Willing & Waiting

Sit in an industry meeting long enough, or leaf through an issue of most any beef publication, and you'd think demand for documented verification of such things as source and age is already standard or next to it. We like it when we can get it, but we're not paying extra for it, says Derek Martin, supply representative for Lane County Feeders, Dighton, KS. We're not getting paid more for it, so we're

Sit in an industry meeting long enough, or leaf through an issue of most any beef publication, and you'd think demand for documented verification of such things as source and age is already standard or next to it.

“We like it when we can get it, but we're not paying extra for it,” says Derek Martin, supply representative for Lane County Feeders, Dighton, KS. “We're not getting paid more for it, so we're not paying more to get it.”

Sure, speculation is rampant that premiums will be paid for age verification once Japanese and South Korean export markets hit their stride. There are occasions when someone like McDonald's may be paying extra for source verification. And, a number of branded programs presumably have economic incentives for verification of one management process or another. But all are exceptions. Even calves with documented preconditioning — an established market earning an increasing average premium — are not yet the industry standard.

“International customers are probably more concerned about documented production processes than domestic consumers,” says Jim Riemann, president of Certified Angus Beef (CAB). “But when there's a disease outbreak or a food-safety issue, all consumers expect the production system to be well documented, and scientifically documented, to guarantee the safety of the food supply and quickly get control of any disease outbreak. It's critically important that all consumers trust our beef supply and production systems.”

In the same vein, Steve Hunt, CEO of U.S. Premium Beef (USPB), believes “Process verification falls into two categories. One category, which is almost global, has to do with what we're going to do in terms of animal health and containing disease. I consider that an insurance policy discussion.

“The other category has to do with commercial applications and what can help us generate more return at the ranch and in the feedlot,” he says.

At least in America, the insurance policy part of that equation continues in limbo as the industry and government hash out the fine points of the National Animal Identification System (NAIS).

As for the commercial applications, well, they sound great, but…

Premiums start with demand

“The challenge we all have is we want to provide leadership and look down the road, but we have to be careful not to break the bank in the meantime,” Hunt says.

USPB was one of the first to pay a premium for age verification in anticipation of Japanese trade resuming. That was in April last year. USPB paid $25/head for it until the briefly opened market was shuttered in January. Even then, they were paying $10/head in hopes the situation would be resolved quickly. Finally in March this year, they suspended the premium. At the time, Hunt explained the company would re-evaluate whether to reinstate the premium once the market was running again.

As for source verification, Hunt says, “We haven't seen the economic returns domestically for trace-back.” Though BSE elevated consumer interest in knowing more about where their beef is from, he explains this interest hasn't been backed up by dollars.

One reason for that, he says, “When you look at the U.S., you can say the consumers here understand. They believe the science and they believe U.S. beef is safe.”

Martin adds, “The primary benefit of known source to us today is the repeatability.” By knowing the source of cattle they feed, they know which ones they want to go after again and which ones they want to avoid.

Hunt emphasizes, “Bottom line, this has to work for all parties, and that's where producers need to be careful. These things cost more to provide… Again, economics will drive it. Consumers will make the decision.”

For instance, buyer demand has fueled both the volume and premium for preconditioned calves. Natural beef is another. Though Hunt says it still only represents a fraction of total annual fed-beef production — about 5% — consumer demand has ratcheted up production exponentially the last three years.

“We get the sense cattle producers are asking what they need to do to capture more value and protect the industry,” Hunt says. “We're also in a global marketplace and have to be aware of what our competitors are doing.”

Knowledge drives demand

None of these folks are sitting idly by. Lane County has been tracking individual animal ID electronically since 1998, using it to gather feeding and carcass data and to sort. It's now in the midst of developing its own Quality Systems Assessment (QSA) program, believing source and age verification may offer some economic advantage in the future.

At USPB, which developed a QSA program last year, Hunt explains, “Clearly, we'll have to have verification in the export markets; certification won't work.” Certification in this instance would include producer affidavits, whereas verification includes specific ongoing documentation and third-party audits to ensure claims made by a system are valid.

“We use a combination of onsite audits, verification and some certification. It boils down to which market you're shooting for,” Hunt says. “More than likely, the markets that require verification will offer greater value returns down the line (than those using certification).”

As an example, USPB currently employs extensive documentation and verification in providing its two lines of natural beef — Naturewell and NatureSource. Conversely, they rely on certification when it comes to the ban on feeding mammalian protein. In between, they certify feedlots that comply with cattle handling, health and management protocols modeled from Beef Quality Assurance (BQA) programs, and also audit them for compliance.

Incidentally, Hunt points out BQA programs are an effective entry point for producers who want to start getting their arms wrapped around documenting the things they do.

“Producers have been participating in these programs for a number of years. My sense is a vast majority of producers are already doing these kinds of things; it's the process of documenting it that needs to happen,” Hunt says.

When it comes to CAB, Riemann explains, “A joint effort between producer, feeder and licensed packer results in a process-verification system for the CAB Natural® program. CAB LLC can perform periodic checks to ensure the process-verification system is being maintained so the marketing claims are truthful.”

As well, a growing number of CAB product is coming from cattle enrolled in the American Angus Association Angus Source® program, a USDA Process Verified program that documents the fact Angus and not some other breed are the source of the black hide, among other things.

Even though premiums or demand for verifications aren't standard, Hunt says, “We've seen a tremendous appetite by producers to participate in these programs. They see over time there will be advantages and benefits to knowing more about the cattle they're raising and buying.”

Keep in mind, this isn't a novel concept to USPB members, who also happen to be the owners of the largest vertically coordinated beef system in America; last year, USPB members marketed more than 600,000 head of cattle. Since day one, they've been able to get individual carcass data for free. Members are paid specifically for the value of their cattle relative to meeting specific targets.

“Our producer owners are engaged; they have a number of opportunities to visit with customers,” Hunt says.

Differentiating price

Likewise, gathering and using genetic and management information to provide and improve consistency is the foundation of CAB, the world's largest branded-beef program. According to Riemann, “It's understood that breeding herds can't be managed well and improved without documenting production of each animal. Good documentation identifies inferior animals. Today, unfortunately, the bad ones and good ones bring nearly the same price. That is going to change and must change for the long-term good of the industry.”

In addition, Riemann explains, “Proper documentation could become a “cost of doing business” issue to capture maximum value of cattle (feeders, fed cattle and the breeding herd).

“As cattle numbers increase and both feeders and packers get nearer their capacity, documentation will become more important. In addition, customers in the Pacific rim, particularly Japan and South Korea, seem to be driving the U.S. beef industry toward more documentation. As packers regain access to those markets, they'll be looking for cattle from documented production systems.”

In other words, though hopes are often running ahead of reality when it comes to adding and retrieving value via documentation and verification, all the industry discussion is more than chatter.

“There are so many benefits producers can capture from a good documentation system, it's nearly impossible to justify not having one,” Riemann says. “The information on productivity of each animal in a herd that identifies the least productive can save producers money by simply eliminating the losers. It then becomes a plus to have source- and age-verified calves to sell that will be good performers at the feed bunk as well as on the rail.”

Riemann allows this will be an evolutionary process that may take some time, but the opportunity for packers to re-enter international markets requiring documentation will probably drive the pace.

“Tradition says buyers will first buy whatever they think they can make money on. That's required to stay in business,” Riemann says. “But buyers will value documented cattle, particularly those from herds with documented carcass data, because that reduces risk in predicting outcomes.”