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Beef Marketing Alternatives

  1. 1. ATTRA Beef Marketing Alternatives A Publication of ATTRA - National Sustainable Agriculture Information Service • 1-800-346-9140 • www.attra.ncat.orgBy Anne Fanatico, This publication explores marketing alternatives for small-scale cattle ranchers who would like to addNCAT Agriculture value to the beef they produce. Part One discusses methods to add value within the conventionalSpecialist marketing system, including retained ownership and cooperative marketing. Part Two introducesFor technical alternative marketing strategies, including niche markets for “natural,” lean, and organic beef.assistance, contact Production considerations for pasture-finished beef are given special attention. A section on directLee Rinehart, NCAT marketing focuses on connecting with consumers and developing a product. Processing and legalAgriculture Specialist issues are also covered. This publication also provides information on developing prices for retail beef based on wholesale prices and desired mark-up, and for determining carcass value. A list of resources© 2006 NCAT provides suggestions for further reading, contact information for several producers and marketers of “alternative” beef, and Web pages of interest. ContentsIntroduction ..................... 1Part One: Adding Valueto Beef in the Conven-tional Market.................... 3Part Two: AlternativeMarketing of Beef........... 5Conclusion ...................... 18References ...................... 19Resources ........................ 19 Photo by Lynn Betts, USDA Natural Resources Conservation Service. Introduction weaning stage, by producing higher-grade and heavier animals, by carefully managing Under conventional production and market- the culling process, and most importantly by ing, about half the value of beef is added minimizing the costs of production. Small after cattle leave the farm, and net returns producers can further empower themselves to the cow-calf producer historically tend to by forming marketing cooperatives or other be low. At the sale barn, the rancher’s profit types of alliances. is trimmed by wholesale price fluctuations, Some ranchers, however, judge the con- “middle-man” fees, and the grading process. ventional market to be unresponsive bothATTRA—National Sustainable Producers who sell in this highly competitive to their needs and to the changing desiresAgriculture Information Serviceis managed by the National Cen- market can be described as “price-takers,” of consumers. These producers choose toter for Appropriate Technology competing with many other producers of rel- develop markets outside the conventional(NCAT) and is funded under agrant from the United States atively homogeneous commodity products. system. They add value to their beef by dif-Department of Agriculture’s (Bastian and Menkhaus, 1997) ferentiating it from the supermarket fare thatRural Business-Cooperative Ser-vice. Visit the NCAT Web site Working within the conventional market, the is the end product of the commodity mar-( for more informa- rancher can significantly increase profit per ket. Alternative marketing of beef primarilytion on our sustainable head of cattle by retaining ownership past the means niche marketing and direct marketing.agriculture projects.
  2. 2. The “niche” is simply a segment of the buy- point. Many others can be educated about ing public unsatisfied with conventional beef the values they are fostering when they and willing to pay a premium for a leaner, choose an alternative beef product over the tastier, or more “natural” product. The most supermarket cut. Pasture finishing combined likely way for the producer to connect with with direct marketing can substantially bene-Related ATTRA these consumers is by marketing directly to fit the farm family, the rural community, andPublications them. In the words of researchers at the Uni- the environment in the following ways. versity of Wyoming:Sustainable Beef • Keeping independent ranch familiesProduction This approach can add value to cattle… [by on the landBeef Farm Sustainability allowing] producers to capture much of theChecksheet margin otherwise going to middlemen in the • Protecting land from developmentRotational Grazing marketing chain. Of course, the producerPastures: Sustainable also “captures” much of the work and associ- • Reducing pollution of surface andManagement ated costs, as the producer must identify and ground watersNutrient Cycling in attract customers, perhaps provide added feed,Pastures arrange for slaughter, distribute the product to • Building soil and plant diversityPaddock Design, Fencing, customers, and secure payment. (Bastian and • Rebuilding local rural economiesand Water Systems for Menkhaus, 1997)Controlled Grazing • Passing down traditional farmingAssessing the Pasture Differentiating your beef from the conven- and animal husbandry skillsSoil Resource tional product entails changes in productionContract Grazing as well as marketing. If your customer is a Alternative marketing strategies can turnAgricultural Business meat packer, your production will have to price-takers into price-makers, but the addedPlanning Templatesand Resources conform to industry standards for everything time, labor and resources needed to performEnterprise Budgets and from breed selection to use of antibiotics to these added functions beyond producingProduction Costs for yield and quality grades. But if your cus- a calf or yearling should not be underesti-Organic Production tomer is an individual looking for lean beef mated. “Marketing management expertiseOrganic Farm Certification& the National Organic raised and finished on a local family farm, or also is required, along with the traditionalProgram raised organically, you will be working with a knowledge of the production side of the busi-NCAT’s Organic Livestock very different production model. Integrating ness.” (Bastian and Menkhaus, 1997) TheWorkbook – A Guide to meat production and marketing may radi- more you learn and prepare before enteringSustainable and AllowedPractices cally alter the whole enterprise. For instance, a new market, the less surprising, expensive,Organic Marketing to improve efficiency within the conven- and frustrating your “learning curve” willResources tional live-sale market, many ranchers have be. One of the more complete research proj-Direct Marketing consolidated their calving schedules. Some ects conducted in the area of natural beef alternative marketing strategies, however, production is described in a University of may require year-round production to meet California SAREP report entitled “Natural year-round demand. Beef: Consumer Acceptability, Market Devel- (Levi et al., 1998) opment & Economics.” (see Resources). The “Beef Marketing Flowchart” in the Beef that is slaughtered above report will help you to understand off pasture and sold the issues involved in pursuing different locally is generally con- marketing strategies. sidered more sustainable than feedlot-finished, Keep in mind that if a marketing plan is mass-marketed meat. to be successful, you must know the unit Sustainability means cost of production (UCOP). For long-term that the best interests of success, decisions need to be based on the farm family, the com- the knowledge of what the UCOP is, and munity, and the environ- whether it is competitive in the market- ment are being taken place. An excellent resource for economi- care of. For some con- cally based cattle marketing decisions can sumers, sustainability is be found at Harlan Hughes Market Advisor already a strong selling Web site (see Resources).Page 2 ATTRA Beef Marketing Alternatives
