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Packer Panel Stresses Necessity

HAY MAKER

Well-known member
Packer Panel Stresses Necessity
Of Focus On Consumers And Unity

By Colleen Schreiber

DENVER — Focusing on the consumer and working together was a recommendation repeated numerous times by a panel of packer representatives speaking at the recent International Livestock Congress meeting here. There was also considerable discussion on market access, food security and labor.

The theme of this year’s meeting was “Global Beef: Thinking Beyond the Fence,” and the packer session moderated by Dr. Tom Fields, Colorado State University, was about mixed signals versus real signals from the packer perspective. Fields started the discussion by asking all panelists to identify what they see as their company’s two biggest opportunities. He also asked the panelists to identify the two biggest obstacles or hurdles their companies face in bringing those opportunities to fruition.

Mel Coleman Jr., chairman of Coleman Natural Meats, based in Golden, Colorado, told listeners that one of the best future opportunities he sees is the ability to sell meat products to consumers at a value that reflects production costs. He also told listeners that he sees opportunity for the production sector to work more closely with consumers.

“Consumers do not understand where their food comes from,” Coleman commented. “I think we have a tremendous opportunity to let them know how we are stewards of the land, how we care for our animals, and how we farmers and ranchers across this nation are the core of this great society.”

He talked about the need to change the “commodity mentality.

“Retailers buy with the mentality that it’s all about price. Yet consumers who understand the product we produce are willing to pay a higher price,” he insisted.

Norman Bessac, vice president of marketing for Cargill Meat Solutions, Wichita, Kansas, told listeners that one of the biggest opportunities is in creating demand.

“We’re in the business of providing a product that provides both emotional and enjoyment benefits for our consumer,” Bessac commented. “Understanding that aligning ourselves so that we can meet that demand among groups that consume our product is absolutely our biggest opportunity.”

Another opportunity, he said, is in producing product to specification.

“Packers have been called a lot of things, but the thing we do provide to the industry is that we take all the inputs and sort those through and try and position those against the right markets so that we can maximize the demand and growth of the industry,” he insisted. “Our customers, our consumers, are looking for products that meet specific needs. They have very defined specifications and they rely on us to provide those. That’s critical for our success.”

As for obstacles, Bessac told listeners that labor is number one.

“I don’t think there is a person at this table who hasn’t felt the effects of trying to find good qualified people that can help us create demand for our products and produce our products to specification. It sounds easy, but we continue to struggle with getting people to staff our plants. That is clearly the biggest hurdle.

“We need a good, reliable labor force, and we can do the right thing legally and ethically,” he insisted. “We would like to work with government and other groups to make sure we can provide that type of environment.”

The second hurdle, Bessac told listeners, is regulations or risk management.

“We’ve been thrown a lot of curve balls, a lot of fastballs, a lot of challenges, over the last couple of years,” he noted, “and I think as an industry we’ve dealt with them, but that takes a lot of time and energy and focus away from creating demand for the product.”

Kevin Yost, executive vice president for customers and supply chain with Swift & Company, Greeley, Colorado, said market access is the primary major challenge facing the beef industry.

“Ninety-five percent of our product is eaten out of the United States,” Yost pointed out, “and today we do not have fair access to all these markets, particularly Japan and Korea. Meanwhile, Brazil, Argentina, New Zealand, and Australia are accessing those markets and developing loyal consumers and loyal customers.

“We have a good stable market here in the U.S. There is increasing demand for unique products here, yet the biggest opportunity for this industry lies outside our borders,” he reiterated.

The key to market access, Yost told listeners, is having cattle that fit the demands required by international customers. One of those demands is age and source-verified cattle.

“We need adequate supply lines of age-identified and source-identified cattle,” he stressed. “As much as we want to fight it, they (international customers) want age ID and source ID cattle, and we need to align our industry supply chain to be able to deliver that.”

The second major challenge facing the beef industry, Yost said, is cost control.

“We have increasing regulations that we either put on ourselves or that the government puts on us, and those regulations are causing the cost line to overwhelm the revenue line,” Yost told listeners. “So much equity has come out of various segments of this industry. We’ve become accustomed to boom and bust cycles. We must control cost so that we can be a viable protein against competitive protein like pork and poultry,” he stressed.

The industry, Yost said, must continue to focus on quality and improving the eating attributes of the product.

“I know we’ve worked for generations on it, but we’re not finished.”

He acknowledged that consumer expectations can be a tough target to hit, whether domestic or international.

