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Articles from 2002 In November

Tour The Brazilian Beef Industry

Interested in learning firsthand about the Brazilian competitive threat? BEEF and sister magazine Soybean Digest are sponsoring a 14-day trip to the beef and soybean producing regions of this largest South American country.

During the Feb. 1 - 14 trip, participants will meet with Brazilian government officials, graziers, growers, packers and agribusiness, as well as visiting various tourist sites. For more information and the itinerary go to or call 800/635-5488, ext. 920.

What's Up, Mac?

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.

Business workshop

Get more control over your future. Attend the Farm Business Planning Workshop Dec. 3 - 4 at the Kansas City Airport Marriott in Kansas City, MO. AgInsight, John Deere, BEEF magazine and its sister publications National Hog Farmer, Hay & Forage Grower, Soybean Digest and Farm Industry News are teaming up to offer this seminar covering:

  • How a business plan can work

  • Calculating your operation's efficiency

  • Improving your capital management skills

  • Learning about risk management

  • Writing your own business plan

Allen Lash, CEO of AgriSolutions and a widely recognized leader in financial management for agricultural producers, will lead the seminar. Registration is $295 for two seats at the seminar. A third person may attend for an additional $100. Travel and lodging not included.

For more details, call AgInsight at 866/430-2590 or visit

It's a small beef industry world

The August, 2002, issue of BEEF magazine was of special interest to me. I knew Connie Craig Hatfield (“Serving With Pride,” page 30) when we were college students. And the Madden brothers (“BEEF Industry Chat,” page 34) and their sister were in 4-H while I was an Extension agent in Niobrara County, WY.

Finding familiar names and faces in national publications is a reminder of how small our agricultural community really is and how crucial it is that all of us in the livestock industry work together to secure and expand the market for our product.
Roberta Moellenberg
Idalia, CO

BEEF As A Teaching Tool

I would like to request permission to copy the Alliance Yellow Pages from the August edition of BEEF. This will be given to about 100 cattle producers attending a producer program we are conducting this fall called “Beef 20/20.” The aim of the program is to teach beef quality management concepts to cow-calf producers. The meeting is Sept. 19.
Dan Hale
Texas A&M University

BEEF In The Classroom

Last year, I was able to obtain copies of the “2001 Alliance Yellow Pages” listing of the top beef industry marketing alliances for use in the “Advanced Feedlot Management” class I teach at Michigan State University. This year, I'd like to obtain 30 reprints of the “2002 Alliance Yellow Pages” (August BEEF). I have found this to be a very useful document for our class discussions.
Dave Hawkins
Michigan State University

A “Mythed” Mistake

I'm an agronomist and journalist from Argentina, and I've detected a little mistake in the article “10 Trade Myths” (September, page 38).

In number five, you mention that Argentina suspended exports of fresh and frozen beef to the U.S. on March 13, 2000, but the actual year is 2001. On that date, our national authorities — the Servicio de Sanidad y Calidad Agroalimentaria — recognized the foot-and-mouth disease (FMD) outbreak. But between August 2000 and January 2001 exports were again suspended due to a “suspected case” of FMD in the province of Entre Ríos.

We expect that after a year without a new outbreak of FMD (the latest was around January 2002 in the province of Córdoba), we can again export fresh and frozen beef to your market. But there are doubts as to if this is possible.

Argentinean sanitary animal authorities (like your Animal and Plant Health Inspection Service) have suggested we continue with FMD vaccination for years to come. This is because FMD is not a country problem, but a regional problem that includes Brazil, Uruguay, Bolivia, Paraguay, etc. Therefore, the better sanitary status we could access is “FMD free with vaccination.”
Ing. Agr. Javier
Preciado Patiño
Buenos Aires, Argentina

August Was Great

The August issue of BEEF magazine was the most educational issue of any magazine of late. Great data and articles on folks in the fray. Even a great cover. I removed eight pages for my data bank. Good job our your part.
Darol Dickinson
Barnesville, OH

Performance At What Cost?

Regarding Wayne Vanderwert's commentary in the September issue (“How Much Performance,” page 34), it's interesting that he seems to use the term performance as a synonym for growth. The fact that such a limited concept of performance can be used without comment or apology speaks volumes about the mindset of people in the business.

In substance, Vanderwert is right on target, but it probably won't make him many friends among (black) Angus breeders. Their dirty little secret is that fertility and mothering ability have been and are being sacrificed in the quest for “performance.”

How much have maternal attributes been compromised? Without mandatory whole-herd reporting, the breed association can't answer the question. And no doubt the big “numbers game” breeders are glad enough to leave it that way for fear of what the answer might be.