  3. 3. Part One: curement, transportation, and selling costs—costs that may be incurred if cattleAdding Value to Beef in were in regular market channels. In mostthe Conventional Market instances, when discussing retained owner- ship, it involves actually owning your calvesTraditional cattle markets are fragmented, until harvest. This may or may not involveand inefficiency seems to thrive in the beef other parties that background or finish theproduction industry. The inefficiency also calves on contract prior to harvest.creates opportunity for those willing todo some extra work, assume some of the Prior to heading off into retained owner-risk, and work with others. If you are will- ship, you might consider getting involveding to work differently and produce cattle in one of several Ranch-to-Rail programsthat the market wants, is it really that risky? that exist around the country. These pro-Well, with proper planning, the disappoint- grams allow producers to gather informa-ments should at least be fewer than when tion on how their genetics will perform in asimply selling calves at the sale barn every feedlot and how the finished cattle may fit ayear, crossing your fingers, and hoping for marketing grid. These programs typicallythe best. But, if your cattle don’t fit, and allow producers to enter a few head of cat-you don’t want to change, then you prob- tle, combining them with other producers’ably need to keep doing what you’ve always cattle to make full pens. Producers receivedone. That’s the thing about the open mar- both growth data and carcass data on theirket: someone will always determine for you own cattle as well as the entire group, sowhat the risk of owning your cattle is and that useful comparisons can be made. Con-pay accordingly. tact your state Extension Beef Specialist orOne of the easiest ways to add value to your state cattlemen’s association for more infor-own cattle is to know what the market wants mation on the availability of this type ofto pay for and then move in that direction. program in your area.For example, the commodity beef mar-ket currently wants Yield Grade 3 or bet- Alliancester, with a carcass weight of 750 pounds, In a marketplace dominated by large buy-grading Choice, and reaching those targets ers, the independent small producer is atbefore 15 months of age. a disadvantage. By creating economies ofAnother guide to increasing profits within scale and allowing for effective coordina-conventional marketing channels empha- tion, alliances among producers with simi-sizes retained ownership (see Resources/ lar goals can add value to beef and increaseRetained Ownership). This production and the members’ marketing leverage. Alliancesmarketing strategy offers certain advan- can integrate the cattle market both hori-tages. Retaining ownership can lower pro- zontally (among producers) and vertically Important considerations with retained ownership • Producer size. Many producers will not have enough calves of similar kind to fill a pen at most feed yards. Smaller producers may want to consider forming a marketing group to pool calves with other small producers. • Cost of production. Knowing your cost of production is critical to making decisions regarding profitable opportunities in the market. • Information. Good, reputable information and awareness of current trends is helpful in marketing decisions. • Financial requirements. Retained ownership requires additional capital and delays income. Can your cash flow be adjusted to deal with these issues? (Retained Ownership Strategies for Cattlemen. Davis et al., 1999) ATTRA Page 3
  4. 4. (among producers, breeders, feedlot opera- grasp of their costs of production. Before tors, packers, etc.). joining an alliance, Hogan recommends first finding out the carcass quality of An alliance is generally developed around your cattle. some common goals or values, which may include a health and management pro- Retain a set of cattle, run them through to the gram, a specific breed, a geographic iden- rail and see how they do. Once you’ve figured out where you are and where you want to be, tity, or an emphasis on leanness. Alliances pencil out what it will cost you to get there… allow cow-calf producers to share equally The key is to avoid discounts. If that means in potential profits through retained owner- a rancher has to participate in an alliance ship, and improve beef cattle consistency to learn how to do it, then join one. But in by grouping together animals of like type, chasing a premium, don’t lose sight of all the finish, and cutability. Alliances do not guar- other efficiencies. That premium won’t cover what you lose. Whether marketing through antee profits. Premiums are given only to an alliance or outside of one, you’re still a cattle that meet specifications. Good man- price taker and the only way you can be prof- agement is the key. Most alliances pro- itable is for production costs to be lower than vide carcass data feedback to producers. your receipts. (Roybal, 1998) (Anon., 1997)C ooperative Marketing Cooperatives Colorado rancher Dan Kniffen offers the marketing following cautions for those considering An increasingly common type of alliance is often takes whether to join an alliance. the marketing cooperative. A cooperative isthe form of packag- • The best source of information is a producer-owned, democratically operateding cattle in pools direct contact with the alliance’s pro- business with written by-laws. Cooperativefor sale. gram coordinator. Ask as many specific marketing arrangements among cattle pro- questions as you can think of. Also ducers often take the form of packaging cat- ask for names and phone numbers of tle in pools for sale. Packaging means that other participants. cattle are merchandized by putting them • A good contract will protect both parties into groups with particular characteristics in the agreement, providing a timetable to meet the needs of buyers. (Bailey, 1996) and specifying the responsibilities and fi nancial liability of everyone involved. While most cattle operations in the U.S. are • Some alliances will require you to place relatively small, the marketing system is a minimum number of cattle in the pro- geared toward large, uniform lots of cattle. gram to participate. Almost all alliances The number of cattle in a lot influences the have specifications on the genetic com- position or biological type of the cattle price buyers are willing to pay. The opti- that are accepted. There are also limita- mum lot size for feeder cattle sold through tions on carcass size and quality. a regular ring auction is 50 to 55 head; for • The most critical aspect of an alliance a video auction the number rises to about for the producer is the pricing formula. 240 head. Uniformity of weight and sex is You must absolutely do your homework also important in getting the best price for in this area. Once you’ve determined a lot. A study conducted at Utah State Uni- how the base price is established, you versity found that buyers at a video auction must pay particular attention to the “premium” and “discount” categories. paid approximately $1.70/cwt. more for It’s quite possible to receive enough dis- uniform lots of cattle than for lots that were counts on a few non-conforming cattle not sorted by sex and weight. This means to offset all the premiums received on that a 500-pound calf sold in a uniform lot a majority of the cattle. Producers who would bring $8.50 more per head than a have some estimation of how their cattle similar animal sold in a non-uniform lot. will perform in the feedlot as well as on the rail are in the best position for this (Bailey, 1996) type of marketing. (Kniffen, 1998) According to the 2002 Census of Agricul- According to financial consultant Tom ture, the majority of farms with beef cat- Hogan, few cattle producers really have a tle have fewer than 50 head. (USDA NASS,Page 4 ATTRA Beef Marketing Alternatives
  5. 5. 2002) The average cow-calf operator, after extra work, and, obviously, a willingnessaccounting for weaning percentage and to cooperate with other ranchers. For a co-held replacement heifers, probably has op to work, rules must be fi rm, fair, andfewer than 30 calves to sell each year— strictly enforced. The rules must set theof both sexes and with a range of weights. quality standards of the group; any mem-Packaging cattle into uniform lots of ber whose cattle do not meet the standardsoptimum size is therefore not possible is not allowed to sell through the co-op.for most individual cow-calf operators. For detailed information and assistance(Bailey, 1996) on forming a cooperative, contact theFor the small producer selling in the con- USDA-RBS Cooperative Services Programventional market, a cooperative calf pool (see Resources). For a “yellow pages” ofis a great way to get the best possible existing alliances, contact BEEF Magazineprice. It does require commitment, time, (see Resources). A Cooperative in Utah operates as follows: 1.) Each member of the co-op indicates the number of steer and heifer calves he or she will provide to the pool the com- ing year. This becomes a marketing agreement between the co-op and the producer. 