Final Report for GW14-028
Project Information
As the most valuable agricultural commodity in the U.S., beef is both an economic and cultural foundation of modern American agriculture. Uniting core perspectives from economic, environmental, and agri-food sociology, I examined ongoing transitions in the beef industry that illuminate the factors shaping the structure of the industry and their implications for different industry actors. Stemming heavily from the global value chains tradition, yet also drawing new connections from the value chain literature and natural disasters and food regime research, I provided a close analysis of how the rise of private standards, extreme drought, and generational transition form a crucible of pressures reshaping the landscape of American agriculture. As a highly fragmented industry, the beef value chain provides an excellent opportunity to understand how exchanges between distinct segments of the chain — cow-calf producers, feedlots, processors, and retailers — are governed. My findings underscore the variation that exists within a particular value chain segment and show that a single firm can participate in numerous governance arrangements simultaneously — even with the same exchange partner. The expansion of private standards within the beef industry influences these governance types but with uneven effects for producers depending on the nature of the standard (collective versus individual), and thus, the degree to which the standard can “lock” upstream producers into particular relationships with particular buyers. In particular, the degree of information exchange between segments of the chain shapes the benefits captured by beef producers.
Introduction
For most of the post-World War II period, beef was a mass-produced commodity. The product was generally undifferentiated, and competition within each segment of the chain was based primarily on price. In fact, beef was a virtually paradigmatic example of classic market governance: transactions between links in the value chain were governed by price, and given the absence of other details, or specifications regarding the product, little other information was relevant. “Traditionally, the transaction price as cattle move through the supply chain is the only information exchanged between participants” (Mulrony and Chaddad 2005: 19). However, price-based market governance has come under pressure from a variety of trends, including changes in consumer preferences and retail strategies and increasing consolidation within particular segments of the chain.
Among the developments buffeting beef producers in recent decades is the growing concern among consumers about the health concerns of red meat consumption. Consequently, the beef industry overall faces increased competition from other proteins for the consumer’s dollar. In response, industry actors are actively searching for new ways to “de-commoditize” beef – even though for most of its history, beef has been regarded as a commodity product (Gereffi and Lowe 2009). Via its check-off program, the Cattlemen’s Association Beef Board has for several decades been working to create demand for beef among consumers, but recent efforts focus not just on cultivating demand for beef vis-à-vis other proteins, but rather promoting particular kinds of beef. This is a particular concern for grocery stores and other food retailers driving the emergence of private standard initiatives (PSIs). These standards are sometimes aimed at creating higher “value-added” beef products that are supposed to be superior in some way to their conventional counterparts, in terms of taste, health, quality, or nature of production (e.g. environmentally-friendly, humanely-raised). At other times, PSIs amount to what are essentially marketing initiatives that aim to brand basic beef products (e.g. the Safeway Select label). The implications of PSIs for the beef value chain, especially for value chain governance, vary significantly depending on the type of PSI and the degree to which it necessitates activities that are different from those found in the typical value chain for conventional beef products.
The beef industry remains highly fragmented, with a supply chain organized into distinct segments. Yet within particular segments, significant consolidation has occurred. Mulrony and Chaddad (2000) note that there has been a decline in the number of producers at virtually every link the chain, and that, in this sense, the entire supply chain has experienced consolidation. However, consolidation has been most extensive and important at the processing and feedlot segments of the chain. The retail links in the chain remain far less consolidated, particularly in the food service and restaurant segment, although there is some consolidation there as well (e.g. Walmart). Furthermore, there has been some (albeit still modest) backward integration by the largest processors, who have invested in feedlots.
What is the upshot of these developments? Some industry observers suggest that we are seeing increased cooperation and alignment along the chain. For example, Mulrony and Chaddad (2005: 18) note that “concentration in food retailing and changes in consumer preferences and buying habits are affecting business practices, resulting in tighter linkages and coordination between segments of the beef supply chain”: 2005: 18. Salin (2000: 1099), on the other hand, hypothesizes that we may be witnessing the emergence of a “two-tiered system: chain alliances for premium beef, open markets for lower quality hamburger meat.” These assessments raise a number of interesting questions about value chain governance. To what degree are these changes requiring tighter coordination among distinct segments of the chain? How widespread is this trend? Perhaps most importantly in terms of the preceding discussion of governance, even if more tightly integrated alliances are becoming important, how are these linkages being governed?
The objectives of this project include:
1) Increase information exchange between segments of the beef supply chain.
- Discover the types of information regarding beef quality and production practices most helpful to each segment.
- Identify barriers to information exchange.
- Create protocols for information exchange tailored to each segment.
2) Refine knowledge on successful feed strategies during periods of drought.
- Improve mechanisms for feedback on relationship between feed and quality.
- Build inter-segment strategies for mitigating increased feed costs concentrated among ranchers, backgrounders, and feeders.
3) Increase the availability of quality beef for processors and retailers.
- Generate greater consistency in the quality of beef produced along the chain.
- Align production with desires of downstream segments (processors and retailers).
- Provide guidelines to beef producers on mitigating rising production costs to assist in the future expansion of the U.S. herd size.
Cooperators
Research
My research applied a variety of qualitative methods in order to capture different dimensions and perspectives of beef production. Specifically, I combined in-depth interviews, participant observation, and historical data analysis in order to weave micro-level insights, drawn from extensive fieldwork, into an analysis of the meso-level dynamics of the value chain and the macro-trends in the political economy of agriculture more broadly. I divided my discussion of research design into two brief sections addressing data collection and data analysis, respectively.
