W1177: Enhancing the Competitiveness of U.S. Meats
Statement of Issues and Justification
Consumers are a powerful force in the supply chain for meats. Each day consumers vote through their selection/purchase decisions among alternative protein sources. Huge changes have occurred during the past 25 years in the meat and poultry sectors. Beef lost its preeminent position in an increasingly globally competitive marketplace beginning in the mid-1970s. Per capita U.S. consumption on a retail weight basis dropped from nearly 95 pounds in 1976 to just above 65 pounds in the early 1990s (Purcell, 2000). The beef industry faced major challenges during this period total cattle inventory declined from about 132 million head to approximately 95 million head. There was significant economic pain being felt by industry participants in the form of low prices and producer losses. Recently there has been a turn-around in beef demand, primarily resulting from shifting from a commodity orientation to providing consumers with product attributes they have wanted - high quality, including safety; consistency; and convenience.The poultry sector, on the other hand, exhibited a trend inverse to that in the beef industry. Per capita chicken consumption, on a ready-to-cook weight basis, increased from around 40 pounds in the mid-1970s to more than 78 pounds in 2000 (Purcell, 2000). The picture in the pork industry fell between the two extremes observed in the beef and in the poultry sectors. Per capita pork consumption data reflect a reduction in industry capacity and output, beginning in about 1980. Offerings on a retail-weight basis declined from near 57 pounds in 1980 to just below 48 pounds in 1986 (Purcell, 2000). Per capita consumption of pork since the mid-1980s varied between 47 and 54 pounds until 1998, after which slight increases in, or nearly stable, year-to-year consumption patterns have been observed.
More and more meat industry leaders are coming to realize that demand issues (consumers) are important, as they shift from a commodity focus to a product business in the world market place. The consumer, presently and in the future, is and will be facing an on-the-go lifestyle that will demand consistent, high quality foodstuffs and convenience in preparation (Purcell, 2000). These and other attributes are important in driving consumer purchasing of meats. Producers are recognizing that their management practices impact final product attributes, such as quality, at the retail level.
Consumers receive utility from the diverse attributes of a good or service (Lancaster, 1966; Ladd and Suvannunt, 1976). The value of an exchange to parties is the value of the different attributes lumped into the good or service. The shift to more differentiated-attribute-specific products has been partially responsible for changes in the structure of the meat industry and the methods of exchange. When commodities are generic or homogenous, the traditional open production method of coordination, through market prices, adequately sends signals to producers of consumer wants (Barkema et al., 1991). With the growing number of new food products and consumer niches, however, more precision in coordinating the various sectors of the food industry is required. The greater the specialization and the number and variability of valuable attributes, the more weight must be put on reliable institutions that allow individuals to engage in complex contracting, or other forms of tighter vertical coordination (North, 1990). As a result, the trading institutions in the livestock industry have moved from centralized auction trading to private negotiation trading and from spot delivery to forward delivery (Menkhaus et al., 2001). These changes have implications regarding how price is discovered in these industries, including the nature of the competitive atmosphere in which prices are discovered.
To this point it has been established that satisfying consumer wants through specific product attributes is important to the economic health of participants in the meat industry. It also is important to understand that the trend toward more attribute specific products and domestic and international niche markets has resulted in a structure that more tightly links the individual sectors of the supply chain from producer to the consumer. Specific issues related to these broad categories are presented in the next two sections of the proposal.
Specific Attributes Issues
Consumer surveys have shown the needs for attributes such as high quality (including safe and nutritious), consistency, and convenience in preparation. These needs suggest two directions for future research designing meat products that are tender, safe, nutritious, convenient, etc. and measuring the consumer acceptance and willingness-to-pay for new products and different product attributes.