2.) The calves are pre-priced through a video auction using videos and descriptions of “representative” calves. The calves normally are sold in six pools—three for steers and three for heifers, based on different weights. For example, the three steer pools may have average weights of 450 lbs., 525 lbs., and 575 lbs. The pools normally range in size from 150 to 250 head. Pre-pricing through a video auction eliminates the need to gather the cattle to obtain bids. Producers know the day delivery will take place and the price they will receive before the cattle come off the range. 3.) On the day of delivery, producers are responsible for bringing their calves to the load- ing/unloading facilities. After unloading, the calves are brand inspected and sorted for different pools. The sorted groups for each producer are weighed, and then are placed into their respective pools. Records are maintained on the number and weights of cat- tle for each producer in each pool. After the pool is completed, the cattle are loaded and shipped. 4.) The co-op is paid by the video auction company and the co-op issues a check to each producer based on the total weight they contributed to each calf pool. Producers in this cooperative believe that pooling has been a very successful method for them to increase the price they receive for their calves. No members of the co-op have more than 200 mother cows, and some of the producers have fewer than 10 calves to con- tribute to the overall pool. (Bailey, 1996)Part Two: and inspired others to by-pass the industry and market their own products.Alternative Marketing At the same time, the industry has faced aof Beef continuing decline in beef consumption. ByCorporate consolidation in the beef indus- the early 1990s, chicken sales had surpassed beef sales in the U.S. for the first time. (Levitry has narrowed the marketing options for et al., 1998) Factors in this decline in mar-small-scale producers. It is increasingly ket share include the following.hard for the family ranch at the bottomof the food-processing chain to maintain • Lifestyle changes among consumersacceptable profits. This environment has • Health risks associated with beef fatpushed many ranchers out of the business, and with “red meat” in ATTRA Page 5
  6. 6. • Concerns about use of hormones, spent on thoroughly researching the poten- steroids, and antibiotics tial markets for your product. You should • Concerns about bacterial contam- also carefully read the ATTRA publication ination Direct Marketing prior to any investment in this area. Understand that niche market- • “The inability of the consumer ing requires different personal skills and to purchase a consistent, quality a tremendous time commitment. Be honest product from the traditional meat in a self-assessment. Do you really have case.” (Levi et al., 1998) the desire, dedication, skills, and willing- ness to deal with consumers, retail buy- Niche Markets ers, and government agencies? It may be It is clear that the industry is failing to worthwhile spending your spare time for meet the demands of a considerable num- a year collecting, reading, and analyzing ber of consumers. The successful niche information about your potential market marketer will target those poorly served before you invest in labels, advertising, consumers, identify their needs, and pro- and retaining a large portion of the calf duce a consistent, high-quality product crop for alternative markets. that satisfies those needs. Before going into direct marketing as a substantial source Alternative beef marketing operations typ- of revenue for the farm business, serious ically describe their product with some consideration and much time should be combination of the following terms: lean, organic, natural, pasture-finished (or grass-fed or grass-finished). Other common selling points for alternative beef include: Select market research and findings—a great source of “no antibiotics,” “locally raised,” “family information and potential leads farm,” and “humanely produced.” • The appeal of purchasing locally produced meats appears to be considerably greater among buyers from Before a beef product can be labeled with commercial food service establishments not affiliated terms that denote uniqueness or superior- with a chain than among chain-operated establishments. ity of some kind, the producer must fi le an • Survey data indicate that unsolicited telephone calls “Animal Raising Claim” with the Labeling are the single most important methods by which buyers Review Branch of the USDA. This involves locate new suppliers, followed closely by trade show submitting a label application (FSIS Form participation. 7234-1) and a prepared (manufactured) • Eighty-four percent of surveyed buyers prefer that sales label that includes the claim in question. representatives seeking business accounts with their In addition, an Operational Protocol (OP) firms arrange a formal appointment rather than arriving that describes in detail the production unannounced. practices employed, affidavits and testi- • Buyers from higher monials, feed formulations, and any appli- priced establish- cable certificates, must also be submitted ments are also with the application. An OP must be in the more likely to pur- producer’s own words and must state in chase meat prod- detail how the animals are raised, includ- ucts from a fam- ing ration formulations, sick animal pro- ily-run agribusiness and to advertise the tocol, herd health management, and other origin of their meat facts relating to the proposed claim (e.g., products on their “no antibiotics,” “natural,” “organic”). The menus as a way term “chemical free” is not allowed to be to distinguish used on a label. (Levi et al., 1998) For themselves in the details on submitting an Animal Raising marketplace. Claim, including specific requirements for (Tropp et al., 2004) the OP, contact the Compliance Assistance Division of FSIS (see Resources).Page 6 ATTRA Beef Marketing Alternatives
  7. 7. Lean beef Lean beef appeals to more than a nicheWhile the industry has paid some heed market—the mainstream consumer trend isto the growing consumer demand for lean toward low-fat and fat-free foods. Thoughbeef, the existing system is still based on the industry has been slow to respond toUSDA standards that give the best grade to this reality, the grading process will mostcarcasses with the most marbling. A grow- likely be changed to accommodate produc-ing agitation within the industry seeks to tion and marketing of lean beef, which isreform the grading process to better reflect defi ned as having 25 percent less fat thancurrent market trends. the industry average. While “organic” and “pasture-fi nished” beef clearly represent niche markets, lean beef is suited to the conventional marketing structure. Lau- ra’s Lean Beef (see box) is an example of Laura’s Lean Beef a large-scale alliance that combines an Based in Kentucky, Laura’s markets unconventional product with conventional lean beef in nine states. No preserva- marketing methods. The small niche mar- tives, salts, or fillers are used in pack- keter probably cannot rely on leanness aging. Started in 1985 as a “value add- alone as a selling point. To compete with ing experiment to a family stocker lower-priced conventional lean beef, other operation,” by 1995 the company was qualities lacking in the mainstream prod- debt-free, worth $20 million, and uct will need to be highlighted, with an employing 30 people. Today, Lau- emphasis on customer service. ra’s Lean Beef is sold in 3,000 stores in 33 states. Retail sales for 2001 are expected to top $55 million. Organic beef The company contracts with family Until recently the USDA did not permit farms to raise genetically lean breeds “organic” labels for livestock products, such as Limousin and Charolais, on nat- pending federal standards for organic cer- ural feeds only, with no routine anti- tification. Even farm names with the word biotics or hormone implants. Graz- “organic” were not permitted on the label. ing, particularly rotational grazing, is However, in January 1999 the USDA an important part of the program, as is low-stress handling of the animals. approved the use of a federal label for the The cattle are pasture-finished, with a interstate sale of “organic meat.” (Hamil- quick grain feed at the end. ton, 1999) As with other labeling claims, the “organic” label must be evaluated As a high-volume commercial busi- ness, Laura’s Lean Beef is not suited and approved by the USDA’s Food Safety to working with small cow-calf pro- Inspection Service (FSIS). An application ducers on an individual basis. Like the must be submitted, accompanied by the beef industry in general, the company proposed label and the documen- deals with truckload lots of uniform tation provided by the certify- weights and breeding. Small produc- ing organization. ers would need to create a coopera- tive calf pool in order to work with the The Certified Organic Food company, which does offer price pro- Directory lists organic tection to ranchers with whom it con- beef buyers and suppli- tracts. (Nation, 1995) Producers inter- ers around the country. ested in the details of Laura’s cattle Some market conven- program should visit the company’s tionally; others direct- Web site, tleProgram/. See Resources for further market. (See Resources contact information. for information on order- ing this publication.) For a more detailed discussion of organic certification, and a ATTRA Page 7
