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Communicating value to cattle producers: Issues, opportunities, and looking ahead

Agricultural and Applied Economics Department, Virginia Tech, Blacksburg 24061

¹ Correspondence: Mail Code 0401 (phone: 540-231-7725; fax: 540-231-7622; E-mail: purcell{at}vt.edu).

Abstract

Price systems in the beef industry have failed to communicate needed changes to producers. The lack of alignment between what is produced and what consumers want and are willing to pay for pushed beef demand down nearly 50% from 1980 through 1998. Ineffective grades allowed the price-driven system to fail, and current public policy blocks needed changes in quality grades for fresh beef. Product attributes of importance to consumers, such as tenderness, have not been identified and brought into the pricing process. In the presence of a failed pricing system, producers have looked to pricing grids, contracts, and vertical alliances to be paid for value and for investments in genetics and technology. The future will see continued competition between price-based systems and non-price means of coordination and quality control. If grades are not modernized and new technology brought in to allow more Contracts, Coordination, Prices attribute identification, the price-based system will continue to disappear. Producers will need to look at alternatives and find the approach that allows them to participate in a beef system that profits from better serving a discriminating and changing consumer. Packers have revised their business models as contractual arrangements and alliances have allowed them to coordinate what they buy with needs for new consumer-friendly products and to accomplish at least a modicum of quality control. Once low-cost commodity operations, the large beef packers are now more nearly quality-oriented. The huge investments in new products and markets they have made are the catalysts that have turned the beef demand picture to the positive. Those investments are important to the industry and will set the future of the beef industry for the year 2010 and beyond. The future of beef can be very positive if needed changes are made to ensure the consumer is better served.