Of course, I'm sure there are Angus breeders whose concept of performance does include fertility and mothering ability and who give these attributes due consideration in making their selection decisions. It's a shame such breeders currently have no way to document the value they provide, even though it's known to be more significant financially to commercial cow-calf operators than the (antagonistic) growth attributes of milk production, weaning weight and yearling weight.
Martin Turner
Elmer, MO

Another Top Issue

I have to commend you for your October issue of BEEF and the articles you present each week in your BEEF Cow-Calf Weekly electronic newsletter. You have superbly done what I think any trade publication worth its salt must do: bring your readers the latest in practices and technology, make us think about the bigger and longer-range picture of the business we're engaged in, challenge us with thoughtful commentary about that big picture without pandering to the latest one-issue fad, and much, much more. You deserve and have our appreciation for a continuing good job.
Wythe Willey
Cedar Rapids, IA

Editor's Note: Anyone wishing to receive our BEEF Cow-Calf Weekly electronic newsletter every Friday afternoon can sign up at by clicking the sign-up box on the opening page. We won't ask you for your life history or your operation's details — just your name, company and job title. The newsletter is free.

The checkoff is on the right track

Consumer attitude and behavioral research indicates industry efforts in beef safety, convenience, nutrition and producer image are on the right track in developing better demand for the product.

Rich Otley, Cattlemen's Beef Board director of evaluation, says:

  • Consumer confidence in the safety of U.S. beef is growing. At the height of the foot-and-mouth disease scare in 2001, consumer confidence in the safety of U.S. beef stood at 87%. It's since risen to 89%.

  • A greater percentage of consumers (52% today vs. 44% in 1999) believe beef is an important part of a balanced diet.

  • Most people now think beef and chicken are nutritionally equal. Of those who don't, more people think beef is more nutritious than chicken.

  • Consumer awareness of heat-and-serve beef products jumped from 43% in October 1999 to 75% in July 2002.

  • Household spending on beef is increasing at a faster rate than chicken. From 1999-2001, beef was the only meat with an increase in household spending.

  • Consumer awareness of the “Beef. It's What's for Dinner” tagline rose from 73% to 82% from October 1999 to July 2002.

  • In August 2001, 71% of those surveyed said they were either very or somewhat favorable to ranchers, up from 56% in August 1998.

An entrepreneur in Thailand is out to make fried bugs a snack as popular in the Far East as french fries, popcorn or ice cream. The firm Insects International wants to make fried bugs — a popular source of protein in some impoverished parts of Thailand during periods of drought — an upscale treat.

Insects International already has 60 franchises selling fried crickets, grasshoppers, coconut worms, giant water beetles, scorpions and other bugs, all guaranteed pesticide-free. The plan is to grow that number to at least 200 outlets in Thailand by the end of next year. The bugs are sold out of kiosks in hypermarkets, outside convenience stores and on the street. In addition to the fresh fried bugs, the firm plans to also market its own line of canned bugs.

A total of almost $8,000 in prizes is at stake in the 2002 BEEF Quality Challenge. The deadline for entries is Nov. 15. A cooperative educational program between Texas A&M University and BEEF magazine, this fifth annual edition offers prizes in four age categories.

See the October issue of BEEF magazine or go online at for the contest explanation, rules and entry form. The contest results will be presented in the December issue of BEEF, with winners pictured in the January issue.

While total meat supplies have consistently set records the past three years, antibiotics use in livestock is down, says the Animal Health Institute (AHI). In a survey of its membership (companies that make medicines for pets and farm animals), AHI found that from a total of 24 million lbs. of antibiotics sold in 1999, the level dropped to 23.7 million lbs. in 2000, and again to 21.8 million lbs. in 2001.

“Veterinarians and livestock and poultry producers are constantly evaluating their use of antibiotics as part of the judicious use of these products,” says Alexander S. Mathews, AHI President and CEO.

Mathews attributes the trend to:

  • Judicious use of antibiotics and continuing improvements in production practices that reduce the need for antibiotics.

  • Continued improvements in production and preventive care practices.

  • Ongoing efforts of various public health and consumer advocacy groups to raise awareness of the issue.

When's the best time to implement a drought strategy? It's one of the biggest challenges of cow-calf producers on range. Many wait until the drought is well underway, thinking rain will alleviate the drought-related problems.

But Rod Heitschmidt and Keith Klement of the Fort Keogh Livestock and Range Research Laboratory in Miles City, MT, say the forage situation as of July 1 is a good indicator. From analyses of 10 years of data, the duo found that, on average, about 90% of rangeland forage is grown by July 1. This knowledge, the researchers say, should permit ranchers to adjust their stocking rates long before their herds deplete the entire forage base.