  8. 8. National Organic Program—Livestock Standards These standards apply to animals used for meat, milk, eggs, and other animal products represented as organically produced. The livestock standards state: Animals for slaughter must be raised under organic management from the last third of gestation, or no later than the second day of life for poultry. Producers are required to feed livestock agricultural feed products that are 100 percent organic, but may also provide allowed vitamin and mineral supplements. Organically raised animals may not be given hormones to promote growth, or antibiotics for any reason. Preventive management practices, including the use of vaccines, will be used to keep animals healthy. Producers are prohibited from withholding treatment from a sick or injured animal; however, animals treated with a prohibited medication may not be sold as organic. All organically raised animals must have access to the outdoors, including access to pasture for ruminants. They may be temporarily confined only for reasons of health, safety, the animal’s stage of production, or to protect soil or water quality. USDA National Organic Program Production and Handling Standards of certifying organizations, request the colorings or artificial ingredients” or “mini- ATTRA publication Organic Certification mally processed”). “Natural” production and the National Organic Program. Addi- methods must be documented. In popular tional organic livestock publications from usage, the term “natural” commonly refers ATTRA include the Organic Livestock to beef that has been raised mostly on pas- Workbook and Organic Livestock Documen- ture, without routine use of medication. The tation Forms. feed is not necessarily organic. Producers interested in raising organic beef should complete an economic feasibil- Coleman Natural Meats ity study and do thorough market research Based in Colorado, Coleman is the before investing in this market. The require- nation’s largest producer of certified ments are strict, and the additional docu- all-natural beef, and the first to receive mentation can be cumbersome for some pro- a USDA “natural” label. Coleman con- ducers, especially those with smaller herds. tracts with more than 600 ranchers The annual fees for inspection can add a throughout the West to produce meat significant cost to production; the additional without hormones or antibiotics, and labor of daily record keeping can have a the vacuum-packed cuts are marketed large impact on the profitability of this sys- nationwide in many natural and main- stream food stores. Coleman promotes tem. A key to using “organic” as a market- itself as a steward of the environment, ing tool is to ensure that organic process- educating ranchers about grazing prac- ing is available. Locating a USDA-inspected tices that improve range conditions. This processing plant can be difficult, but an appeals to “green market” customers organically certified, USDA-inspected pro- who seek ecologically raised products. cessor is a very rare commodity. For more Their meat production is advertised as economic information on organic beef pro- natural, humane, and “unhurried.” See duction, see AgMRC under Resources– Resources for contact information. Niche and Direct Marketing. Natural beef Under current USDA policy, meat may carry the “natural” label if it contains no artificial ingredients (color, flavor, preservatives, etc.) and is minimally processed. The label must explain the use of the term (e.g., “no addedPage 8 ATTRA Beef Marketing Alternatives
  9. 9. Pasture-finished beef a level of fi nishing 25 percent of cattle on pasture, it would be a significant change.”The 1997 UC-Davis report on “Natural (Nickel, 1998)Beef,” in summarizing the history of beeffinishing in the U.S., notes that: Pasture-fi nished beef (PFB) is lean beef. The feeding of high energy, grain-based Sometimes it is fi nished entirely on pas- diets to beef animals prior to marketing is a ture; sometimes there is a short period relatively new phenomenon. Prior to World of grain-feeding (as in the case of Lau- War II, beef was primarily fi nished on for- ra’s Lean Beef). The essential elements of age. Beef animals were developed relatively high-quality PFB are high-quality pasture, slowly on forage-based diets, were signifi- cantly older at slaughter, and aged post-mor- appropriate genetics, young slaughter age, tem to enhance tenderness… The majority of attention to factors that affect fl avor, and these animals were marketed through small, aging of the carcass. community-based packing plants, with the financial rewards for the production and mar- High-quality pasture. “Bluegrass, orchard keting of the product remaining in the local grass, brome grass, endophyte-free tall economy. (Levi et al.,1998) fescue with a 30–50 percent componentIn recent years there has been a resurgence of legume should be considered. Alfalfa Wof interest in pasture finishing among North should not be overlooked if your situation hat willAmerican graziers. The monthly periodi- is suitable for it. Tall fescue with high lev- els of endophyte infection will not work. push thecal The Stockman Grass Farmer is a forumfor these pioneers. Its editor, Allan Nation, We need animal gains of 2.0+ lbs. per day practiceproposes that producers of beef cattle begin and dirty fescue just won’t do it, particu- of grass finishingto think of themselves as grass farmers, larly in the summer… Pastures should be forward are peoplewith pasture as their main crop. This is an kept vegetative—no seed heads—and 6–10 with environmentalidea whose time has come, though it is not inches in height at turn-in.” (Bartholomew concerns.”a new idea. Nation quotes a classic refer- and Martz,1995) Management-intensiveence book, Forages, published in 1951 by rotational grazing and other resource-effi-Iowa State: “The grassland farmers are cient grazing practices are recommended.often craftsmen in the culture and use of Several ATTRA publications on rotationalgrass. [One] takes into account soils, plants, grazing and other grass-farming topicsanimals, and interrelationships. Adequate are listed in the Resources section. Alsoacreages of adapted grass-legume combi- be sure to check with local Extension andnations are provided, depending upon soil NRCS personnel.needs. High quality forages are emphasized Genetics. Good forage-converting geneticsin livestock production, with grains supple- are important. This means fast-maturingmenting rather than dominating the feeding breeds that tend to marble on pasture withpractices.” (Nation, 1997) The term “grass a lower amount of backfat. Ontario agrono-farming” reflects the fact that high quality mist Ann Clark recommends using mainlypasture is the prerequisite for healthy ani- medium-framed, early maturing Britishmals and healthy profits. breeds. (Nickel, 1998) Smaller-frame Brit-In 1997 The University of Missouri’s For- ish cattle are well-suited to direct market-age Systems Research Center completed a ing, as families may like the smaller carcassfive-year study “designed to research the size and smaller cuts of meat. Research atfi nishing of beef cattle on pasture without the University of Missouri’s Forage Systemsthe use of a confinement feedlot.” (Martz et Research Center found that medium-frameal., 1998) According to one of the research- cattle that fi nish at 1050 to 1200 poundsers, animal scientist Fred Martz, “What work well for pasture finishing. (Bar-will push [the practice of grass finishing for- tholomew and Martz, 1995) The research-ward] are people with environmental con- ers used Angus, Gelbvieh, and Herefordcerns. Pasture fi nishing won’t ever totally crosses. Brahman influence is important inreplace feedlot fi nishing, but if we get to the South for heat tolerance. It is ATTRA Page 9