“We have consumers in the U.S who want bigger TVs, but they want them flatter. They want higher performance cars that go faster, but they want high mileage.

“The same is true for beef. They want great eating quality, lots of marbling, but no external fat. They want that same great Prime eating experience that they get at Del Friscos at home, but they want to do it in a microwave,” he quipped.

Carcass size, he added, is another challenge that the industry must address.

“Frankly, cattle today are too big,” Yost told listeners. “Carcasses weighing 820 pounds yield a rib steak that the restaurants just don’t want because they don’t have a plate big enough.”

Dean Danilson, vice president for quality assurance at food safety with Tyson Foods, told listeners that his job is mainly about managing chaos and conflict.

“Trade chaos has just been phenomenal over the last couple of years,” Danilson said. “It’s driven our business, our core business.”

The packing industry, he noted, is losing $80 to $100 a head because of BSE.

“We all had the high-fives and the heel kicks when we got the agreement signed to reopen some of these markets but they’re not coming back very fast, in part due to lack of ID cattle,” Danilson said.

E. coli, he noted, has been a monkey on the industry’s back for many years, but food security is a growing issue the industry must deal with.

“We will probably see some food security issues that will turn the world upside down. We’re going to have to learn how to deal with it.”

Other challenges facing the industry, Danilson said, are infrastructure changes, changes in the corn industry due to growing demand for ethanol, and carcass size.

“All of these things affect the production side. We all have to become more efficient, packers included,” he stressed.

The panel was also asked to comment on how the packing industry will change over the next five years or so.

“Quite simply, packers will have to have a larger global footprint to compete,” Yost responded. “The world’s largest cow herd is south of us. They’re low-cost producers. They have market access. We do not.

“In order for us, as packers, to compete globally, we’re going to need to have multiple operations in countries around the world, because those customers not only want access, but as they become more sophisticated like U.S. customers, they’re going to demand the same things, i.e., just in time inventory,” he noted. “They’re not going to want product on the water that’s tying up precious working capital.”

The second big change, Yost said, will be a proliferation of supply chain partnerships.

“That’s a fancy way of saying that cow-calf producers, feeders, packers, customers must get aligned if we’re going to survive. The boom and bust, feast and famine cycles in this industry cannot continue if we want to have investments into value-added items, branded items to be able to keep pace with chicken.”

That signal, he told participants, must be direct and as clear as possible all the way from the consumer back to the cow-calf producer.

“It’s not about selling a commodity,” Yost insisted. “We’re there today to be blunt, but we have to get out of the commodity mentality so that we can deliver prescriptive items to customers and then work that back to get prescriptive cattle to meet those needs.”

Information, he noted, will be the wrapper that all product is wrapped in.

“These supply change linkages have an undergirding of information. Information is increasingly valuable today. That will only accelerate in the future, particularly with our consumers in Japan. When consumers go to their grocery store in Japan, they want to scan that UPC code and get a printout from the computer that tells them where that calf was born, how he was raised, the feeding regimen in the yard, and at what plant he was processed.

“That information is valuable to that consumer, and they’ll pay more for it,” he insisted. “And these supply chain partnerships are the only way to get it done.”

Cargill’s Bessac also stressed that future success will be about meeting consumers’ needs, particularly global consumers.

“This is no longer a U.S. market. We’re fast becoming a global market,” he reminded. “Last year a billion people entered the middle class. That means they now have the resources to buy protein.”

Bessac told listeners that there are more reasons than ever before not to buy beef.

“If you look at issues like cloning and antibiotics, consumers don’t understand these. We have to have a simple way to communicate that message. It can’t be a scientific, detailed message. They want to know that what they buy is healthy and wholesome and that it’s going to eat well and meet the needs that they have.”

Information, he added, will be key, and he predicted that there will be more and more consumer groups with specific needs and wants.

“As an industry and as a packer we have to position ourselves to first understand those needs. It will require more information and more alignment.”

And like Yost, Bessac stressed the importance of supply chain partnerships to future success.

“We’re going to have to partner with all segments of the supply chain and get reliable information that will hold up, not just to the test of the government, but to the test of the media. I can tell you there are a lot of people out there, investigative reporters who love to make a story by making a fool out of someone saying something is this and then proving beyond the shadow of a doubt that it isn’t,” Bessac commented.

Danilson predicted that in the future there will be larger and fewer packing plants in the U.S.

“If this ethanol thing evolves, we’re going to see feedlots driven to the north and to the Midwest to adapt to the feed sources of these ethanol output productions and grain sources,” he insisted.