Food safety has received increasing attention, as awareness of the health risks from foodborne disease has increased over the past 10 years (Crutchfield and Roberts, 2000). Widely publicized outbreaks of foodborne illness caused by such sources as Escherichia coli (E. coli) O157: H7 in hamburger, Listeria monocytogenes (LM) in ready-to-eat products, and Salmonella in poultry have heightened the publics concerns about risks from microbial pathogens in foods/meats. Increasing concerns about foodborne illnesses linked to microbial pathogens in meat and poultry accelerated efforts to modernize and strengthen the Nations meat and poultry inspection system. The new inspection process requires plants to adopt Hazard Analysis and Critical Control Points (HACCP) procedures. Techniques including irradiation, decontamination and ultra-high pressure are being explored to increase the safety of meats. Several approaches to carcass decontamination have been investigated with varying degrees of success being encountered (Dickson and Anderson, 1992). Steam pressure systems have proven to be quite effective for lowering microbial contamination on beef carcasses (Nutsch et al., 1997). Intervention treatments on raw products to be used for comminuted products are being studied. Irradiation has been utilized to great advantage in other countries, its use has been increasing in the U.S. In the future, the meat industry will likely use a combination of prevention and monitoring technologies to control life-threatening pathogens.
Technologies, both existing and new, are and will be important in providing consumers safer and more desired attributes. A highly significant area of research is the addition of vitamin E to meat-animal diets, resulting in reduced lipid oxidation, improved color and shelflife of fresh meat, and the potential role in the development of tenderness. Color is known to influence a shoppers perception of the freshness of retail beef (Pearson, 1994). Although the retention of desirable retail color due to the addition of vitamin E to beef feedlot rations for 100 days has been studied for the last decade in the laboratory setting (Schaefer et al., 1995; Lui et al., 1995; Faustman, 1996), it has just started to be utilized in the beef industry (Certified Hereford). By gaining an extra 1 to 3 days of shelf life for fresh retail beef, meat cases could be stocked with more inventory which would have a positive effect on sales volume. The Strategic Alliance study estimated vitamin E beef ($4 per animal cost) generated savings of $30 per carcass due to improved case life (Westcott et al., 2001). If large numbers of cattle are fed vitamin E (500 IU for 100 days) in the feedlot, available technology would also make it possible to do more centralized packaging of case-ready retail cuts. Furthermore, the addition of vitamin E to a diet has shown advantages in the development of tenderness (Harris et al., 2001). The current hypothesis is that by acting as an antioxidant, vitamin E reduces oxidative stress within muscle cells and protects the calcium induced proteolytic enzymes believed to responsible for tenderness.
Both the beef and pork industry have established quality, consistency and uniformity as major issues to enhance competitiveness, both with the other proteins as well as in the world market. A number of strategies have been used to address these issues. A systems approach to evaluating and quantifying the impact of various production, processing and technology factors has been initiated by Oltjen et al., (2000). Models which capture the influences created by genetic, environmental, and production practices can be used to group animals to enhance consistency.
The relative importance of sensory characteristics offers opportunities to improve quality and consistency at the consumer level. While tenderness has traditionally been considered the major factor influencing customer satisfaction, recent research has shown that flavor is just as important. Killinger (2001), Umberger (2001), and Umberger et al. (2002) have shown that production systems (Argentine grass feeding versus domestic grain-feeding) and meat characteristics (specifically quality grade/marbling) influence consumer perception of beef value.
High-pressure technologies such as hydrodynamic pressure processing (HDP) (Solomon et al., 1997) are being studied as a technique to improve both meat tenderness and food safety. With appropriate shock wave conditions, treated muscle is more tender than control samples. HDP may be technology for the toughness problem in callipyge lamb (Cockett et al., 1996). Basic research on these technologies will continue to evaluate the microstructure of muscle and its impact on palatability factors such as tenderness. Production systems that result in more desirable product attributes also will be investigated. Preconditioning calves before feedlot entry has received considerable attention by animal and veterinary scientists. The conclusions have been mixed concerning feedlot performance (Pritchard et al., 1987, Lofgreen et al., 1978). Several studies have found a decreased incidence of respiratory disease when calves are preconditioned (Lopez et al., 1984, Woods et al., 1973). Respiratory disease has been linked to reduced feedlot efficiency and carcass quality at slaughter, resulting in reduced market value of animals diagnosed with respiratory disease (Faber et al., 1999; Griffin, 1997). However, the link between preconditioning regimes and animal disease incidence on feedlot production efficiency, carcass quality and meat tenderness, and the market value of finished animals has not been attempted. The literature clearly indicates that ranch-of- origin management factors and animal health affect production efficiency, profitability, and product quality in the beef industry.