Data Collection
In order to identify participants for in-depth interviews, I used a combination of quota and stratified sampling, as well as snowball sampling. First, I obtained directories of beef operations within the Rocky Mountain region by type of facility. From these lists, I stratified the operations by distance from Denver using google maps and the publically listed address of operations, and then selected all operations within 150 miles of Denver, of which there were over 200. I cross checked the three different lists and narrowed my sample to the operations that appeared on all three lists to increase the likelihood of getting a response – operations appearing on one list may be out of business, and indeed many were as I found later on. I began trying to schedule interviews with packers, given that existing literature identified this segment as an important and influential segment of the value chain. I solicited interview participants via phone and found that many operations included in the directory were out of business or did not have answering machines on which I could leave a message. Fewer than 10 operations directly declined to participate in the interviews.
The sampling from industry directories provided me with a first set of operations to interview, and then I collected information on other potential participants from those interviews, using snowball sampling. I concluded every interview by asking participants if they could recommend other members of the industry I could talk to, to which most interviewees were very responsive. While on average 1 in 15 producers from the directory resulted in an interview, nearly 8 of 10 producers provided in snowball sampling led to interviews.
I also found informants through participant observation, including attendance at industry conferences, industry events, and auctions. Once I had established connections through my first set of interviews, I established some credibility within the industry. At industry events I was able to introduce myself to members of the industry and note that I had conducted interviews with their colleagues (with the participants’ prior consent to reveal their involvement in the research). This technique allowed me to interview high-profile industry members who presented at conferences and events.
All interviews were scheduled over the phone, and when at all feasible, took place at the participant’s place of work. In three cases phone interviews were conducted in lieu of in-person interviews due to time restrictions or geographic barriers. In all cases the interviews were recorded with consent of the participant and transcribed directly by me. However, given the nature of work in the beef industry, conducting interviews at the work site often entailed riding in a truck or walking a ranch at the same time as conducting the interview. In a handful of cases this affected the recording quality of the interview, or the progression of the interview questions given unpredictable interruptions. Some interviews took place in formal office settings, typically at a feedlot or packing plant where the physical infrastructure allowed such a space. But even in an office, the interviews were often interrupted by employees entering, customers walking in, or the noise of the business – saws at packing plants, mooing at feedlots, or ‘elevator music’ in the formal offices. All interview participants signed an informed consent form that detailed the purpose of the study and asked for consent to audio record the interviews. One participant who completed a phone interview was provided the form via email and gave verbal consent.
In total I completed 40 interviews, as described in table 3.1. I selected participants from all segments of the value chain, as well as external actors including third-party auditors, government officials, sale barn representatives, and industry association leadership. The external actors were important to capturing a complete picture of the industry given their role in certifying, supporting, and regulating the industry. In particular, these interviews included members of the beef check off-program, a mandatory fee-based program in which beef producers pay approximately $0.50 per cow to support advertising, education, and industry expansion through state-led beef councils. Additionally, I included regulatory agencies at the federal level that oversee trade and export, and key beef associations to which thousands of beef producers belong. Other organizational interviews included representatives from beef associations at the state and national level and associations focused on improving the quality of beef products. Beyond industry associations, I interviewed representatives from third party auditing companies. These companies provide certification to beef producers, such as all-natural, grass-fed, or ‘age and sourced” beef products. These companies provide onsite audits, as well as technologies and tool to improve traceability in the value chain from calf to slaughter and even to store shelves.
After approximately 30 interviews, it appeared I was nearing saturation, as much of the information I heard from participants repeated that gleaned in previous interviews. However, I aimed to include at least three participants from each portion of the industry. The interviews lasted between 22 minutes and two hours, with the average interview lasting 52 minutes.
Table 3.1: Interview participants by segment
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Segment
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Number of Interviews
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Size Range (2013)
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|
Retailers
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3
|
$150 million – $23 billion in annual sales
|
|
Packers
|
8
|
5 head per day – 26,000 head per day
|
|
Feedlots
|
10 |
3500 head – 980,000 head
|
|
Cow-Calf Producers and Seed Stockers
|
9
|
5 head – 300 head
|
|
Third-party auditors
|
4
|
5 staff – 100 staff
|
|
Government and Industry Associations
|
6
|
Association membership: 2,500 – 29,000
|
|
Total
|
40
|
|
Although I only completed three interviews with retailers, this represents a large portion of this segment of the industry, given the degree of concentration at this link in the chain. However obtaining interviews with the retailers proved to be the most challenging; retail representatives (along with other industry members) were somewhat suspicious about my motivations and/or were more proprietary about information, and, therefore, hesitant to discuss any details of their sourcing strategies. Additionally many obstacles existed to identifying the employee within a retail store who was best suited to interview. For segments, such as cow-calf producers, often the publicly-listed phone number was the one for their family’s home that the owner would directly answer. Alternatively cow-calf producers and feedlot operators had cell phones they carried with them within their ranches and pens and answered directly when I called. In contrast, obtaining an interview with a retail representative required several phone calls to numerous corporate divisions and locations, often spread over several weeks. When the appropriate person was identified, it required several more phone calls to either solicit a return call from that individual or to learn that the individual (or the company employing him/her) was unwilling to participate.
The interview protocol used for the in-depth interviews consisted of questions consistent across segments as well as questions that were tailored to each particular type of participant. All interviews were semi-structured and adapted according to the sui-generis dynamics of the interview. For example, certain interviewees clearly stated that particular information was proprietary when first asked, so I excluded all following questions that addressed the same issue. Generally speaking, interviews within a particular segment of the chain (e.g. packers) were similar in both substance and style of conversation, with some variations according to size of operation. However, there was substantial variation across segment. For example, one interview with the largest premium natural food retailer took place in a cozy office with the executive’s pet dog resting on the floor. Another interview took place in the pick-up truck of a seed-stocker while he helped stack hay bales. And another interview took place in the cutting room of a small slaughterhouse while I stood and watched the owner cut up large pieces of a cow carcass.
