Policies That Support Growth in Beef Demand Drive Industry Prosperity and Benefit Consumers

Key Points

• Enhancing beef demand directly benefits cattle producers. Domestic beef demand growth over the past decade has markedly increased fed cattle and feeder calf prices and is closely linked to improved quality.
• Consumers consistently rank beef product taste, freshness, price, and food safety as their top preferences. Cattle producer prosperity depends on providing beef products matching consumer preferences. Innovations in marketing agreements paying producers for higher-quality cattle have increased beef demand.
• Policies that threaten industry progress in providing beef products consumers want, or that add costs without offsetting benefits, harm the groups they are intended to help. Policies that support innovation, facilitate product differentiation and process verification, provide relevant market information, and grow exports provide substantial benefits to beef producers.

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Introduction

When markets work efficiently, they facilitate product innovations through more effective marketing channels that benefit all participants, including suppliers and consumers. Producers can provide products that possess the quality attributes consumers want, offering greater overall value. This has been the story of the US beef industry over the past decade: Innovative relationships between cattle producers and cattle buyers that are embodied in contracts that reward quality have significantly increased demand for US beef, at home and in export markets.

As a group, US farmers and ranchers have benefited from this surge in demand for one simple reason. Almost all new revenue that enters the US beef industry originates from domestic and international beef consumers. Prosperity for every vertical supply-chain participant in the cattle and beef sector hinges on consumer demand for beef, just as consumer well-being is closely linked to improved quality.

The beef cattle industry is characterized by biological lags in cattle production and the need for expensive fixed assets uniquely suited for cattle and beef production. Thus, when beef demand grows, beef, cattle production, and processing become more profitable. Conversely, when beef demand declines, returns across the entire beef supply chain suffer, reducing the value of cattle and related assets cattle producers own.

Despite the clear connection to increased beef demand (largely driven by improved quality), considerable resources by some organizations in the cattle industry have been devoted to policy proposals and related activities that at best will not grow beef demand and are more likely to diminish it. Instead of focusing on growing the size of the industry-wide pie, many efforts have tried to reallocate shares of the existing pie.

Wrestling over who gets what share of an industry pie may appear profitable for the winners in the short run. But it is rarely if ever a successful strategy in the long run, nor does it benefit the overall industry or the consumer. Further, such policies detract from the central goal of increasing demand for the industry’s products.

These policies do nothing to add new revenue to the sector, result in considerable litigation costs, and create adversarial relationships between horizontal and vertical beef supply-chain producers. Even worse, policy proposals attempting to influence who in the beef supply chain gets what share of consumer beef expenditures often run counter to the objective of building consumer demand and lead to lower overall revenues (and product prices) for the entire sector and its players. Influential interest groups, often claiming to represent small-scale operations, have persisted in this perplexing and self-defeating approach for a long time.

In contrast, industry innovators who are building stronger supplier-customer relationships have developed recipes to accomplish the goal of more effectively meeting consumer preferences and increasing beef demand. They are likely to continue to be innovative as long as new policy initiatives do not inhibit the use of increasingly efficient marketing channels. The most effective way to increase cattle and beef producer incomes is to focus on policies enhancing domestic and international consumer beef demand, not on policies that at best add only supply-chain costs and at worst reduce beef demand.

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