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The Packer Summit

Executives from the four major beef packers exchange views and look to the future as they meet face to face with Texas cattle feeders.

Never before have the top dogs of the four major meat packers met together on one stage. But the Texas Cattle Feeders Association (TCFA) convention was a likely venue. After all, TCFA represents nearly 200 feedyards in Texas, Oklahoma and New Mexico — an area that produces 7.2 million fed cattle/year and 30% of the nation's fed beef supply.

“We need to know what's on their minds, and they need to know what's on ours,” explains Richard McDonald, TCFA president and CEO.

Swift & Co.

John Simons, president and CEO of Swift & Co. (formerly ConAgra) says the last few months have been humbling.

“None of us can afford more product recalls like the one we suffered last summer,” he says, adding that packers are “turning over every stone” to enhance food safety testing and intervention protocols and to comply with the escalating “zero tolerance” demands from federal regulators.

“We have to push for new technologies and find solutions that don't shift the liability onto the consumer,” says Simmons.

He warns that every segment of the beef chain will soon be under the same scrutiny and accountability as meat processors today are for controlling food-borne pathogens.

“We believe the government will look for feedlots to have their own intervention systems to help control the growth of and spread of bacteria,” he says. “Still, the only silver bullet for the consumer is to cook hamburger until the juices run clear.”

Simons says country of origin labeling (COOL) is going to be a confusing, cumbersome and expensive mandate to the beef industry.

“COOL will lead to higher costs of beef — some sources quoting $1.5 billion to 2 billion/year,” he says. “Ultimately, the real question is whether the consumer will value that differentiated product enough to pay for the costs associated with labeling.”

He expects Texas cattle feeders to be especially hard hit by COOL mandates as they feed Mexican cattle.

“For now, voluntary source verification programs on the grass-roots level would help us all scale down the costs of labeling,” he says. “We need to get ready now for a mandated labeling program.”

Farmland National Beef

Tim Klein, president and COO of Farmland National Beef, agrees food safety should be a top priority for everyone involved in producing beef.

Farmland is studying the use of lactoferrin — a protein found in the immune system of mammals that functions as a defense mechanism against pathogens.

“We've discovered a way to extract lactoferrin from milk and reactivate it so it thinks it's in a living system,” he says.

Lactoferrin sprays can prevent pathogens from attaching to beef carcasses, reducing the risk of E. coli and other pathogens. In addition, activated lactoferrin can enhance beef's shelf life by slowing down bacterial growth.

“We're probably three months away from application,” adds Klein. At some point Farmland plans to license the technology to other meat packers.

This concept of “branding” food safety follows Farmland's vision as a producer-owned co-op to build a design-supply system for value-added markets.

“We have an advantage to go to the producer and be able to say, ‘Here's what we want and here's what we'll pay for it,’” says Klein. “Still, we've got to strive to be the lowest cost producer, develop alliances and partnerships with suppliers and customers, and identify and develop value-added products.”


Gene Leman is senior group vice president for IBP Fresh Meats. (IBP became part of Tyson Foods in 2001.) He says food manufacturers are consolidating to meet the needs of a consolidating retail sector.

“The buying power of retail chains will change the food industry,” Leman says. He predicts the top five supermarkets will account for 60% of all retail food sales by 2005.

“As a result, retailers will want suppliers with the expertise and resources to come in and manage their stores' inventory,” he says. “It's no longer just about producing a commodity product and selling it at the best price.”

Leman adds that case-ready production is the biggest innovation since boxed beef. Next year, IBP will produce 10 million lbs. of case-ready beef/week.

“Pre-Tyson, IBP had two people working in case-ready product development,” Leman says. “Today, we have more than 120.”

Regarding the proposed ban on packer ownership of cattle, Leman thinks such legislation would hurt competitors more than IBP. “Our company has no interest in becoming a large feeder or producer of livestock,” he says. “But it's a bad idea to regulate how this industry manages livestock.”

Leman says IBP, which will kill 10 million head of cattle in 2003, is moving forward with irradiation as a food safety intervention measure. But he admits irradiation isn't the lone answer to eliminating E. coli. in the beef supply.

“In a few years, we'll be irradiating a great deal of product,” he says. “But if there's any cross-contamination at home, there will still be problems.”

Excel Corporation

Bill Rupp, Excel's executive vice president, says his company's strategy is to create distinctive value for each customer so they can differentiate themselves in the marketplace. By customers he means retailers who will work with Excel in a “collaborative environment” to increase demand by moving away from commodity beef offerings.

Rupp says that while beef demand has declined over the past 20 years, ranch-to-packer costs have gone up.

“This means the amount of money to be shared by the rancher, feeder and packer has declined,” he says. “This poses a real dilemma for the industry.”

One way packers are trying to improve demand is by offering branded products that deliver on the promise of consistency and tenderness.

“In order to deliver branded solutions to customers, packers need to be vertically aligned with producers,” says Rupp. “But, I want to make it clear, neither Cargill nor Excel has any interest in integrating the beef system like the poultry industry.”

In discussing food safety issues, Rupp says the problem with E. coli is consumers don't always handle and cook ground beef properly.

“As a packer, we have invested significant capital on pathogen intervention procedures,” Rupp explains. “We strongly believe the answer to E. Coli is a coordinated, industry-wide approach.”

Rupp also agrees COOL is a bad law and will do nothing to improve demand. “It will greatly compound the problems we face as an industry trying to compete with the other proteins.”

Rupp fully expects another push to ban packer ownership of cattle.

“As with COOL, it doesn't address the problem,” he says. “A ban would relegate all producers to being basic commodity suppliers and eliminate price risk contracts, shared risk arrangements and value-added agreements.”

A Feeding Sage Speaks

Paul Engler, Amarillo, TX, TCFA's 2002 chairman and president of Cactus Feeders, is quick to remind the packers of the “early days,” when cattle were sold in terminal markets and a commission man stood between the seller and the packer buyer.

“One day, a cattle buyer told himself that this system with all its added costs was ridiculous,” Engler says. “He asked himself, ‘Why don't I go to the country and trade directly with the feeders?’ He did it, and direct buying got started.”

Recently, grid marketing and group selling have become mile-markers along the cattle feeders' trail, says Engler. “It's estimated that 62% of our fed cattle are now marketed on a grid, and it continues to grow.”

But he's not sure that grids or group marketing are the answers. “We'll continue looking at new ways of producing and marketing cattle,” he says, but he scoffs at the mention of more government regulation.

“We need only to look at mandatory price reporting to see the futility of inviting the government into our business,” he says.

As cattle feeders and packers search for solutions to market woes, they're also looking over their shoulders to what happened in 2002.

“Corn was cheap much of the year, futures were maintaining premiums to cash much of the time, and the cost of replacement cattle remained high,” says Engler. “We responded by feeding cattle longer and putting off marketings as long as possible for lack of kill slots.”

The result — record heavy live weights and carcass weights, and record tonnage. Then several other events went against cattle feeders.

“False foot-and-mouth disease rumors in Kansas happened at nearly the same time the Russians stopped importing poultry,” says Engler. “It resulted in an oversupply of meat in the domestic market and gave retailers tremendous leverage. These events came on the heels of Sept. 11 and BSE in Japan.”

So how does the largest cattle feeder in the U.S. believe we fix the cattle markets?

“I can't give you the answer,” responds Engler. “That's because no single solution exists to fix our problems.”

However, producers need to be left to their own devices unburdened by excessive government involvement, he says. “We'll figure out reasonable, workable solutions.”