ECON 337: Agricultural Marketing Lee Schulz Assistant Professor firstname.lastname@example.org 515-294-3356
Overview of US Beef System Cow-calf Operations Sell stocker calves Backgrounding / Stocker Sell feeder cattle Feedlots / Finishing Sell slaughter cattle Packing Plant / Slaughter Sell boxed beef Retail / Restaurant
Background • Livestock system is complex and very segmented • Expenses at each level, transportation costs, communication, etc. • Is there a way to market directly to end users? • Sure, some are doing that
Initial Thoughts • You don’t eliminate the middle-person, you become the middle-personal • Logistics • Sales, transportation, packaging, logistics, etc. • Must be customer / market driven • Price takers beware • Consider liability
Consumer Willingness-to-Pay • A few studies have focused on willingness to pay for local meat products • Results suggest 15-20% of consumers will pay 10-20% premiums for local products • Local is not enough – package of attributes • Consumers show little willingness to go “out of their way”
Typical Challenges • Processing costs • Finding a market for lower end cuts • E.g., ground beef and roasts • Moving (pricing) cuts proportional to carcass yields • Meeting consistent quantity and quality requirements • Farmers typically aren’t comfortable as sales people
IA’s Processing Ability • IA has many small processors who can provide custom processing service • Advantages • Process to individual request, longer aging time, much closer • Disadvantages • All process a bit different, very expensive – smaller scale, no offal market, etc. • Direct marketers are typically working through these processors
Types of Processors • USDA inspected • Inspector present at slaughter, drops in at other times • Allows for meat to be sold into other markets • Custom Exempt • Provide custom service to individuals • Can be used when selling large quantities to individuals
The Role of the Processor • A processor partner is crucial • Provide slaughter and custom processing services • Ensure food safety and sanitation • Other services -Labeling -aging -Packaging -logistics? -value added products • Often a major contact point for customers
Labeling Requirements • A label for resale must include many items • Name of product, weight, inspection seal, etc. • Most plants have a generic label - likely with their name • Producers can get their own label • Generic approval – no claims, OK’d by inspector • Called sketch approval • If claims are made, process is a bit more difficult
Labeling Claims • Many terms have specific meaning when used on a label – lean, natural, low fat, etc. • Claims must be verified at producer expense to be used • Location is considered a claim
Some Rules of Thumb • Dressing Percentage = 60%-64% • Cut yield = 55% to 75% • Greatly depends on how cutting method 1200 lb steer 744 lbs hanging weight (1200 x 62%) 483 lbs of actual meat (744 x 65%)
Direct to Consumer Markets • Sides and quarters • Farmer’s Markets • On-farm retail • CSA’s (Community Supported Agriculture)
Sides and Quarters • Often called freezer beef • Easiest, very effective • Customer buys whole, half, etc. of carcass • USDA inspection may not be required • Sell live animal to consumer • Cuts move in “per head” proportions • Labeling is not needed • Customer is accustomed to retail prices
Sides and Quarters Challenges • Large amount of meat • Big expense for many • Many homes don’t have a deep freeze • Must arrange for delivery, pickup, etc.
Farmer’s Market • Growing market • Usually works with freezer / fridge • Customers not overly price sensitive • Product must be labeled for retail resale • Pricing must ensure proportional cut sales
On-farm Retail • Can be incorporated with agritourism • Customers not overly price sensitive • Product must be labeled for retail resale • Pricing must ensure proportional cut sales • Must get consumer to come to you • Extra stop = extra cost
CSA’s • Not near as common, but growing • Customer buys share of farm output • Risk sharing arrangement for direct marketing • Money can be received up front • Builds a link between consumers and the farm • Newsletters, harvest festivals, etc.
Restaurants • Difficult to get “direct to consumer” return • Restaurants accustomed to wholesale price • A level of professionalism expected • Excellent opportunity for “middle meats” • Lower end meats may be challenge • Take samples, follow-up, ask about featuring • Want something different, used to sales prof.
Retailers • Excellent volume potential for all cuts • May be able to take carcass proportions • If not, pricing challenge • Limited flexibility • Year round supply probably needed, less ability to feature
Successful Direct Marketers… • Are people persons • Are sales and service oriented • Have a strong market for lower value cuts of meat (roasts and hamburger) • Know their costs of production • Plan for marketing before they produce
Class web site: http://www2.econ.iastate.edu/faculty/hart/Classes/econ337/Spring2018/index.htm