market mess + marbling = more margin

Prime Future 265: the newsletter for innovators in livestock, meat, and dairy

I’ve said it before, and I’ll say it again — the fun in this Prime Future thing is when smart people engage and wrestle with ideas.

Today I’m sharing, with permission, a reply that was so well-articulated, well-framed, and well-thought-out that I have to share it in its entirety.

It raises salient points, such as the competitive implications of the pork industry's structure compared to beef or chicken, the importance of framing one’s competition, and the ever-present irresistible force of incentives.

In case you missed it, in Prime Future 233: Is it time for pork’s once-in-a-generation pivot? we explored all the reasons it’s time for the pork industry to revisit some decisions that looked great in the lean meat 90s but majorly miss the quality moment of today.

Then, in Prime Future 246: Maybe there won’t be a pork pivot after all, we looked at several reasons that, however good it might be for leveling up the consumer’s pork experience, quality grading is unlikely to materialize in the US.

I was hoping for some pork industry pragmatism in response, and Dr. Jim Lowe, Professor and Executive Dean for the College of Veterinary Medicine at the University of Illinois, delivered. The professor gets an A on this assignment, plus an extra credit point for the hat tip to Adam Smith 😉

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Janette,

I thought this week's Prime Future newsletter was spot on, though quite sobering and, frankly, depressing. I have said numerous times over the last couple months that 1) "the other white meat" was the worst marketing campaign ever and 2) the pork industry is in a bad place (likely b/c of #1). The product is tasteless and dry (aka chicken) and the cost is high (aka beef). It is literally the valley of death for a product - low quality and high cost.

So.. do I think there will be quality grading: the short answer is NO. Partially because of the technical reasons that you brought up but I think more so because it is not in the interest of any of the established players (packers/producers, genetic companies, further processors) and the grocers in my option do not care as I think they view fresh as a niche / ethic product that does not drive their sales. This is in contrast to beef where even Walmart knows they have to have a quality product as it drives other sales in the store.

The quality discussion is a good example of the double-edged sword of high levels of concentration and integration in an industry. If the established players get it right, they can move quickly and create long-term competitive advantages against other substitutes (proteins). This is where the chicken industry got it right: they understood consumer demands, low cost and convenience, and are growing market share.

The pork industry, in my opinion, forgot about the consumer; it was all about "them" as individual companies: how do we do it cheaper and gain market share within the pork industry, and then had a "you will buy it because we told you so" attitude to the product. The Prop 12 response is one small example of how we think about our business as we failed to embrace providing a product that the customer (consumer?) "wants" because it interferes with how we want to do things.

In many ways, the pig business now behaves like a planned economy (aka the Soviet Union) where a few decision makers drive the direction because of the de facto concentration of the industry to 4-5 market participants between packers and genetics. In addition, the barriers to entry are significant (capital intensive, limited market access, long production cycles) meaning disruption is difficult if not impossible. We know planned economies are super efficient in the short term and as long as the market / economy does not change, work well. But we also know they are doomed to failure when the market demands or dynamics change. One could argue that what brought down the Soviet Union was not military threat but the opening of the global economy to trade that made the inefficiencies of a closed, preplanned system not competitive under the new economic model.

The beef guys with all their quirks, discoordination, fierce independence, infighting, etc., etc., etc, have used that inherent diversity and messiness to be able to pivot and respond to market demands quickly. See the change in percent choice in the last 5-7 years. This uncoordinated production system market, while appearing to be inefficient in the short term, has a much greater ability to adapt and respond to change over the long term than a highly coordinated production system. Adam Smith and free market economics for the win.

Can we go back and "fix" the industry? Likely not, which is why PF this week was sobering and depressing. We, as pork producers, defined the competition wrong; we (30-year-old me included) thought it was each other, when it really was all sources of protein, both domestic and international. I think the path forward is not "fixing" the commodity supply chain in the US. Until we exhaust those assets, they will and need to continue to function.

I think there are new supply chains that could match consumer demand, be less resource-intensive, and maybe rebuild some rural communities. If we can build micro-nuclear reactors to supply clean power where we need it, at a fraction of the cost per KWh of a large reactor, and have minimal environmental risk, by challenging the assumptions on how you "have" to design and build a reactor, why can't we do the same for pig farms.

Could a network of small farms (<400ac) that:

• raise all the grain they need to feed livestock with small, lower-cost, highly automated (autonomous) equipment

• have micro-farrow to finish sow operation of "meat first" (vs. production first) pigs that requires no off-farm labor

• feed cattle to consume roughage to balance out the crop rotation

• produces manure for the crops to eliminate the need for synthetic fertilizer

• connect them to small, highly robotized packing plant (think Europe) that supplies a local food network

…be a model that creates a sustainable competitive advantage?

We are a long way from that, but if you challenge some of the assumptions on how you achieve low cost (it is still a commodity) and build a business with new technology, you might come up with different answers.

All the best,

Jim

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While I don’t know that I see Jim’s vision in the form of <400 acre farms as the basis of supply chains, that last sentence he wrote is the framing I am here for — the idea that there could be multiple ways to move towards the north star of low-cost production that also results in higher quality fresh pork.

Rigidity in the outcome, flexibility in the ways to get there.

In the same way that technology breakthroughs unlocked the whey market in a spectacular collision with mega consumer trends, what technology breakthroughs could unlock a rethink of pork production in this moment — that seems here to stay for a while — of not just protein obsession but quality protein obsession?

Or, what technology breakthroughs could unlock a rethink of incentives in pork production?

The future is already here, it’s just unevenly distributed — so where are those ideas already emerging?

If you challenge assumptions of HOW you achieve low-cost and high-quality fresh pork, what could be true of Pork Industry 3.0?

That’s the many billion-dollar question — what a time to be alive 😉