Introduction

The U.S. agricultural production and food distribution industry is currently in the midst of major structural changes. To assist in understanding the implications of these changes and the future of the industry, faculty in the School of Agriculture at Purdue University in collaboration with industry representatives under-took a study to assess the future of the food production, processing, and distribution system. The results of this analysis are reported in detail in Food System 21: Gearing Up for the New Millennium—winner of a Gold Award for editing from the Agricultural Communicators in Education. Congratulations to Laura Hoelshcer, PhD, Editor, Agricultural Communications Service, for this accomplishment.

In this issue is a summary of a key chapter of that book, the beef sector. This summary presents the “Key Questions & Responses” section, of this chapter which provides a synopsis of the most important issues discussed in that chapter of the book.

You may or may not agree with our analysis. We encourage you to read the complete analysis in Food System 21: Gearing Up for the New Millennium.

 

The beef industry has a storied history, but an uncertain future. In 1996, as an example, farm level receipts of beef were $31 billion, accounting for 15 percent of sales of all crop and live-stock products produced on U.S. farms. In contrast, the second lead-ing enterprise was corn, with gross receipts of $27 billion, and third was dairy at $23 billion.

Clearly, beef is still the king of all agricultural enterprises, but its dominance continues to erode. Dominance is demonstrated by the fact that beef remains the most highly consumed animal species when weight is measured on a boneless basis and is highly valued, as evidenced by the fact that beef commands the highest retail prices of major livestock and poultry species. Decline, on the other hand, is demonstrated by declining per capita consumption.

In fact, the “king of agriculture” has been in a downtrend for over 20 years. Lower cost animal proteins and changed consumer lifestyles have been nibbling away at its king-dom. The future seems to point to a continued decline, as competitors beat beef in price, in product innovation, and in adapting to new markets. The hurdles for the beef industry are high and include the need to lower production costs, to increase coordination from ranch to consumer, to overcome health concerns, and to improve quality, consistency, and product innovation.

Key Questions & Responses

 

• Why has beef been losing consumer market share to poultry?

Beef has been losing market share since the mid-1970s. In recent years this has been at the rate of about 1 percent per year. Poultry has gained nearly all of the market share that beef has lost. The reasons for beef’s decline include continued human health concerns from beef consumption, lower retail prices for chicken and turkey, lack of new products that fit changing lifestyles of consumers, slow growth of new products that fit the convenience market over the past 20 years, diversification of fast-food menus, and inconsistency in meat quality.

But keep in mind that declining per capita consumption is offset by growth in domestic population of about 1 percent per year. Thus, the total pounds consumed in the domes-tic market is fairly constant.

• Can the trend toward declining market share be reversed?

It will be difficult to reverse this trend. The beef industry will have difficulty reducing costs due to biological factors such as: a long gestation period, single births, a long grow-out period, high feed consumption per pound of lean gain, and a low dressing percentage relative to other species. Movement of cattle through the marketing chain is poorly coordinated relative to the poultry and pork industries. There are many small cow herds, with diverse genetics and management programs. Also, the four segments of the industry (beef cows, backgrounding, feeding, and processing) tend to remain commodity driven, with segments in competition with each other. Cattle are moved around the country inefficiently, and the true consumer value of calves and cattle is not well identified by existing market systems.

• Aren’t packer concentration and captive supplies causing low cattle prices?

The cattle industry has been greatly concerned about greater concentration in packing and about purchasing practices which reduce the number of cattle which have prices determined in the open market. It is true that packer concentration has sharply increased in the past decade. It is also true that packers are seeking ways to have an assured supply for a portion of their capacity. They have tried to assure these supplies with marketing programs that offer forward contracts which establish both delivery and price before animals move to slaughter. On these cattle, packers do not have to bid for them on the day they move to slaughter, since that negotiation was previously made.

The USDA has commissioned several studies to examine these concerns. Those findings tend to suggest that the impact of packer concentration and captive supplies can be identified but has been small, and that the low cattle prices of recent years are not attributable to these factors. The federal government continues to have many complaints from cattle producers regarding lack of competition, market access, and packer buying practices. Thus, government officials indicate that they plan to continue to watch these issues closely in the future.

• How can beef cost be lowered and quality increased?

The industry can work to lower the costs of beef by improvements in the production efficiency in the beef cow sector. There are still many herds which do not use existing cost-lowering technologies. Better coordination of genetics in the cow-calf sector and coordination through the marketing chain to the consumer are needed. Through adoption of proven technologies, the industry could reduce costs and increase product consistency.

The industry also needs to increase innovation of new products to capture consumers’ desire for convenience and to adapt products to changing lifestyles. Greater coordination of animals through the marketing chain is needed and is expected to develop.

The question remains: “Who will do the coordinating?” There are likely to be multiple players, e.g. very large cow-calf operations, alliances of smaller operations, regional cooperatives, and packers.

• Will environmental and land use issues have major impacts?

The safest answer seems to be “Yes,” even though it is harder to pinpoint how this will occur. Environmental concerns are nearly universal. Rising concerns over air and water contamination, and growing land use issues seem to be likely influences. Keep in mind that there is still much to be learned about the impact of livestock and poultry production on the environment. Scientists are just beginning to find potential technological solutions to environmental degradation from animal production and processing. Brood cows appear to be less affected by environmental regulations due to the small herds, which primarily graze and thus are not concentrated in small areas.

Conflicts over land use are also growing. Neighbors of livestock operations have gained a greater voice in recent years. The right to enjoy their property without undo disruption to their lifestyle is increasingly sup-ported in our society. These pressures make it likely that cattle will continue to move to areas where fewer people are located.

• What types of operations will grow?

The brood cow segment of the industry has been changing very slowly compared to other segments and other meat and poultry industries. There has only been a moderate reduction in the number of farms with beef cows and a modest increase in the average size of the herd. This slow trend to larger size will likely continue but will not accelerate unless new technology allows cows to move away from grazing toward dry-lots where they can be intensively managed. Operations that can grow to 100 cows or greater will have lower costs. Some operations will have many thousands of head. There will be a strong movement toward coordinating programs which will add value to the final beef product with greater coordination through the marketing chain.

• Will there be changes in the location of the industry?

The location of the industry is expected to move more toward the Great Plains region, although slowly. Increasing conflicts with people in the East, Southeast, Corn Belt, and West will be the driving force. Included among conflicts are property rights concerns, which may force producers to fence cattle away from open streams, and water rights in the West. Increasing population in the Rocky Mountain states is also expected to push more cattle into the central part of the country. The Southeast will likely remain an important but declining part of calf production, and Corn Belt states should expect declining cow numbers. This means that concentrations of beef cows, backgrounding, feeding, and processing can be expected in the Great Plains region, with increases in infrastructure investment.

• Won’t exports provide a positive tone for the industry?

Yes, trade is expected to be a positive factor for beef. Exports should grow sharply, and some suggest a doubling within a decade. However, imports will also be likely to grow somewhat, offsetting the positive export picture. Imports of ham-burger-quality beef will likely grow. Also, the industry should expect greater imports of live animals, including more feeder cattle from Mexico and more fed cattle from Canada. Exports should grow faster than imports, providing a positive trade picture, but changes in trade may provide a growth potential of only .15 to .25 percent annually for total production.

Perhaps more important, the U.S. market may become even more of a dual market based upon quality. Domestic producers will focus on the high-quality and high-value products in the U.S. and foreign locations for both the at-home and the away-from-home markets. The other market will be a lower quality hamburger-based market which will source beef from the domestic dairy and import markets. The important point is that export growth probably will not be the industry’s salvation.