The Power of Ground Beef

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frenchie

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The Power of Ground Beef
By Suzanne B. Bopp
September 22, 2005

Consider ground beef. Yes, it is hamburger. And it’s meatloaf. No, it’s not as glam-orous as, say, T-bone steak or tenderloin. But the beef industry would be in trouble without it.

“In a nutshell, it’s huge,” says Mark Thomas, vice president of global marketing for the National Cattlemen’s Beef Association. “It’s the single largest beef product consumed on a volume basis. With retail and foodservice combined, it’s about 50 percent of total intake.” Thanks in large part to quick-service restaurants, ground beef is the No. 1 menu item.

Ground beef reaches across ethnic, regional and economic lines. “It’s 12 percent of our total volume at CAB, even though we built our cornerstone around the middle meats,” says John Stika, vice president of business development for Certified Angus Beef. “Is it the single most important product? It’s a value-added component of our industry, but we can’t afford to focus the system toward the production of ground beef and lean yield,” he says. Quality needs to remain the focus of beef production, but ground beef does offer an opportunity to maximize the use of raw materials. If you had not thought of it as a value-added product, Mr. Stika says, consider this: ground sirloin sells for more than the whole-muscle raw material it’s made from.

More and more branded programs, using more specific raw materials, are offering ground beef. “We are starting to see further segmentation in ground beef,” Mr. Stika says. “Branded groundbeef will grow, no doubt. There will be a range in terms of lean content and raw-material sources that will provide a point of difference. In the last six months, CAB grinds have earned a 7 percent premium over commodity. It drives value into the whole supply chain. The demand for higher-quality grinds is complementary to higher demand for grinds in general.”

Others agree that the success of branded ground beef is a plus. “My guess is branding has elevated gross returns at the consumption level back to the beef industry,” says Keith Belk of Colorado State University. “If people become aligned with a brand, they’re likely to also purchase their ground products from that brand. CAB has done very well in this area, and, overall, it is a positive for the industry.”

A successful brand greatly impacts the perceived value of a product, Mr. Thomas says. “The marketing efforts are truly positive for the industry. There are different values for different consumers. It could be like automobiles  —  there are luxury cars and budget cars. Beef can fill the same kind of marketing needs.”

Value cuts change the equation

Also putting pressure on ground beef is the success of the new value cuts, such as the flat-iron steak, coming from the chuck and the round, previously sources of lean meat for ground beef. “Particularly in foodservice, there’s been huge success with value cuts, and that’s lighting the fire for retail, which is more challenging and requires more effort,” Mr. Thomas says. “That puts economic pressure on the value of ground beef. We see that demand continues at a price point slightly higher than a few years ago. That translates in time back to producers. It creates an economic pull.”

Raising the value of underutilized cuts increases the wholesale value of the chuck and round and adds up to increased value for fed beef. “We pay more and more for cattle as an industry, and that puts additional pressure on the middle meats to perform from a value-recovery standpoint,” Mr. Stika says. If value generated from the chuck, round or ground beef can be returned to the producer, it takes some pressure off the middle meats, he says. And whole-muscle cuts that can’t be moved can still be used as grinds.

“As a whole, more beef is sold today in the U.S. because demand has improved, but modifying how carcasses are merchandised also adds value to the entire fed-beef supply chain without losing volume at consumption level in terms of sales,” Dr. Belk says. “What that has meant is that to compensate  —  to add value to fed beef and the carcass and at the same time to replenish ground beef supply  —  processors have found it necessary to import more lean trimmings from Australia, among other places.”

Marketing more individual muscles reduces the domestic fed-beef trimming supply for ground beef. “As an industry, we’re still better off creating something of greater value and importing something of lesser value,” says Montana State University’s Gary Brester. “Ideally, we’d like to have a grain-fattened animal that was 100 percent table cuts. What about ground beef? We’d import it.”

Imports complete the picture

Even as things stand, the kind of beef trimmings that are generated from the fed-cattle supply domestically are not what consumers in this country want  —  they are too fat. And demand continues to grow for leaner ground beef. “When I was a buyer

for Safeway in the 1980s, most ground beef volume was accounted for by the 73 percent lean product,” Dr. Belk says. “Now most retailers say it’s 90 percent lean and higher. What that means is that trimmings from fed cattle, 50/50 (percentage of lean/percentage of fat), 60/40, etc., trimmings are no longer the primary raw material for use in ground beef manufacturing. Now the majority of those types of trimmings are used to produce hot dogs and sausages.” Imports, especially lean trimmings from Australian and New Zealand cattle, are added to domestically produced, fatter fed-beef trimmings, adding value to both and allowing producers to return a greater price per pound for live cattle.

Of course, there are other ways we could solve the problem, Dr. Brester says. “We could take a lean cut  —   say a tenderloin  —  and grind it into hamburger. You could do it, but it’s not beneficial to individuals or the industry.” Another possibility: produce more grass-fattened beef domestically. “People are free to produce grass-fattened animals and sell them to lean down our ground beef, but most people don’t choose to because they can create more value by producing grain-fattened cattle,” Dr. Brester says. “We have the infrastructure and the incentives in place to produce a grain-fattened product, and there’s demand both domestically and overseas for that product. It makes sense for our industry to produce grain-fattened cattle; we’re good at it. So, we export high-quality beef; we tend to import lean trimmings.”

Economists call that a comparative advantage, a crucial concept in standard trade theory. “Nobody can be best at everything, so we specialize,” Dr. Brester explains. “It’s the reason we trade, both domestically and internationally.” We are actually wealthier because we trade; we don’t have to use resources to do things we could not do efficiently. “That doesn’t mean that everybody’s happy with such trade arrangements,” he says. “If I have cull cows, they’d be more valuable if we didn’t import that lean material. The outcome of trade is that societies are better off, but not all individuals gain from that trade.”


Our ability to import that lean material helps solve the difficulty created by consumers who want both very lean ground beef and well-marbled steaks. “We have two different market incentives going on, so we need to import some beef,” Dr. Brester says. “Trade can be very beneficial; it can help us meet both demands.”

The fact that trade is beneficial was demonstrated by the loss of export markets because of the detection of BSE in the U.S., which resulted in the loss of about $100 to $150 per head to the industry. In fact, the way the industry has evolved, there is no such thing as a foreign product versus a domestic product anymore. Packers are operating all over the world. “Cargill and Swift, for example, operate in other countries besides the U.S., Australia among them,” Dr. Belk says. “If Swift has to buy a certain amount of lean imported beef trimmings to manufacture ground beef, it’s logical that they would go out on the market in Australia  —  presumably to their own plants operating in Australia.” The fact that they operate this way has, in fact, added gross revenue to the entire U.S. beef industry. Operating plants in Australia has kept them afloat during our BSE troubles. These can be considered improved efficiencies in the industry. “You couldn’t continue to sell beef at retail to consumers in the U.S. at the prices they’re used to without these improved efficiencies,” Dr. Belk says. “Geographical borders don’t mean the same thing in business as they do in politics. My personal opinion is if you look at numbers over time, globalization has been a good thing
 

Susie David

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Yeah, very interesting. We're researching the possibility of producing ground beef from our stock and selling directly to the public...still putting all the hoops in line brfore we strat to jump through...thanks, DMc
 

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