2008 State of the Industry report
Rising costs, labor and immigration issues, biofuel mandates, and globalization and export matters all impact the production and sale of today’s meat and poultry products. Yet, in the midst of all these diversions, the industry remains strong and continues to pump out new and exciting products. It persists in its passion to stay in the game â€” and in many instances, ahead of the pack â€” in terms of processing and technology, research and development, marketing, and packaging.
And, even in a commoditized landscape, the industry is not afraid to try new things.
The overarching goal still is to attain knowledge to do things more efficiently, and to do things that make our products richer, healthier, and most of all, safe.
Yes, there are many matters to discuss and statistics to review â€” and they are illustrated throughout the pages of The National Provisioner’s annual State of the Industry report.
In the interest of bringing our readers the most comprehensive analysis of our industry as a whole, we have turned to our association partners to add their valuable analysis of the industry to our annual review.
Industry overviewA look at a vibrant, adaptable industry.
By J. Patrick Boyle, president and CEO of the American Meat Institute (AMI)
From the perspective of one of the most highly regulated and inspected industries in America â€” with dozens of consumer-safety, worker-safety, food-protection and environmental-protection laws governing the way we do business â€” when there’s a problem in our industry, the public is quick to find out.
However, there is a hidden story that receives little public attention, and that’s the tale of an industry that is constantly improving on a solid track record, producing the safest and most affordable meat products in the world.
On the food-safety front, the news keeps getting better and better. We’ve seen dramatic declines in the level of harmful bacteria on meat and poultry products over the past 10 years. Thanks to the U.S. industry’s sophistication and efficiency, American meat and poultry continues to enjoy a reputation for safety and value.
Worker health and safety continue to improve as well. Since 1991, the “Lost Time” illness and injury rates industry-wide (beef, pork and poultry), have declined from 15.0 to 6.2 percent, a reduction of nearly 60 percent. The total Recordable rate (all injuries, serious and otherwise) has declined from 30.0 to 9.1 percent, a reduction of 70 percent.
Animal welfare is also key to our future success. That’s why it’s great news that 95 percent of meat plants in the U.S. conduct regular animal-welfare audits and use third-party auditors at least annually. Optimal welfare, while not only an ethical obligation, clearly is good for livestock â€” and for business. The public deserves to know that the food they are consuming was treated humanely.
With the vast majority of population growth happening outside of the United States, it’s impossible to talk about the future of our industry without touching on international trade. Despite the fact that we have yet to regain full access to some of the most lucrative markets in Asia for our beef products, U.S. meat exports are up and show very strong signs of steady strengthening. Meat and poultry exports in 2007 were up 21 percent over 2003, mostly the result of increased pork and poultry trade. For 2008, exports are up 42 percent in the first six months of the year. With the reopening of the beef market in South Korea, U.S. beef exports in 2008 could equal or exceed 2003 levels.
The American public expects our industry to be mindful of its environmental footprint and manage our resource use. That’s why AMI has urged its members to adopt environmental-management systems. We have devised an annual program, which encourages members to measure and manage their resource use, and AMI provides public recognition for those plants that meet their goals.
The industry has its challenges, too. Feed prices have increased dramatically, largely due to the government-mandated ethanol policy. This could, in the long term, shrink the size of the entire animal-protein sector as feed prices drive producers out of business. And Congress has yet to address America’s broken immigration system and pass comprehensive immigration reform that would secure our borders, allowing tax-paying workers who are currently in the United States to remain, and authorize a flexible guestworker program.
AMI will continue to partner in addressing these challenges head on and continue promoting the often-untold positive story of the industry, as we have done for the past 102 years.
For more information on AMI, visit www.meatami.com.
Popular proteinThe beef industry continues to provide variety and value to today’s consumer.
By Terry Stokes, chief executive officer for the National Cattlemen’s Beef Association
Today’s consumers are considerably more engaged with their food selection and meal preparation than in 2007, and they’re considering a wider variety of factors when making food choices. Taste and price remain the top deciding factors, but we’re now seeing criteria related to nutrition and safety as ranking highly in their decision-making.
And as a result, today’s meat products must meet every expectation â€” taste, affordability, nutrition and ease in preparation, to name a few. It’s about more options, versatility and choices to ensure a product fits into consumers’ lifestyles â€” where they shop, what proteins they eat and their desire to try new foods and recipes. This interest is more focused on meals at home, as frequency of away-from-home meals is down likely due to economic pressures.
Though beef remains the most popular protein among American consumers, we’re continually challenging ourselves to meet the needs of consumers and channel partners in foodservice and retail operations. One focus of the Beef Checkoff Program is developing new fresh-beef and convenience products for today’s more “choosy” consumer.