Structural Issues
The meat industry is becoming more consolidated, particularly in retailing and processing. Global meat markets also are changing rapidly. A growing share of livestock producers are joining supply chains. These are tightly orchestrated production, processing, and marketing arrangements stretching from seedstock to retailer/institutional user. Traditional commodity markets are by-passed and reliance is on contractual arrangements among the chain participants to manage the transformation of livestock on the farm/ranch to meat in the cooler (Barkema, 1995). These arrangements are most prominent in the poultry and pork industries, but the trend is gaining in cattle feeding as well. Nearly all of the nations broilers and about 80 percent of hogs are produced in supply chain arrangements. More than 20 percent of cattle are marketed under supply chains (Barkema et al., 2001).
Domestic and international consumer preferences for meats, as mentioned, are shifting toward products that are easy to prepare while also promising safe eating, improved nutrition, and greater consistency. The meat industrys efforts to fulfill consumers changing food needs have triggered efforts to maintain or gain a competitive edge by trimming costs. The result is a pronounced trend toward consolidation in all sectors of the supply chain. What are the impacts of this increased consolidation and how should public policy respond? Several issues arise.
Market Power As the processing sector of the industry becomes more concentrated, can processors push down prices paid to livestock producers? A related issue is whether food retailers have sufficient market power to push up prices at retail, or push down prices paid to meat processors. It might also be argued that while the structural changes in the meat industry increase the potential for anti-competitive behavior, the changes are largely the result of normal economic forces that are occurring throughout the economy (USDA, 2001).
Other issues have been raised by the Grain Inspection, Packer and Stockyards Administration in their annual report to Congress on the general state of the cattle and hog industries (USDA, 2001). These other issues, which merit research attention, include
Shared Agents Concerns have been raised by auction market owners and livestock sellers that the use of common buyers by packers, or shared agents, reduces the number of competing buyers for all cattle. Such a practice has the potential to reduce competition in auctions that already lack buyers.
Pricing Methods Price discovery in the more concentrated and vertically coordinated livestock and meat industries has been a major concern (Koontz and Purcell, 2000). Livestock buyers use a variety of methods to establish base prices in formulas (including grid pricing) used for marketing arrangements and other contracts. These market transactions often are not reported, thus creating a lack of information in the market place. Some of these market transactions virtually disappear as producers enter into contractual arrangements and alliances with packers and in some instances even retail outlets. There is a need to evaluate these alliances and new pricing arrangements that many are using to determine the returns that are being received by producers and analyze the price signals that are being generated.
Thin Markets/ Price Reporting Increased use of various production and marketing contracts has reduced the number of livestock sold in traditional auctions, creating a small volume of trading activity in a particular market. There is a need to investigate the potential for anti-competitive behavior in such markets, as well as the impacts of reporting prices from such markets. A related issue is how prices reported under the recently enacted Livestock Marketing Reporting Act of 1999 impact the market and the ability of producers to negotiate price in their transactions. Another provision of the Act is to make available volume and price data on specific meat cuts sold through retail outlets.
These and related issues are of current concern to livestock producers and other participants in the livestock and meat industries. Their impacts have been illusive and results from attempts to unravel them from a host of intertwined influencing factors generally have been inconclusive. Such research efforts also have been hampered by the lack of data. Alternative analytical methods to those previously employed are necessary to understand the impacts of these issues and will be a focus of this research.
Successful completion of the proposed research will result in meat products that are safer and more desirable to the consumer. This research also will lead to a better understanding of the impacts of recent structural changes in the meat industry and provide policy makers and regulating agencies with information to formulate new initiatives to help producers prosper. This will almost certainly be a major focus of policy makers in the period ahead (Barkema et al., 2001). This research proposes a multidisciplinary, multistate effort. Meat and animal scientists and agricultural economists will collaborate to provide more depth and breadth to the issues under investigation. For example, meat scientists will play an instrumental role in developing new product technologies and product attributes, while economists will assess consumer acceptance and willingness-to-pay. Analysis of the structural issues will be the responsibility of the agricultural economists on the project. A multistate effort is warranted to establish consistent and reliable procedures/strategies to monitor food safety issues and to more adequately develop procedures for investigating willingness-to-pay and structure issues. Related to the latter, for example, there is a need to pool expertise in the area of experimental economics, which can be a useful procedure for collecting market data via a laboratory approach.
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