The Cow-Calf Manager

Livestock Update, August 2006

John B. Hall, Extension Animal Scientist, Beef, Virginia Tech

What Does Value-Added Beef Production Mean for the Cow/Calf Producer?
Part 2 - Adding Value by Sales to the Consumer

Last month’s article focused on adding value to feeder cattle. This month will finish the series with a discussion on adding value by selling directly to the consumer or being part of a group that is involved in direct marketing. Remember from last month - Value-added beef production means different things to different people. Quite simply, value-added is a procedure or process that increases the value of your product to the customer for which they are willing to pay additional money. Also remember, that this series is written from my perspective as a Specialist in Cow/Calf Management, not as a marketing specialist.

There are numerous ways to market directly to the consumer, but for this article let’s discuss two broad categories: Pasture to Plate Alliances and Direct Marketing. Value is added in these programs by the cow-calf producer having an economic stake in the final product sold at the retail level. If the product sells well and acceptance is high then the cow-calf producer shares in the profits which should result in greater income. If sales are poor then the cow-calf producer accepts a portion of the loss and income at the farm level is decreased compared to selling feeder calves.

Types of programs

Pasture to Plate Alliances - These programs range from small local alliances (i.e. Blue Ridge Premium Beef™) to regional groups (Western Ranchers Beef Cooperative™, Oregon Country Beef™) to nationally known brands (Maverick Ranch Natural Beef™, Creekstone Farms Premium Beef™). These are a few of the many alliances that can be found on the internet or in trade magazines. The goal of these alliances is to produce a specific product that is sold as a branded product. The profit or loss is shared by the group.

Each alliance is unique in what is required of member producers in terms of financial input, profit sharing, decision making, and quality control. Producers interested in a pasture to plate alliance should research each alliance carefully. Interested parties should seek input from consultants in livestock production, economics, and contractual arrangements before committing resources to the alliance.

Production criteria are determined by the alliance. Management practices, cattle genetics, marketing schedules are usually dictated in these groups. Product flow from the ranch to the market place is usually controlled by the alliance rather than the producer. Cattle may need to move to the next stage perhaps the feedlot earlier or later than normal from the ranch perspective in order to smooth the flow of product into the retail sector. This is particularly true of alliances that market fresh product. The cow-calf producer may have to accept the impacts of cattle flow on production costs in order to participate in the alliance.

These alliances usually require members to provide financial backing to the alliances usually in the form of membership, shares, or dues. This helps provide operating capital for hiring production managers, processing animals, marketing/promotion, and retail space. In large alliances, these “non-cattle” duties are completed by third parties hired by the alliance or operating as a contractor to the alliance. In small alliances, a member or relative of a member is often hired to be responsible for several of these duties.

Oversight of large alliances may be conducted by a board of directors or directing family. Producer members of large alliances may provide input through annual meetings. In contrast, small alliances may function by decisions being made by all members as they are gathered around a kitchen table.

These Pasture to Plate Alliances will market tens to thousands of head of cattle through retail grocery stores and restaurants. A few groups will direct market to consumers. By working as an alliance, cow-calf producers can concentrate on what they do best producing feeder calves while others in the alliance take care of cattle feeding, processing, and retail marketing.

Advantages:

• Low to moderate changes in management
• Most day to day management decisions still under producer control
• Can usually find an alliance to fit producer philosophy or style
• Producers of exceptional cattle may realize enhance profits

• Moderate risk with established alliances; high risk with new alliances.
• Usually an up-front financial investment in alliance or contract with alliance.
• Management procedures determined by alliance; independence is relinquished.
• Profitability tied to fate of alliance; may need capital reserve to cover losses during start-up or market down-turns.
• Different marketing system needed for "out cattle" (i.e. anything alliance does not want).

Producers see direct marketing as a way to eliminate the middlemen and increase returns to the operation. On the surface, it seems logical moving from the commodity sector to the retail sector should increase profits; however, producers sometimes fail to appreciate the myriad of procedures and events that put that steak, roast, or hamburger in the hands of the consumer. Animals need to be fed to market weight then harvested and products packaged, marketed, stored, distributed, and sales collected. All contractors or members that conduct these procedures need to be paid for there efforts before profit reach the farm.

Some of the value of the animal is lost when direct marketing occurs at a smaller scale than the major packing operations. The current value of hide and offal is $8.50 per hundred pounds of liveweight. This means the hide and offal is worth $102.00 for a 1200 lb. steer. This value exists because large processors have an outlet for hides and can ship specialty meats (tongues, heat, tripe, etc) overseas. In contrast, small processors will have to charge producers $30-$50 or more to send these valuable by-products to the landfill or renderer. The lost value of by-products must be compensated for by premiums for the meat products that are marketed.

Another challenge is providing the consumer with a steady supply of product. Few consumers have the capability or desire to store a whole side of beef. Calving season, variation in gain during different parts of the year, and animal genetics all create havoc with product flow. If fresh product is the primary item sold, then as the old saying goes “you have to sell it or smell it!”

Sales of live animals to a person for “freezer beef” are legally a simple process if the live animal becomes the property of the consumer and they arrange for custom processing. On the other hand, there are a host of regulations and practices that producers must abide by to direct market meat. Producers should contact other direct marketers or marketing specialists for advice. The Virginia Department of Agriculture has produced a CD on Marketing Virginia Meat Products. To obtain more information or a CD go to the VDACS web site at http://www.vdacs.virginia.gov/livestock/cattle.html This CD is a good place to start when considering direct marketing.

Another factor is our individual marketing skills and business acumen. As Mike Goldwasser from Blue Ridge Premium Beef noted at a recent conference on value-added beef marketing, we are great at raising cattle, but we are lousy marketers. Business planning and marketing assistance is essential. However, quality support in these business areas will increase the cost of the product as well.

The first step in direct marketing is to decide what product you want to produce and can produce. Then producers need to research, research, research. Create business and marketing plans and have them reviewed by knowledgeable people. Also, make sure you have enough time to dedicate to the business. Direct marketing creates another full-time job if not several full-time jobs when managed correctly.

Direct marketing can be successful. However, it is not for everyone. Producers would be well advised to proceed slowly and cautiously.

Advantages:

• May increase returns over selling feeder calves; best case scenario can result in significant profits.
• All decisions made by the operation
• Marketing program is planned in advance
• “Socially rewarding”

• High risk; difficult to sell all parts of animal for a premium
• A portion of the value of the animal is lost
• All of income deferred until sale of final products.
• May only be able to market a small segment of total animal production
• Product flow; providing a constant supply of product to the consumer regardless of time of year.
• Different marketing system needed for “out cattle” (i.e. don’t fit product specifications).

Virginia beef producers already have a variety of options for value-added marketing from feeder calves to steaks. For most producers, increasing calf value through genetic selection and programs such as VQA will be the best option. A few others will create their own line of beef products. Hopefully, this short series will encourage you to think about ways to add-value to your cow/calf operation. Disclaimer Commercial products or programs are named in this article for informational purposes only. Virginia Cooperative Extension, Virginia Tech, do not endorse these products or programs and do not intend discrimination against other products or programs that also may be suitable.

Disclaimer
Commercial products or programs are named in this article for informational purposes only. Virginia Cooperative Extension, Virginia Tech, do not endorse these products or programs and do not intend discrimination against other products or programs that also may be suitable.

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