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How will Cattlemen Deal with the Future ? Range Beef Cow Symposium XVIII Mitchell (NE), December 9-11, 2003 Range Beef Cow Symposium XVIII Mitchell (NE),

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Presentation on theme: "How will Cattlemen Deal with the Future ? Range Beef Cow Symposium XVIII Mitchell (NE), December 9-11, 2003 Range Beef Cow Symposium XVIII Mitchell (NE),"— Presentation transcript:

1 How will Cattlemen Deal with the Future ? Range Beef Cow Symposium XVIII Mitchell (NE), December 9-11, 2003 Range Beef Cow Symposium XVIII Mitchell (NE), December 9-11, 2003 © Marc Vanacht - December 2003

2 How will Cattlemen Deal with the Future ? © Marc Vanacht - December 2003

3 Powerful forces are driving the US beef value chain toward fundamental change However, Inertia in the system will try to make change go slow and incremental Many technical issues still need solutions, but cycle times are accelerating Powerful forces are driving the US beef value chain toward fundamental change However, Inertia in the system will try to make change go slow and incremental Many technical issues still need solutions, but cycle times are accelerating Abstract © Marc Vanacht - December 2003

4 Mc Donald imposes tighter rules on how its ‘supply chain animals’ are treated Kraft will ‘reduce the size of its portions’ to help fight the issue of obesity. Overreaction or... Kraft’s parent, Altria, owns Philip Morris & knows about grinding wars with public opinion. Wal-Mart urges food industry to lower calories & sugar Frito Lay launches the “Smart Snack” label ( WSJ, 8/6/03 ) Why do they ‘give in’ ? © Marc Vanacht - December 2003

5 BSE Source: The Wall Street Journal, May 27, 2003 MEANWHILE... Europe tests animals PER DAY Japan tests EVERY bovine in the food chain In 2001 the US tested +/ bovines In 2002 the US tested +/ bovines GREAT ! © Marc Vanacht - December 2003

6 Fundamental Challenges to Agriculture Availability & Cost of Quality Water Availability & Cost of Knowledgeable Manpower Downstream Shift of Economic Power Demanding consumers make future uncertain International Politics and Power play © Marc Vanacht - December 2003

7 The Western US remains in ‘drought alert’ Many pockets ranging from extreme to exeptional Water © Marc Vanacht - December 2003

8 The Issue of water Today: Shortages in dry areas Competition with lawns Competition with recreation Competition with energy 2010: highly populated areas 2020: Global shortage (except Canada) Source : Managing Freshwater Shortages and Regional Water Security Conference October 24 – 25, 2002, Des Moines, Iowa, USA © Marc Vanacht - December 2003

9 Reduced Availability: Urbanization Graying of operators Natural & human disasters (like AIDS in Africa) Cost: Global supply chain drives up rural wages The Issue of manpower Source: ‘ Creating Digital Dividends’ Conference, October 16-18, 2000, Seattle, Washington © Marc Vanacht - December 2003

10 Concentration in the food chain (agriculture, transformation, processing & marketing) Power of retailers In US: value of agriculture = 15 % of value of food In US: 50 % of food $$ “out of the home” ➥ Need for further integration into the food chain Shifting Economic Power © Marc Vanacht - December 2003

11 The World’s biggest Company is Wal-Mart Sales: > $244 bn... of which Food: > $ 54 bn Employs > 1.3 million (non-union) ‘associates’ of which outside USA Every week 138 million customers visit a Wal-Mart store As of 2005 Wal-mart will use RFID for supply chain management (pallet & case) Power has shifted Credits: Pink Floyd, A hole in the wall, and Wal-Mart, 2002 Annual Report © Marc Vanacht - December 2003

12 Consumers needs and preferences change Detroit car industry learned the hard way “Health and Nutrition” is NOT a static target Food industry is constantly adapting Fickle Consumers ? New prods Nutritional claims ‘93‘97‘01 Low fat Low cal No add/pres Low Sugar All Natural Organic Source: World Grain, Sept 2003, p.70 © Marc Vanacht - December 2003

13 “Origin” affects freedom & cost of product flow “Cultural” sensitivities vs. process & content Rural (farm) votes matter... everywhere Governments want to be seen securing low cost, healthy food for the masses Recent concerns re. tampering & bio terrorism Food Politics... Everywhere © Marc Vanacht - December 2003

