1. Consumer Demand Drives Beef Industry Ted C. Schroeder Professor of Agricultural Economics Kansas State University tcs@ksu.edu National Beef Industry Development Fund Workshop September 19, 2002 Calgary, Alberta

2. U.S. Beef Demand Index

3. Markets at each stage coordinated chain, but worked poorly - highly varied product - little price-quality distinction - no incentives to improve - huge loss of market share Lack of Coordination

4. 1. Tender 2. Flavorful 3. Consistently High Quality 4. Convenient to Prepare 5. Healthy & Nutritious 6. Safe 7. Competitively Priced Consumers Demand

5. Tenderness & Brands Matter Spring 2002 K-State consumer beef preference study - 363 consumers -bid to exchange -real $, actual steaks K-State 2002 Study

6. Tenderness & Brands Matter

7. Flavorful?

8. Convenience Matters Source: AC Nielsen and NCBA

9. Convenience Matters Shredded Cheese Sales Increase 84% Source: AC Nielsen and NCBA

10. Bagged Lettuce Sales: Convenience Convenience Matters Source: AC Nielsen and NCBA

11. Where’s the Action? Beef industry will have segmented markets with both similar and divergent needs for each segment Key to success will be to determine role of producers in effectively and profitably meeting needs of the sectors

12. 1. Fresh Branded Case-Ready Products Vertical alliances abound – some 60 or more in U.S. USDA has 50 beef certification programs

13. Schroeder et al. 2002 cattle feeder survey – Kansas, Texas, Nebraska, Iowa Producers Changing Marketing

14. Producer Motivations Schroeder et al. 2002 cattle feeder survey – Kansas, Texas, Nebraska, Iowa

15. Source: Schroeder et al. 2002 Feedlot Survey Weighted-Average Percentage of Respondent Fed Cattle Marketing Using Live or Carcass Weight, Grids, and Other Pricing Methods, by Year 82.3% 52.5% 33.1% 15.6% 45.4% 62.1% 2.1% 4.9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 19962001Expect in 2006 Year Percentage of Cattle Live or Carcass Weight Grids Other Cash Market Disappearing

16. Ribeye Steak Prices in Kansas City – April 1, 2000 Retail Steak Prices Source: Lusk

17. 2. Meal Packages Single dish quick fix meal consumer expenditures expanded 83% in 2001 to $141 million – AC Nielsen 472 beef products introduced in 2001 Compared to 70 in 1997 - NCBA

18. 3. Food Service Food service continues to grow Diversity of product needs Quality control in volume are critical Contracts

19. What do they require? Product integrity High level of accountability of input supplier Product safety assurances – mega responsibility/risk Production practice assurances (including location?) Traceability Consistent continuous supply

20. Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment?

21. Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment? 2.What form of business ownership, risk sharing, valuation, and financial arrangements are most likely to be successful in meeting the needs of the consumer? In other words, what is the most efficient way to provide the products demanded?

22. Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment? 2.What form of business ownership, risk sharing, valuation, and financial arrangements are most likely to be successful in meeting the needs of the consumer? In other words, what is the most efficient way to provide the products demanded? 3.How will incentives to add value, innovate, and invest in development and research be rewarded?

23. Critical Research Questions 1.How can the beef producer (seedstock, cow-calf, and feedlot) position their operation to be part of the new food environment? 2.What form of business ownership, risk sharing, valuation, and financial arrangements are most likely to be successful in meeting the needs of the consumer? In other words, what is the most efficient way to provide the products demanded? 3.How will incentives to add value, innovate, and invest in development and research be rewarded? 4.How will producers manage increased risks associated with greater accountability/liability?

26. Primarily grass-fed beef imports for ground or processed beef

27. Primarily offals and high-quality fresh table cuts

28. U.S. Beef Exports to European Union EU bans import of beef produced using synthetic growth hormones (95% of U.S. fed beef)

29. U.S. Food & Drug Administration (FDA) U.S. Department of Agriculture (USDA) World Trade Organization (WTO) Lamming Group (European Scientists) All say growth hormones not food safety concern Growth Hormones

30. U.S. Food & Drug Administration (FDA) U.S. Department of Agriculture (USDA) World Trade Organization (WTO) Lamming Group (European Scientists) All say growth hormones not food safety concern Growth Hormones Yet, 54% of EU consumers indicated in 1998 survey that food must not have hormone use to be safe (INRA, Europe) “Consumer is King!”

31. No credible scientific evidence suggests it is a problem. Vast majority of U.S. consumers not concerned with use of GMO crops in food or animal production However, Only 30% of German consumers, 60% of France, and 63% of United Kingdom consumers unwilling to buy food produced with GM crops. 57% of German, 38% of France, and 39% of U.K. consumers view GM crops as a health risk. (Source: Hoban) Is Feeding GMO Grains a Problem?

32. Estimated Premiums Average Consumers Indicated they would Pay for Steaks United Steak AttributeFrance Germany Kingdom U.S. No Growth $9.94/lb. $7.29/lb. $7.39/lb. $8.12/lb. Hormones Not fed GMO$9.32/lb. $7.67/lb. $6.31/lb. $3.31/lb. Grain Source: Lust et al., 2002

33. What about Margins?

34. Farm to Wholesale

35. Wholesale to Retail

36. Are USDA Retail Prices Wrong? Error range: 2% Top Round 18% for Porterhouse (8% for ground beef) Source: Lensing, Jones, and Purcell, 2002

37. Consolidated Beef Producers