  10. 10. to note that cattle bred for feedlot finishing According to researchers at the University may not work for PFB. of California, “The fl avor of the meat is directly linked to the feed available to the Young slaughter age. The most important issue related to tenderness of beef is the animal. The traditional grain-fed product age of the animal at slaughter. Plan to have has the advantage of a consistent feed that pasture-fi nished cattle ready for slaughter in turn produces a consistent-tasting prod- at 16 to 22 months of age. One “problem” uct. Grass-fed beef, on the other hand, is associated with PFB that may be solved by reliant on the native forage available… The slaughtering before 18 months is yellow types of grass can vary from field to field fat. This is a problem due to public per- creating a problem in flavor consistency of ception that beef fat should be white; it is the meat.” (Levi et al., 1998) Grain supple- not a true quality issue. The yellow color mentation on pasture or a short period of simply indicates a higher level of beta-car- grain feeding before slaughter can reduce otene (precursor to vitamin A) in the fat or eliminate the “stronger” taste of grass- of animals fi nished on forage. “Yellow fat fed beef. Also, pastures should be man- on poultry and beef, extremely orange egg aged to avoid plants, such as onions, that yolks and naturally yellow butter reflect can impart an off-flavor. PFB is defi nitely high levels of chlorophyll in the diet and not synonymous with “bad-tasting.” Mem- low levels of saturated fat.” (Salatin, 1995) bers of the Tallgrass Beef cooperative in A direct marketer who educates customers Kansas fi nd that the flavor of their PFB is about yellow fat might turn it into an asset preferred by their clientele, which includes indicating a natural, nutritious food. In chefs. (Nickel, 1998) any case, the consensus among producers Aging of the carcass. While researchers in seems to be that if animals are slaughtered Missouri found no off-flavors in PFB, “the within the 18-month age range, fat will not taste panel did detect a lack of tenderness appear yellow. when the meat was tested right after slaugh- Flavor. The taste of grass-fed beef dif- tering.” The researchers re-tested the beef fers from that of grain-fed beef, although after it had been aged for one, three, and the difference is usually subtle. Studies five weeks, and found that the PFB aged in Missouri and Alabama have found that three weeks was equal in tenderness to consumers could not distinguish between feedlot-fi nished beef. A PFB producer in grain-fi nished beef and beef fi nished on New Hampshire, who markets under his pasture. Still, PFB has a reputation for tast- own label, allows his beef to hang four ing “stronger” than grain-finished beef. weeks. He feels that aging is very impor- tant to quality. Aging also contributes to the characteristic flavor associated with beef. As noted earlier, the USDA grading system is based largely on marbling. Because of this, beef finished on pasture tends to grade relatively poorly. In a University of Georgia study that compared carcass quality of PFB and feedlot-finished beef, the USDA grades were split as follows. Grass-fed: 15 percent Sta nda rd, 70 percent Select, 15 percent Choice Grain-fed: 0 percent St a nda rd, 45 percent Select, 55 percent Choice The taste panels, however, detected no dif- ference in eating quality between the twoPage 10 ATTRA Beef Marketing Alternatives
  11. 11. types of beef. Canadian researcher PaulMcCaughey comments, “The taste panel Constraints to Finishing Cattle on Foragework we’ve done shows there are manyfactors affecting eating quality apart from • Genetic composition of current herdmarbling. In fact, USDA experiments have • Potential to produce both winter and summer annualsshown that marbling accounts for only for continuous pasture availabilityabout 5 percent of beef’s eating quality— • Productive capabilities and fertility of soilsyet marbling is what we base our entiregrading systems on.” (Nickel, 1998) • Viable number of marketable animalsClearly, PFB sold conventionally under • Ability to adopt a grazier’s mindset when addressingthe present grading system will “take a challengesprice kicking—to the tune of $220/head, • The ability and time to develop a consistent andor up to a 24¢/lb. discount.” (Martz et dependable marketal., 1998) However, this loss may be off-set by cost-of-gain savings. The five-year Whole Farm Planning for the Production of Grass-fed Beef, Southernresearch project in Missouri showed cost SARE Project #LS00-113.of gain for grass-fi nished cattle to be aslow as $27/cwt., compared to $60/cwt.for feedlot cattle. Land, labor, interest, Strong evidence suggests that grass-finishedfeed, and all other variable costs were beef is more nutritious and healthful thanincluded. (Nickel, 1998) The Missouri grain-fed beef. The case is presented defin-researchers concluded that “cattle can be itively by Jo Robinson in her recent book,fi nished on pasture and the resulting beef Pasture Perfect. All PFB producers shouldwill be acceptable for the conventional read this book and use it as a referencemeat trade… The use of maximum inputs to educate customers. See Resources forof pasture into the fi nishing of beef will ordering information.usually result in the most economic gainsas long as cattle are taken to a level of Direct Marketingfi nish to grade Choice and/or Select and Before beginning an alternative market-market discounts are avoided.” (Martz et ing enterprise, understand the differencesal., 1998) But until the conventional mar- between commodity marketing and directket learns to deal rationally with PFB, marketing. Allan Nation, editor of Stockmanalternative marketing structures are bet- Grass Farmer, puts it this way:ter suited to this premium product. Rather A commodity orientation means that as longthan being graded and sold on the hoof, as you meet the specs and can stand the pricePFB is typically custom-processed and you pretty much tell everyone else to go flydirect-marketed to consumers. a kite. Such a selfi sh attitude absolutely will not work in direct marketing… In the U.S.,A recently completed SARE project, consumers expect an attitude of deferenceconducted by ATTRA, the University of and responsiveness to their wants and needs.Arkansas, and the University of Tennes- If you are unable or unwilling to develop—see, determined that quality grass-fed beef or convincingly fake—such an attitude, stay in commodity-priced agriculture. However,can be produced economically. It retains if you see service to others as a noble call-inherent nutritional values if the proper ing, don’t let the lack of specific marketingsupplements are used in conjunction with or production skills deter you. Aptitudes arequality forages. The study worked with ten rather easily learned. It is our attitudes thatfarmers in northwest Arkansas to evaluate are difficult to change and that most often determine our fate. (Nation, 1999)the possibilities for grass-fed beef produc-tion. It concluded that not all farms have Direct marketing brings the producer andthe capabilities to fi nish cattle on forage the consumer together in a way that thedue to several constraints. mass market cannot, and this is its ATTRA Page 11