14 Amazing timing... © Marc Vanacht - December 2003

15 USDA ANNOUNCES INITIATIVES TO IMPROVE FOOD SAFETY Releases Food Safety Vision Document to Guide Continuing Safety Efforts USDA MARKS PROGRESS ON BSE PREVENTION ACTION STEPS Triples Number of Tests for BSE USDA Homepage, 7/14 © Marc Vanacht - December 2003

16 Emerging Food Regulations Satellite Teleconference Wednesday, June 18, Downlink sites in Arizona, California, Idaho, Oregon, North Dakota, Washington, Wisconsin & Canada! BIOTERRORISM PREPAREDNESS RULES PRIOR NOTICE RULES FOR IMPORTS COUNTRY OF ORIGIN LABELING (C.O.O.L.) FDA FIELD SECURITY ACTIVITIES / USDA INCIDENT PROTOCOL TRACEABILITY STRATEGIES FOR LARGE & SMALL PROCESSORS © Marc Vanacht - December 2003

17 To protect their franchises, food companies & retailers exercise influence upstream They will achieve new requirements of - Origin - Management - Process - Product Specs And Food Companies... They will get it done... directly, or through intermediaries / agents © Marc Vanacht - December 2003

18 Food: Cargill Inc. Biggest privately held company ($55 bn) Integrated chains: Orange juice, Baby food Converted elevators to Identity Preserved Cargill owns Excel Beef... Value Chain Integration © Marc Vanacht - December 2003

19 US Business Culture favors entrepreneurial freedom over regulation detailed bi-lateral contracts competition over cooperation Financial markets do not see food as a investment & growth opportunity, so $$$ will have to come from cash flow However... © Marc Vanacht - December 2003

20 ‘Adversarial’ (zero sum) thinking in the value chain Inefficiencies accepted as ‘cost of doing business’ It is difficult to change behavior of participants Obstacles to change © Marc Vanacht - December 2003 Changes in one part of the value chain will impact (many) other parts of the system

21 Will Initially try to avoid change, and then try to limit the scope / speed of change Ultimately change will happen incrementally with new infrastructure with speciality markets enabled by cash flow created by value So... System Inertia © Marc Vanacht - December 2003

22 Grow food with a lot less resources and people Sell food to fewer & more global oligopsonistic customers Make food fit increasingly demanding & diverse consumers needs and tastes Operate with less clout, leverage & protection Summarizing: Agriculture (& Beef) will... © Marc Vanacht - December 2003

23 How possibly can we do all that without using our brains, & develop the right strategies ? How possibly can we do all that without using our brains, & develop the right strategies ? Now...Tell me... © Marc Vanacht - December 2003

24 Past Successes UPSTREAM - Mechanization - Irrigation - Chemicals for fertility - Chemicals for pest control - Improved seeds - New cultivars DOWNSTREAM - Refrigeration - Additives: shelf life, flavor, looks... - Packaging: shelf life, appearance, convenience - Micro wave cookers © Marc Vanacht - December 2003

25 Recent successes... Downstream Bar code scanners at the point of sale Cleaned, cut & bagged lettuce, mixes & salads Supply Chain Management Upstream Integrated water, pest & fertility mgt Improved genetics & biotechnology Automation of field tasks Precision Agriculture © Marc Vanacht - December 2003

26 Large acre arable crops: improve productivity 50 m ac yield monitored, > 15 m ac VRT ~ 30% of acres in corn & soybeans ~ 10% of acres in wheat Adoption in cotton with new yield monitor Forestry: GIS & images for early warning Precision Ag. in the US © Marc Vanacht - December 2003 Credits: Trimble Navigation

27 P.A. Expansion © Marc Vanacht - December 2003 High Value Farming Managing ‘land’ aspects of livestock operations IPM systems (site specific data management) Organic farming (operations & documentation) Smaller, part time ‘suburban’ farms (liability) “Market garden” farm (quality & liability)

28 Farms confronting sustainability issues: large animal confinement: manage ”byproducts” range land: to avoid overgrazing Managing ‘land’ aspects of livestock operations irrigated crops: water shortages high manpower cost: automation, productivity social pressure at the rural - suburban edge P.A. Expansion © Marc Vanacht - December 2003

29 Alphabet Soup: Bluetooth, a/b/g, GPRS, G 2.5, G3, RFID transponders etc... NOT Person-to-Person... but Object-to-Object, or Animal-to-Object For data transfer, identification, networking Ideally ‘real time’, but often ‘batch’ works too Wireless scenario’s © Marc Vanacht - December 2003