All interviews included questions regarding the demographics of the organization, including size in terms of sales, land, or volume; an overview of the operation’s core activities; the interviewee’s role in the operation, etc., as well as general items related to my research questions, including the impact of drought on the operation; perceived changes in the industry during the last ten years; anticipated changes to come, etc. In addition, tailored questions appropriate to the segment were asked. Given my interest in value chain dynamics, these questions often focused on their relations with upstream and downstream actors. For example, feedlots were asked in detail about how they obtained and sold cattle; packers were asked in detail about the kind of information they made available to feedlots, and what kind of specifications they received from retailers, etc.
In conjunction with in-depth interviews, I conducted participant observation. This entailed attending industry conferences, such as the National Cattlemen’s Beef Association annual meeting, and a regional conference titled “Beef + Transparency = Trust”; attending industry events such as the National Western Stock Show; and, attending trade events such as sale barns and auction houses. My degree of anonymity varied depending on the form of participant observation. At industry conferences I formally registered as a researcher and introduced myself as such when meeting fellow attendees. But when at industry and trade events, my status as a researcher went unnoticed. In total I completed over 70 hours of participant observation over 16 months.
Throughout my in-depth interviews and participant observation, I faced several challenges to gaining entrée to my targeted population. First, I often tried to dress more casually than I would for an interview in a more formal office setting, given that many of the interviews took place on a ranch, feedlot, or slaughterhouse. However I seemed to regularly mis-predict the setting, given that some feedlots had formal offices and others did not. In cases where I arrived at the interview in semi-professional clothes, only to immediately be literally walking through mud, I felt out of place and perceived that I was judged as such by members of the agricultural community. On more than one occasion, this perception was confirmed when interview participants noted my status as an outsider, either based on my appearance, my car (a hybrid Honda civic with Ohio license plates), or my behavior, such as locking my car door in a remote rural area where participants view locking doors as unnecessary.
Second, my association with the University of Colorado-Boulder preceded me. Given CU-Boulder’s reputation as a liberal college, especially in contrast to the nearby land-grant institution of Colorado State University (which has a large meat sciences department), participants were skeptical about my interest in the beef industry. Students from Colorado State often worked at the operations that participated in my research — for example, as part-time assistants in meat grading where their job entailed taking pictures of animal carcasses. One packing plant manager I interviewed joked that they have not had any students from CU-Boulder interested in working at their plant – apparently an idea so preposterously comical that our interview was interrupted for some time by the man laughing at the very idea. Many directly asked why I was interested in the beef industry, or asked if I was from the People for the Ethical Treatment of Animals (PETA). Respondents were accustomed to negative attention from groups such as PETA and were hesitant to agree to an interview until I assured them the information was confidential and anonymous and was part of a research project aimed at improving the beef industry. Many participants appeared reassured when I mentioned that I ate, and enjoyed, beef on a regularly basis. Even after completing an interview, several respondents asked me why a student from Boulder would be interested in the beef industry.
Finally, it took several months to learn the language of the industry. The terminology of the beef industry is complex, technical, and highly specialized. In my first several interviews I came across as unprepared and uninformed about the beef industry as I often used the incorrect word to refer to aspects of the production process. Only after two months of interviews did I fully understand how to employ the proper vernacular. For example, only an industry insider would know that the term cow is used to refer to female cattle that have given birth, while heifer refers to females that have not given birth. In existing literature on the beef industry many of these finite distinctions are not made clear, leading me to regularly err in my attempts to use them.
In addition to fieldwork, I made use of available secondary data. A wealth of data exists on the beef industry in the U.S., collected by agencies such as the U.S. Department of Agriculture Economic Research Service, the National Agriculture Statistics Service, and the Bureau of Labor Statistics. Prior, during, and after conducting in-depth interviews and participant observation, I utilized historical data to provide context to the emergent findings from my research. Instead of solely relying on the accounts provided by beef participants, their claims regarding trends in the industry were verified through statistical historical data. Additionally, given that drought plays a central role in the beef industry and in my subsequent analysis, I explored how the drought beginning in 2012 compared to other previous droughts. Using the U.S. Drought Monitor, and the National Climatic Data Center, along with data from the United States Geological Survey, I was able to highlight the degree to which the 2012 drought was more severe in both scope and scale than most droughts in the past 50 years.
Additionally, I used historical data to inform my value chain analysis. Although most interviewees agreed on trends in the industry, including the degree of concentration and changes to production, information from participants may reflect only their perceptions, and therefore exaggerate or underestimate the degree of change. This was especially important given the inflammatory nature of certain topics in my interviews; some participants responded angrily and emotionally to questions about concentration in the industry and control by certain segments. Producers from each segment seemed to have a different target to blame for any misfortune, whether it was a monopoly among packers, government regulation, or suburban expansion into farmland. While these claims may be based in factual trends, it was crucial for me to verify the degree to which these trends proved true when consulting numerous historical data sources.
Data Analysis
Once all data was collected, it was analyzed using qualitative analysis methods. The transcribed interviews were coded to identify initial emergent themes, from which my results and findings are based. Then all interviews were coded again with these themes in mind, selecting supporting information in the process. One final round of coding was completed to identify any information that contradicted the themes and evidence within the first two stages of coding in order to cross-check the validity of these themes. In cases where ample evidence questioned the validity of a theme, further analysis of the data was completed before making a decision on whether to further pursue this theme in light of contradicting data, and if so, what the contradicting data revealed.
Once preliminary findings were established, I consulted with a small advisory group who agreed to assist in my research. This group consisted of interview participants, as well as members of beef associations who I had not included in my research. In an effort to include key agricultural stakeholder, especially producers, in my research, the advisory group was consulted after I established my research findings.
Consultation with the advisory group occurred in person at the time of an industry conference. Despite the attendance of all group members at the conference, only three of the five members attended the planned meeting. These three members came from the cow-calf segment and the feedlot segment. The conversation was informal, with a brief presentation of my findings (as of that date), and a discussion among the three members. Specifically, I asked how these findings resonated with their experiences within their particular value chain segments, as well as in their particular businesses. I also asked questions about any critiques they had regarding my findings, suggestions to improve my research, or additional industry members I should consult with. The response from participants was relatively lackluster, and in general the group members just seemed pleased that someone was doing this research in a way that appeared to pose no threat to the industry. For members of the group who did not attend the in-person meeting, I followed up by phone and by email to ask the same questions posed at the group meeting. One participant promised to send comments, but never did, and the other provided brief notes via email.