In a move that could hasten consumer acceptance of irradiated foods, FDA will consider petitions by food companies to use alternatives to the word “irradiation” on packages of food treated with the bacteria-killing technology. Currently, irradiated foods' packaging must bear the words “treated with irradiation” or “treated by radiation” and carry the radura symbol.

Under the 2002 farm bill, which urged relaxation of the labeling rules, companies now will be able to seek approval for the use of such words as “cold pasteurization,” FDA says. New FDA guidelines released in October require petitioning firms to provide consumer research that shows shoppers will understand the proposed wording. The FDA then has six months to accept or deny the application.

This monthly column is compiled by Joe Roybal. Contact him at 952/851-4669 or e-mail [email protected].

$25,000 In Scholarships Available

More than $25,000 in scholarships is available to college students pursuing careers in the beef industry. Sponsored by the Chicago Mercantile Exchange (CME) and the National Cattlemen's Foundation (NCF), each of 20 students will be awarded $1,250 via the NCF's 13th annual CME Beef Industry Scholarship Program now underway. One student will also receive the top prize of an expense paid trip to the 2003 Cattle Industry Annual Convention and Trade Show in Nashville, TN, Jan. 29 - Feb. 1.

Requirements include:

  • Being enrolled as a full-time undergraduate student in a four-year institution for the entire 2003/2004 academic year.

  • Writing a brief letter expressing or indicating future career goals related to the beef industry.

  • Writing an essay of 750 words or less describing an issue confronting the beef industry and offer a solution.

  • Submitting two letters of reference from current or former professors or industry professionals.

  • Preparing a cover sheet to include: name, complete current mailing address and phone number, school name, year in school, permanent mailing address and phone number.

Submit materials, postmarked no later than Nov. 27, to Don Butler, National Cattlemen's Foundation, 9110 E. Nichols Ave., Ste 300, Centennial, CO 80112. More information is available at under the quick links and then scholarship information, or call Audrey Potts at 303/850-3317.

Why Future Beef Went Under

About 11 unforeseen squalls, a few navigational blunders, $250 million and you're sunk.

At least that's how it went for Future Beef Operations (FBO), which opened its state-of-the-art harvest facility in Arkansas City, KS, in August 2001. By the following March, FBO was ordered into Chapter 11 bankruptcy reorganization. And by its first anniversary in August 2002, the courts ordered it into Chapter 7 bankruptcy liquidation.

FBO's intent was to construct a vertically coordinated, closed-loop beef production system that could return producers more dollars. During its production zenith, FBO harvested 1,625 head/day, marketing most of the boxed beef to its exclusive retail partner, Safeway, which also had an investment stake in the company.

Ultimately, FBO planned to not only sort and control the cattle it was putting on feed, but to also have a hand in the genetic selection behind them.

Ronnie Green joined FBO in June 2000 as head of its genetic operations. He was named vice president of FBO's cattle operations in February 2002, just before the Chapter 11 order. By that time, it wasn't so much a matter of plugging holes on a sinking ship, as it was trying to limit the casualties. Green had the dubious honor of being the last one off the boat.

In the end, FBO was the victim of historically bad timing, technical failures, idealism and, arguably, the fact it was out-traded on the front end.

For perspective, FBO sourced all cattle (most of them FBO-owned) that would be fed at its partner feedlots, harvested by FBO and then marketed to Safeway in what was the industry's first exclusive production-retailer relationship attempted in volume. For its money, Safeway was securing a long-term beef supply of known quantity and quality. Meanwhile, FBO and its production partners felt a locked-in customer and long-haul pricing mechanism would guarantee them a profit.

FBO sold boxed beef to Safeway below market prices, thanks in part — at least conceptually — to the cost efficiencies gained through a coordinated system. And Safeway received retail product differentiated for food safety that was second to none.

More specifically, Green explains FBO consisted of five value-added units in addition to its packing and fabrication facility in Arkansas City:

  • case-ready ground beef,
  • case-ready variety meats, primarily for export,
  • cooked and marinated products,
  • pet treats and
  • blue-chrome hides

The five units were to be the profit centers for FBO, while boxed beef from the harvest and fabrication facility was to be the baseline, explains Green. Boxed beef would pay the overhead; value-added products would supply the profit.

Green says the concept of FBO was to “try to build a vertically coordinated supply chain that would allow the capture of value-added dollars from the system that had not been caught in closed-loop systems before. And to try to take out some of the inefficiencies in the system due to a lack of coordination. The idea in this case was to do it through a single retailer.”

Then reality set in.

What Went Wrong

Squall #1 — FBO designed its processing plant and business model around hot-fat trimming. They'd source the right kind of cattle and be paid only for the red meat yield delivered.

“In retrospect, that's one of the things that killed us,” Green says. “Our relationship with Safeway wasn't set up to take advantage of hot-fat trimming.”

