You would think after reading the blogs, letters to the editors, and listening to coffee shop chatter, that owning a packing plant is the be-all and end-all of security in the beef business. Just eliminate Kevin Costner, kill the cattle and they will come. Get the beef in the box and all you’ll have left to do is count your money. Sorry to burst your bubble, but that is a far cry from the reality!
This coming January will mark six years since Erika and I and a band of merry ranchers started developing the idea of a branded beef program. In reality it took another year ‘til we killed the first cattle. Looking back, I am very grateful we were blind to all the issues and challenges we would face as we drove our plan from a romantic idea into a working reality.
I can see where some of the notions start to brew. People think the packers’ streets are paved with gold when producers see steaks priced at $35/kg at the store level or a fancy steak dinner costing $65/plate. The reality is those are the prices down the line and there are many others along the feeding chain taking their cut of the action before it hits the mouth of a consumer.
Beef cattle aren’t like snakes that you can cut from one end to the next as nice even steaks. In fact, if I think about muscle composition, I am pretty sure even snakes would not cut out that way either. The middle cuts of beef — tenderloin, striploins, ribeyes, and top butts represent 16 per cent of the carcass. As another example of the 80:20 rule — 80 per cent of the value comes from less that 20 per cent of the carcass. And even though these cuts represent a lot of value the reality is you also need to sell the rest of the carcass and that’s what separates the men from the boys. This is also the critical part of what makes for successful beef marketing/branding and what will stave off a receivership sale.
On the opposite spectrum of steaks are the grinds or trimmings. Grinds are typically categorized as 50s, 65s, and 85s, if we are talking about the products produced from slaughtering under 30 month of age cattle. The trimmings typically make up a full third of the carcass. From this third, 1/3 of it we’ll probably be 85s or lean ground beef and 2/3 will be 50s, which is half fat that has to be blended with leans from somewhere else to extract the full value of products.
Trimmings are also darn tricky to handle. Unlike the shelf life of air sealed (Cryovac) whole muscle cuts, they have a relatively short shelf life. The market for 85s is typically fresh, so they need to be sold every day of the week or soon you will smell them. As far as the 50s go, they can be frozen. The kicker to the whole business of trimmings, is the risk of ECOLI 0157. Under Canadian Food Inspection Agency (CFIA) rules, anything destined for grinding must be tested for Ecoli and if the test comes back positive you better be ready to take the kick because the value of positive trimmings is almost nothing. Ecoli is this industry’s biggest dirty little secret as the amount of trimmings rendered each year is astronomical. In our business we have a protocol at the feedlot to minimize tags (dirt) and keep cattle as clean as possible, however there are no guarantees. We too have been hit with positives.
So if you get past the challenges of selling all your cuts, kept current on your grinds, and avoided positive Ecoli tests, the next step is to get paid the full production cost of your product. Sounds simple, but there is a reason we have big packers. It is to gain economies of scale and to drive down packing plant production costs. Why? Because there is more to sell than just beef. The meat industry is full of people who nickel and dime you to death, and everyone wants a piece of the pie that is only so big.
When you kill cattle there are more products to sell than just beef muscle. There are parts like hides, blood, offals and even bones that have value. To create the most value from these items, you need to be able to put entire containers of these products together to sell to the world in order to extract their full value. Secondly, Canada sells to the world; also selling to the world are other packers and countries that are very competitive, which results in stiff pricing competition. The result, continued pressure to produce cheap, which is no different than primary agriculture that continually strives to produce products cheaper and cheaper.
So if you are an enterprising person you would say, “differentiate from commodity so you can set price rather than be a price taker.” An example of this would be “natural beef.” But, in order to do that there are more added costs. First, you will have to kill at a specialized packing plant. Even though these smaller plants do their job well, they lose economies of scale and will never extract the value from the offals and hides like the big packers.Netresult — at least $150/head higher packing costs.
The next result is that feeding natural cattle costs more than conventional, and you to forgo tricks of the trade like implants, ionophores, feed antibiotics and beta agonists that reduce beef production costs. The survey says another $75/head.
Finally, to keep the machine running, sales pumping, cheques flowing and marketing marching you will need sales, marketing and accounting people to run the show. The result — a minimum of $50/head worth of costs, if you are selling 4,000 head per year. The 4,000 head may sound doable, but it takes a while to get to enough customers to bring you up to those numbers. Add all the extras together and you have $275/head higher cost just to get to the same level of pricing as commodity. If you really want sustainable returns you need to add another $150 to that so you make some long term margin for your ranching operation. The challenge is daunting to say the least and the reality is no longer so romantic. However, that said, I still would not change a thing. I am just grateful, that from the outset, we didn’t know what we were getting ourselves into.
The friendships we have developed within our producer organization, the connection with our end users, the challenges we have faced and over come, and the realization that we control our own destiny have made it — and continue to make it — worth all the effort. It’s a far cry from streets paved with gold, and more like a pothole-ridden road that is slow driving and needs steadfast perseverance. However, as Robert Frost wrote, “two roads diverged in a wood, and I took the one less traveled by. And that has made all the difference.” It is difficult, but worth all the effort.
Dr. Christoph E. Weder is a purebred Angus breeder in the Peace region of Alberta and also runs SVR Ranch Consulting. He is also a founding member of Prairie Heritage Beef Producers For additional info check out www.spiritviewranch.com