NCBA Spokesman Touts Trade
As Big Beef Industry Boon

(Editor’s note: These observations were made late last year, before the discovery of so-called "mad cow" disease in a Washington state dairy cow. That event, and the trade difficulties it has created, could change many of the assumptions expressed here. The article may be even more instructive now, however, if only as a stark illustration of how much and how swiftly things can change.)

WICHITA, Kan. — This is a good time for the cattle industry, says Gregg Doud, chief economist for the National Cattlemen's Beef Association, but there are still challenges. Some of the challenges are of the cattle industry's own making.

"It's not a bad time to be the chief economist for the NCBA," Doud told the Kansas Livestock Association late last year.

A 1985 graduate of Mankato High School in Mankato, Kan., Doud said his home town used to be home to Dubuque Packing Company.

"I mention that because that's the year that Dubuque closed down," Doud said. "The reason they closed down is because they refused to switch the plant from swinging sides to boxed beef. My oh my, how times change."

Doud said that when he was in college at Kansas State University, his professors used to say the beef industry needed to work on consistency in their product.

"We've come a long way in doing that," Doud contended.

There have been a lot of changes in the beef industry during the last 10 or 15 years, he said.

"There have been changes in this industry on the other side of the equation," Doud added. "I can sum that up in one word, and that's Wal-Mart."

Doud said he hears a lot of complaints about packer concentration.

"I've got news for you," he said. "It isn't packers."

Doud said he's been told that in Bentonville, Ark., the hometown of Wal-Mart, there is one man sitting at a bank of computers.

"He's the beef pricer," Doud said. "He can set the price of beef for any single cut, or all cuts of beef, in any single Wal-Mart Store, or all Wal-Mart stores in the world."

Those prices can go into effect, Doud added, in two hours.

He warned producers not to underestimate the power Wal-Mart wields in the supermarket industry.

Several years ago, Doud said he was told that Wal-Mart could deliver meat in the retail case for 23 percent less than some of the major grocery chains.

"They are instituting changes that we're dealing with," Doud said of the beef and cattle industry.

It's easy to blame the changes on Wal-Mart, he said, but it's the consumer who is driving the changes.

"If you go by Wal-Mart and Sam's Club where I live in Annapolis, Maryland," Doud said, "you can't find a place to park."

The changes in the beef industry are being driven by consumers.

"We ignore them at our own peril," Doud warned. "That's the message we have to keep in mind."

When Doud was in college, he said one of the main topics of concern was catching up with the poultry industry.

"Trying to catch up to the dirty bird," Doud said. "Trying to do in our industry what the poultry folks were doing in theirs."

The poultry industry was capturing new demand and the cattle industry wasn't in those days.

"We were in trouble," Doud said.

Finally, the beef industry has gotten demand turned around, but beef is still competing with chicken for the center of the plate.

One of the problems with country of origin labeling, Doud complained, is that poultry isn't included.

"We have worked long and hard in this industry to compete with the poultry folks," Doud said, "and in one fell swoop we would actually end that."

He termed country of origin labeling one of the most contentious and serious issues facing the industry today.

Doud also complained that proponents of country of origin labeling say it's a food safety issue.

"How is it a food safety issue when 48 percent of the beef that is consumed in the United States is through food service?" he asked.

Beef going into food service, hotels, restaurants, cafes, institutional food and fast food chains is exempt from country of origin labeling.

"Don't even talk to me about this being a food safety issue," Doud said.

He claimed country of origin labeling will also affect exports, an increasingly important part of U.S. beef sales.

"Australia is the biggest beef exporter in the world," he said. "We're second largest."

He expects Brazil, however, to surpass the U.S. next year in beef exports.

"We're also Australia's biggest customer," Doud said.

The U.S. bought $884 million dollars worth of beef, or some 380,000 metric tons of beef, from Australia last year.

Under country of origin labeling rules as they presently exist, he said, little of that Australian beef would be labeled.

"Almost all of the Australian beef goes into food service," Doud explained.