So not only was FBO selling product below market price, but hot-fat trimming meant they had fewer pounds to sell at any price.

“Safeway was buying Select carcasses (the contract specification) at slightly under the market because we'd been banking so much on the value-added products,” says Green. “In reality, Safeway paid us the very bottom and then never bought the value-added products like they said they would.”

For instance, rather than buying enough case-ready ground beef to place in three divisions, as the plan dictated, Safeway put it in only one. So, at its peak, the value-added, case-ready ground beef unit FBO was banking on for profit was running at only 22% of capacity.

Squall #2 — Because of FBO's exclusive contract with Safeway, no other customers would jump in to buy product and close the gap. Potential customers figured they'd just be helping Safeway build a system that ultimately would be used against them.

Squall #3 — As for the case-ready variety meats, no one had a chance to buy them, at least not with the promised food safety interventions. Green says the interventions relied on a process called Supa-Chill, but FBO never got the equipment working right, nor would the manufacturer stand behind it.

Squall #4 — In building its business model, FBO felt an industry shortage of blue-chrome hides represented a huge potential for them. The blue-chrome process entails splitting the hair side of the hide from the flesh side — the most labor- and chemical-intensive part of finished leather production. Already planning to de-hair the hides as part of its pathogen prevention program, FBO concluded that extending the process to the blue-chrome stage was a logical step.

But FBO had problems getting the de-hairing process to work right. By the time FBO shut its doors, Green estimates only 5,000-6,000 head had been de-haired. As a result, they had more labor involved in the blue-chrome process than anticipated.

Even worse, just before FBO opened its doors, a competing packer decided to enter the blue-chrome hide market.

“Hides were a total disaster,” says Green. “There was a huge margin built into the hide facility in the business plan. When others got into the blue-chrome hide business right before we opened, the market went down the drain because there was plenty of supply.

“Needless to say, the problems with the de-hairing process, combined with additional competition in the market, meant we were getting under the anticipated market for blue-chrome hides. They were stacking up by the pallet, and we couldn't move them at an affordable (profitable) price,” Green says.

Toward the end, FBO fire-sold a boatload of hides to China. “It was another example of the design for value-added components being right, but the market not being built for them first,” he says.

Squall #5 — By the time FBO closed its doors, Green says the company was making money in its pet treat business, but pet treats are a seasonal market. With the contracts they had for the Christmas season they would just now be running that value-added unit at higher capacity.

Squall #6 — If timing is everything, then FBO had it all — bad timing that is. FBO chose to open its doors in August. Green explains August-October is historically the toughest time of the year for any packer to source supply.

Then came last fall's terrorism horrors of Sept. 11, the Russian ban on U.S. poultry and the foot-and-mouth disease rumor that crashed the futures market.

Squall #7 — FBO cattle buyers, contracting cattle for delivery all through the next summer, were overly bullish, often setting the markets when they were buying. When Green took over cattle operations, he quickly discovered FBO was badly positioned economically on way too many cattle at too high a level.

Squall #8 — Whether driven by pride or idealism, FBO had told people they were opening the doors to full production in August. And they did, despite the fact that none of the value-added units were ready at that time.

“If we could have operated four or five months (harvesting commodity cattle while getting the other units up and running) without investing in captive supply, it could have been a whole different story,” says Green. “One of my biggest personal concerns from the beginning was that the company was never willing to crawl, then walk. It just ran.”

Squall #9 — FBO thought it had addressed risk adequately in its contract with Safeway. The contract employed a “risk collar,” which means Safeway guaranteed that FBO wouldn't lose more than X dollars per head. But when losses began mounting, Safeway stopped paying, Green says. By the time FBO closed its doors, Safeway owed more than $10 million in this stop-loss money.

Squall #10 — What about the contract?

“One of the problems with FBO from the beginning was that the contract with the buyer was poorly constructed and too hard to defend,” says Green.

There were problems with other contracts, too. A disagreement with the owner of the system FBO planned to use for sorting cattle led to a multi-million dollar litigation that's still unsettled. So FBO had to develop its own sorting system, adding cost and delays to the endless money drain of litigation.

But Green points out FBO did honor its contracts with producers.

Squall #11 — FBO's most lethal mistake may have been that no retailer asked them to create the system.

“I think the concept can work, but there has to be a pre-determined outlet for the product in place. It has to be demand-driven. It can't be supply-driven, then see if it will work,” says Green. “There have to be the end users saying ‘we want a closed-loop system that can do these things.’”

Lessons Learned

All told, there was about $50 million in equity investment — no single investor held more than a 20% stake in Future Beef Operations (FBO), says Ronnie Green, the company's former vice president of cattle operations.