30 Wireless &Wi-Fi (802.11) TODAY: Wine Estates, for real time data transfer from equipment & monitors Trucks & elevators ‘Les Culturales’ Ag Show InfoAg 2003 (Indy, July) Imagine... in ? years: field equipment & animals wirelessly connected to dealers, farm computer(s), service providers, customers... Wireless in Agriculture © Marc Vanacht - December 2003

31 Small devices that receive, store & send data ‘Read-write’ capability of RFID could turn it into “embedded traceability” Ruggedness seems no issue Costs are coming down fast (5ct now) RFID (Radio Frequency IDentification) © Marc Vanacht - December 2003

32 GPS: First military tactical use in Gulf War I, First agricultural use within 5 years RFID: First military tactical use in Gulf War II, Navy (dogtags) All supplies by 2005! When will we see agricultural use...? GPS & RFID... From military to civilian use © Marc Vanacht - December 2003

33 In 2003 Gillette buys 500 million RFID 10 cents/piece for inventory management P & G will implement in 2004 Air Canada asset tracking Luggage Las Vegas, Brussels and Stockholm airports (End 2003) Ford’s engine plant in Windsor Ontario (A.) Michelin Tires (Sensors & tracking) Commercial use of RFID... © Marc Vanacht - December 2003

34 June 10, 2003, Wal-Mart announces it expects main suppliers to switch to RFID by Jan. 2005, for pallet & case inventory management Library of Rockefeller University in NY (A.) Sainsbury’s (UK grocer) (Experimental) RFID in Retail & Services © Marc Vanacht - December 2003

35 Animal ID Systems (Greeley, CO) VeriPrime Inc. (Wichita, KS) EC Research Center Test ,000 beef - 490,000 sheep - 30,000 goats France - Germany - Italy - Holland - Spain - Portugal Injectable - Digestive tract - Ear tag Technology works and is ready for commercial implementation - inclusion in management systems RFID in Agriculture © Marc Vanacht - December 2003

36 Please Note: Time scale Single technology Text © Marc Vanacht - December 2003 Technology Cycles

37 Classic Model: Paced Succession Example: Wind to Steam to Diesel © Marc Vanacht - December 2003

38 Technology Cycles Hi-Tech Model: Time Compression Example: Intel Pentium © Marc Vanacht - December 2003

39 The Beef Value Chain (maybe) used to follow the ‘classic model’ of paced succession. The World has changed... Maybe Beef will have to speed up... and learn about time compression Technology Cycles © Marc Vanacht - December 2003

40 When your next truck... phone... computer ? Who will buy your calves in 2004? A few questions... © Marc Vanacht - December 2003 How many cycles before 2010? Two? Three? Four? Which ones will we participate in?

41 New Zealand Lamb, and Tyson Foods (our biggest customer) put RFID tags on their shipments to Wal-Mart Argentina Beef effectively complies with Bio-Terrorism Act traceability requirements Chronic Wasting Disease becomes a household word, just like..... How prepared will we be when.... © Marc Vanacht - December 2003

42 Quality © Marc Vanacht - December 2003 Consumers pay for Quality Customers pay for Quality Quality means profit Quality usually entails: Something tangible / measurable A repeatable process & predictable results Up/downstream traceability (documentation)

43 Genetics Grid Boxed Weight Consistency Tangible & Measurable © Marc Vanacht - December 2003

44 Formal planning Record ‘as done’ Track results Analyze deviations Feedback loops Integrated: compliance by the entire chain Process & Result Been there - Done that: Salmon... 5 years Hogs years Poultry years Kosher years Been there - Done that: Salmon... 5 years Hogs years Poultry years Kosher years

45 Notebook --> handful of units Ledger & tags --> few dozen units PC & Worksheets --> low hundreds Database & barcodes --> mid/high hundreds RFID beyond thousand RFID if special value or high integration, whatever the size of herd ! Documents - Traceability © Marc Vanacht - December 2003

46 Now is the time to... Enjoy the prices... before they self-destroy Invest in Cost reduction, for the next downturn Invest in Quality, to get more value Integrate into the Value Chain Enjoy the prices... before they self-destroy Invest in Cost reduction, for the next downturn Invest in Quality, to get more value Integrate into the Value Chain

47 THINK QUALITY & PROOF of QUALITY SO... THINK FOOD LOTS OF FOOD THINK SECURITY & PROOF OF SECURITY © Marc Vanacht - December 2003

48 Thank You !

49


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