The feedback from the group did not in any way alter my findings, but instead provided perspective on how my findings fit with the views of agricultural producers. Most commonly, members of the advisory group agreed with my findings, but provided caveats about why these findings were true. For example, many had strong reactions to the claims that beef production was environmentally, ethically, or physiologically harmful. Even if they agreed, they claimed that incidents of public scandal were isolated cases, or only due to the actions of one beef producer who made the entire industry look bad.
In accordance with IRB approval, all participants are kept confidential and anonymous, and thus I use pseudonyms throughout my analysis. Additionally, I remove any identifying information that would reveal the identity of either an individual or an organization. The beef industry in the Rocky Mountain region is large, yet relatively tight-knit, and thus even seemingly small details could violate the anonymity and privacy of my informants. Therefore in some instances I am overly vague in my descriptions of members of the industry and their businesses in order to avoid identification by their peers when reviewing my findings.
I sought to unite literatures on PSIs and global value chain governance in order to propose a framework for better understanding the implications of standards for chain actors. As part of a broader research agenda targeted at identifying the contexts in which agricultural producers garner the most economic benefit, I argued for a closer analysis of differentiation between private standards with consideration for both vertical and horizontal dimensions of governance. In particular, I focused on the varying degree of change in chain drivenness that occurs depending on the type of private standard. In order to construct this framework, I first focused on value chain governance as a means to illuminate the relative position of chain actors and reviewed extant literature addressing how private standards shape chain governance. Next, I reviewed how production aligned with private standards is seen to be qualitatively different from production in conventional value chains. Last, I drew on the case of private standards in the U.S. beef industry to examine the diversity of ways in which chain actors are affected by private standards, depending on the type of standard and the type and range of actors involved. By distinguishing how governance varies by type of private standard, we can better identify the benefits and drawbacks of PSIs for chain participants. In particular, I conclude that collective private standards that engage a range of stakeholders are less likely to increase the leverage of lead firms and are more likely to benefit upstream producers through increased value capture.
Private standards permeate the beef industry as value-added beef, as opposed to conventional beef, is the fastest growing segment in the industry. Although private standards represent less than 10% of the total sales in the beef industry, it is a fast growing segment. Programs such as natural, organic, antibiotic-free, hormone-free, and grass-fed beef are growing in popularity, especially with the expansion of health food retailers such as Whole Foods. In 2012-2013 alone, beef consumption overall dropped three-tenths of a percent, while all-natural (hormone, antibiotic, and growth promotant-free) consumption increased by 54% (USDA 2014). Although it only comprises a fraction of total production, certified beef products are growing in popularity as consumers seek higher quality, environmentally- and ethically-sound foods. The most common private standards in the industry include: certified Angus, grass-fed, organic, age and source verified, and hormone free. As described in Table 1, these standards range between private collective and private company standards, even within a single type of standard. For example, the USDA implements its own all-natural program, but companies also create their own all-natural programs that differ according to their preferred product traits.
Table 6.1: Private standards in the beef industry
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Private collective standard
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Example actors involved
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Private company standard
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|
Organic beef
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Oregon Tilth
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Hormone-free beef
|
|
All-natural beef
|
AgInfoLink; Certified Angus Beef Association
|
All-natural beef
|
|
Certified Angus beef
|
Certified Angus Beef Association
|
|
|
Grass-fed/finished beef
|
American Grassfed Association
|
|
|
Age and source verified beef
|
AgInfoLink
|
|
All-natural beef stands apart from other private standards given the sheer number of programs under this one standard, and the variation among them. In 2010, over 30 different companies had lines of all-natural beef as part of their private label, branded beef programs (Machen 2010). The differentiation within all-natural beef stems partially from the loose regulations of the label. To use the term “natural” on any food label, according to the USDA, a product must be, 1) minimally processed, 2) free of artificial ingredients, and 3) free of any preservatives. Beyond these three requirements, private companies can determine the attributes of all-natural beef according to their own desires. As Troxel notes, “Natural beef is produced to fit into a specific branded beef program, and therefore, the owner of the brand sets the requirements and is responsible for regulating compliance. This makes the natural beef program’s integrity extremely important” (2014, p. 1). Certain criteria are commonly found across all-natural programs, including a ban on antibiotics, feed additives, hormones, and feed containing animal proteins (Cattle Fax 2014).
Given that branded beef programs emanate from packers or retailers, this set of actors has the greatest influence on how all-natural beef is defined. Compared to other private standards such as organic or grass-fed beef, a small number of value chain actors control the attributes and monitoring mechanisms of all-natural beef. While informal industry standards exist, no codified standard exists for all-natural programs, such that each firm can design its own criteria. And as this standard continues to grow in popularity, partially due to the lack of oversight from other institutional or regulatory bodies, it begs the question of how such a variegated standard influences the governance of the value chain, and how upstream producers fare in a market riddled with different all-natural standards. I use the case of all-natural beef as a springboard to delve into this question, and explore how horizontal dimensions of private standard governance affect vertical drive and producer well-being.
Governance of All-Natural Beef Programs
All-natural programs vary greatly – the term “all-natural” alone signifies very little about how a cow was raised and the traits of the final beef product. The most stringent form of all-natural beef is the USDA “Never-Ever” program that requires hormone-, antibiotic-, and animal by-product-free production. To be a part of the Never-Ever program (either certified by the USDA or self-proclaimed) cattle may never, at any point in their life, receive these products. Producers can elect to obtain the USDA certification, but many producers incorporate Never-Ever into their in-house brands and then claim they meet these criteria without any independent audit. For example, one of the largest natural retailers, Jones’ Beef, manages a natural program called Aspen Hill. The criteria set by Jones’ Beef for this program is the same as Never-Ever programs, but they do not obtain certification. A driving factor for the lack of certification for Never-Ever beef is that the certification is not a consumer-oriented label. Unlike beef that is labeled as Angus or Prime grade, most consumer products will utilize a “hormone free” or “all-natural label” without any clarification of what precisely this means in terms of the production process.