  12. 12. est strength and advantage. Direct market- completely satisfied with. “A new business ing is “relationship marketing.” The fi rst needs virtually 100 percent customer sat- step in building the relationship is to iden- isfaction from day one to survive. This is tify your customers. They will not be “just because any new business is necessarily anybody.” Your customer base will consist drawing from a very small customer base.” of folks who desire a special product, and (Nation, 1999) their needs should be your fi rst consider- The authors of the University of California ation, before you actually develop your prod- uct. First, talk to potential customers one at study Natural Beef: Consumer Acceptability, a time. Find out what characteristics they Market Development and Economics recom- value most in a premium beef product— mend transferring only a portion of your high quality, low price, leanness, organic or cattle production into the new system at “natural” production, home delivery, par- fi rst. This will give you an opportunity to ticular cuts, and so on. Develop a brand learn the ups and downs of alternative mar- name and a marketing/packaging strategy keting while putting only a small percent- that capture the most important of these ele- age of your income at risk. Diversify your ments, and preview your “brand” to your production a portion at a time, increasing the number of animals in the new system asI intended customers. t is both risky you develop retail skills and market connec- and inefficient When you feel you have the right combina- tions. (Levi et al., 1998) to develop a tion to appeal to your niche market, then develop the actual product. This approach While you have “relationship marketing” onproduct first and can conserve resources, including your lim- your side, the major beef packers have econ-then try to find a ited capital. It is both risky and inefficient to omy of scale on theirs. Since you will not bemarket for it. develop a product first and then try to find a able to compete with mainstream beef pro- market for it. Remember that the “product” ducers in terms of price, you must deter- is much more than the beef itself; the prod- mine the appropriate premium to place on uct is also service, packaging, your farm’s your product. Pricing is a critical and dif- identity, your production philosophy, and ficult task, and under-pricing is a common even price. For your product to stand out pitfall. The price has to cover costs of pro- from the competition and attract repeat cus- duction, re-capitalization of the enterprise, tomers, it must be carefully differentiated and an acceptable profit. Profit should be from other types and brands of beef. planned for at the outset. If profit is thought of as “whatever is left over,” there will prob- Take time to develop your beef product and ably be no profit. At the same time, an work the kinks out of the production pro- over-priced product will not sell. Your ini- cess. Begin by making the product for your- tial market research should determine mar- self and your family. Next, produce it for ket size, market share, and the price your your friends who have tried it, liked it, and niche consumer is willing to pay for pre- asked for it. The last step should be mar- mium beef. Is that price sufficient to make keting to consumers. Allan Nation writes, this a profitable venture? “If you are considering getting into direct marketing, don’t bet the farm on it. Keep Joel Salatin, a nationally recognized grazier doing what you are doing for a living and in Virginia, has been very successful at rais- start learning and experimenting on a small ing and marketing pasture-fi nished beef. scale… [T]he best guinea pig for this period He earns $200 to $300/head net by direct of trial and error is yourself, your fam- marketing to 400 regular customers. (Sala- ily and your friends.” If your family and tin, 1995) His book Salad Bar Beef presents friends are not crazy about your grass-fed a proven production and marketing system steaks and don’t request more, “you are “that can make an excellent profit from a still in your apprenticeship period and are small cow herd regardless of the commod- not yet ready to be in business.” Don’t try ity price of calves.” “Salad bar beef” is selling anything that you yourself are not Salatin’s consumer-friendly term for lean,Page 12 ATTRA Beef Marketing Alternatives
  13. 13. healthy, tasty meat raised locally on fresh, Salad Bar Beef is recommended read-high-quality pasture. Salatin describes a ing for anyone considering alternativethree-pronged approach to developing a cli- beef marketing. It covers both productionentele for this type of beef: and marketing topics, all from the per- 1) Samples. “We knew that the only way to get spective of a successful alternative beef people to buy salad bar beef was to get it into operation. See the Resources section for their mouths. We gave samples to anyone we ordering information. thought might be interested. Over the years, we’ve never given anything away that didn’t Salatin sells his beef and other farm prod- come back fourfold… Free samples are one ucts direct from the farm, taking orders of the underpinnings of successful market- once a year by mail and phone. Other ing. We found a tremendous prejudice to potential outlets for direct sales to consum- non-grain beef. People by and large just knew it would be tough, stringy and gamey. ers include farmers’ markets and local gro- To overcome that, we had to introduce them cery or health food stores interested in car- to it without any risk. The response has rying farm-fresh products. Stores, however, always been tremendous to this technique.” are usually uninterested unless you can 2) Education. “We put together a slide pro- ensure a steady supply. gram about our farm, titled it ‘Environmen- tally Enhancing Agriculture’ or whatever the Upscale restaurants constitute another pos- group wanted to call it, and began making sible outlet. Many chefs appreciate the fla- presentations for local organizations” such vor and freshness of locally raised, grass- as Rotary, Kiwanis, Women’s Clubs, Garden fed beef. Some restaurants have developed Clubs, and American Association of Retired informational packets on where their ingre- Persons (AARP). “The program is educa- tional, not a sales pitch. But at the end, quite dients come from, “to build rapport with innocently, I’ll say, ‘Now if any of you would customers and set the restaurant apart from like to participate in this type of agriculture, other dining experiences.” (Levi et al., I happen to have some order blanks with me 1998) Quality and consistency will be this and you’re welcome to sign up.’” market’s main concerns. Chefs may be inter- Other educational methods include bro- ested in prime cuts as the majority of their chures, newsletters, newspaper articles, purchase, making it necessary to develop and one-on-one conversations. It is up to other marketing outlets for hamburger and you to educate potential customers on how and why your beef is different and bet- roasts. Marketing to restaurants may pro- ter than the conventional product. Educa- vide the greatest return on investment for tion should include instructions on proper primal cuts, but is generally smaller in vol- cooking as well. Salatin points out that the ume and requires more work per unit of common fast-cooking methods are suited to sales. (Levi et al., 1998) marbled USDA Choice, but not to grass-fed lean beef. He recommends slow cooking his beef for the best taste, greater tenderness, and improved digestibility. 3) Customer Appreciation. This gets to the heart of “relationship marketing.” When the con- sumer knows and trusts the producer per- sonally, the relationship built between them is not easily broken. Good sellers know and use their customers’ names. Loyalty helps bring in repeat customers. The greater the loyalty and satisfaction, the higher the likeli- hood of repeat business even though cheaper beef may be available at the grocery store. “The two things supermarkets cannot do are provide high-quality food and offer a rela- tionship.” By giving detailed, personal ser- vice to his customers, Salatin ensures that they will spread the word about his product. (Salatin, 1995) ATTRA Page 13
  14. 14. Taking your operation from live sales to ington. See the Resources section for con- marketing of meat may require changes in tact information and more links to articles your production focus. Inventory manage- about cooperative efforts. ment will be a primary issue. Beef produc- ers who have had a short calving and mar- keting period for the sake of efficiency may Legal Considerations have to time production to match variable Marketing activities are affected by a wide consumer demand. Restaurants often have variety of laws and regulations at federal, a highly variable demand for products, so state, county, and city levels. While regula- you may either have to carry inventory or tions vary by type of enterprise and loca- be able to move products quickly from live tion, some general rules apply to all areas to useable form. Selling directly to con- of direct marketing. Some of these legal sumers as Salatin does could allow you to considerations include the type of business focus on seasonal production. Freezing beef organization (sole proprietorship, partner- increases the ability to manage inventory, ship, etc.), zoning ordinances, small busi- but adds storage charges to the cost of pro- ness licenses, building codes and permits, duction. Generally, the