Three banks put up secured notes accounting for another $180 million (the largest was $160 million). Add about $18.5 million for Chapter 11 financing and Green says the total bill is about $250 million.

In return, Green shares some valuable lessons for the industry:

Lesson 1 — “We learned producers want to see something like this work and want to participate in it. I thought that would be a hurdle, and it wasn't. The willingness, desire and commitment to make it work on the producer side were there. Producers absolutely aren't the hurdle.”

Lesson 2 — “We learned the industry isn't yet willing to pay for food safety. They talk about it but won't do it. Even with this summer's E. coli attention, retailers were unwilling to pay for a safer product and system.”

Lesson 3 — “I have no doubt a coordinated system, done correctly, allows you to produce a more consistent product. But the implementation of doing that is very difficult. The industry talks systems coordination, but still operates in silos — cow-calf, stocker, feedlot, packer, retailer, etc.”

Lesson 4 — “If your business model calls for a single outlet for your product, the odds are stacked against you. You have to have a phenomenal partner who does everything they say they'll do and more, or it's tough to make it work,” Green says.

In other words, talk is cheap. All the partners involved must be passionate about making the system work.

“We learned that if you're going to set up a vertically coordinated supply chain, you'd better make sure you have good partners, passionate about the concept at all levels. Your contract with them had better be mutually beneficial and equally shared proportionate to the risk. And the contract had better be well-constructed,” he says.

Lesson 5 — “One of the hurdles I didn't foresee was people inside the company getting in the way of the good idea,” Green explains. “The idea was sound, but a lot of human faults got in the way, and the biggest one was greed. Rather than start slow, it was more a feeling of, ‘We'll put it all into this one system and capitalize on it right away.’ Walk before you run.”

Lesson 6 — “We learned there's a great desire among people for more information, but they don't want the hassle of figuring out what to do with it,” he says. “People will make changes, but there's a huge difference between getting data and using information to manage.”

Lesson 7 — “We found there are ways to sort cattle into uniform outcome groups and there is value in that, but there are simpler ways of doing it than some might think,” Green says. “Why have we known the value of sorting cattle for so long but been unable to implement it?”

Lesson 8 — “High cost isn't sustainable. You can't support high overhead unless you're a specialty item,” he says.

Finally, perhaps most telling, Green says, “We talk a lot about value-adding, branding and returning more dollars to the producer. But in reality, retailers and others up the food chain expect us to provide those things — that those things shouldn't be added value but standard value. If true, the ramifications for the industry's future are obvious; the industry will have to operate at higher volume and lower cost.”

Since FBO, Green has become a founding partner of Datagen Beef, a data management consulting firm.

New BRD antimicrobial

Pfizer Animal Health announces FDA approval of A180, an antimicrobial treatment for bovine respiratory disease in beef cattle. The first molecular anti-infective product to gain FDA approval in 4-½ years, A180 is designed strictly for therapeutic treatment of Mannheimia (Pasteurella) haemolytica and Pasteurella multocida in beef cattle, primarily feedlot and stocker cattle. The product features a dosage level of 1.5 ml./cwt. of bodyweight and just a four-day withdrawal. Intended for a judicious use program, it's available only by prescription from a licensed veterinarian.
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High Output Waterer

The Ritchie 300 is the latest in Ritchie Industries' line of automatic livestock waterers. The 300 features a compact uni-body design and is equipped with a ¾-in. valve for higher output and maximum watering efficiency. It features an 8.2-gal. trough capacity and is suitable for 125 head.
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Hydraulic StumpBusters

Shaver's adds two machines to its line of hydraulic StumpBusters designed for small tractors and skid-steer loaders. The SC-25 is can be mounted to the three-point hitch of any 15- to 35-hp tractor. It has single-direction cutting and grinds stumps 10 in. below ground level. The SC-25-H is a skid-steer loader-mounted version and is powered by a minimum 15- to 25-gpm hydraulic hookup. It can whittle a 45-in.-diameter stump to a 10-in. hole in a single pass.
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Stock Tank Cleaner

Bioverse Inc.'s Healthy Ponds Stock Tank Water Cleaner system safely and easily provides clean, healthy water in any stock tank. Veterinary-approved and safe for all animals, the product improves water quality and clarity, and it reduces tank-cleaning maintenance, as well as organic waste, sludge and odors. Each application treats up to 500 gals./day for 30 days.
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New Battle Gel Form

Battle, a high-energy micronutrient vitamin drench for beef cattle from the Vit-E-Men Co., now comes in a ready-to-use gel. Packaged in applicator tubes that require no pouring or mixing, the product quickly delivers essential nutrients, chelated minerals and vitamins to the animal's bloodstream. Both liquid and gel formulations are effective against scours, dehydration, respiratory problems, medication-related energy deficiencies and other nutritional deficiencies.
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Hybrid Utility Vehicle