Additionally, some all-natural cattle may also be grass-fed, organic, age-and source verified, or breed certified. For example, some producers utilize an all-natural program that contains only genetically-certified Black Angus. Other all-natural producers utilize withdrawal programs in which cattle are given antibiotics or hormones up until they are close to the point of slaughter. If producers stop providing antibiotics or hormones within 90 to 150 days of slaughter, the resulting beef can be sold as antibiotic or hormone free, even though it cannot be marketed under the Never-Ever program.
Together, there are dozens of combinations possible in all-natural programs. Thus coordination between producers and buyers is essential to ensure cattle meet the intended program specifications. As suggested by the extant literature on private standards and certification schemes, the standards for all-natural programs (with the exception of the USDA Never-Ever program) are largely defined by lead firms. For example, grocery store chains decide which standards they desire, and then bid out to packers to see who can supply beef to those specifications at a desirable price. Similarly, packers can create their own natural programs to market to retail and food service outlets. For example, one of the largest packers in the country offers a natural program they created in-house that includes the specifications of the Never-Ever program along with a genetic Black Angus certification. The company then markets this program directly to food service companies, restaurants, and retailers as an advanced and higher-value all-natural program.
The all-natural standard can be categorized as a private company standard with high variation within the standard, a high degree of variance from conventional beef, and high asset specificity according to a specific firm’s standards. These attributes suggest a high degree of ‘drivenness’ by lead buying firms over upstream producers, especially in the form of control over production practices, and opportunity costs for non-compliance. Producers experienced this at different points in the chain, noting the control of lead firms in setting the production practices, as well as broadly yielding influence over suppliers’ practices. A feedlot manager, supplying to one of the larger all-natural programs in the country run by a large processing company, described the extensive process required to meet the specific standards of this program. This feedlot supplied one, and only one, brand for the packer, and that packer, in turn, provided the brand in question to one retail outlet. The supplier had to go to great lengths to meet the standards of this one firm and was made vulnerable by the fact that there was only one client to which it could sell its cattle. When asked what they did to meet the all-natural program of this marketing firm, she replied:
Oh man, jump through a lot of hoops. A lot. I mean they have a big, everything…how you treat the animals, how you work them, run them through your chutes…take random [feed] samples, make sure the feed is all natural, make sure you’re not putting any additives, and then just lots of paperwork. Background checks on the [supplying] ranches and such, what they fed their cows, if they fed them any type of medicated mineral.
In addition to determining the production standards, the marketing program plays a large role in the buying and selling of cattle. The marketing program controls all procurement of cattle, as well as the sale of all cattle, which is distinctly different than in conventional programs where feedlots and all other segments determine their own purchases and sales. As the feedlot manager explained:
We usually have no say on when they’re gonna go [to slaughter].., For instance, we had them contracted for April and [the buyer] didn’t need the beef in April…so they made us feed those cattle longer, so we had to keep putting more and more money…that’s 20 or 30 days longer than you anticipated so that’s more money into the cattle, so more loss. They kind of dictate to us a little bit, which is kind of rough.
The financial loss can be significant, given the small margins received by beef producers. A feedlot operation may receive only $100 profit per head of cattle, so an extra month of feed can quickly minimize, or even entirely erase those profits. One feedlot manager explained that their operation had to take a significant loss as part of a natural program: “Right now they came in so high, high priced…They came in so high and you know, everything’s losing money huge, $100 to $200 a head right now.” In this statement, the manager refers to the high price at which cattle are sold to the feedlot, that when matched with the low price they sell to the natural program, ultimately costs them several hundred dollars per cow. This feedlot manager continued to explain that with such a high sale price, “this feedlot’s gonna be empty until fall,” because the cattle are too expensive to buy, and ultimately “it wouldn’t hurt us just to let it retire.” The ability of buyers to control product specifications, as well as the sales of suppliers, illustrates the increased control of buyers over the production process. As a participant in a PSI, this feedlot is contractually obligated to sell to this one buyer, and only this one buyer, and must produce according to that buyer’s standards. Additionally the feedlot relies on the program to market its beef and secure buyers as described above. As a result, the marketing firm dictates when cattle arrive and leave the feedlot, as well as the ‘hoops’ the producer must jump through, and the price at which the cattle sell. Ultimately the financial losses from participating in the program are enough to make the manager consider closing the operation.
This increased buyer-drivenness is also facilitated by the close coordination between segments of the chain. As previously discussed, close coordination ensures greater control over quality and compliance with standards, and this is easily seen within natural beef production. One of the largest beef packers in the nation coordinates natural production through direct vertical alignment between the packer, the feeder, and ranchers. Vertical alignment does not entail ownership of upstream producers, as is the case in vertical integration, but instead operates according to contracts and coordination along the value chain. As the manager of this natural program explains, “it is much more of an aligned process on the naturals…with the natural categories [sic] I have a pretty good idea of next month of where the stuff we produce is gonna go.” Additionally on the purchasing side, this natural packer owns a feedlot from which the majority of its natural cattle supply is sourced, and even extends its influence to the most upstream link in the chain — the cow-calf producers. The natural program manager notes that “there’s a gentleman at the feedlot who is the direct link in signing up new producers, getting them ready for the audits, dealing with all the documentation.” The natural packer not only owns and operates an in-house feedlot, but also uses staff to enroll supplying ranchers and ensure they meet the necessary requirements. While producers may benefit from the direct assistance provided by this firm, such as assistance with meeting production requirements, this case illustrates the high degree of alignment throughout the natural beef value chain.
