Capitol, Friona, McDonalds,
And Excel Form Joint Venture

By David Bowser

AMARILLO — What started as an independent research project has grown into a business.

Those involved in the Beef Advantage Project have formed a limited partnership to expand the study into a commercial venture, says James E. Herring, president of the new company.

McDonald's Corporation, Excel Corporation, Friona Industries, and Capitol Land and Livestock have formed a partnership, Beef Advantage Project, to further explore the commercial application of functional integration in beef production, Herring says.

"It started two years ago, in the spring of 1996," he explains.

The initial study developed an operational database on approximately 28,000 cattle to identify production efficiencies and product enhancements which could be realized by taking a standardized specification beef animal through an integrated production system.

McDonald's Corporation, the retail hamburger chain, conducted a think tank in Missouri to try to determine different methods of beef production and supply for their own uses.

"They were interested in learning more about the production system of beef, commercial beef," Herring says.

It's all part of a program they have called Beef 2000, which is a study and strategy group put together to investigate beef production systems in the U.S. Friona Industries was selected from that original think tank to be the feedyard arm of the test program. Excel was selected as the packing and processing arm, and Schwertner's Capitol Land and Livestock in Austin was selected as the procurement arm.

"We formed a trial partnership to test various aspects of the beef production system," Herring says, "trying to create a more uniform, lower cost beef product that had all aspects of vertical integration. I hate to use that term, but that's the only term I can use to describe it."

They wanted a vertical integration system in place rather than the segmented, fragmented commodity-based system the beef industry has today.

The new commercial venture will explore the development of such a vertically-aligned production mechanism to create electronically-assisted source and process verification, more consistency and uniformity of the end-product, more predictability of supply, an enhanced and more predictable eating experience, and continued developments to maintain beef's position as the safest product in the world, Herring says.

This is a separate venture from Friona, he adds.

"What we're announcing is the formation, after two years of study, of a commercial venture to continue beef production in this vertically integrated structure," Herring says. "What we have done is tested the system. We liked the results that we see, and we're going forward with a commercial venture."

Friona Industries will continue in its various other capacities, including custom feeding.

"We're going to continue our customer concentration at Friona," Herring says. "We are a custom cattle feeding operation. That's not going to change at all."

Herring will also continue as president of Friona Industries.

"It's going to be a new venture to carry on what we've been doing in the past couple of years," Herring says. "Schwertner's going to buy the cattle down in the Central Texas area, and they're going to come forward to the feedyard after a 45-day weaning and preconditioning period, and then through the packing plant."

The operation will be managed by a newly formed operating entity, BAP Management Inc. Herring has been named president and chief operating officer with responsibility for daily activities of the new venture.

Procurement operations will begin immediately, and initial beef shipments should begin during the fourth quarter of 1998.

Not all the beef will end up as Big Macs.

"We'll be working with lots of end users to try to find out who can use the product best at the end, and at the outset we will be working with all kinds of food processors, retailers, HRI, all the trade to determine where this product goes."

Only a small fraction of it will be ground beef, about 120 pounds of the carcass. The rest of it, all the middle meats and the ends, will go to other customers.

"It's very exciting," Herring says. "We're real tickled about it."