Toro's Twister is a hybrid utility vehicle that hauls, dumps, plows and transports. The truck-style vehicle's unique suspension system offers better traction, improved stability and a smooth ride. It features a 14.75-cu.-ft. bed capacity and payload capacity of 1,600 lbs. Features speeds of up to 20 mph, available 4-wheel hydraulic brakes and a 9-ft. turning radius.
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Stock Tank Valve

Trojan Livestock Equipment's high-density, impact-resistant, polypropylene stock tank valve won't rust or corrode. The housing is constructed of one-piece, high-impact polypropylene to protect the water valve from weather and livestock. Easy to install, the valve provides a 20-gpm output at 50 psi. Plus, the plastic float won't saturate like Styrofoam floats.
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Odor Reduction

Reduce odors and toxic gasses in manure pits or lagoons with Gempler's Bio-Paks Digestant in pre-measured bags. The doses eliminate measuring, mixing, cleaning or special equipment. Just throw Bio-Paks into the lagoon, pit or pond, where they instantly dissolve and release waste-digesting enzymes that reduce foul odors and toxic gases.
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Novartis Animal Vaccines enters the modified-live vaccine (MLV) market with Quick Shield Intranasal IBR-PI3. The product requires one intranasal 2-ml. dose annually and is for use in non-pregnant cattle to help prevent infectious bovine rhinotracheitis (IBR) and parainfluenza Type 3 (PI3). Besides offering quick protection against IBR, the product's intranasal route is a preferred route of administration when practicing beef quality assurance guidelines.
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New Energizer Line

Tru-Test's new Delta line of Speedrite energizers are low-impedence units that deliver high output/Joule and are designed to work in the toughest environments. Either 0.5-Joule, 1-Joule or 2.5-Joule output units in both mains- and battery-powered formats are available. The energizers come with a two-year warranty that includes lightning damage. Plus, with each Delta energizer, Speedrite is packaging a free Fence Alert, an early warning device to warn of dropping voltage.
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The Other Drug War

It's too bad they don't make a life preserver for the spin zone because that's just where the war over antibiotics in agriculture will take you. The debate comes complete with confusing terms and definitions, no clear estimates of actual antibiotic use in food animals, conflicting scientific evidence and politics to boot.

Still, no matter how you view the antibiotics issue, the momentum for some sort of restrictions on antibiotic use in agriculture seems to be gaining.

“We have substantial evidence now that resistant pathogens do form in treated animals and can be transmitted to humans through the food supply,” says Linda Tollefson, deputy director of the Food and Drug Administration (FDA) Center for Veterinary Medicine. “From a public health perspective, that risk has to be minimized.”

In September, the FDA released drafted “guidance” to the animal health industry. (See “FDA Offers Industry Guidance,” page 30.) Not a formal rule, this proposal would require makers of a proposed animal antibiotic to assess whether use of the product in animals could encourage the growth of disease-causing bacteria resistant to antibiotics used in human medicine.

“The draft lays out quite vividly that we consider this a very serious issue,” Tollefson says.

The FDA actions follow related developments in Congress earlier this year. Legislators are considering two almost identical proposals — one in the House and one in the Senate — that would restrict routine feeding of medically important antibiotics to farm animals. (See “Animal Drug Bills In Congress,” page 32.) Both bills would phase out the non-therapeutic use of eight types of antibiotics in animal agriculture, including penicillins, tetracyclines, macrolides, lincomycin, bacitracin, virginiamycin, aminoglycosides and sulfonamides.

A Wake-Up Call

These bills are an ill-informed political solution to a scientific problem, says Mike Apley, DVM, of Iowa State University. “The fact that they are even in Congress should really grab our attention,” he says.

For starters, the people who put forth the bills have a very limited understanding of all the concepts involved in showing something is or is not a problem with resistance, Apley says.

“Absolute definitive proof of cause and effect between food animal use and human therapeutics would be very difficult at this time,” he says.

Instead, these bills put the emphasis on the sponsors of a drug to prove a negative — that a product isn't causing a resistance problem in humans. Furthermore, they really don't define how a drug would be proven safe, Apley says. Manufacturers would have no criteria and a very limited time to prove anything.

“Trying to prove a negative without any standards is an impossibility,” he says.

Behind The Legislation

One of the key players behind the bills is a coalition called Keep Antibiotics Working (KAW). Its primary objective is to end, what it calls, the “overuse and misuse” of antibiotics in animal agriculture. Participants include groups like the Center for Science in the Public Interest (CSPI), Environmental Defense (ED), Institute for Agriculture and Trade Policy, Sierra Club, Union of Concerned Scientists and the Waterkeeper Alliance.