The close alignment contributes to buyer-drivenness by granting buyers even greater control over production practices, as well as giving them access to detailed information at the production stages. Several natural producers noted the transparency in production costs, such that buyers know the cost of production (and thus, the supplier’s margin), as well as the details of the production practices. In addition to third party audits, affidavits, and immense documentation, the close alignment facilitates the “hands off” governance described by Ponte and Gibbon (2005). Buyers use formal agreements such as affidavits to hold suppliers accountable and to ensure compliance with their particular all-natural standard in lieu of on-site inspection or directly managing the production process. The close alignment between segments, in combination with production tailored to private company standards that require producers to go to great lengths (as compared with conventional beef production), grants buyers indirect control of the natural beef value chain.
It is important to underscore that the category of all-natural beef involves relatively weak horizontal governance of the sort that could act as a brake on lead firm drivenness. As illustrated in Figure 1, the linkages to external actors, institutions, and networks are sparse; packers and retailers create the all-natural standards only in alignment with the loose USDA guidelines and industry conventions surrounding the norms of all-natural beef. While the USDA has some influence on all-natural standards, this influence is weak at best, given the vague guidelines provided within the USDA regulation. As described above, the criteria to classify a product as all-natural beef can be interpreted in many ways; minimally processed is relative, subjectively defined, and varies across product, for example. Thus the main factors influencing how packers and retailers construct all-natural beef programs are their own desires and interests, which they endeavor to align with the broader industry and social conventions. These conventions include emergent industry norms of what an ‘appropriate’ all-natural program entails, attributes that resonate with cultural narratives and ideals of natural food, and market trends that position natural-beef relative to other products.
The lack of horizontal linkages grants packers and retailers greater flexibility in designing, implementing, and monitoring all-natural programs. Without direct accountability to an extensive network of extra-institutional actors, the lead firms expand their influence over chain activities and can be seen to increase the drive of chain governance. As described by a leading natural program manager, the lead firms coordinate close alignment under their programs using hands-off governance that extends their reach up the value chain, enabled by the lack of horizontal ties to other actors and institutions. The autonomy of the lead firms manifests in highly differentiated and variegated private standards that not only differ from conventional production but also differ from one another as well as other private standards. It is this differentiation that supports the close alignment of production under lead firms, expands the control of these firms, and in turn increases the drivenness of the chain.
To highlight how all-natural programs increase the drivenness of beef value chains, I next compared all-natural private standards to those for certified Angus beef. Although these private standards also have some degree of variation within them, they also include several ties to external networks and institutions that restrict the autonomy of lead firms. As I illustrate, the horizontal ties to the USDA and the industry association, along with industry conventions, limits the drivenness of the chain and the position of lead firms relative to upstream producers.
Governance of Certified Angus Beef
To highlight how the diversity of all-natural programs and the subsequent increased control by lead firms differs from other private standards, I next detailed the certified Angus beef program. Certified Angus Beef (CAB) is a private collective standard that verifies the breed of cattle used in beef. Angus is often assumed to produce higher quality beef, and thus the certification signifies a value-added product. The program first emerged in the 1970s in response to consumer dissatisfaction with the quality of beef and continues to serve as one of the major private standard programs in the beef industry. The certification is managed through the Certified Angus Beef Program, a part of the American Angus association, a nonprofit organization. With over 30,000 members, the association charges producers to join in exchange for the benefits of registering cattle, marketing the beef as certified Angus, and access to industry resources. As the organization’s website details, in order to meet the certification beef must have ideal marbling, less than 1-inch of fat, a certain size of ribeye, and other specifications regarding quality which do not vary greatly from conventional production. For example, all certified Angus beef must grade as USDA prime, choice, or select, which is the common requirement for conventional beef products sold in retail outlets.
Most simply, certified Angus beef must come from cattle of the Angus breed. While on the surface this appears to be an easy and consistent measure, it in fact varies across Angus programs. The main difference that can occur in the breed certification is whether the cattle are phenotypic or genotypic Angus. In Angus programs that require phenotypic Angus, any cattle with black hides are eligible, given that Angus are known for their black hides. A phenotypic Angus cow may only be 20% Angus yet still yield a black hide. But for some buyers to know that a cow will perform to the high degree expected of Angus, a black hide alone is insufficient. In contrast, genotypic Angus programs require genetic testing of cattle to ensure at least 50% Angus lineage. As a manager at a packing plant explained, if a program claims to be certified Angus, but does not claim to have genetic testing, “Well guess what? Then it’s gonna be a phenotype program… If that’s the case then the cost of that animal is significantly cheaper…the consumer has no clue the difference between genetics and phenotype” (Packer 3).
However phenotype programs produce a varied eating experience given that the genetics, and in turn the quality of the beef, will vary greatly from one cow to the next. The packing plant manager goes on to explain, “You’re really not gonna know cause you don’t know the genetics this time versus the next time.” In contrast, genetic testing enables the producer to better predict quality, as the manager says, “product is gonna be better, and it’s gonna be better this time, next time, the following time…The costs are gonna be a heck of a lot higher, but we feel that the finished product is gonna be that much better.” The genotypic Angus provides consistency in the cattle from one herd to the next given that they can control for the genetic make-up of a cow. In phenotypic Angus the genetics can vary so greatly that it is hard to predict the final quality and yield of beef from one herd to the next. Given technological advances, genotypic Angus is becoming increasingly popular, and affordable, among producers, yet many producers at all segments of the value chain still market certified Angus beef based solely on phenotype.
Producers participating in Angus programs do not need to make significant changes to their practices to transition from conventional production. Especially in phenotypic programs, many ranchers and feedlots already raise black-hided cattle. The only additional step to market them as certified Angus is to pay for the certification by a third-party agency that verifies the cattle are indeed black hided, as well as to market them as certified Angus cattle through the packing company or marketer. Genotypic Angus programs require a slightly larger change for producers who must genetically test their cattle, and not rely simply on hide color. The producers pay for this testing, and recover the cost of testing in the premium paid for these cattle. Other than the genetic testing, the steps necessary to transition from conventional are the same as in phenotypic Angus programs.
