By Jim Munsch, Coon Valley, Wisconsin — At a grazing meeting last month, I heard that fresh, grass-fed beef from Uruguay and other countries had shown up in Upper Midwest specialty food stores catering to the health conscious. The question that was being bantered about: “Why can’t that beef be produced in the U.S.?”
Certainly grass-fed beef can, and is, produced in the U.S. But the question today centers more on the markets in which U.S. graziers can successfully compete. If grass-fed beef is coming from South America and Australia, and if it is being sold fresh at prices lower than what we can offer while still making a profit, do U.S. grass-fed beef producers have a future?
I think the answer is “yes.” But it is a qualified yes that, in my opinion, depends on establishing ourselves in the correct markets for our production. There are three or four identifiable niche markets for grass-fed beef, and the situation and opportunities are different for each:
Generic grass-fed market: These customers understand the CLA and Omega-3 benefits of grass-fed, but are indifferent to where the meat is grown. They don’t greatly care about what the producer or processor did to bring the meat to market as long as it is USDA-inspected and it is “natural,” meaning no hormones and sub-clinical antibiotics were used on the animals.
Grass-fed and “I know the animal was produced locally”: These people get the health story, but in addition know the “buy local” environmental and societal story. Some struggle over how close is “local.” They may or may not want organic, but probably need to know details of the production model.
Grass fed and “I know the producer and his farm and its methods”: These folks know the “buy local” story, and want to connect to where their food comes from in the most intimate way possible. They probably want to support a certain lifestyle and land use associated with the production of the food. They’re probably less likely to demand organic because of their intimate knowledge of the production process.
My opinion is that U.S. producers in general, and northern U.S. producers specifically (due to winter), cannot compete in the generic grass-fed market. This sector involves mass distribution by large chains or through small specialty shops. The retailer owns the grass-fed supply. If the cost differential between U.S. beef and beef from Uruguay, New Zealand or Australia is great, the chain or retailer will find a way to switch the customer to beef from that country.
And it’s easy. These marketing giants have the promotional know-how and resources to do it. We have a population accustomed to products from all over the world. The big players in the beef industry understand this, and have successfully lobbied USDA to put country-of-origin labeling (remember COOL?) on a slow boat to China.
This is so processors can import cheap beef from abroad. They know the drill, and how to do the logistics. Imported beef is a growing percentage of all U.S. beef sales. USDA helps out by inspecting and marking all beef – regardless of origin – as USDA Inspected and Graded.
The economics are there, the infrastructure is in place, and there might even be a public preference for foreign meat, just for the romance the retailer can spin about countries smart enough to raise mainly grass-fed beef.
There’s little doubt that foreign grass-fed will come off the farm cheaper. The South American cattle industry has long produced beef at cheaper prices than we can handle in the U.S. South American land is cheaper, labor is cheaper, and processing is cheaper.
Rising corn costs will likely drive up retail prices for grain-fed beef, which may help grass-based beef and dairy producers. However, the corn run-up will eventually cause farmland rental and purchase prices to rise, which will drive up grass-based costs. The same will not apply to the foreign grass farmers, and their costs will remain lower relative to the U.S.
Thus, I see no real future for northern U.S. graziers who want to compete in the generic grass-fed beef market. If you want to survive, it’s time to concentrate on those other niches.
The “grass fed …local” market is the natural place for the branded beef programs that have been launched in recent years. They are an attempt to take some of ownership of the market away from the retailer by promoting the “locally grown” story along with grass-fed. Connecting to the place and face of production must be part of the package for a branded program to work. Bringing the local angle to the consumer as part of the package is something the retailers can’t easily do themselves.
This is potentially a good place for a producer to sell cattle, as long as the brand name company can create more price value than it adds in costs, and it is willing to share some of that value with the producers. Supply and demand between producers and brand name companies keeps the sharing equitable.
Organic grass-fed is sub-niche of the “local” niche. Some consumers will pay more for organically certified grass-fed than for “natural” grass-fed. In our part of the Upper Midwest, the difference in price to the farmer is significant. I’ve heard of grass-fed, brand-name folks paying $1.75-1.90/lb. on hanging weight, while the other day I talked to a fellow who got the equivalent of $2.45/lb. for a truckload of grass-fed organic cattle.
As a producer, you can do well in the branded market if you associate with a company that is very good at doing all the blocking and tackling of processing, logistics, packaging and story-telling. The advantage is that you don’t have to do this downstream work yourself, which is something a lot of us find very attractive. Margins will likely be smaller compared to if you did all the marketing yourself, and you will thus need greater volume to attain the same net income. Yet for now, this is a good market to consider if you have it.
But this parade may get some rain someday. In a big, sophisticated retail outlet, the branded grass-fed beef product will at some point lie in the cooler next to a foreign-produced product. At some price differential, the consumer wanting a local product may yield on that “want,” and go for the foreign product. After all, both have the health story going for them.
Without a doubt, the best way to bring the right package of product, logistics and story to a consumer is for the meat producer to put all the pieces of the supply chain together, and sell direct.
This strategy isn’t for everyone. There are really good farmers who have proven to be really poor supply chain managers and marketers.
There is a regular cottage industry made up of folks who can educate you about these downstream business skills. My advice is to go through the education process, and talk to people already doing direct selling. Then make a judgment about how well you think you can do these things and, equally important, if you really want to do them.
If the answer is “yes” on both counts, then do it. Those who understand and master the pieces of this business can “own the market.” Even if you have to discount a little because you’re selling frozen meat, and even if you have greater costs of processing and transportation because you have your own truck and trailer and are working with a small processor, you can still make a good return. You are somewhat insulated from the pressures coming from foreign beef and from the larger U.S. operations supplying branded beef.
It will become more and more difficult to be profitable just producing “grass-fed” meat, and allowing others to do the marketing. The closer you can get to the ultimate customer, the better off you will be.
Jim Munsch grazes organic-certified beef cattle near Coon Valley, Wisconsin.