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The era of collaborative competitors

The only new money that enters the beef production chain comes from the consumer. There are a couple of ways this can happen. The first, and I would propose the most positive way, is through product purchase. The second, and not quite as positive, is through tax dollars.

Beef demand is based on price versus quantity. At any given quantity the price will be X. If the quantity drops the price goes up and vice versa. In Graph 1 we see that if beef demand is represented by line A and we have the quantity shown by the vertical red dashed line the price will be represented by the horizontal dashed line. An increase in beef demand is actually shown by line B where at the same quantity a consumer will pay more money. Over the last several decades we have seen a steady march from B to A demand lines, rather than the other way around, although that is changing.

I recently saw a Canadian vision for “high-quality, safe, grain-finished product.” Let’s walk through this quickly using demand curve A. If we had one million head of grain-finished fed cattle and the price for high-quality grain-finished beef was $2,000 per head on our demand curve, we would generate $2 billion for the Canadian beef industry.

This presents us with a thinking problem and the challenge of a narrow vision of beef demand.

Let’s say along this line A (Graph 2) there is also a market for high-quality grain-finished beef without implants. For easy math let’s say that it accounts for 25 per cent of the marketplace that will pay a 10 per cent premium. This is shown by the blue dashed line. We now have 750,000 head at $2,000 and 250,000 head at $2,200, for total revenues of $2.050 billion — $50 million increase. In other words, the total revenue generated by the industry has increased 2.5 per cent, even though the demand curve has not shifted.

chart

If the production math works, it would make sense to pursue this market. If there is not enough beef to meet the demand the premium might actually be 20 per cent to attract enough product, generating even more income during the adjustment period. This adjustment period is one of the reasons why it is important to continually seek out new growing and differentiated markets.

There are multiple price points along the demand curve that represent different markets. In other words, some people are willing to pay more if the value proposition is there. This is why not every box of beef that comes out of a packing plant has the same logo on it. In fact I would argue there are some products that may not even be on the same demand curve as our high quality grain finished curve A. Some products may lie along a completely different demand curve than this traditional demand we tend to think about.

Collaborative competitiveness

So what does this have to do with the term Collaborative Competitiveness (CC)?

The word :competitive” has several definitions. Two I particularly like are “having a strong desire to compete or to succeed” (Webster’s College Dictionary) and “showing a fighting disposition” (Free Dictionary). If you look up “collaborative” you will find “to work together” as the key constituent of any definitions.

I would argue the Canadian beef industry in general may be neither competitive nor collaborative and much of our philosophy relies on targeting a single price point in the marketplace (red dashed line), which severely limits returns at the ground level.

We often talk about our competitive advantages of safety and grain finished. Safety is something we expect out of products, it is not a market differentiator. To give it some perspective, it is pretty tough to buy lead-based paint anymore. Grain finishing is a potential advantage, but on its own it is fleeting for a couple of reasons. First, it is relatively easy to duplicate. Australians, South Americans, Americans, Europeans, Africans and Asians can all grow and feed grain to livestock (I have seen them do it). Second, failing to add value beyond this basic proposition leaves profitability of the industry strictly at the mercy of the commodity price of feed grains and leaves us at odds with our grain-farming friends and neighbours.

It is extremely important we differentiate products from the cow-calf level forward so we can cover the entire demand curve and push it outward. This includes organic, grass finished, natural, traditional, grain finished, exported and local beef production (and combinations thereof).

To do this we need to be competitive according to the above definitions. It is a state of mind, rather than just an industry structure or cost-driven strategy.

Why being competitive matters

With the advent of trade agreements and market access we certainly are in a position where we need to compete for these new markets and have the potential to grow the industry. However we also need to keep in mind our market at home is a key target for others. By global standards the Canadian market is small, but we are also extremely wealthy in a global context. We are no longer secure in our own marketplace without consistently fulfilling specific consumer demands.

In order to do this it is important to offer products that are difficult to replicate. This can include specific production attributes, or regional criteria (Ontario Corn-Fed Beef), breed characteristics, or other combinations. It is nearly impossible for someone to replicate “Joe Blow North Saskatchewan Beef” if their name is not Joe Blow and they live in another country. These are the types of products that create consumer loyalty and sustained competitive advantage. They are also the reason we need collaboration.

The average Canadian cow herd produces enough calves to keep a modern plant busy for between 10 to 15 minutes. We need to collaborate to provide enough niche products to actually pursue and capture some of these markets. Collaborative competitiveness is really about figuring out who we will work with to compete against others.

There are some CC groups emerging in the industry, and I expect as we move forward there will be more. The ability to work with people towards a common goal is going to be a key to our future. Facilitating the growth of differences is a big challenge for industry groups, but I believe this is the only real ground for consensus in the industry and the likely path forward — and it is an exciting path.

About the author

Contributor

Sean McGrath is a rancher and consultant from Vermilion, Alta. He can be reached at [email protected] or (780) 853- 9673. For additional information visit www.ranchingsystems.com.

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