John Hayes was on the road all summer. He continues to spread the word — McDonald's Corp. is still relying on U.S. beef producers to supply its restaurants nationwide — and even much of its growing export market.
Hayes, McDonald's senior director of U.S. food and packaging, Chicago, IL, admits his company's decision to evaluate the use of imported beef was thought about long and hard. McDonald's knew it would face heat from ranchers after announcing plans to test the use of beef from Australia and New Zealand in 400 stores in the southeastern U.S.
Hayes recently discussed his company's decision with BEEF magazine, and he stands firm that McDonald's is not abandoning the U.S. beef industry.
BEEF: On the surface, the story seems simple enough — McDonald's growth has outpaced this country's ability to supply enough cull cows to fill your demand for lean hamburger beef. Is it that simple?
Hayes: No, it's not that simple. Since the late 1970s, the number of McDonald's restaurants in the U.S. has grown from 1,500 to more than 13,000. We feed 23 million people each day in the U.S. alone and use 1 billion lbs. of beef each year in this country.
This growth comes at a time when cow slaughter is down significantly. In the late '70s, the U.S. processed 10 million cull cows each year. Today, we will process about 5.4 million cull cows.
But that's not significant enough to get McDonald's to consider different ways of sourcing product. Cattle cycles have come and gone, and McDonald's has not considered this type of change ever before.
BEEF: So, what else is going on that's more significant than just the supply of beef product from cull cows?
Hayes: Not only does the decline in numbers come in the face of huge increases in demand by McDonald's and our competitors, but consumer demand for retail lean ground beef has escalated dramatically. Today, 50% of red meat is consumed in ground form. Gone are most of the roasts and the other cuts that have become more difficult to market. Convenience is being defined as ground beef — and no longer is it 75% lean.
How do you cope with a market in which consumers want 95% lean ground beef but the entire structure of the beef industry is designed to reward more heavily marbled animals?
Historically, the quick-service restaurant industry has offered consumers 60% cull-cow beef and 40% fed-beef trimmings. What used to be a by-product — cull-cow beef — is now becoming a premium product in the retail sector.
BEEF: If that's true, why aren't ranchers getting paid more for cull cows?
Hayes: What we're both facing is the poverty of the markets. Cheap grain prices have increased protein availability at unprecedented levels. That, combined with certain events like Russia closing its borders to dark chicken meat, has caused a glut of protein. And we all know the pork sector has overproduced for years.
So at the very time I'm telling you about shortages, at the very time I'm telling you your product is becoming a scarce commodity, you're wondering why ranchers aren't doing better. The reason is because this overabundance of protein has put a cap on the entire protein complex marketplace.
Right now, our message to ranchers is that we must do something different — we need a new system based on what our consumers want in a very lean ground beef product. I know it all can't come from cull cows. I know we have to do some things differently. By both of us understanding the problem, solutions will eventually come out.
First though, we all have to get this tremendous glut of protein behind us.
BEEF: We hear criticism within the beef industry that McDonald's decision to import beef means you're lowering your food safety standards.
Hayes: Nothing could be further from the truth. McDonald's has a global brand to protect. Food safety, food quality and wholesomeness are paramount to us. We'd never compromise our standards for any reason. Whether we get our beef overseas or domestically, we subscribe to the exact same quality controls and certification standards.
The only two countries from which we're importing product for this evaluation are Australia and New Zealand. We have a 25-year or more history with the producers and packers in Australia and New Zealand. Outside of this country, they're the largest sources of supply in the 119 countries where we have restaurants.
BEEF: Was it a sudden decision by McDonald's to evaluate imported beef in those 400 southeastern U.S. locations?
Hayes: No. We've been working on this decision and studying the trend in supplies for more than three years. It was a decision made at the highest levels of the company. We've looked at this every which way we can to make sure we're not in some way misreading the information and making a bad decision.
Remember, our decision was based on our need to adapt to long-term structural changes in the beef industry, not on the economics of the day.
We also need to realize that, in the short run, the situation of shortages will get worse before it gets better. At some point, we'll begin to rebuild the U.S. cattle herd. You rebuild a herd by holding back more animals — the kind of animals McDonald's will need to supply its stores.
Once we get through that point in the cattle cycle, though, there will be a larger supply of the kind of beef we need. In time, I believe some tier of production will develop within the industry that will address this long-term need for more lean beef.
BEEF: Will McDonald's push for an increase in import quotas since beef imports from Australia and New Zealand have recently either met or come close to meeting their tariff rate quota limits?
Hayes: First, our decision won't affect how much beef will be imported into the U.S. If either country goes beyond their quota, they face a tariff of 26.5% over the value of the product.
That said, from day one we've made it clear that our first commitment to U.S. producers is that we won't ask for, nor will we support, anyone asking for a change in the quota system. At the end of day, not one more pound of beef will be imported into the U.S. You have our commitment that we view quotas as a fundamental protection for the U.S. beef industry that must be maintained.
BEEF: How is the imported beef being used in those 400-some test restaurants in the Southeast?
Hayes: We're supplementing the domestic lean beef supply for those restaurants at a 25% rate. A lot of people who are mad at McDonald's for doing this don't understand that even if we were to roll this out coast to coast, we'd still sell as much U.S. beef as our two closest competitors combined. Our customers are still the number-one consumers of your product.
BEEF: Does McDonald's export U.S. ground beef to other countries?
Hayes: Yes. It's very important to take U.S. agricultural products with us as we expand around the world. We already export many, many times more than the small amount of imported beef we're using in this current evaluation.
We export into Mexico, the Caribbean, Latin America — and we're looking to send more U.S. beef into Asia. We're presently working with a U.S. packer to build a facility designed specifically to export trimmings.
BEEF: Are other quick-service restaurants serving imported beef?
Hayes: Despite what they might tell you, everyone, if they are of any size at all, went this route 15-20 years ago. They did it to positively impact their cost structure. It's important to note that if this were just about chasing a cheap buck, we would have done it a heck of a long time ago — like our competitors.
Several years ago we had to stop advertising that we were using 100% U.S. beef. A regulation passed defining what that means. So, the biggest consumer of your product who wanted to use that term had to stop because the definition was no longer available to us.
Today, animals don't come to the processing plants with passports. We can only use that term if we can verify those animals never lived outside of the U.S.
We're very aware of the country-of-origin debate. We need a realistic definition allowing us to feature the “100% U.S. beef” as a cornerstone of our advertising message to the American consumer.
BEEF: It's obvious you don't take the relationship between McDonald's and U.S. ranchers lightly.
Hayes: Of course not. Besides 1 billion lbs. of beef, we buy 500 million lbs. of chicken each year, 250 million lbs. of pork, 156 million dozen eggs, 60 million gals. of milk, a whole lot of potatoes and a lot of other products. In nearly every category, we're either the largest or one of the largest customers out there. To survive, we must have and invest in a strong, healthy agricultural community.
We're committed to the profitability of the U.S. ranching industry. Our primary reason for reaching out to ranchers is to encourage increased production of the lean component we all need. It's just one way we can help ensure a healthy, diverse agricultural community.
