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Beefing up profits through verification programs

March 27, 2019

Is there a return on investment for beef producers participating in verification programs?

The following is an edited transcript of Nicole Erwin's interview with Kathryn Britton. Click below to hear to the full audio. 

 

Nicole:         I'm talking with Kathryn Britton, senior director of operations and marketing for Where Food Comes From, an independent third-party food verification company. Kathryn joins me to talk about value-added programs and how beef cattle operations can qualify for them, leading to larger profit margins. Kathryn, thank you for joining us.

 

Kathryn:        Absolutely. I'm very happy to be here.

 

Nicole:         We've all heard about the explosion of natural, antibiotic-free beef programs in Europe, but where would you say this effort turns into real profit for producers?

 

Kathryn:        I think the key for producers is really identifying what that market means for them. Each of the markets, whether you're talking about antibiotic restrictions or hormone restrictions — for example, the Non-Hormone Treated Cattle program (NHTC) for the EU — are driven by something, and they have parameters that come along with them. Generally speaking, if you're looking for value in those marketplaces, you need to look for a third-party verification system that qualifies you as meeting those program requirements. Without a certificate in hand — without an approval process that you've gone through to validate those claims — there really isn't a lot of value for producers. So, third-party verification and auditing systems are going to get you access to markets like that.

 

Nicole:         So, this all seems to really hinder on traceability. Where do producers start in their path toward this kind of transparency?

 

Kathryn:        Traceability is everything. We can't tell any story about beef production without first being able to track an animal through the system. That's where we gather all of the information that we need to tell the story about how that animal was produced.

 

                    It’s best to start small. These systems don't need to be overwhelming for a beef producer. You start with your own records. Are you maintaining calving records? Do you know when your first calf hit the ground? Do you know when every calf hits the ground? You don't need to know it to that detail, but at least having an understanding of when your calving season starts and when it ends and having those records available is your first step to success.

 

                    The second step is identifying the animals. Use a unique EID (electronic identification) tag that helps you electronically tie those records of calving information to that individual animal so you can pass that along to the buyer. That's where you start having value opportunities tied to traceability.

 

Nicole:         Where is this happening right now? Where is this kind of system being used, and who can we mimic?

 

Kathryn:        Well, if you look domestically in the U.S., source and age is our longest-standing verification system. When we lost access to our export market partners in 2003 with "the cow that stole Christmas" — our BSE (bovine spongiform encephalopathy) case — we couldn't export a single pound of meat. The only way we got back into the export market was by developing a source- and age-verification system through the process-verified programs, which allowed third-party verifiers to validate the source — so, traceability — and the age of those animals. The restriction was 20 months. That's related to BSE; the younger the animal, the less likely they're going to carry that disease.

 

                    So, we've been well-versed as a domestic industry in the source and age system for some time. When we look at our international trading partners and competitors, it's a little bit of a different landscape. We're the last developed country to not have a national ID system. That's something that our international competitors try to use against us when they're trying to get beef into the markets we’re in. We've been able to combat that with progressive producers who are participating in third-party verification systems. They’re making claims on their animals and validating them to meet the requirements of those markets without, at this point, having a national ID system.

 

Nicole:         To say that we're the last to adopt this system doesn't seem like something that Americans would like to hear. What challenges do producers face when they get started with verification, and why is this taking so long?

 

Kathryn:        Well, the beef industry in the U.S. is diverse. It's very independent. I think, for our beef producers, that's a point of pride for all of us as cattlemen and cattlewomen in the U.S. We also need that model in some ways just because of how diverse our production system is. Every region is different. Every breed type is different. What you do to manage your cattle in Florida is a lot different than what you do to manage your cattle in Montana.

 

                    The reality is that, for a producer to engage, they really have to take a step back and look at their operation. What are they having success with? What have they focused on? What kind of animal are they raising and why? And then, what market opportunities are out there and available to them? Everyone can capitalize on a source and age verification model. It's the things above and beyond that — the NHTC (non-hormone treated cattle program) that you mentioned, the verified natural program, many of these other kinds of value-added systems — that's where they really need to start looking. They should ask, “Is that the right fit for me and my operation?”

 

Nicole:         What do you see producers investing the most when implementing value-added programs? Is it time, money or updating technology? When do you see the return for some of these investments?

 

Kathryn:        I think the surprising part is that the investment from a time perspective can seem overwhelming. They’re thinking through the records they have to maintain — or, if they're using antibiotics, what animal that antibiotic went into or didn't go into. What we see time and time again is that, for the most part, they're already doing all of those things; in their operation, they're already tracking and they're maintaining records that are unbelievably detailed because that's what they use to manage their operation.

 

                    I think, at face value, oftentimes, it can be intimidating because they think they need to do so much more. It ends up not being that much more work than what they are already doing, or it’s just a matter of validating the pieces that they already have in place.

 

                    There is a cost to participating in third-party verification, but the programs are built to get a return. If you can't get value out of participating, then it's not working. For us as a third-party verifier, it's got to be able to pay for itself and more in order to work for you. So, there is a cost, but I wouldn't say that the investment is overwhelming.

 

Nicole:         China has recently opened its beef market to U.S. producers. How do verification programs vary in value in a market like China compared to here in the U.S.?

 

Kathryn:        China has been big for the U.S. beef market. It's the biggest opportunity our beef industry has ever seen. Just from a per-capita consumption of beef standpoint, the amount of people who are looking to consume beef in China — the growing middle-class population that they bring to the table — that's the type of person who eats a lot of beef. U.S.-produced, grain-fed, high-quality beef is in very high demand in that region. Just from an opportunity perspective, it's tremendous.