It's 90 percent lean, and U.S. processors mix it with 50 percent lean ground beef for Burger King, McDonald's, Jack-in-the-Box and other fast food chains.

"All these guys use a significant amount of that product," Doud said.

Ultimately, he said, only about three percent of imported beef would be labeled under the country of origin labeling law.

Doud said USDA's economic analysis predicts country of origin labeling will cost the industry $1.7 billion.

Doud said he's never seen any study that indicates the benefits will outweigh the costs of country of origin labeling.

"That doesn't mean that at NCBA we don't believe in labels" Doud said. "In fact, I think it's a great idea."

Doud said he attended a seminar with economists and marketing people about nine months ago.

"They had every industry, fruits and vegetables, fish, there," he said. "All said it was a great, great way to market their products."

The Certified Angus Beef program was held up as an example of an excellent marketing program.

"They all said it works well except for one thing," Doud said. "It works great as long as it's voluntary. The minute you make it mandatory, it stinks."

Doud said NCBA's policy reflects that thinking. He said 80 percent of the NCBA membership agrees with such a policy.

(Editor’s note: It’s tiresome to point out facts only to have them repeatedly ignored, but that, alas, is the bane of a "news" publication as opposed to some corporate or industry house organ. NCBA, packers, retailers and USDA continue to repeat dire warnings about the "costs" of country of origin labeling. They cite fanciful figures supposedly derived from the law when, in fact, they arise only from regulatory language within USDA’s power to amend, reform or jettison completely. We will therefore repeat once again: nowhere in the LAW does it say USDA must impose recordkeeping requirements of ANY kind on livestock producers. The law — in simple English — says USDA MAY do so, but not that it MUST. If USDA MAY, then USDA just as freely may NOT. It is entirely up to the bureaucrats. If, at the urging of packers, processors, retailers and kindred industry organizations, the bureaucrats choose to sabotage a law with unnecessary rules, they should at least have the integrity to claim responsibility for their own actions instead of blaming Congress.

Doud conceded that closed borders have accounted for at least some of the run-up in cattle prices.

Cattle Fax, he noted, credits $5 of the $15 in expected price increases next year over last year for fed cattle to closing the border with Canada over BSE fears.

Price estimates for next year, he warned, are based on the western U.S. getting some rain, otherwise ranchers won't have any grass and won't be able to rebuild their herds.

Doud expects a big drop in slaughter numbers during 2004 and 2005.

"That is predicated on the fact that we're going to begin to retain heifers," Doud said.

Consumers are expected to continue to spend money on beef, he said.

"Last year," Doud said, "we served 11.1 billion servings of beef at restaurants in the U.S. This year we did the same."

Much of the increase in prices is due to smaller carcass weights, which translates into a smaller supply picture.

"When you reduce the weight on these carcasses," Doud said, "that reduces the pounds on the market. That is a huge factor."

There is a big difference between the number of pounds of beef on the market last year and this year, he said.

"That is a significant number of pounds of beef that that we have not put on the market this year that we did last year," Doud said.

BSE problems in Canada, however, triggered the price rise.

"Prices never would have done what they've done without Canada," Doud emphasized.

But the fundamental basis for price increases was actually sown in the fall of 2002, when carryover numbers began to show up.

"That's when this whole thing really started," Doud said. "Back then."

Doud said he keeps hearing that all the imports coming into the U.S. are wrecking the market. The other side of that coin, he warned, is the export market.

"In 2002, the average value of what we imported in beef from all sources," Doud said, "was $1.13 a pound. The average value of what we exported was $1.38 a pound."

That spread is important.

"If for every $1.13 you give me, I give you $1.38," Doud said. "How many $1.13 would you give me? As many as you've got."

The U.S. exports higher quality beef than it imports, he said.

"We're exporting grain-fed, high quality beef," Doud said. "We're importing low quality beef."

Most of that goes to fast food restaurants.

Doud said development of new products, such as the Flat Iron steak and the new petite filets, turns lower quality cuts into higher priced products.

