HAY MAKER
Well-known member
The Packer's Plan
Corporations, by nature, tend to have lots of meetings. It's what they do best. And in those meetings they come up with five-,10- and 15-year plans and business models to find ways to reduce input costs, manage volatility, acquire greater control over the supply chain and to be more competitive than their competition. Years ago the business model in the beef business was that cow calf ranchers, stockers, feeders, packers and retailers operated independently of one another in a production system that, for the most part, produced consistent profits for the good operators. But such a system also presented problems for the packer and retailer. For one, because the parts were independent, with little communication between the segments, it also produced cattle that were not consistently good to eat. This coincided with a time in which public consumption of beef plummeted. Granted, there were other factors, significant ones like diet/health issues, but clearly ranchers were not producing a consistently good product. The beef packers looked around and saw an industry that was producing a consistent product and whose consumption was skyrocketing: the poultry industry. So, as businesses often do, they tried to incorporate the chicken model into the beef business through contract production.
Some ranchers signed on with packers in strategic alliances and most cattle publications and industry observers hailed these early ventures as the way of the future. The cattlemen's national organization, the NCA, was infiltrated by packers and their protégés in order to push such programs. Never once did these folks stop to consider all the power they'd be handing over to the packers if all ranchers became strategically aligned. Gradually the cattle business began to go down the same path as the chicken pluckers and as a result Bill Bullard of R-CALF says here's what happened:
According to USDA data, Bullard says the average return on investment among cow-calf producers in the U.S. was a negative $30.40 per bred cow per year for each year of the 1990s. "Your industry suffered staggering losses measured in the billions of dollars," says Bullard.
"We lost over 10 percent of the total number of beef cattle operators in the United States. We've lost over 108,000 producers since 1993," he said. As a result rural communities all across America have withered. The cow counties in Nebraska are among that state's poorest, for example.
While the ranchers were facing tough times the packer was enjoying heady days. "In 1998," says Bullard, "the average retail price of beef in the United States was $2.77. In 2002, when cattlemen were getting $10 cwt. less than they did a decade before, retail prices were $3.32 a pound. The retailer certainly benefited from these very favorable economic indicators and the packer did, too. In 1992, the average packer margin was $62 a head. By 2002, that more than doubled to $142 a head."
In 1994 Bullard says the rancher received the majority of the consumer's beef dollar: 56 cents for every buck the consumer spent on beef. But by 2000, the producer became the minority recipient. "Your share fell to 49 cents," Bullard said. "By 2002 it had fallen to 44 cents." But the packers got greedy and wanted even more so they had more meetings and decided to copy yet another business model.
Beyond Borders
The goal of this new model was to become multi-species, multinational protein providers and this they did through attrition, merger and acquisition. But still the beef part of their beef business did not fall into place like pork and poultry. The reason the chicken model did not work nearly as well in the beef business is that not enough ranchers bought the hype and signed on to become serfs on their own land. And ranchers also had something the poultry pluckers did not have: competitive bidding in the form of auction markets, video markets, country traders and retained ownership. If they were going to take complete control of the beef industry the packers knew they needed another business model. For inspiration they looked to American big businesses who were outsourcing their supply chains to the lowest bidder around the world. If ranchers in Nevada or Nebraska wouldn't play ball maybe they would in Canada or Argentina. So the packers started looking beyond U.S. borders to other cattle-producing nations for their supply.
According to Bullard, one of the packer's strategies was be to combine the herds of the United States, Canada and Mexico into one seamless herd. "It's a good business strategy on the packer's part," says Bullard. Although the results would not be very good for U.S. ranchers.
To sell meat from several countries to American consumers it was vital that the consumer not be able to tell any difference in the beef produced in this country and that produced in Mexico, Uruguay, Canada, Brazil, Argentina, or any other cattle-producing country. "They want the consumer to believe that all cattle are the same," says Bullard. "It's not in the interest of a packer to have mandatory country of origin labeling. They want consumers to be loyal to their brand regardless of where they obtained the cattle for use in that product." Country of origin labeling would jeopardize their business model and so the packers tried to kill COOL at every turn.
A packer would also not want the 792,000 beef producers left in the U.S. to have any political power to get in their way. That is why they literally took over the NCBA. What better organization would there be to do there bidding for them than one that for decades had been the one perceived by Congress to represent the cattle industry. Congress put us all in the same boat together. But the NCBA could not do the packer's bidding if they were dependent on dues from rancher's for their existence. So the packers and their lackeys commandeered the checkoff funds, created the NCBA and then hijacked the organization and any credibility it had in Congress.
Say what we will, you have to admire their game plan. "That's a reasonable, justifiable, legitimate business strategy," Bullard said, at least from the packer's viewpoint. At the same time President Bush was pushing free trade agreements and listening closely to any advice offered by the man who bought the Texas Rangers from him and contributed heavily to his campaign. It just so happens that man and his company also owned Swift of Australia. For awhile this outsourcing of beef from foreign countries was working way better than the chicken model had.
