Discontent And The Crisis In The Cattle Industry

[smcgrath76]

Interesting Article from Beef Cow/Calf Weekly. www.beefcowcalf.com

Discontent And The Crisis In The Cattle Industry
Many producers are dismayed at the divisions and battles that are being waged in the cattle industry. The following is an attempt to explain some of the acrimony created by the fundamental changes our industry is undergoing.

One of the biggest changes is the shift to a global marketplace and the subsequent loss of traditional boundaries. Producers must be competitive with other producers across the country, and in some cases, across the globe. Every segment is facing the loss of regional boundaries.

Another major shift is that the values of our assets are no longer market based. In the cattle industry, land started off free, then it was relatively inexpensive, and now it is very expensive. This changing reality is reshaping our economics and this change is accelerating at an unprecedented rate.

In the last 15 years, we have seen the use and acceptance of EPDs, ultrasound, branded programs, alliances, grids, formula marketing and even the Internet. Not to mention gene markers, national ID and the host of other developments that are promised in the short term. These changes have created a certain element of fear.

A producer who was extremely efficient at producing a weaned calf understands that tomorrow the same calf will have to work equally as well for the feeder, packer, distributor, retailer and consumer -- or he might not be as profitable in the future. This type of uncertainty builds frustration.

While everyone realizes that innovation and invention must be embraced, the rapid destruction of the business models of the past makes it clear that not only the industry structure, but its very social landscape, is in flux. The U.S. beef industry has not been about managed eating experiences, but rather managed costs and it's becoming apparent the model is fundamentally flawed.

Cow-calf producers realize that being a low-cost producer of pounds is not a sustainable advantage, and their future rests in supplying the genetic and pre-weaning management inputs to ensure a successful eating experience. Consolidation, concentration, integration, partnering are not just buzzwords. They are being incorporated every day.

Another factor that has lead to the now pervasive "us against them" attitude within the industry is most producers see the increasingly competitive environment as more than just the potential of lost income, but more importantly, a loss of status. The fear of losing the lifestyle that one has chosen is significant. The dramatic shifts occurring in the marketplace provide ample opportunities and a ready audience for anyone who is willing to construct a villain to blame. The natural tendency of fear of change is to become defensive, self-righteous and a staunch advocate of the status quo. In effect, defending yesterday.

Also contributing to our industry turning against itself is that some producers are rejecting the free market or economic decision-making models that were the basis for policy decisions in the past. While the alternatives to economic-based decision models is less than palatable for the majority of producers, there is some basis for the rejection. This industry is guilty of assuming economics are the sole arbitrator, or even that it should be the sole determinant of direction and policy. As an industry we have made it a mantra to shift from agriculture to agribusiness, but in reality, the culture and human side of the equation needs to be factored in next to profit and loss.

For better or worse, decisions in this industry are rarely based solely on economics. This has led to a desire by many to have government intervene because it's perceived the market has neglected the human component. Others argue government should be limited and government intervention prevents the adaptation and innovation required in a competitive world, and with each encroachment of the government, individual sovereignty will be lost.

The result is an increasing divergence of vision and conflict between those who are embracing and succeeding in a changing environment and those who are not. The tension is almost palatable at any industry gathering you attend.

The result is a new kind of conflict; people are advocating an individualistic short term viewpoint, instead of taking a long term view.

As the rules change, so do the winners and losers. It is often referred to as pluralism, but it is more about the growth of special interests who refuse to recognize the whole, but rather only their part, in the equation. As the cohesion within the industry and industry segments erode, so does the ability to make policy that serves all. Instead it becomes increasingly about results in narrowly focused areas. The ability to work together is lost, and there is no longer a common good, but rather a singular good.

The industry is also facing another challenge that it has never had to deal with -- how to effectively transfer the assets of production agriculture to a new generation.

History tells us that when emotion and passion comes head to head with rational considerations, passion almost always wins. The division and animosity that threatens every institution in this industry should not be a surprise -- as people feel threatened, they choose sides and close ranks. The only thing that will stop this trend is strong leadership from both sides who recognize that the future can not be a return to the past nor a radical transformation that leaves to many behind.
-- Troy Marshall, modifed from the November 24, 2003, edition of the Seedstock Digest

[cowman]

I can agree with a lot of what Mr. Marshall has to say. Unfortunately his vision of the future trend of a global market does not recognize some basic facts about the Canadian system.
In a truly global market we are out of the cattle business. All the EPDs, ultra sound, branded beef products etc. will not save us. South America will kick our butt big time!
Maybe I'm one of the dinosaurs but I believe in any business its about keeping costs low, production as high as possible and hopefully make a profit. No profit, no business!
Now if people want to go the extra mile and be a marketer, all the power to them. I hope it makes them some money! But for a lot of people farming, they just don't have the time. And if they do have the time there are a lot more ways to make money than peddling hamburgers!
So I guess the dinosaurs, like me, will be gone and the "new look" cattlemen will have us all eating that superior branded product at twice the price. Or at least until the South American meat starts to roll in! Then I guess they will join us at the retirement home?

[rsomer]

To put Troy Marshall’s comments in perspective, Mr. Marshall is an American whose area of expertise is the purebred or seedstock industry. We need to bear in mind that the American beef industry has just come through a period of unparalleled profitability at our direct expense.

It is important to note that when Mr. Marshall speaks of the fear and tension in the industry he is speaking of the American beef industry. If he wants to see real fear and tension then he should take a trip to Canada. If we had been U.S. producers since May 20 we would have never had it so good. When Troy Marshall speaks of "the now pervasive "us against them" attitude within the industry as most producers see the increasingly competitive environment as more than just the potential of lost income, but more importantly, a loss of status" he is referring to Canadian beef producers as the competition, we are the "them".

As Canadians we would add to the authors comments... "For better or worse, decisions in this industry are rarely based solely on economics."... the additional remark that decisions in this industry are rarely based on science but instead based on politics as we have felt the heavy hand of the American political system interfering in our industry up close and personal. Maybe some Americans would like to see less government and some would like to see more government involvement but when it comes to the industry beyond the U.S. borders all Americans seem to welcome more government intervention.

Surely since May 20, as Canadian beef producers, we recognize that the American industry and the Canadian industry are not one and the same. That the Canadian industry is separated from the U.S. industry by a very protectionist border which can be closed by a wave of the hand. Mr. Marshall does not speak for us.

[ValueChainFX]

I have to add that when you read the article it shows an under current of things to come. Even the US marketers are not sure of what to do with the market place. I have talked to some of the folks both in Canada and the US and they all agree we are in for some big changes. In Canada I have talked with farm gate marketers and in fact have done some with producers in a more joint effort manner. Being a marketer is more than sitting on the phone and selling your product. There are many challenges and it is very time consuming. Cowman is right on the money when he says he doesn't want to be a marketer, he may however find that he will need to be more closely involved with the marketing but not directly involved, unless of course the status quo works for him and he is satisfied with a flat line market return. Either way to add more income something needs to change, we will not get out of this through an increase in production!