CHANGE IN FOCUS LEADS TO 1999 BEEF STORY OF THE YEAR

DENVER (November 30, 1999) -- It was a tough sell to many in the beef industry.  But just over two years ago, industry leaders determined that demand -- not market share -- held the key to long term success.  And time is proving them right.

At that time the single goal of the industry became: “To stabilize beef demand by the year 2001.”  Critics said this goal overlooked the fact that “we eat everything we produce,” and the reasons behind industry problems had to be elsewhere.  These critics believed the industry needed quick, short-term solutions and, at least, something more tangible than “demand” to pursue.

Yet, as 1999 draws to a close, headlines proclaim that demand is turning around, economists acknowledge that demand might have ended it’s 20-year slide and producers are benefiting from improved beef demand in the form of higher prices for their cattle.

“Beef demand is the story of the year in agriculture,” says Jay O’Brien, a member of the Long-Range Planning Committee, which recommended that this goal be the single over-riding benchmark of the industry.  O`Brien admits, though, that back in 1997 "it was difficult to focus on long term solutions, when we had serious losses and needed a short-term fix.  However, we did not lose demand quickly and we would not regain it without a long term strategy.  Advertising a product that the consumers did not perceive as meeting their needs would not fix our demand difficulties in the short or long term,” he says.

The Texas rancher and cattle feeder and current vice chair of the beef industry`s Nutrition and Health Committee, remembers the debate over demand as the new industry goal. “Many folks believe that if you sell more volume than the competition – in other words, increase market share – you must be doing better than the competition," he says.  "The problem with that measure of performance, of course, is that you might be producing at a loss while your completion produces at a profit.  You lose.

“The planning group realized we could not bring about fundamental change within the industry until we understood consumers well enough to deliver products they wanted and were willing to buy,” O’Brien notes.

This group identified convenience and nutrition as demand drivers that are key to industry success.  “Another driver is safety," O`Brien adds.  "But safety is something you must have as the price of admission to the marketplace. Convenience and nutrition, on the other hand, lead people to buy.  Our conclusions were echoed by the independent demand driver group.”

At the same time, the Cattlemen`s Beef Board (CBB), the organization empowered by Congress to make national checkoff budget decisions, and the National Cattlemen`s Beef Association (NCBA), the primary national contractor implementing checkoff programs, began to focus their financial and human resources around these key demand drivers. In the current fiscal year, in fact, more than 80 percent of checkoff dollars will go to fund convenience, nutrition, safety and foreign market development programs.

“While national checkoff resources are substantial, the Long-Range Planning Committee came to realize that we couldn’t be all things to all people,” O’Brien recalled. “We needed to spend producer dollars in areas where they’d make a difference in the marketplace. Most important, we knew we would need to find ways to leverage every dollar we could with private sector resources to act as a catalyst for change.

“That was a key turning point for the industry,” O’Brien suggests, but only one decision of the many made over the years by cattle producers that made today’s successes a reality.

“If producers hadn’t decided during the early days of the checkoff to fund nutrition research, work with doctors and dietitians to show how our product fits a healthful diet, and develop relationships with health organizations, we would not have been able to consider a nutrition advertising campaign like the one we will launch in January 2000,” O’Brien said.   “The one checkoff-funded study on parity between chicken and beef gave us an incredible return on investment.  The coverage it received in the news media opened the door for consumers to trust our message on the value of beef in the everyday diet.  We have other research to reinforce our great story.

“By the same token, if producers hadn’t decided years ago to help retailers reinvent their meat cases, work with restaurant managers to come up with new beef menu ideas and lead the effort to develop new products, we wouldn’t have an opportunity to promote convenience,” O’Brien noted.

The approach the long-range planning group suggested was to find permanent solutions. “We simply don’t have the money to buy every new silver bullet or try every new Band-Aid.  With the decline in beef demand, I was worried about the value of my ranch when my daughters received it.  You can’t trade the future for short-term fixes and expect to build for the future,” O’Brien notes.

What is happening to beef demand?

O’Brien emphasizes, “All of the economists told us we had record supplies and were in for a wreck.  Prices increased and they are all giving credit to different factors: Y2K, increased disposable income and others.  These may be real, but it`s no coincidence that the end meats held together better than normal during the summer.  The convenient products and our promotion should get part of the credit.  Our great nutritional press from our research should be considered, as well.  The beef checkoff is working,” O`Brien says.

According to industry analysts, beef demand increased 4.59 percent during the third quarter of 1999, compared to demand during the same period last year. While seasonal demand slipped 1.65 percent between the second and third quarters of 1999, industry leaders remain optimistic that beef demand is improving.

