Animal ID: Opportunities for Value-Added Marketing and Production Efficiencies Prepared by: Kynda R. Curtis Assistant Professor and State Specialist Department of Resource Economics University of Nevada Reno Western Center for Risk Management Education Western Extension Marketing Committee

Presentation Outline Overview Why might a national animal ID system be important? How might an animal ID system impact my bottom line? Case examples Summary Web resources

Overview Animal traceability system motivation –Minimize liability and bad publicity of food borne illness –Traceability systems isolate source and scope of food safety Reduce recall costs Additional benefits to all members of food distribution system –Access to new markets –Price premiums –Production efficiencies

Why Might a National Animal ID System be Important? Traceability systems such as animal ID –Facilitate trace back during food-borne disease outbreaks –Minimize liability and potential bad publicity Governmental food safety standards in the U.S. reduce food safety hazards Increased food safety risks –Food imports (foods produced overseas) –New food production technology Biotechnology

Case Examples StarLink –Genetically modified corn product not approved for commercialization in U.S. Possible human allergen –Environmental activist group proved StarLink introduced into human food supply –Resulted in costly recall program Mad Cow Disease (BSE): December 2003 –Holstein cow in south-central Washington State –Resulted in two month investigation, 28 of 80 cohort cows traced back –Many overseas markets now closed to U.S. beef e.g. Japan and Korea

The National Animal Identification System (NAIS) Track animals from slaughter to herd or premise of origin Identification numbers for animal, herd of origin, and premise (ranch) of origin Record system of animal movement Assure consumers of U.S. beef safety levels

How Might an Animal ID System Impact My Bottom Line? Provide access to new markets –Overseas markets –Product quality attributes Provide access to price premiums –Value-added markets Aid in production efficiencies –Herd management –Improved profits

Consumers and the NAIS Food quality characteristics are important to consumers –Rising consumer incomes in developed countries –Studies show as income and education rises diet quality improves –Consume more fruits, vegetables, chicken, etc. Consumers now spend more money on quality foods and food away from home Seek assurances from food industry regarding food safety and other quality attributes

Value-Added Markets Consumers willing to pay more for high-value products –Contain requested quality attributes Quality attributes/characteristics –Process oriented Growth enhancers, pesticides, feed, animal treatment…. –Content oriented Fat content (lean), marbling, bacteria and/or disease free

Credence Characteristics Many quality attributes are credence in nature Credence characteristics can NOT be discerned by physical inspection Consumer uncertainty regarding the existence of the attribute Seek quality assurances from industry and government agencies

Price Premiums Studies show consumers willing to pay premiums for: –Food safety –Specific nations/areas of origin –Natural/organic production –Humane animal treatment Traceability systems allow for process and content attribute verification

Case Examples of Companies Requiring Traceability McDonald’s, Jack in the Box, & Red Lobster –Purchase meat from processors which ensure high food safety standards –Rewards include guaranteed sales contracts and premium pricing Seek evidence of safety procedures through record-keeping –McDonald’s plan to have 10% of beef purchases source traceable by end of 2004

Case Examples of Companies Using Traceability Maverick Ranch –Natural and organic products –3rd party testing for antibiotics, growth hormones, and pesticide residue –USDA certified “organic” label Coleman Natural Meets –Free range grazing, natural grass feed –No hormones or antibiotics –Humane animal treatment –USDA approved “natural beef” label

Case Examples of Companies Using Traceability Farmland Industries –Farmer-owned cooperative –USDA “processed verified” logo –Process verification system Genetics Animal nutrition Animal health and welfare Safety measures Environmental protection –100% traceability of all products in program

Production Efficiencies Traceability systems enhance producer ability to: –Track animal performance from weaning to slaughter –Identify most profitable genetics Herd management –Sell low performing cattle –Reproduce identified high performance genetics

Example Case of Production Related Efficiencies Ranchers Renaissance –Cooperative of ranchers, stockers, feeders, processors, and retailers –Market Cattleman’s Collection, Harris Rancher, and Rancher’s Reserve brands –Use electronic ID system since 1997 Efficient and economic way to collect data on each animal and share with all partners Data includes animal source, process, and genetic verification –Increased revenues by $2-$3 per hundred-weight on each calf

Summary Consumers seek high-quality foods Uncertainty surrounding quality and safety levels due to credence nature Traceability systems may reduce consumer uncertainty –Consumers willing to pay for greater traceability Access to new markets Increased pricing (premiums) Production efficiencies gained through increased information

Web Resources for Relevant Information Maverick Ranch – Coleman Natural Meats – High Plains Journal – U.S. Animal Identification Plan – Choices Magazine –