 

                    When we're looking at the requirements of the program, the agreement that we have with China today is source and age verification at a base level. The animal has to be traceable to the ranch of origin. An EID tag needs to be in an animal at the ranch of origin before it leaves, and age needs to be documented. That will carry with that animal all the way through the supply chain. Inevitably, we're going to process that product and send it over.

 

                    The one unique aspect to the Chinese market in our agreement with them is that they have a zero-tolerance policy for hormones. It is illegal in China to use hormones in beef production. Although it's not a written part of our EV (export verification) agreement with them, it's an absolute and understood requirement. And because of that, the industry has been very focused on the type of product that we're sending right now — verified natural beef or NHTC, at the least — just to make sure that we're not violating that part of the understanding and that we can maintain access to that market. As long as we can maintain access to it, we have the opportunity to continue to grow it.

 

Nicole:         It's my understanding that roughly 3 percent of U.S. beef producers are hormone-free. Do you feel like these groups are the early adopters of programs like this?

 

Kathryn:        Yes, we tend to see the progressive cattlemen be the first to engage. It's the individual exploring new market opportunities. For the most part, today — in comparison to maybe 10 or 15 years ago — there aren’t a huge number of cow-calf producers implanting cows. We might see that happening once cows are shipped off the ranch and received at different locations. There are some who are implanting, but the cow-calf producer is looking for a value-add. They may not have the ability or the desire to implant every single animal. What is the other market opportunity for them? Well, if they are not using hormones and they have no hormones on-site, then it's very easy for them to engage in a program like NHTC.

 

                    It's a similar case when we look at antibiotics in the industry. If a producer is pairing the verified natural program with the NHTC program, it just gives them marketability. On a year when they do well — maybe they don't have a bad case of pink eye come through, for example — they haven't had to treat much illness and they can market those calves as verified natural.

 

                    On a year where they've had [illness] come through and they've had to doctor quite a few calves, for whatever reason, then they can still market them as an NHTC. So, it's the flexibility the programs give in those market avenues that add value. That’s why we're starting to see more and more producers engage.

 

Nicole:         How do you get this kind of information out to the producers? Is it through extension offices? Is it through what we're doing now? You talked earlier about how a lot of producers are already documenting, they just don't realize how to implement it in a verification program. So how do you get that information out there?

 

Kathryn:        That's a great question. Honestly, the market helps tell the story, specifically the video sale. What's unique about the video sale platform that we see with Superior Livestock, Western Video or Northern Video is you have a public format in which cattle are selling. The audience is very big on those platforms, which is great for a seller because they tend to have a very diverse buyer base that can bid on those cattle.

 

                    What happens is, as you watch the sale progress, say, in an hour or in a day, the program cattle consistently bring premium prices above and beyond the commodity cattle. Producers start asking questions — when their neighbor is getting a price that they're not getting, why is that? They start exploring. It's an educational opportunity. We try to do everything that we can: attending events, speaking at every single cattleman show in the country; we have reps in the field who are our “boots on the ground” at the ranches. To be honest, though, cattle sales in a public forum like a video sale are the fastest way to build curiosity in why program cattle make a difference.

 

Nicole:         Kansas State University completed a study recently that looked at the return on investment for source- and age-verified cattle and saw that, most of the time, producers receive a premium for their product. Sometimes, the premium was less than the amount necessary for enrollment in the USDA Process Verified Program. What's going on here, do you think?

 

Kathryn:        Honestly, I think it depends on how you run your numbers and the factors that you carry over into evaluating that value. As we mentioned before, the cattle industry is diverse, and every set of cattle it sells is different. So, we try to take out all of the factors. What we want to see is like-cattle — so, say, steers to steers, heifers to heifers, weight categories — and that's it. Then, let's see what the commodity cattle in the same sex and same weight categories bring compared to the program cattle in that same sex category and same weight category.

 

                    When you take out everything else, you're truly able to look at a commodity average versus a program average. Today, we're seeing on the video sale an average of $6 a hundredweight value just for source- and age-verified cattle. Now, does that mean every producer gets $6 a hundredweight premium on their calves? No. But what we're able to see is an average trend of value across the entire herd in the U.S. When you look at value-added versus non-value-added, that's where you really start to tell a story.

 

Nicole:         Is the end goal for source-verified cattle to have a QR code? Is that kind of the future for most producers?

 

Kathryn:        A QR code is an interesting tool that the industry can use primarily on finished products. What's challenging, when you think about the complexity of the supply chain, is tying an individual animal to an individual finished product. So, typically, what we see today are claims being made on a package that are verified and validated back through an approved supply chain. The QR code that might show on a package would be tied to that operation — or maybe a set of operations —that are meeting the certain requirements for that claim.

 

                    I think the end goal is telling the story and having transparency in the story, whether that's through a QR code or a URL or a label on a package. It's being authentic in the way that we're producing animals today and trying to shine a light on the work that's being done on the ranch. It’s reconnecting all of us to what's happening day-in and day-out in beef production and how we're getting beef from the ranch to the consumers' table.

 

Nicole:         It's really interesting to me that the story is becoming so important, besides just being able to verify that there aren't hormones within the meat product. Why would someone in China care about the story behind Kentucky beef cattle, for example?

 

Kathryn:        It's unbelievable, the enthusiasm that we see from consumers, domestically and internationally, when you start talking about ranching families. What's funny is the animal starts to be removed from the equation and the story becomes about the people. I think, if you look throughout history and every industry that you can imagine in consumerism, the things that resonate with people are the values that they can connect with, and that starts with the people. When you start to take out these barriers and the questions and really show that there's a face and a name and, oftentimes, a family behind the product that you're eating, it just becomes more comfortable. That's really where we're seeing people get behind these kinds of stories.

 

Nicole:         Kathryn Britton is senior director of operations and marketing for Where Food Comes From. Thank you so much.

 

Kathryn:        Absolutely. Thanks for having me.

 

 

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