Corporations, by nature, tend to have lots of meetings. It's what they do best. And in those meetings they come up with five-,10- and 15-year plans and business models to find ways to reduce input costs, manage volatility, acquire greater control over the supply chain and to be more competitive than their competition. Years ago the business model in the beef business was that cow calf ranchers, stockers, feeders, packers and retailers operated independently of one another in a production system that, for the most part, produced consistent profits for the good operators. But such a system also presented problems for the packer and retailer. For one, because the parts were independent, with little communication between the segments, it also produced cattle that were not consistently good to eat. This coincided with a time in which public consumption of beef plummeted. Granted, there were other factors, significant ones like diet/health issues, but clearly ranchers were not producing a consistently good product. The beef packers looked around and saw an industry that was producing a consistent product and whose consumption was skyrocketing: the poultry industry. So, as businesses often do, they tried to incorporate the chicken model into the beef business through contract production.
Some ranchers signed on with packers in strategic alliances and most cattle publications and industry observers hailed these early ventures as the way of the future. The cattlemen's national organization, the NCA, was infiltrated by packers and their protégés in order to push such programs. Never once did these folks stop to consider all the power they'd be handing over to the packers if all ranchers became strategically aligned. Gradually the cattle business began to go down the same path as the chicken pluckers and as a result Bill Bullard of R-CALF says here's what happened:
According to USDA data, Bullard says the average return on investment among cow-calf producers in the U.S. was a negative $30.40 per bred cow per year for each year of the 1990s. "Your industry suffered staggering losses measured in the billions of dollars," says Bullard.
"We lost over 10 percent of the total number of beef cattle operators in the United States. We've lost over 108,000 producers since 1993," he said. As a result rural communities all across America have withered. The cow counties in Nebraska are among that state's poorest, for example.
While the ranchers were facing tough times the packer was enjoying heady days. "In 1998," says Bullard, "the average retail price of beef in the United States was $2.77. In 2002, when cattlemen were getting $10 cwt. less than they did a decade before, retail prices were $3.32 a pound. The retailer certainly benefited from these very favorable economic indicators and the packer did, too. In 1992, the average packer margin was $62 a head. By 2002, that more than doubled to $142 a head."
In 1994 Bullard says the rancher received the majority of the consumer's beef dollar: 56 cents for every buck the consumer spent on beef. But by 2000, the producer became the minority recipient. "Your share fell to 49 cents," Bullard said. "By 2002 it had fallen to 44 cents." But the packers got greedy and wanted even more so they had more meetings and decided to copy yet another business model.
Beyond Borders
The goal of this new model was to become multi-species, multinational protein providers and this they did through attrition, merger and acquisition. But still the beef part of their beef business did not fall into place like pork and poultry. The reason the chicken model did not work nearly as well in the beef business is that not enough ranchers bought the hype and signed on to become serfs on their own land. And ranchers also had something the poultry pluckers did not have: competitive bidding in the form of auction markets, video markets, country traders and retained ownership. If they were going to take complete control of the beef industry the packers knew they needed another business model. For inspiration they looked to American big businesses who were outsourcing their supply chains to the lowest bidder around the world. If ranchers in Nevada or Nebraska wouldn't play ball maybe they would in Canada or Argentina. So the packers started looking beyond U.S. borders to other cattle-producing nations for their supply.
According to Bullard, one of the packer's strategies was be to combine the herds of the United States, Canada and Mexico into one seamless herd. "It's a good business strategy on the packer's part," says Bullard. Although the results would not be very good for U.S. ranchers.
To sell meat from several countries to American consumers it was vital that the consumer not be able to tell any difference in the beef produced in this country and that produced in Mexico, Uruguay, Canada, Brazil, Argentina, or any other cattle-producing country. "They want the consumer to believe that all cattle are the same," says Bullard. "It's not in the interest of a packer to have mandatory country of origin labeling. They want consumers to be loyal to their brand regardless of where they obtained the cattle for use in that product." Country of origin labeling would jeopardize their business model and so the packers tried to kill COOL at every turn.
A packer would also not want the 792,000 beef producers left in the U.S. to have any political power to get in their way. That is why they literally took over the NCBA. What better organization would there be to do there bidding for them than one that for decades had been the one perceived by Congress to represent the cattle industry. Congress put us all in the same boat together. But the NCBA could not do the packer's bidding if they were dependent on dues from rancher's for their existence. So the packers and their lackeys commandeered the checkoff funds, created the NCBA and then hijacked the organization and any credibility it had in Congress.
Say what we will, you have to admire their game plan. "That's a reasonable, justifiable, legitimate business strategy," Bullard said, at least from the packer's viewpoint. At the same time President Bush was pushing free trade agreements and listening closely to any advice offered by the man who bought the Texas Rangers from him and contributed heavily to his campaign. It just so happens that man and his company also owned Swift of Australia. For awhile this outsourcing of beef from foreign countries was working way better than the chicken model had.