larger the scope of weights and measures, federal and stateY your enterprise and the more outlets you business tax issues, sanitation permits and our best have, the less challenging inventory man- inspection, food processors’ permits, and resource for agement will be. (Levi et al., 1998) many, many others. If you plan to employ informa- This section is only an introduction to some workers, there will be still more require-tion and inspiration aspects of direct marketing of beef. The ments to meet, such as an employer taxis fellow producers, ATTRA publication Direct Marketing pro- identification from the IRS and state work-whose experience vides more detailed information on enter- ers compensation insurance. Environmentalcan save you many prise evaluation, marketing research and laws also influence farm operations.surprises and planning, promotion and publicity, pricing Always check with local, state, and federal and profitability, and direct market alterna- authorities before marketing any food prod-missteps. tives. Another good source of information is uct. Processed foods are heavily regulated the SARE publication How to Direct Market to protect public health. Stay informed, Your Beef. Also refer to the Resources sec- since rules and regulations change often, tion of the present publication. Your best resource for information and inspiration and keep good records to prove that you’re is fellow producers, whose experience can in compliance. save you many surprises and missteps. Adequate insurance is essential. “The closer you get to the consumer by direct Cooperatives for Alternative marketing, the higher the liability risk.” Beef Marketing (Levi et al., 1998) Every operator should have a general insurance policy to protect Co-op marketing can be adapted to alter- against loss of buildings, merchandise, native markets. A great example is the CROPP cooperative, which markets cer- and other property. A general policy may tified organic dairy, eggs, produce, and include liability insurance for products and meats nationally under its “Organic Valley” premises. However, general comprehen- brand name. Formed in 1988, CROPP is sive farm liability insurance often does not now the largest producer of organic dairy cover on-farm marketing or direct market- products in the U.S. Among the more ing operations. A separate employer’s lia- recent additions to its product line is pas- bility insurance policy may be required to ture-fi nished beef, marketed as Organic protect you should an employee be injured Prairie. CROPP is a farmer-owned and on the job. See Resources for information operated marketing cooperative, consisting on The Legal Guide for Direct Farm Market- of more than 190 small to mid-sized fam- ing by Neil Hamilton of Drake University ily farms in 10 states, from Maine to Wash- Law School, a comprehensive primer onPage 14 ATTRA Beef Marketing Alternatives
  15. 15. the many legal issues that surround directmarketing of agricultural products. Production Note: To castrate or not to castrate?Processing and Packaging Some producers who direct market do not castrate their bullsProcessing is an important consideration (producers who market conventionally do castrate, since they getfor direct marketers. Custom facilities are docked for intact males). Bulls put on weight 17 percent faster thangenerally cheaper to use. Large commer- steers and make leaner gains, giving them a higher dressing per-cial, federally inspected plants may not centage. However, they may need to be slaughtered young (by 18be geared to do custom butchering for the months), to minimize gristle, and be run in a separate herd to pre-small beef producer. Producers should con- vent unplanned breeding. But separating the herd may not be con- venient. Joel Salatin, for example, chooses to castrate so that he cantact their state department of agriculture for run all his cattle in one herd.regulations about meat processing and saleto the public.Beef must be slaughtered and inspected ata federal- or state-approved facility in order works with small and very small process-to be sold to individuals, as in the freezer ing plants to comply with the HACCP. Tobeef trade, or to restaurants. If beef is pro- learn more about HACCP mandates, or tocessed at a custom facility that is not feder- obtain copies of FSIS-developed models toally or state inspected, then it can only be design least-cost HACCP-compliant smallsold prior to slaughter. (Bartholomew and facilities, contact FSIS (see Resources forMartz, 1995) This means the cattle must contact information).be sold by the head or by live weight, which Retail and individual meat sales requiredoesn’t account for wide variations in dress- packaging in accordance with state andout percentages between animals. Joel Sala- federal food laws. Since good packagingtin deals with this dilemma by selling his enhances sales, label design and presen-animals for $1 per head and then adding tation are important. Vacuum packagingshipping and handling charges based on provides superior product protection com-carcass weight. However, we cannot rec- pared to hand-wrapping. Feeding highommend this practice. The liability risk levels of Vitamin E for two weeks prior toinvolved should not be underestimated. slaughter increases the shelf life of meat.Producers considering constructing a (Levi et al, 1998)slaughter facility for their own beef should Many folks have questions about theremember that federal, state, and local amount of edible beef a carcass gener-regulations govern the process. The axiom ates. A good article on the topic, “Did the“ignorance is not an excuse” applies here. Locker Plant Steal Some of My Meat?”Farmers who intend to process on-farm by Duane Wulf, PhD, can be found atshould be aware of all federal, state, and regulations. Your state departments ofagriculture and health will have informa- Pricing Your Producttion about regulations. Your county Exten-sion office should be able to direct you to A common question among producers look-the county agencies that regulate zoning, ing to direct market is what to charge for the various retail cuts from a beef, and other local regulations. A list of prices from another supplier mayIn 1996, the USDA’s Food Safety and be a possibility, or research prices in theInspection Service (FSIS) announced grocery store. However, someone else’simplementation of new rules meant to prices won’t help you understand how toensure the safety of meat products. A major price your own products to ensure profit-component of the regulations is the Patho- ability. Organic beef price research can begen Reduction/Hazard Analysis and Criti- even more difficult since few price lists arecal Control Points (HACCP) system. FSIS available. Currently, USDA does not ATTRA Page 15
  16. 16. organic beef prices on a weekly basis as it yields and the pounds of retail meat that does for commodity beef. can be expected. The key to profitable pricing is to deter- A processor may be able to cut a beef car- mine actual cost of production for a mar- cass into 40 different cuts. The question ketable calf. Find all processing, market- you must ask is whether all 40 of those cuts ing, labor, and management costs for a can be sold to customers at a profit? Mar- quantity of beef produced, typically on a ket research is important to gauge the vari- carcass basis. This method of actual cost ous cuts and the quantity that customers are determines the break-even price for beef, willing to purchase. Round steak can be a including organic product. large portion of the retail weight generated Perhaps one of the worst errors you can from the rear leg of a carcass. But round make in direct marketing is to sell your steak is lean and somewhat chewy, and is product at a loss, while believing you are considered a low-value cut requiring some making money. Sooner or later the loss preparation in the kitchen to be palatable to catches up with you and it can’t be made most families. Is your market for this partic- up with volume. ular cut large enough to move it, or should you consider other alternatives? The pointM arket Even if you don’t have actual production is that just because your processor can pro- research figures to use, good, conservative pro- duce a certain retail cut doesn’t necessar- duction budgets are available to base a ily mean it should be ordered. A continual is impor- preliminary plan. Consult with the state problem with direct marketed beef is thetant to gauge the Extension beef specialist to get