Jeff Schahczenski Ag Economist NCAT home of the ATTRA Project Jeffs@ncat.org 406-494-8636 Where s the Beef? The alternative beef market: a slow start or real barriers National Small Farms Conference September 15-17, 2009 Springfield, Illinois
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Overview: The national market- size and growth Cost of production Price expectations Profitability Labeling barriers Processing barriers Willingness to Pay
National Market-Growing Fast
Size of Market-Very Small Organic Meat/Fish/Poultry is only.34% of total U.S. food sales in this category Organic fruits/vegetables is 9.8% of total U.S. sales this category Source- OTA, 2009 Organic Industry Survey
Small % of Organic Market
Cost of Production, Profitability, Value Chain Cost of Production Economic Profit Income minus all costs Demand- what consumer wants and can attain- effective demand Supply- who can meet effective demand of the market Value-Chain for a new market- who has market power?
Expectations
Costs of Production
Costs-Comparisons
Profitability-Montana
Prices- Certified Organic Grass-finished-Direct Markets
Organic Hamburger Value-Chain Producer sells burger to retailer- $1.26/lbs Wholesaler sells burger to retailer- $4.54/lbs Retailer sells burger to consumer- at $6.99/lbs
Labels: a way to differentiate a product Commodity Natural Grass-finished Organic Local Combination naturally-raised
Label Claim-Confusion Food Safety Inspection Service Agricultural Marketing Service- Process Verified Agricultural Marketing Service-Voluntary Label Standards- Grass-fed National Organic Program Trade Mark/Brand- American Grass-fed Association label
Processing Needs: the Challenge
Processing Needs Assessment: What It Costs
Processing Needs Assessment: What It Costs
Processing Needs Assessment: What It Costs Average cost for mobile: $233,000 Average costs for cut and wrap : $902,689 Combined: $1.1 million dollars Average pound/meat/year= 1.5 million ~.73 per lbs processed (capital costs)
Willingness to Pay: Survey results 282 surveys sent- 28 returned not all useable
Willingness to Pay: Retailer survey results
Willingness to pay: Survey results
Marketing Opportunities: Summary In Nevada consumer willing to pay 42% higher prices for New York Strip (12% for retailers in project area) In Nevada consumers willing to pay 12% higher prices for ground beef (27% for retailers in project area) In Nevada consumers willing to pay 15 % higher prices for leg of lamb (12% for retailers in project area
Summary: What is required for development of regional alternative livestock market Organic grass-finished beef market is very small but growing very rapidly. Organic grass-finished beef is profitable in MT, at prices in 2007. Costs of production appear to be higher relative to commodity beef. Labeling confusion within USDA and for consumers is high. Available organic processing at a reasonable cost is a significant barrier to entry into the market. Stationary processing is expensive, a core group of producers must be willing to invest to develop their own facility. Mobile-processing is also expensive and still may require a stationary facility to meet processing inspection demands The willingness to pay sufficiently higher prices for organic grassfinished beef by retailers and consumers is problematic except perhaps by a limited segment of the consuming public.
Challenge: The Future? In 10, 20, 50 years, what will the alternative beef sector look like? Though there will likely always be some independent producers, marketing their beef through local and direct channels like farmers markets and subscription programs, it is possible that natural, organic, and grass-fed beef could be largely taken over by today s conventional beef producers. Natural is the most likely of the three to go this route indeed, that steer is already out of the barn. What are the implications of this trend?
Thank You! Questions?