Additionally, he said, carcasses will get smaller.

“Restaurants and retailers are telling us very loudly they’re too big, and that’s not going to go away.”

Animal ID and traceback, he said, will also be part of the future.

“We have to get there to participate globally and to meet the elements of food safety and security,” he insisted. “I don’t know who’s going to pay for it. Hopefully we all will share a little of the cost.

“We all watched a major fast food company take a serious body blow to their brand,” he continued. “Thank God it wasn’t ground beef this time, but rather lettuce, but it was the same little bugger animal.”

Food safety responsibility, Danilson told listeners, will not be borne by the packers forever. There will come a day that it will traced back to the feedlot and to the individual producer.

“We will rue the day that happens, not only as an individual but as an industry. It will come back to the environmental aspects and how we deal with the beast that we call manure and runoff.”

With regard to mandatory or voluntary, Danilson told listeners that time will tell.

“Our federal government and our cattlemen’s association have opted for a voluntary program,” he noted. “Our neighbors to the north have gone the other way with a mandatory program. Time will tell which is best for the industry.”

He also pointed out that premiums for ID’d cattle are not paid in all marketplaces. Animals sold through livestock markets, for example, typically don’t receive a premium for ID.

“In lining up animal ID cattle for the Japanese market, we are actively getting those calves from programs that are aligned, those that are approved. They are getting paid extra, but you have to be tied to a program.”

Coleman disagreed with Danilson’s prediction and that of other panelists with regard to size of packing plants in the future.

“I think rather than bigger and fewer plants, in order to align ourselves with consumers we need more regional, smaller plants. That will help us minimize some of the labor problems that we have and get us a little closer to the community that we’re serving product to.”

In the future, he said, the beef industry must become more proactive rather than reactive. He also pointed out that the beef industry of the future will become more market-oriented as opposed to production-oriented. Integrated marketing, Coleman told listeners, will help the industry establish relationships with consumers that will bring brand loyalty.

Like his counterparts, Coleman agreed that carcass size must be addressed in the future.

“We have to get away from these big carcasses that produce steaks that are about the size of a plate and are about as thin as a pancake. Nobody enjoys that.”

A question from the audience was directed to the panel regarding carcass size. He pointed out that moving to smaller carcasses seems to go against the economies and efficiencies of scale. The name of the game, particularly recently, has been to pay for the higher cost of feeder cattle by making them bigger at the feedlot. The same would be true at every point in the production cycle. The panelists were asked to talk about their solutions for solving the dilemma of rising production costs and the consumer who doesn’t want a pancake-thin steak.

An audience member also asked why the problem couldn’t be solved simply by cutting the ribeye, for example, in half.

Yost responded that there’s no question about it. The signal being sent today is to make them bigger. However, he reminded, the industry has typically operated “guard rail to guard rail.”

“It’s more about us staying right down the center of the road and not hitting the guard rails of 950 or 1000 pounds, but also not going back to 650 pounds, either,” Yost insisted.

“As we get more efficient in every segment we can pass on those cost savings,” he insisted. “The American consumer and the international consumer will pay a premium for high quality beef, but it can’t be too out of whack with competing protein.”

He reminded listeners that it’s not just the beef industry with carcass size issues. Hogs, too, are much bigger than they were 20 years ago.

“The loins and the hams are huge,” Yost insisted, “so our processing improvements have been about further muscle separation and selling more quarter loins and center cut loins. No matter what industry, we have to take that economy of scale-produced animal and break down the pieces that are demanded by the customers and the consumers.”

Bessac responded to the comment about cutting the steaks in half by reminding listeners that size is just one component.

“Taste, texture, eating enjoyment of the product is absolutely essential,” he stressed. “Making bigger animals lots of times means making tougher steaks, and when we do that, the less people will eat it and enjoy it.”
The industry, he told listeners, will have to make a choice. Will it produce for quality or efficiency?

“I think somewhere there is a balance,” Bessac insisted.

Finally, the panel was also asked to comment on the future of tenderness grading and whether such an assessment will be done in the packing plant at chain speed.

“There’s no question that tenderness is the Holy Grail in the beef industry,” Yost responded. “If it’s not the single key consumer indicator, it’s a very close second. As a company we’ve struggled to fill the demand we have for more tender products,” he added, “and we’re working very diligently on a variety of technology and information. We are investing dollars, time, resources to be able to access it at every segment, whether it’s at the genetic level, the feeding level, or online in the packing plant.”
 
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