Agricultural Marketing ECON 337: Agricultural Marketing Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356 1

Direct Meat Marketing

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 Custom Exempt 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 Limited flexibility 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