“It's important to understand that we aren't talking about ending all agricultural use,” says Karen Florini, a coalition spokesperson and ED attorney. “You could still use them for treatment of sick animals, but not non-therapeutically.”

That sounds simple enough, but a lack of clear and consistent terms and definitions makes this debate complex. There's non-therapeutic use, routine use, prophylactic use, growth-promotant use, sub-therapeutic use, and disease prevention — just to name a few.

Neither of the bills KAW is backing offers an adequate definition of the antibiotic use they want to curtail, Apley says.

“If you just start calling everything ‘sub-therapeutic’ without a definition applied to it, then all of a sudden, it becomes a problem,” he says. “I look at the strictly growth-promotant use and the use that has a disease prevention or suppression purpose as entirely different things. They (those behind the legislation) don't seem to differentiate.”

Florini admits drawing a clear distinction between prophylactic use and other uses can be difficult. Still, KAW is very critical of livestock producers and convinced some producers would prefer to throw antibiotics at problems rather than address them through management.

“We're against routine, every flock, every herd prevention,” explains Tamar Barlam, MD, another KAW spokesperson who works for CSPI. “That's the routine use for which they (the animal health industry) are using the term ‘disease prevention.’ But they are really just giving it to every single animal that goes through a particular farm.”

Barlam says if a veterinarian looks at a group of animals and identifies a disease risk in the herd, then those animals should be treated. But what often happens, she adds, is producers or veterinarians say, “Gee, with all these animals so close together, disease is going to happen. Therefore, every animal needs to be treated with an antibiotic.”

KAW's position is that you can't provide for human health and use antibiotics in food animals for anything other than direct individual animal therapy of ill animals, Apley says. That concerns him.

“As a veterinarian, I take exception to that,” he says, “because I can have a benefit on disease incidence and disease severity by judicious, targeted application of animal antimicrobials early in or immediately prior to a suspected outbreak.”

Apley says he's frustrated that people behind the legislation likely have no understanding of modern agriculture. He wonders how many of them have seen modern beef production techniques.

“If they think they're going to force us to do more research and work on preventive programs by taking away the tools with which we address these disease outbreaks, I've got news for them,” he says. “We're already doing all of that.”

Controlling disease and the economics of drug costs are already major issues for beef producers, he says.

“To economize on the use of antimicrobials means preventing disease by other means,” Apley says. “We've got a very aggressive vaccine industry and also retained ownership and integrated marketing programs that are coordinating preventive programs much earlier in the animals' lifetimes to engender immunity. Nutrition and genetic selection for disease resistance are also major initiatives.”

For perspective, it costs producers about $2 to vaccinate a calf two or three times prior to big stresses. Compare that to the $15 to $20 it costs to treat an animal with antimicrobials if it gets sick.

“We're not too keen on just trying to medicate our way through it,” he explains.

Ignored Evidence?

Another target of KAW's criticism is animal drug makers, whose defensive tactics Florini tries to equate with those of the tobacco industry. The implication is that the animal health industry, which likely would feel the first effects of any ban on sub-therapeutic antibiotic use, is ignoring the scientific evidence on the problem.

But the Coalition for Animal Health (CAH), which includes the American Veterinary Medical Association and the Animal Health Institute (AHI), says it's committed to maintaining the efficacy of antibiotics for human and animal medicine. CAH says judicious use of antibiotics to protect animal health and to minimize pathogens is a vital part of providing a safe and healthy food supply for American consumers.

CAH's position is that “theoretical risk of public health being impacted by animal antibiotic use is not a real risk, and the potential of it becoming a real threat is diminishing.” Thus, CAH opposes the current legislation to restrict antibiotic use in agriculture, calling the bills a “simplistic solution” and contending such legislation overrides FDA's authority and “puts politics ahead of science.”

In September, AHI reported that the human health risk of antibiotic use in food animals is extremely small. That's according to an independent group of human microbiologists, risk assessors, veterinarians and animal health experts.

The group concluded that while the use of antibiotics in humans and animals undoubtedly leads to resistance, and while some resistant organisms reach humans via the food chain, little additional harm results from resistance — even when infection occurs.

“In 50 years of antibiotic use in animals and man, the development of resistance in animals has not made a major impact on human and animal health, and such a development seems unlikely to happen overnight now,” says Ian Phillips, MD, who chaired the group.

AHI also reports that antibiotic use in animals is declining, according to a recent survey of its members. (See Table 1.)

Even so, Apley says he's not sure either side in this debate is non-biased.

