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

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Presentation on theme: "Www.iowabeefcenter.org The Cost of Meeting Consumer Demand(s) John Lawrence Extension Livestock Economist and Director, Iowa Beef Center Iowa State University."— Presentation transcript:

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

2 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”

3 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

4 Commodity to Product Product world –Some beef is different –Differentiated on attributes and brands –Consumers pay more for different Attributes Processes Brands

5 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

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

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9 Standardized Betas for Regression Variables by Choice-Select Spread Ch-SelStd Dev Spread Net Ret FEHCWFCREAKPHMAR Standardized Coefficients (%)

10 Cow Cost vs. Feedlot Return Feedlot Return Cow Cost Low$ 32.93$ High$ 24.07$

11 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

12 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

13 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

14 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

15 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

16 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

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19 Animal welfare McDonalds plant verification FMI and NCCR guidelines SWAP certification TQA certification

20 Growing demands Widening Choice-Select spread Consolidating retail sector Brands with claims and liabilities Consumers looking for choice Rising commodity standards

21 Victim or Opportunist Most under manager’s control Some changes require production response (genetics, nutrition) Some changes require management response

22 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.

23 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

24 Quality management systems Cost associated with developing management system, audits, and certification Benefits include –Market flexibility –Better management –Lower costs

25 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

26 Thank You Are there any questions?


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