The rate of decline of beef demand has been slowing since 1996, according to the Beef Demand Index, which is calculated by leading independent economics and industry experts using USDA per capita beef consumption data and USDA Choice retail beef prices adjusted for inflation.

Consumer spending on beef from January through September 1999 totaled $36.7 billion – a  $1.5 billion (or 4 percent) increase compared to one year ago.  Consumer beef spending for the entire year is projected to reach $48.56 billion, which is nearly $2 billion above the 1998 level. And, per capita spending on beef is expected to grow to $178 by the end of 1999.  This level of spending represents a $5 per capita gain and the largest increase in per capita spending since 1990.

A key factor in the spike for total beef spending is the fact that consumers are buying beef at steady to slightly higher prices despite record-high beef supplies.  USDA average retail beef prices are up 4 cents per pound from one year ago.  At the same time, the beef supply for the year is expected to reach nearly 27 billion pounds – 2.5 percent above 1998 levels.

“Increased supply usually drives consumer prices lower, as demand becomes saturated.  So far this year, the exact opposite has happened,” according to Randy Blach, a market analyst for Cattle-Fax, a private market research firm in Denver, Colo.

Improved exports during the first half of 1999 also have contributed to the current state of beef demand.  Japan and Korea have begun to increase imports of U.S. beef as their respective economies begin to recover from recent financial crises, and Mexico is expected to remain a strong import customer. Other factors that have helped beef demand include a strong U.S. economy, rising wages, low inflation and a low unemployment rate, Blach said. 

“Livestock analysts are not accustomed to a market with demand as the primary price mover,” Virginia Tech’s Wayne Purcell recently noted. In his November 16 Market Report, Purcell said: “Willingness [on the part of packers] to pay for the product is coming, I think, from retail beef prices that are running about 3.5 percent above year-ago levels in the face of cumulative year-to-date production that is up from last year.  It has been a long time since the price mover within a year appeared to be shifts in the underlying demand surface, but I believe that is what we are seeing.”

Purcell also recently attributed some of the price strength to industry activities. “New product offerings stimulated by [checkoff-funded] programs and a growing awareness of the margin potentials in value-added, further-processed, often pre-cooked beef offerings at the large packer level are all helping [move beef demand],” he said.

What`s Next?

“We have made great strides toward improving consumer demand for beef, and we need to continue building on those successes if we are to keep demand on the upswing for America’s beef producers,” according to NCBA CEO Chuck Schroeder.

As the major checkoff contractor to the Beef Board, NCBA embarked on the first leg of a long-term strategy in late 1998 to stabilize beef demand by focusing efforts on making beef more convenient for today’s time-starved consumers. Schroeder says these initiatives have contributed to first- and second-quarter demand gains.

With checkoff funding, NCBA helped introduce a new category of convenient, branded beef items that can be heated in the microwave and made ready to serve in about 10 minutes.  Several manufacturers of these products have seen double-digit sales and distribution increases since the beef industry launched its national marketing campaign to build consumer awareness and trial of these microwaveable beef products. 

The beef industry will continue building on this convenience strategy in the year ahead, Schroeder said, and it will add an aggressive nutrition component to its marketing efforts – one that focuses on the bundle of nutrients beef provides, such as zinc, iron, protein and several B vitamins.  In past years, the industry has produced leaner products in response to consumer interest in lower fat food choices.  Today, consumers and health professionals also are recognizing the nutrient contributions beef makes to diet quality, said Schroeder.

“All of our marketing efforts target today’s mom.  As the primary shopper and keeper of the family meal, she is the critical link in helping build beef demand,” Schroeder explained.  “The next phase of our long-term marketing strategy will ensure convenience and nutrition work together to deliver easier products she can feel good about eating and serving to her family.”

Beef industry marketing efforts are funded by beef producers through their $1-per-head checkoff program and are managed for the Cattlemen’s Beef Board and state beef councils by the National Cattlemen’s Beef Association.  The 111-member Cattlemen`s Beef Board is appointed by the Secretary of Agriculture to oversee the collection of the $1-per-head checkoff, certify state beef councils, implement the provisions of the Federal Order establishing the checkoff and evaluate the effectiveness of checkoff programs.

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Initiated in 1898, the National Cattlemen`s Beef Association is the trade association of America’s cattle farmers and ranchers, and the marketing organization for the largest segment of the nation’s food and fiber industry. NCBA is producer-directed but consumer-focused, with offices in Denver, Chicago and Washington D.C.