Given the general uniformity across Angus programs, certified Angus producers have a vast number of market outlets. Producers do not have to rely on a single firm or a small niche market in order to sell their product. Certified Angus Beef is commonly sold in restaurants and grocery stores and is a low-cost certification program that retailers can use to distinguish their selection of beef products from their competitors’. Additionally, many packers and retailers will include the Angus certification within other value-added labels, such as marketing Angus beef as also all-natural. In turn, upstream suppliers have greater flexibility regarding to whom, and on what terms, they sell certified Angus beef.
The certified Angus value chain is buyer-driven to a degree; however, the drivenness of this PSI chain is not significantly greater when compared with the conventional beef value chains. Upstream producers in Angus programs raise cattle according to the certified Angus standards but these standards are not set by individual buyers, and their uniformity means that producers of Angus cattle are not dependent on a single buyer. In other words, while producers may raise cattle according to the certified Angus standards for a particular retail store, the retailers do not influence the particular practices and only serve as a market outlet. One ranch owner, raising Angus cattle, noted that they raised the cattle as any others and could even decide after slaughter whether to market them as certified Angus, noting that “they’ll qualify for certified Angus beef program based off the carcass,” when the quality of the beef could be determined in conjunction with the hide color. This rancher also explained that certified Angus did produce premiums from packers to satisfy retail demand. If packers “have an order to fill on certified Angus beef in a grocery store then they need to pay premium to get it;" otherwise, the retailer may purchase from a different packer. Thus while retailers exert some control over packers in both conventional and certified strands of the beef chain, the drivenness of the Angus program does not increase simply due to the attributes of the certification program. As a private collective standard that is uniform throughout the industry, producers operate without oversight or control by buyers and receive premiums for participation in the private standard.
It is important to note that one reason the private standard for Angus beef is more highly embedded in a network of actors external to the value chain is because the standard relies on cattle characteristics determined at birth. Cattle can be born as Angus beef and maintain that distinction throughout the production cycle with minimal to no intervention on the part of producers. In contrast all-natural beef relies on specific production practices implemented downstream. As opposed to being born with the necessary traits like certified Angus beef, all-natural cattle are raised to achieve the private standard certification. Because of this, upstream producers are differently positioned with regard to the creation, enforcement, and maintenance of the Angus certification. And in turn, the involvement of upstream producers reduces the influence of lead firms vis-à-vis the private standard. Instead, retailers and packers must rely on the feeders and cow-calf producers for the production of Angus cattle.
Benefits of Private Standards
While there is ample evidence to indicate that private standard value chains may be more buyer-driven than conventional beef products, my research also suggests that participation in these chains can yield greater benefits for producers. As seen in the certified Angus and all-natural programs, producers receive premiums for certain private standard programs that are not lost entirely to the cost of production. In natural programs, producers at the upstream end of the value chain, including ranchers and feedlots, cited the benefit of increased information sharing, a secure market outlet, and less variability in the prices received. For example, a feedlot supplying one of the largest natural retail outlets in the country explained that the price he receives is based on the cost of production; if the cost of feed increases due to drought or other reasons, the buyer pays the difference. When asked if participating in the natural program proved economically beneficial, the feedlot owner answered, “Oh yea, I mean, all of the extra stuff that they require costs and they just pay the production costs… It’s a cost-plus so whatever my cost is plus the cost of providing the service and they pass that on to whomever they’re selling to.” In this scenario, packers pay more when the cost of production rises, and upstream suppliers are protected from volatile changes in production costs. This proves especially important in the context of drought, in which feed prices increased as much as 400%. While this feedlot owner paid substantially more for feed, he received an equal increase in his payment from buyers, who base their pricing off the production cost.
This form of pricing is rare in the conventional strand of the beef value chain, in which the price of cattle is either based off of a live-weight, a three-state average, or a grid system where sellers get premiums and discounts on the base price depending on quality and other beef attributes. In contrast to the natural programs described above, buyers of conventional beef products will switch suppliers if their prices change, even minimally. Thus some natural beef producers are buffered from changes in pricing and production costs more so than their conventional counterparts.
Another major benefit of participating in the natural beef value chain includes a secure and stable market outlet. The close alignment between segments of the chain, along with the specifications unique to a particular firm ensures producers have a consistent buyer for their certified beef. As noted above, packing plants that manage natural programs know to which retail outlet their beef is going week to week, and even a month ahead of time. The same is true of their sourcing. As the director of a large natural program explains:
[Conventional purchasers] will be buying cattle today that they’re gonna kill on Friday or Monday... And [they] might buy them at video auctions, sale barns, we really don’t know where it might be, and we don’t have the traceability back to the producer. In these natural programs we buy them six to nine months in advance. We know who they’re coming from.
Just as the natural buyers know where the natural cattle will be sourced six to nine months in advance, the natural ranchers know their cattle will be sold six to nine months ahead of time. The forward-buying in natural allows upstream suppliers to have a secure market outlet prior to when the cattle are ready to harvest; in turn, this allows producers to better financially plan for the following year.
Another feedlot supplying natural beef to one of the main natural beef packers noted how, unlike in conventional beef, he receives detailed information on how well his cattle “performed” when slaughtered, meaning data on the USDA grade, the overall yield, fat percentages, yield grades, and other highly useful information. This feedlot manager shares the information with ranchers so they can adjust their genetics in order to improve the quality of the cattle, and in turn, their profits. As the feedlot manager explains,
If [a rancher’s] cattle for some particular reason are grading 15% less choice than the plant average…he needs to know that. And maybe he can change some of his genetic selection by purchasing bulls or making breeding decisions…It’s communicated verbally. When a rancher ships one and you get to the end of the feeding program and you do a close out, that identifies what kind of actual performance you saw, feeding performance is just part of that equation now, and slaughter performance is the other…so we found that rather than just mailing them that information it better serves us to have that kind of verbal communication.
