By Dr. Allen Williams
The U.S. grassfed market has grown significantly over the past 15 years. According to data compiled by the Wallace Center of the Winrock Foundation, retail sales of domestically produced grassfed beef were less than $5 million in 1998, with only about 100 beef producers actively involved in grassfed beef production. By 2012, domestic retail sales of grassfed beef had topped $400 million, with more than $1.5 billion in combined domestic and imported product sales.
That amounts to exponential growth for grassfed beef by any measure. Certainly grassfed production and marketing have come a long way in the U.S. over the past decade or so, with continued growth projected.
Consumer awareness of, and consumer demand for, grassfed have grown steadily since 2003. In the past 10 years, grassfed beef demand has grown at an annual rate of 25-30%. Recent consumer research indicates that this pace will not slow significantly anytime in the near future.
The annual Mintel Red Meat Report provides valuable insight into consumer purchase habits. The 2012 Mintel report showed that 43% of all consumers surveyed had purchased “Grass Fed” or “Locally Raised” beef within the past year. When asked to rate the terms Grass Fed, Environmental Impact, Hormone/antibiotic free, and Taste on a scale of 1 to 10, with 10 being the most important, consumers rated Grass Fed at 7.2, Environmental Impact 7.5, Hormone/antibiotic free 7.9, and Taste at 8.7.
Grassfed beef production typically encompasses favorable environmental impact and is generally hormone and antibiotic free. However, there can be wide variations in the taste of grassfed beef. Since taste was the most highly rated of the four attributes, it is important that grassfed producers pay particular attention to factors that can create off-flavors.
A recent study conducted by Wellspring Management determined that grassfed beef demand in several major U.S. markets ranged from 3.0% to slightly more than 6.0% of the total beef markets in these metropolitan areas. The same study revealed that the top 15 grassfed branded beef programs in the U.S. were harvesting almost 1,700 head of grass-finished cattle weekly and more than 87,000 annually. Some of these branded programs have experienced growth rates of more than 50% over the past two years. These programs are marketing grassfed beef to more than 5,000 retail locations, including stores such as Super Target, Kroger, Hy-Vee and Costco.
This rapid growth in grassfed beef demand in the U.S. has not gone unnoticed by other major branded beef programs, packers and investors. There are a number of major branded beef programs that are actively sourcing and marketing grassfed, and many more that are examining how to do so.
They include long-established branded beef programs such as Meyer Natural, Maverick Ranch, Nolan Ryan and Country Natural. Cargill, one of the “Big Four” packers in the U.S., recently announced they will begin marketing an Australian-produced grassfed beef in the U.S in partnership with Teys Australia, a 67-year old beef processor. For years the two companies have partnered in marketing grassfed in Asia, and soon they will begin doing so in the U.S.
Big challenges, too
But the rapid growth does not mean there are no problems in the grassfed beef sector. As a matter of fact, the more rapidly you grow, the more problems you introduce and encounter. Even though we have come a long way over the past 10 years, we still need to deal with some significant challenges and problems.
Yet the challenges and problems provide opportunity to strengthen the grassfed sector and build market share. Over the next several months I will discuss these challenges and opportunities, and present possible solutions based on many years of trial and error.
Many of the challenges are not unique to the grassfed sector of the beef industry. These include ongoing drought in many areas of the U.S., unstable weather patterns throughout the country and globally, ever-rising input costs, record-high live cattle prices, record-high retail beef prices, an ever-diminishing national beef cow herd, more grassland being converted to corn and soybean production, high land prices and decreasing consumer demand for beef, resulting in market share being lost to other proteins.
At the 2013 Grass Fed Exchange Conference in Bismarck, ND, Bill Helming, former NCBA Chief Economist and Founder of CattleFax, presented data showing the national cow herd inventory declined 36% over the past 39 years, from 45.7 million head in 1975 to 29.3 million in 2013. After peaking at 84.4 lbs. per person in 1970, per-capita beef consumption fell to just 56.6 lbs. in 2012 — a 33% decline. With retail commodity prices for USDA Choice now at a record-high $5.39/lb., beef market share in the U.S. will continue to shrink in the near future as consumers choose cheaper protein sources.
Of increasing interest and importance is the fact that ground beef’s share of the total beef market continues to grow. In 2012, more than 56% of all beef consumed in the U.S. was in the form of ground beef. This will certainly affect the future direction of the beef industry.
Grassfed’s special challenges
There are also challenges that are either unique to, or have a greater effect upon, the grassfed sector in particular. These range from farm and ranch production issues to processing, further processing, cost control, dealing with USDA rules and regulations, cold storage, distribution and marketing.
On the production side of things, we still have significant issues with proper animal genetics, forage and grazing management, optimum and cost-effective forage finishing, economies of scale and 365-day forage finishing.
With genetics, just like with mathematical equations, bad data (genetics) in equals bad data (genetics) out. The old saying that you can’t make a silk purse out of a sow’s ear is very true in this case. While it is true we can take lower-quality stocker calves and “add value” to them, we cannot take bad genetics and expect to have an animal that will finish well on grass and produce a high-quality carcass that results in a favorable eating experience.
Genetics only part of it
On the other hand, we can have the best grass-based genetics available and still produce a poor end-product due to the manager’s inability to properly finish them on forage. Many producers who have done a great job of grazing cow/calf pairs and even stocker calves have failed miserably when they tried to actually finish cattle on grass. Cost of production and economies of scale are vitally important to the overall profitability of a grass-finishing operation. As producers, we must determine how to effectively control costs so that we can determine adequate margin.
In addition, with the popularity of grassfed beef, retailers and restaurants are demanding fresh (not frozen) beef 365 days a year. This requires a year-round strategy that allows cattle to achieve a high degree of finish from forages. Other important challenges include providing a consistent, uniform end product throughout the year, and ensuring that product is free of “off” flavors.
Processing, further processing, cold storage and distribution are all critical factors in delivering a quality product at an effective price range. We must be able to identify, locate and secure cost-effective processing and further processing. That processing must meet cutting, packaging, portion control and shelf life specifications that will satisfy retail, restaurant and institutional food service customers, as well as direct market customers.
In most cases the processor will need to be USDA-inspected. Crucial items such as USDA retail label approval, adequate and affordable cold storage and effective packaging must be addressed, including boxed beef transport needs. Once product is processed and packaged, we must be able to get it to our customer cheaply and efficiently. This is where distribution comes in. We must identify and partner with distributors who effectively market and deliver our products.
Finally, sales and marketing are probably the most important aspects of what we do. We can get everything right in the genetics, management, finishing, processing and distribution, and still fail miserably simply because we failed to do a good job of marketing our product. How we price the product, how we package, how we promote, product claims, marketing materials (brochures, pamphlets, web sites, posters, etc.) determine how effective we will be in securing adequate market share and achieving a reasonable return on investment.
Starting the journey
Over the next several months, I will attempt to address each of these challenges on an individual basis. We will journey through the worlds of production, processing, and marketing to discover potential solutions to the real problems we face.
Dr. Allen Williams is president of Livestock Management Consultants, LLC, based in Starkville, Mississippi.