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The Cost of Meeting Consumer Demand(s) John Lawrence Extension Livestock Economist and Director, Iowa The Cost of Meeting Consumer Demand(s) John Lawrence Extension Livestock Economist and Director, Iowa Beef Center Iowa State University www. iowabeefcenter. org

Increased demand • Increased demand for beef – Grown steadily since 1998 – Consumers Increased demand • Increased demand for beef – Grown steadily since 1998 – Consumers pay more for same amount – Quality, convenience, carbs • Increased demand on beef – Moving from “trust me” to “prove it” www. iowabeefcenter. org

Commodity to Product • Commodity world – All beef is beef – Minimum standard Commodity to Product • Commodity world – All beef is beef – Minimum standard to qualify – Low cost producer of the minimum wins – Minimum standard is rising as are costs • Age verification, feed ban signatures, COOL – Grades define various minimums not products www. iowabeefcenter. org

Commodity to Product • Product world – Some beef is different – Differentiated on Commodity to Product • Product world – Some beef is different – Differentiated on attributes and brands – Consumers pay more for different • Attributes • Processes • Brands www. iowabeefcenter. org

Certified programs • USDA lists 42 certified beef programs – 25 Angus programs – Certified programs • USDA lists 42 certified beef programs – 25 Angus programs – 3 Hereford programs with breed claim – 4 were process verified or require more than visual inspection • Red Angus feeder cattle • PM Beef • 2 Nolan Ryan branded beef www. iowabeefcenter. org

Differentiated products • Detectable attributes – Marbling – Guaranteed tender – Grass-finished • Credence Differentiated products • Detectable attributes – Marbling – Guaranteed tender – Grass-finished • Credence attributes – Content: nutrients, fatty acids – Process: natural, free-range, non-GMO www. iowabeefcenter. org

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Standardized Betas for Regression Variables by Choice-Select Spread Ch-Sel Std Dev Spread Net Ret Standardized Betas for Regression Variables by Choice-Select Spread Ch-Sel Std Dev Spread Net Ret Standardized Coefficients (%) FE HCW FC REA KPH MAR 4. 00 50. 36 -38. 7 49. 3 -9. 3 22. 4 2. 0 43. 3 8. 00 52. 61 -35. 6 44. 4 -8. 2 19. 7 1. 8 54. 7 12. 0058. 00 -31. 8 38. 5 -7. 2 15. 3 1. 8 61. 7 16. 0065. 77 -26. 3 31. 1 -5. 3 12. 9 1. 1 65. 1 www. iowabeefcenter. org

Cow Cost vs. Feedlot Return Low Feedlot Return $ 32. 93 Cow Cost $ Cow Cost vs. Feedlot Return Low Feedlot Return $ 32. 93 Cow Cost $ 148. 50 High $ $ 168. 43 24. 07 www. iowabeefcenter. org

Willingness to pay • Lusk, guaranteed tender steak – No label: 51% pay $1. Willingness to pay • Lusk, guaranteed tender steak – No label: 51% pay $1. 23 premium – Label: 61% $1. 84 premium • Feuz and Umberger, grass v grain fed – On average $1. 61 more for grain-fed – 23% paid $1. 36 premium for grass fed • Loureiro and Umberger, US Certified – Premium for US Certified over no label www. iowabeefcenter. org

Verify label claims • USDA wants definition of terms – Protecting consumers from fraud Verify label claims • USDA wants definition of terms – Protecting consumers from fraud – Branded product needs to assure compliance with stated claims – Reputation and liability – Cost of enforcement on top of cost to produce special attributes www. iowabeefcenter. org

Meat Standards Australia • MSA Guaranteed Tender – Animal: Age, grain-fed, % Bos Indicus Meat Standards Australia • MSA Guaranteed Tender – Animal: Age, grain-fed, % Bos Indicus – Slaughter plant: Electrical shock, grading, aging – Retailer: Sale date, cooking – Enforcement and traceback if needed www. iowabeefcenter. org

Retail sector changes • More powerful and demanding retailers – 10 firms with 49% Retail sector changes • More powerful and demanding retailers – 10 firms with 49% market share – Walmart + Sam’s 17% – House brands and exclusive suppliers – Liability issues – Outsource inspection and compliance www. iowabeefcenter. org

Retail sector changes • European influence – 2 of top 11 US grocers are Retail sector changes • European influence – 2 of top 11 US grocers are European – 4 of top 10 world grocers are European • Chain Capitan model – Retailer is in consumer protector role – US consumers still trust USDA for safety – Others are not a trusting of gov’t www. iowabeefcenter. org

European lessons • Chain Capitan model is costly – Safety is competitive issue – European lessons • Chain Capitan model is costly – Safety is competitive issue – Must be audited to sell – Multiple audits – Multiple issues beyond safety • Feed use • Animal rights • Worker safety www. iowabeefcenter. org

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Animal welfare • • Mc. Donalds plant verification FMI and NCCR guidelines SWAP certification Animal welfare • • Mc. Donalds plant verification FMI and NCCR guidelines SWAP certification TQA certification www. iowabeefcenter. org

Growing demands • • • Widening Choice-Select spread Consolidating retail sector Brands with claims Growing demands • • • Widening Choice-Select spread Consolidating retail sector Brands with claims and liabilities Consumers looking for choice Rising commodity standards www. iowabeefcenter. org

Victim or Opportunist • Most under manager’s control • Some changes require production response Victim or Opportunist • Most under manager’s control • Some changes require production response (genetics, nutrition) • Some changes require management response www. iowabeefcenter. org

Quality management systems • A producer directed management system to assure that the producer Quality management systems • A producer directed management system to assure that the producer – Capable of meeting the requirements – Document that requirements are met – Information to evaluate production and marketing opportunities when they arise. www. iowabeefcenter. org

Quality management systems • Various models available ranging in complexity, cost, and flexibility • Quality management systems • Various models available ranging in complexity, cost, and flexibility • 3 rd party verification to have value • Examples include – ISO 9000: 2000 – USDA Process Verified – ISO 14001 www. iowabeefcenter. org

Quality management systems • Cost associated with developing management system, audits, and certification • Quality management systems • Cost associated with developing management system, audits, and certification • Benefits include – Market flexibility – Better management – Lower costs www. iowabeefcenter. org

Cost of not meeting demands • Commodity market will continue – The minimum will Cost of not meeting demands • Commodity market will continue – The minimum will continue to rise • Missed opportunities if you are not eligible for value added markets • May lose to pork or poultry, and some beef producers will lose to other beef producers www. iowabeefcenter. org

Thank You Are there any questions? www. iowabeefcenter. org Thank You Are there any questions? www. iowabeefcenter. org