Why Are We Here? Driving Forces for Why Are We Here? Driving Forces for Process Verification ProgramsProcess Verification Programs

Ted SchroederProfessor of Agricultural Economics

Kansas State Universitytcs@ksu.edu

www.agmanager.info

U.S. Beef Demand Index (1980=100)

94

88 8683

7976

70 6966 65

6360 58

56 55 5351 50 52 53

56 55

30

40

50

60

70

80

90

100

80 82 84 86 88 90 92 94 96 98 00 02Year

Demand Index

100109

118 119112

118124

128

157164 162

60.0

80.0

100.0

120.0

140.0

160.0

180.0

91 92 93 94 95 96 97 98 99 00 01Year

Demand Index

U.S. Chicken Demand Index (1991=100)

Markets at each stagecoordinated chain, but system worked poorly

- highly varied product- little price-quality distinction - no incentives to improve

1 in 5 “quality” steaks were too tough to chew!

Consumers Want Meat Products:

1. Tender2. Flavorful3. Consistently High Quality4. Convenient to Prepare5. Healthy & Nutritious6. Safe 7. Competitively Priced

U.S. beef production and marketing system failed to provide these basic requirements

Ways to Improve Coordination

1. Vertical integrationvertical ownership - chicken model

2. Vertical cooperation contractsmarketing agreementspartnershipsalliances

Verification ofprocesses

1. Fresh Branded Case-Ready Products

Branded beef used to be nonexistent

Now common

USDA has 50 beef certification programs

Ribeye Steak Prices in Kansas City – April 1, 2000

LocationUSDA Grade

"Typical" Steak

"Hormone-free" Steak

Wild Oats none $11.99/lb.Hen House none $9.99/lb.Dean & Deluca Prime $24.95/lb.Dillons Select $7.49/lb.Dillons Choice $8.49/lb.Food-4-Less none $6.88/lb.Target Choice $4.99/lb. $9.49/lb.

Retail Steak Prices

Source: Lusk

2. Meal Packages

Single dish quick fix meal consumer expenditures expanded 83% in 2001 to $141 million – AC Nielsen

472 beef products introduced in 2001Compared to 70 in 1997 - NCBA

Heat & Serve Protein Sales Growth

Sales of Refridgerated Heat & Serve Products by Protein

6

5734

245

11

7454

357

17

87 77

410

21

103 105

511

0

100

200

300

400

500

600

Heat & ServeTurkey

Heat & ServePork

Heat & ServeBeef

Heat & ServeChicken

Sales ($ million)

1999

2000

2001

2002

Source: ACNielson

Total heat & serveProtein sales went from$342 to $740 million.

Beef sales tripled

3. Food Service

Food service continuesto grow

Diversity of product needs

Quality control in volume are critical

Contracts

What do they require?

Product integrity

High level of accountability of input supplier

Product safety assurances – mega responsibility/risk

Production practice assurances (including location?)

Traceability

Consistent continuous supply

Many “Credence” characteristics

More Intense

More Intense

Process Certification

Process Certification