accurate less glamorous cuts like round steak andvarious cuts and production costs for your area. various roasts. Would you be better servedthe quantity that to make another product, add some value, Get reasonable estimates, or better yet,customers are actual carcass cut-out data, to base projec- and profitably sell it, versus taking a loss?willing to purchase. tions of retail meat yields. Be advised that The SARE report entitled Whole Farm most information is biased toward commod- Planning for the Production of Grass-fed Beef ity beef, fi nished in a feed lot. Grass-fed gives more perspective on cut selection and cattle production, for example, may yield how to consider other options for low-value lower carcass weights with more trimming cuts (see Resources). required at processing due to less fat, more The first step is to determine what the shrinkage during aging of the carcass, and trimming of unsightly brown areas along average break-even price needs to be. the edges of a cut’s external surface. Often, Realize that there is a tremendous amount a few lunch hours with your processor can of shrinkage or loss that occurs along the provide some insight into typical carcass process. Going from a live animal to a car- cass results in a 36 to 45 percent reduction in weight. Processing can lead to another 35 to 42 percent reduction, depending on how much bone is cut out and how much shrinkage occurs in the cooler during aging. Each of those reductions pushes your break-even price higher and higher. For example, consider a beef carcass that yields 350 pounds of retail meat. The calf and production costs are $800, and pro- cessing adds another $225, marketing is $100, and labor and management adds another $400. A total of $1425 in costs are spread over 350 pounds of retail prod- uct. The average break-even price at thosePage 16 ATTRA Beef Marketing Alternatives
  17. 17. rates is $4.07 per pound. Every pound of spreads between various cuts on the whole-meat needs to be sold at $4.07 per pound sale level. A spreadsheet may be used toto break even. If 140 pounds is sold at develop a retail product list, to plug in cor-$3.00 per pound (the approximate amount responding wholesale cut price per pound,of ground beef generated), the remaining and then to apply a traditional retail210 pounds needs to be sold for at least markup of between 80 to 95 percent of the$4.78 per pound to generate the same total wholesale price. For example, a wholesaleamount of money. price for IMPS-112A rib of $5.40 would yield my price for retail rib-eye steaks ofThe next step is to establish individual $9.99 per pound (5.40 x 0.85 + 5.40 =cut prices— the price of rib-eye steak per $9.99 per pound retail, at an 85 percentpound, the price of ground beef per pound, markup). A packer/processor should beetc. Do you intend to offer a full slate of able to assist you to identify where retailretail cuts? Do you have a market for a full cuts are coming from with regard to theslate of cuts? In many cases, folks are left IMPS boxed beef codes and prices.holding onto the round steak and variousroasts. If a ready market is unavailable,consider making those cuts into some other Organic Pricingvalue-added product, such as ground beef The steps so far pertain to the commodity beefpatties or fresh beef sausage. Does your level. The next step is to look at the organicprocessor have the capabilities to allow beef situation. Many think that there shouldyou to produce some of these more cus- be an additional mark-up for organic pro-tomer-friendly products? How about turn- duction. In reality, additional costs incurreding the rounds into beef jerky at $12 or due to organic compliance should already bemore per pound? built in. This is why you must know from the onset what your unit cost of production is.You can get price spreads for typical The organic cost should already be includedwholesale cuts from the USDA. It pro- in the cost to produce a calf. The organicduces a beef cutout sheet every week that processing is also incorporated.indicates prices for various beef primalsor boxed parts are. The price spreads The intrinsic value of organic beef is sub-between the farm, wholesale, and retail ject to local market conditions, because inoutlets are also available. most instances—especially in larger metro areas—organic products have a market. InThe three Internet links provided below rural areas, the organic premium, or evenmay be useful when pricing your beef. a slight increase in value due to beingThe fi rst gives you a feel for where relative farm-raised, might not be possible. Thisvalue is added along the production chain. is where market research comes in. Is theThe second may be useful in establishing intended market ready for organic beef? Isindividual cut prices. The boxed beef cut- the customer base large enough for yourout values help establish traditional price intended production? Keys to Pricing Monthly price spreads for meat Adjust the retail markup on the beef so meat pricespreads/ that when a total value is calculated for an individual carcass, the average value per Weekly boxed beef prices pound is at or above your break-even price per pound. If the calculated average price Retail prices per pound is above break-even, then you have some real profit, but only if you have BLSTable2.htm truly accounted for labor and management in your break-even pricing calculation. ATTRA Page 17
  18. 18. you may have to tweak the pricing scheme Paper on carcass breakdown as you gather some of your own data. Once you have a pricing schedule, the next Another beef breakdown chart question is whether the intended market will purchase beef at those prices. If prices are 2004.pdf marketable, then proceed with your market- For assistance identifying cuts and where they come from ing plan. If the calculated prices won’t fly with consumers, then re-evaluate inputs to reduce prices while you explore other mar- keting options. Or, accept what you are cur- profit margin is an important number to rently doing as the best alternative, given remember as you make changes in the sys- the situation. A move up the food production tem. Let’s say, for example, a retail grocer chain is not always a guaranteed way to go. is willing to carry organic meat for 15 per- But by going through a detailed planning cent of the retail price, and your margin is process, you have better information upon 20 percent. You have room under the exist- which to base a decision. ing pricing structure to participate without For more pricing information, an Excel re-pricing all your product. The question spreadsheet based on data from the SARE becomes, what level of profit are you happy Whole Farm Planning Project is avail- with, and when does it become necessary able to create a retail pricing chart. The to adjust prices? spreadsheet uses traditional price spreads for various cuts of beef. The spreadsheet The information from the Carcass Break- allows you to use your own cut data, deter- down paper (see box above) helps determine mine retail mark-up, and calculate an average total carcass values from the aver- estimate of total retail value for a carcass. age weights for each cut as a percent of the This planning tool can be used to develop carcass. Another method is to conduct cut- retail prices, determine profit or loss per outs on some of your own carcasses to see carcass, and calculate various product what the actual retail yield for various cuts line-up scenarios prior to putting a car- cass in the box. might be and use those figures to calculate the price. Of course, real data on your own cattle, with your processor, yields the best Conclusion results. If you use the research report data, Shortcomings of the conventional marketing system have made the time ripe to return to marketing beef directly from ranches to consumers. Niche marketing can sometimes give the farmer a larger share of the food dollar and a higher return on each unit sold. Adding value or marketing some minimally processed farm products directly to the con- sumer may be a way to enhance fi nancial viability. While successful direct marketing may or may not increase profits, it will pro- vide protection from fluctuating live-mar- ket prices. However, direct marketing is a labor-intensive job, demanding time, effort, creativity, ingenuity, sales expertise, and the ability to deal with people in a pleas- ant and positive manner. Producers must be absolutely sure they are ready for the job.Page 18 ATTRA Beef Marketing Alternatives