This is a fascinating thought experiment and one that we can play out on our farm. We are cow-calf producers who retain ownership of our animals through the feedlot and sell directly to the packers. This works for us as we work to raise high-quality cattle that can benefit from the grid system and often pick up premiums for prime and choice animals. That being said, the idea that we would "own" our beef clear through to the grocery store shelves makes me a bit nervous - for the reasons you mentioned. I'm not an expert on retail and consumer demand. That also makes for an extremely long pay out period for an industry that is constantly running off very tight margins and uses one profit to finance the next purchase. However, your proposed model would solve a lot of the traceability and supply chain transparency issues you have discussed in previous columns. I believe the growth of the direct-to-consumer market, at least in our state, has allowed those that want to control their product clear through to grocery store shelves can do so while others who want to market an animal and not an end product, can still do that through traditional feeding and marketing methods.
It's an interesting concept but from a retailer perspective, you wouldn't get the buy-in. Moving to a retained ownership model would mean that the retailer merchandising strategy needs to be aligned with the packer's supply. The merchandising model for most High-Low retailers is built around driving customers into stores with constantly changing ads. The volume off ad compared to on ad can be significantly different such as your 8 winged chicken comment. The concept could work with an EDLP retailer who has a much more steady demand signal but the retailer has to be willing to give up control. Too often the Meat department is asked to invest to drive customer acquisition for the rest of the store. That change in the merchandising plan would blow up any alignment that was previously agreed upon.
All the hedging, price changes and arbitrage throughout the supply chain is value lost through time delays. (See Bull whip effect and "Beer Game").
During periods of disruption, value is gained by verticalization (See Fairlife). Verticalization should let value accrue to the actor who can control product features. While it is difficult to make chickens with 8 wings, you can control some attributes. A notable example would be to raise beef for Quick Serve restaurants and fast food, that has less fat and a feed ration with lower carbon foot print. The product features being less fat and a carbon label, to meet that QSRs customer wants.
Some supply chains are too distributed. To hard to verticalize. In those cases option markets entice market actors to reveal their supply/demand information. If those option markets are too hidden, like credit default swaps were in housing, the market will fail. An alternative to verticalization would be improved supply demand signals throughout the supply chain to dampen the bullwhip effect.
Disruption occurs when the Y axis of demand changes. For example if people use to pay by the pound, but now want to pay based on nutrition or carbon, the Y axis is changing. Vence and Agriweb both reveal Y axis options and control on these new product variables. So a producer could test the price elasticity, and synthetically verticalize, if they can get the customer to think "Intel Inside". Intel inside being a brand of carbon or nutrition rather than $/lb or prime.
What happens in the supply chain (hoteling etc) may or may not matter. At the margins it may matter, but if the "Intel inside" strategy creates distinct price premium and low variability, the supply chain will work out the spoils at the margin. Trent may have a more sanguine view.
Country Natural Beef seems like a model that could take the cow/calf producer's ownership all the way to the meat case. They already have the long cash flow cycle built in and work with progressive retailers that might want to lay off some risk.
Oh boy, you said those naughty words, vertical integration. 😂
We already see this increasingly happening on a micro scale with the booming of direct to consumer sales which took off after Covid. To scale it would likely require big cooperative agreements, as no cow-calf producer is going to have the necessary capital for infrastructure, even if they could stomach the 18 mo cycle. But boy it sure would be a beautiful thing to see happen.
This is a fascinating thought experiment and one that we can play out on our farm. We are cow-calf producers who retain ownership of our animals through the feedlot and sell directly to the packers. This works for us as we work to raise high-quality cattle that can benefit from the grid system and often pick up premiums for prime and choice animals. That being said, the idea that we would "own" our beef clear through to the grocery store shelves makes me a bit nervous - for the reasons you mentioned. I'm not an expert on retail and consumer demand. That also makes for an extremely long pay out period for an industry that is constantly running off very tight margins and uses one profit to finance the next purchase. However, your proposed model would solve a lot of the traceability and supply chain transparency issues you have discussed in previous columns. I believe the growth of the direct-to-consumer market, at least in our state, has allowed those that want to control their product clear through to grocery store shelves can do so while others who want to market an animal and not an end product, can still do that through traditional feeding and marketing methods.
It's an interesting concept but from a retailer perspective, you wouldn't get the buy-in. Moving to a retained ownership model would mean that the retailer merchandising strategy needs to be aligned with the packer's supply. The merchandising model for most High-Low retailers is built around driving customers into stores with constantly changing ads. The volume off ad compared to on ad can be significantly different such as your 8 winged chicken comment. The concept could work with an EDLP retailer who has a much more steady demand signal but the retailer has to be willing to give up control. Too often the Meat department is asked to invest to drive customer acquisition for the rest of the store. That change in the merchandising plan would blow up any alignment that was previously agreed upon.
You are correct.
All the hedging, price changes and arbitrage throughout the supply chain is value lost through time delays. (See Bull whip effect and "Beer Game").
During periods of disruption, value is gained by verticalization (See Fairlife). Verticalization should let value accrue to the actor who can control product features. While it is difficult to make chickens with 8 wings, you can control some attributes. A notable example would be to raise beef for Quick Serve restaurants and fast food, that has less fat and a feed ration with lower carbon foot print. The product features being less fat and a carbon label, to meet that QSRs customer wants.
Some supply chains are too distributed. To hard to verticalize. In those cases option markets entice market actors to reveal their supply/demand information. If those option markets are too hidden, like credit default swaps were in housing, the market will fail. An alternative to verticalization would be improved supply demand signals throughout the supply chain to dampen the bullwhip effect.
Disruption occurs when the Y axis of demand changes. For example if people use to pay by the pound, but now want to pay based on nutrition or carbon, the Y axis is changing. Vence and Agriweb both reveal Y axis options and control on these new product variables. So a producer could test the price elasticity, and synthetically verticalize, if they can get the customer to think "Intel Inside". Intel inside being a brand of carbon or nutrition rather than $/lb or prime.
What happens in the supply chain (hoteling etc) may or may not matter. At the margins it may matter, but if the "Intel inside" strategy creates distinct price premium and low variability, the supply chain will work out the spoils at the margin. Trent may have a more sanguine view.
Country Natural Beef seems like a model that could take the cow/calf producer's ownership all the way to the meat case. They already have the long cash flow cycle built in and work with progressive retailers that might want to lay off some risk.
Oh boy, you said those naughty words, vertical integration. 😂
We already see this increasingly happening on a micro scale with the booming of direct to consumer sales which took off after Covid. To scale it would likely require big cooperative agreements, as no cow-calf producer is going to have the necessary capital for infrastructure, even if they could stomach the 18 mo cycle. But boy it sure would be a beautiful thing to see happen.