This feedlot manager goes on to explain more about issues regarding information exchange in the industry, and the control by the packers over this information:
We have 200,000 ranchers, and you narrow that down to 250 feedyards in this country, and you narrow that down to three-and-a-half packers in this country. And then it goes the other way to distributors, food service, and ultimately to consumers. And wherever that hourglass is the tightest they have the most control. And there’s three-and-a-half of those guys, they harvest some 80% of the cattle every year. They’re the ones that get to dictate what that flow of information looks like…If we set that aside and I’m going to give you whatever information you want, you need, and you in turn supply me with the information I need, then I think it becomes win-win. They helped us become a better cattle feeder because the motivation existed for both of us to be successful. I wanted to supply them with exactly what they wanted, and they wanted me to understand exactly what they wanted.
As this feedlot manager notes, packers, as lead firms, control the flow of information. In conventional value chains, there may be no incentives or even disincentives with sharing that information with other participants. But in certain private standards, packers use this information as a means to help upstream suppliers improve their cattle herd to better match the specifications and claims of the PSI. While “improvement” here is defined by the packer’s criteria, suppliers can still gain relative to what they would earn in a conventional value chain. Thus, when packers share the information they control, upstream producers stand to benefit. Another beef producer explains the value of this information, noting that “our ability to get individual information was pretty critical in helping us identify culling decisions,” referring to which cattle to continue to breed and which are sent to slaughter. He goes on to explain “our ability to get that information on each individual animal, I think allowed us to make more rapid genetic improvement on the female side than we would have been able to do otherwise.” With genetic improvements in his herd, this producer raised higher quality cattle that brought greater profits.
This information exchange among actors is highly unique to private standard production. In conventional production, lead firms hold information in confidence as a form of competitive advantage. For example, if a supplier has cattle that grade exceptionally well, but does not sell on a grid, they could be making more money from the packer. If the packer were to tell the supplier how good his cattle graded, then the supplier may demand higher prices, or elect to sell on the grid, either of which would reduce the packer’s profits. As a producer explains, suppliers can use the information against buyers to demand better prices. When this buyer shared yield grade information with one of his suppliers, his supplier took that information to solicit higher-paying buyers, as he notes, “I mean he’s taking information I supplied to him and he’s using it against me”. Thus lead firms are only incentivized to share information when it produces tangible benefits from the cattle they receive; and is thus a win-win scenario as opposed to a transfer of value from the buyer to the supplier.
As extant research predicts, the governance of private standard beef production is fundamentally different than that found in conventional value chains, given the greater but frequently more “hands-off” control exercised by lead firms, and the relatively greater amount of information sharing between exchange partners. These differences reflect the fact that PSIs tend to reinforce the privileged position of the lead firms that create, implement, and often monitor the standard in question. However the case of the beef industry shows that PSIs vary in terms of the degree to which they increase drivenness. There are two factors that are relevant here: 1) whether the PSI entails horizontal governances — that is, the degree to which institutions, actors, and networks beyond those in a specific value chain are engaged in creating a private standard; and, 2) whether the PSI requires chain actors to tailor production in ways that limit or preclude their ability to supply other lead firms.
First, as the case of certified Angus beef illustrates, the ability of lead firms to drive the chain is greatly restrained by the need to coordinate with industry associations, along with USDA standards and industry conventions on what comprises Angus beef. In contrast, the degree of horizontal governance in all-natural beef is lower. Here, standards are highly dependent on lead firms alone to create, implement, and monitor the standards, without engagement from external actors with the exception of loose guidelines from the USDA. Lead firms in this value chain garner greater control over chain activities and reap the lion’s share of the returns generated by the product marketed to the PSI
Second and relatedly, drivenness is increased by PSIs that are more tailored and specific to a particular lead firm. As compared with collective PSIs, individual PSIs generally entail greater asset specificity for upstream value chain participants. The governance of all-natural beef programs highlights the importance of asset specificity in contributing to captive exchange relationships and increased drivenness in a chain. The degree to which all-natural programs differ from conventional production and other private standards, as well as from one another, help position lead firms in an advantageous position over suppliers. Not only can lead firms exert hands-off control typical within private standards, but particular firms coordinate close alignment with suppliers that can grant hands-on control over production practices and exchange relationships, such as in on-site staffing and direct monitoring of production practices. Second, the attributes of the private standard affect the governance through determining which stages of productions engage in the standard, as well as the horizontal ties to actors, institutions, and networks outside of the chain. In the case of Angus beef, the private standard refers to the genetic composition of cattle, which is only determined in the breeding stages, reducing or eliminating the influence of downstream actors.
Despite the opportunities for increased drivenness by lead firms in private standard value chains, the evidence of increased information sharing suggests the potential to create mutually beneficial exchange relationships even when lead firms exert extensive hands-off – and sometimes hands-on – control. Future research aimed at identifying opportunities to improve producer welfare can target information exchange as a means for producers to capture greater value from the chain and build lasting ties with downstream buyers. However as this research along with extant research suggests, the continued expansion of private standards may be an omen of expanded control of already dominant lead firms. Although attracting greater profits to the industry as a whole, private standards may pose a threat when lacking unification and monitoring through an extensive network of value chain actors.
Research Outcomes
Education and Outreach
Participation Summary:
The results of this research are currently in progress with the intention of publishing in the Review of International Political Economy, the Journal of Environment and Planning A, and the Journal of Rural Sociology. Additionally, the results of this research will be distributed to key actors within the beef industry. Powerpoint presentations, executive summaries, and a complete dissertation that all detail key findings will be distributed to all participants, as well as key beef organizations including the National Cattlemen’s Beef Association and state affiliates.