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Predicting The Winds Of Change

Industry gurus look at source verification with a move toward more branded products.If anything is as difficult to predict as the weather, it's the cattle business. Since both are inexact sciences, how about a forecast of the U.S. cattle industry future in weather terms?The short-term outlook calls for 50% of the nation's cows calving for a beef product alliance. In the longer term, conditions clear

Industry gurus look at source verification with a move toward more branded products.

If anything is as difficult to predict as the weather, it's the cattle business. Since both are inexact sciences, how about a forecast of the U.S. cattle industry future in weather terms?

The short-term outlook calls for 50% of the nation's cows calving for a beef product alliance. In the longer term, conditions clear considerably. There's a 100% probability that all of the nation's cattlemen will identify their cattle so their carcasses can be sourced back to herd of origin.

Predictions are just that - predictions. But, at the recent International Livestock Congress (ILC) in Houston, TX, no one was second-guessing the acumen of the experts suggesting such scenarios. "Value-based marketing and alliances are the way to go," says Richard Bond, president and chief operating officer of IBP. "Fresh products put into a retail case with a brand is where we (the beef industry) will end up."

Bond was one of several ILC speakers predicting that the larger producers will form alliances to produce branded products. Only about 8% of the nation's producers manage cow herds between 100 and 500 head, but these herds make up 50% of the nation's cow numbers.

Other speakers acknowledged that the world's consumers will demand to know where their food products come from. It will force U.S. cattlemen to take ownership of their products from gate to plate. That means source verification.

"A producer may no longer enjoy the luxury of producing his food anonymously," says Charles A. Gracey, president of the Canadian Beef Grading Agency. Canada hopes to begin its national cattle identification program beginning with the 1999 calf crop.

And with Gracey's statement, Bob Josserand, owner of AzTx Cattle Company, Hereford, TX, urged the audience to support a U.S. cattle identification program.

"I ask you to start the process and complete the process of individual animal identification in this country," Josserand said. "I want this group (ILC) and all other groups that represent the industry to push the National Cattlemen's Beef Association (NCBA) to help make a difference" by supporting animal identification.

Why all the attention to change? The focus on alliances and source verification is caused by beef's inability to meet consumer needs for convenience.

Meat scientist John Allen of Michigan State University, a veteran observer of the meat case, says that quality grades, cut names, preparation methods and packaging all befuddle the consumer. That's why they purchase poultry, which easily solves the riddle of what's for dinner in fresh meat and home meal replacements. Easier, more convenient products can demystify beef purchasing decisions, he says. That means branded beef.

Combined with that need is a global focus on food safety. For consumers to have confidence in any product, they want producers to take responsibility. They don't have to know who the producer is, but they do want to know a system is in place to identify that producer if there is a problem. Since food safety equals quality in the global consumers' mind, source verification is a prerequisite to branded products.

"Traceback protects markets," says Derek Shaw, a beef producer in Northern Ireland, a country that has a government-mandated source verification program. "It is a great idea, but no one recognizes it as a great idea until a crisis comes along."

What role will alliances play in branded products? Feeders and ranchers involved in alliances look at themselves as consumer driven rather than industry driven, says Jerry Adamson, owner of Rocking J Ranch at Cody, NE. Adamson has produced cattle for alliances for 12 years. In the last few years he's been producing beef for PM Beef Group of Kansas City, MO.

"Larger operators that are quality conscious and want to make a profit - where cattle are their only source of income - see alliances as a way to get out of the mode of selling cattle on the average," Adamson says.

At present, the program pays Adamson for his cattle when they leave the ranch. For calves that make the program, and 80% do, he receives additional rewards based on a grid. In the future, though, as the program gets going, PM Beef Group will ask its producers to retain ownership through the feeding phase. That spreads the risk and retains the integrity of the individual segments.

Randal P. Garrett, senior vice president of operations and research for the PM Beef Group, predicts most alliances will fit into the industry's current structure rather than integrating vertically. "We're not going to own feedyards. There are already a lot of good feedyards out there," Garrett says.

As alliances allow companies to meet specifications, the speakers say, branded products will appear. And as branded products receive consumer loyalty, they will lead to repeat business. Repeat business means profits and more money for research and development of other new beef products and new beef applications. The evolution will allow beef to become part of home meal replacements and microwaveable products.

Suddenly, beef is no longer just a fresh meat item.

"The next major step (for beef) is to get us to cooked products," says IBP's Bond. "And when we get there the retail case will have to change."

Source verification will be a key. Although animal identification is now being used in Northern Ireland and Canada for food safety reasons, it also will become a useful tool for quality control.

"In Canada, we will use it only for health traceback at the outset," says Gracey. "But, we are opening information channels, and channels can be used for other purposes."

James Herring, president and CEO of Friona Industries, Amarillo, TX, sees traceback as integral to his vision of how beef will differentiate itself from poultry. His vision has five steps:

* Source and process verification.

* Food safety.

* Consistent uniformity of end product.

* Differentiated eating experiences.

* Predictable, dependable beef supplies.

"Companies that are aggressive enough to meet these challenges will be the winners," Herring says.

Like any weather forecast, there are clouds on the horizon in the form of huge questions, about both alliances and source verification.

Will alliances divide the industry? Adamson believes larger producers will be in alliances, but there will always be a place for smaller producers.

"The producers with the average-sized herd of 39 cows or so will not be interested in a branded beef program because it entails upgrading cows and using a registered bull. These producers will continue to produce commodity beef and sell on the average," Adamson says.

Will livestock markets have a role? Gracey predicts Canada's source identification system will work because it included all segments of its industry including markets in the creation process.

Will government be involved? Shaw lauded the Northern Ireland government's role in mandating animal identification. But that's not the U.S. industry's pattern. American beef producers will probably choose to institute source verification because of consumer needs before their government has to mandate it.

However, government may become involved in some of the alliances, says IBP's Bond.

"In time, I believe you'll see a lot more alliances and a lot more associations," Bond says. "That's if the Packers & Stockyards Administration and USDA don't deem them illegal."

When will all this happen? Herring points out that 1 million head presently on feed - roughly 5% of the nation's annual fed-marketing supply - are in some type of alliance program. Only economics will determine if that number will grow. And, the economics depend on consumer acceptance of the products being offered.

Again, like the weather, nothing about alliances or source verification is certain. The best bet is to watch the horizon and be aware of the winds of change. And realize that like the weather, change inevitably will occur.