“I think antimicrobial use in animals can lead to development of resistance in some bacterial populations. But if we aren't careful, draconian control measures may carry through to control measures that adversely affect both animal and human health,” he says.

Possible Consequences

This legislation is really about “clear and compelling scientific evidence” that indicates the non-therapeutic use of medically important antibiotics needs to end, Florini says. Barlam concurs, adding that eliminating routine antibiotic use in livestock would benefit public health because bacteria that are more sensitive to antibiotics could then come back and repopulate.

But Apley isn't so sure. “It's naïve to think all those problems would go away by removing certain antimicrobial uses from food animals,” he says.

Phillips' group concludes that banning any antibiotic usage in animals, in the absence of a full risk assessment, is not useful and could even be harmful to both human and animal health.

So how would banning the preventive use of antimicrobials in animal agriculture impact beef producers? The cattle industry would certainly survive, Apley says, but the control of respiratory disease in higher-risk types of cattle would be severely limited. The effect, he says, would be at least a short-term increase in therapeutic use of antimicrobials and an increase in cattle fatality.

The Take Home

Florini says KAW's mission isn't about “being mean to farmers.” Barlam adds that the beef industry needs to recognize a growing consensus among healthcare professionals that routine use in animals is not a good use of medically important antibiotics.

“This isn't just a few groups or a few environmental groups,” she says. “We're getting a growing list of really respected healthcare professionals who are concerned about this as a public health issue.”

Apley agrees. The issue is important to beef producers because the misuse of antimicrobials in food animals could cause a problem for public health. But this must be put in perspective with other sources of resistance problems in human medicine, and legislating a short-cut deal designed to enhance other agendas is not the answer, he says.

“In defense of our industry, I think we're working hard to improve non-antimicrobial intervention strategies,” he says. “And we can continue to focus on some of the things we are already doing.”

Likewise, Phillips says efforts should instead focus on reducing the transmission of all food-borne pathogens regardless of their antibiotic susceptibility.

“This can only occur through insistence on good hygienic practices on farms, in abattoirs, during distribution and marketing of food, and in the proper handling and cooking of food,” he says. “And it must be accompanied by consumer vigilance.”

FDA Offers Industry Guidance

New regulations that could limit the development of new animal drugs are being considered by the Food and Drug Administration (FDA). The agency has the authority to protect human health by removing products from the market when they present a risk to public health.

A draft guidance it released in early September represents FDA's current thinking on the antibiotics issue. It recommends an approach for assessing the safety of new antimicrobial drugs for animals with regard to their microbiological effects on bacteria of human health concern. An alternate approach may be used as long as it satisfies the requirements of applicable statutes and regulations.

The guidance would for the first time require the maker of a proposed animal antibiotic to assess whether use of that product in animals could encourage the growth of disease-causing bacteria that are resistant to antibiotics used in human medicine.

If a drug is too similar to an important antibiotic for people, for instance, it could be kept off the market. Currently, the drug maker has to show only that it doesn't leave any residue in meat.

The animal drug industry has welcomed the guidance, in part because it avoids more aggressive solutions to the problem of antibiotic resistance. But the Animal Health Institute's (AHI) position is that advocates exaggerate the hazards of animal antibiotics to human medicine.

AHI, which represents animal drug companies, calls some details of the proposal “unnecessarily stringent” and says it “will make it very difficult for new antibiotic products to be approved.”

To download or read the 50-page draft online, visit

All comments and suggestions about the draft must be submitted by Nov. 27 and should be identified with the Docket No. 98D-1146.

To comment, write to: Dockets Management Branch (HFA 305), Food and Drug Administration, 5630 Fishers Lane, Room 1061, Rockville, MD 20852. Or submit comments electronically through

For more information, contact William T. Flynn at the FDA's Center for Veterinary Medicine at 301/827-4514 or by e-mail to [email protected].

Animal Drug Bills In Congress

Senate bill: Preservation of Antibiotics for Human Treatment Act (S.2508); sponsored by Sen. Edward Kennedy (D-MA); introduced May 13, 2002

Description: To begin phase out of “routine” feeding of medically important antibiotics to healthy farm animals

Latest major action: Referred to Senate committee on May 13, 2002; read twice and referred to the Committee on Health, Education, Labor and Pensions

House bill: Preservation of Antibiotics for Human Treatment Act (H.R.3804); sponsored by Rep. Sherrod Brown (D-OH); introduced Feb. 27, 2002

Description: To amend the Federal Food, Drug and Cosmetic Act to ensure that use of certain antibiotic drugs in animal agriculture doesn't compromise human health by contributing to the development of antibiotic resistance

Latest major action: Referred to House subcommittee on March 13; referred to the Subcommittee on Health.

For the text of these bills or status updates, visit the Library of Congress online at