"If we can sell more steak, why in the world would we want to grind that stuff up and make hamburger out of it?" Doud asked. "It doesn't make any sense."

While in 2002 there was a 25-cent spread between imported beef and exported beef, for the past nine months of 2003, exported beef is being sold for 53 cent more than imported beef. It's double last year's spread, he said.

"In fact," Doud said, "one of the most amazing things I've ever seen in all my years in the commodity business is the cattle market this year."

Not only have there been record prices, but there have been record exports.

"We're probably going to have a record year of exports," Doud said. "Certainly on the dollar amount."

He said the U.S. may see a record amount of tonnage as well.

Getting back into the Japanese market accounts for much of the record exports.

"What we do with BSE in Canada and the U.S. really doesn't make any difference," Doud said. "What we do collectively with Canada and the U.S. with BSE and Japan makes all the difference."

He said beef shouldn't be ground up for hamburger in the U.S. when it can be sold for twice the price in Japan. Doud said export markets are increasingly important to the U.S.

"I heard a Congressman the other day say, 'I never voted for a trade agreement because I never saw one that had any benefit to agriculture,'" Doud said. "Give me a break."

Doud opined that NAFTA has had "phenomenal" benefits for agriculture, particularly the beef industry.

In recent talks with a friend in Mexico, Doud said the rancher was complaining that the U.S. had bought up all the feeder cattle south of the border. That presents another opportunity, Doud said.

"If they don't have those cattle down there," he said, "they’re going to need to import more beef. The more feeder cattle we import, the more beef we're going to export. We're adding value on this side of the border. That's what we want to do."

Doud said he expects to see more exports as the dollar weakens. It makes U.S. beef more affordable in other countries.

"We had what we called the Asian financial crisis in 1997," Doud said. "When the meltdown in Asia occurred, we had a block of foreign money come into the U.S. as a safe haven. It's the safest place in the world for anybody to put their money."

To put their money in U.S. equities, people in other countries first have to buy dollars.

"You can't buy stocks in New York with yen," Doud pointed out. "You have to convert that currency. That increases the demand for dollars and decreases the demand for foreign currency."

As that crisis began to fade, Sept. 11 happened. People around the world were scared, Doud said, and put more money in the U.S., forcing the dollar even higher.

"That just decimated our ability to export anything," Doud explained, "cars or beef or wheat or anything else."

Now, there are signs that that crisis is fading.

"Finally, now, just within the last 12 to 18 months, we're coming out of it," Doud said. "Money is being taken out of the U.S. It's going back to where it was. That's driving down the demand for dollars."

That should help exports.

"We want to sell the pounds of beef that we have for a higher price," Doud continued.

For the past few years, Doud said, prices on his chart have gone up and to the right, indicating higher demand and higher prices.

"Historically, at least," Doud said, "when they go that direction, they don't come back. Now, I'm not going to sit here and say we're not going to go back to $60 or $70 fed cattle, but when we're able to do this, generally speaking, it doesn't come down in the other direction."

To keep prices and demand up, the push now is to open trade with more countries.

The U.S. is negotiating or has negotiated free trade agreements with Australia, Central America, Chile, Russia and Morocco.

"We're working to bring down barriers on these exports," Doud said.

If tariffs on beef going from the U.S. to these other nations drop, the price should go down, increasing demand, but there are still some hefty barriers to exporting U.S. beef because of the tariffs that are still in place.

"Morocco has a 275 percent tariff on beef," Doud said.

Japan has a 38.5 percent tariff and South Korea has about a 30 percent tariff on U.S. beef.

"Our industry's primary goal is to bring those down," Doud said. "Can you imagine how much hotter it would be if we could cut those tariffs in half? That just comes right off the bottom line for the consumer."

Another important aspect of the export market, he said, is finding markets for products that don't sell well in the U.S.

"We exported $50 million in liver last year," Doud said. "If you can't export those products, you can't derive additional value, and it hurts the cattleman.

Demand has been driving the beef market recently, and Doud expects that demand to continue, particularly in export markets.

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