding CattleInfoNet network, including a growing list of CattleInfoNet Interactive Facilities.

"We absolutely intend to be big because we think scale is needed for what we intend to do," says Abraham. "It's difficult to drive change of this magnitude without having some scale to move it ahead... And, it gives us the ability to draw outside funding into the industry to pay for what we're doing."

Indeed. Since the first of the year, eMerge has attracted more than $130 million of investment in the beef industry. Already, eMerge has acquired nine of this nation's sale barns and order-buying facilities. Before they are done, Abraham predicts they will own, franchise or partner with 35-40 facilities in order to touch the numbers of cattle they have in mind.

"Cattle will always have to be assimilated through physical facilities. That's an integral component of the network; we're tied and connected to some of these physical facilities," Abraham says.

In the case of the Jordan Auction acquisition and the Premium Sale described at the outset, Crain emphasizes eMerge's involvement really doesn't change how cattle producers do business. The barn is still there, and so are the order buyers bidding on the cattle. What's different is the added upside potential that comes with the commingling, process verification and expansion of the buying pool via the Internet.

The Goal Is To Add Value Still, when a newcomer steps up to the plate with the kind of cash that eMerge has at its disposal and starts buying up sale barns, some producers become wary.

"Some people perceive that we are an outsider from Wall Street here to make a quick buck at the expense of the cattle industry," says Abraham.

"Our approach to business is that we have to add value to the industry and create value for the industry to justify making a living ourselves... Make no mistake, we're here to make money. But if I'm going to make a dollar, I have to do so by putting two dollars into your pocket first."

Abraham says more than two-thirds of eMerge's 230 employees have spent their entire careers in the cattle business. The rest are top hands from Internet, engineering and data base management industries.

"There's no new math here, and we (the industry) all forget the easy stuff," says Crain. "If we talk about trying to increase production, every dollar that we save is a dollar in our pocket. But, when we talk about increasing efficiency by 7%, as an example, that's only another 7› in our pocket."

So, rather than becoming a new layer of cost, eMerge plans to prosper by helping folks save dollars and sell cattle that bring more money.

With decreased processing and reduced morbidity associated with weaned and preconditioned calves, Crain says almost $2 billion is left laying on the industry table each year, not to mention about 2.4 billion lbs. lost to shrink.

In terms of buying and selling specifically through their Premium Sales, Crain explains, "It's the same percentage commission. We just get a commission on a higher price. It's as cowboy straight-up as you can get."

Bottom line, Abraham says, "We intend to be here for a long, long time, so whatever is good for the industry is good for us."

Obviously, some investors are banking on that reality, too, but not for the reason you might think. Crain explains a manager of one multi-billion dollar fund grew up on a farm and still has family milking their living out of the ground. Once he considered the potential of connecting such a cash-intensive but fragmented industry, he decided to invest. But, he left eMerge with these words: "Don't screw this up. You could change our whole world in agriculture by being successful with this. You have a heavy load on your shoulders."