There are now five value-added applications from the chuck roll. In the past year, the Denver Cut, Boneless Country-Style Beef Chuck Ribs, Chuck Eye or Delmonico Steak, America’s Beef Roast and Sierra Cut have been introduced to retail and foodservice partners. Black-eyed Pea is the first restaurant in the nation to put the Denver Cut steak on their menu. The steak is one of several products Tyson has developed utilizing the research completed by checkoff-funded product enhancement and innovation research. Retail implementation is also in full swing. A Mich.-based retail chain has just completed testing four of the cuts to measure the impact on their total meat department volume. The results will be used to educate the retail segment on how to position the new cuts in their meat case to increase their overall beef volume.
We’ve also introduced exciting new beef products for today’s youth and people on the go. Throughout the past two years, the Beef Innovations Group has developed and tested more than 140 convenience and hand-held concepts in focus groups and quantitative research; the final 18 concepts will now move forward and the team is at work to make these products ready for commercialization and sell in to food manufacturers.
It’s been rewarding to see the success of our new product initiatives in retail and foodservice, and even more promising for the opportunities on the horizon and what this means to the producer’s bottom line.
The shoulder clod cuts, such as the Flat Iron, Petite Tender and Ranch Cut, have generated an estimated $50 to $70 per head for producers, and new cuts from the chuck roll and the round could add an additional $20 to $30 per head. Building on the success of the chuck roll, now it is time to conduct further work on the round by re-examining what we have already learned, and by utilizing new technology, cutting techniques and product development/applications.
For more information on the National Cattlemen’s Beef Association and The Beef Checkoff Program, visit www.beef.org.
High orderDemand for U.S. pork remains strong, despite industry challenges.
By John R. Green, director of strategic marketing for the National Pork Board
The U.S. pork industry is a story of great opportunities and great challenges. Internationally, U.S. pork is in great demand. In the first half of 2008, U.S. pork exports increased at the dramatic rate of 68.5 percent from the same time period a year ago.
Domestically, the past 12 months have been one of the strongest periods for pork products on record. For the year ending June 2008, fresh-pork retail sales volume increased 4 percent versus a year ago and total dollars sales were up 1.6 percent. Processed-pork retail sales also were strong. Ham sales increased 1.2 percent, and dinner sausage sales increased 3.4 percent in total dollar sales.
Pork also has remained a great value for consumers. According to data from the United States Department of Agriculture, the average price of pork at retail has remained stable, increasing only 2 cents per pound from $2.94 a pound in July 2007 to $2.96 a pound in July 2008.
A challenge facing the U.S. pork industry, however, is significantly higher input costs for pork producers. According to Iowa State University, the average pork producer has not had the opportunity for profitable production since October 2007. In some cases in early 2008, pork producers lost as much as $45 on every animal marketed. This is due in part to the price of the two main feed ingredients â€” corn and soybean meal â€” increasing by as much as 100 percent versus a year ago. This has caused pork producers to reduce production going into 2009. It is estimated that in 2009, pork production will be 3 to 5 percent less than in 2008.
Another challenge facing America’s pork producers is the increasing pressure from customers to prove they are raising pork responsibly. It is no longer enough for pork producers to simply do the right thing. Pork producers are being asked to demonstrate it in words and in their actions. To answer those customers who are asking for proof, pork producers have adopted a statement of ethical principles. These principles recognize producers’ obligation to build and retain the public’s trust in the product they sell. The statement of ethical principles is just one part of an overall trust-building process designed to assist pork producers in maintaining their leadership position in animal agriculture. Pork producers continue to be committed to doing what is right for today and for generations to come.
For more information on the National Pork Board, visit www.pork.org or www.TheOtherWhiteMeat.com.
Production downturnThe outlook is good, but not great, for the broiler industry.
By Bill Roenigk, senior vice president and chief economist for the National Chicken Council
As the year 2008 winds down and we look forward to 2009, the broiler industry sees some bright spots, but it also feels a persistent headache from high input costs, especially feed and energy. Here are some of the key factors:
Persistently high input costs: The broiler industry will need more than 1.4 billion bushels of corn and the meal from more than 500 million bushels of soybeans in 2009. Corn and soybean prices are very high relative to historical levels. The biggest factor driving feed ingredient prices up and holding them up is the federal government’s misguided ethanol program, which requires the addition of corn-derived ethanol to motor gasoline â€” well more than a third of the 2008 corn harvest.
The crop of both corn and soybeans will be well short of market needs, given the vast diversion of corn into ethanol. This means that high input prices will persist, and price volatility will be more prevalent. Undoubtedly, they will stay high as long as the corn-for-ethanol program is in effect, and currently it is locked into federal law until 2015.
All food animals are raised on corn-based feed, so the impact is widely shared across the meat and poultry complex. Even farm-raised fish are raised on corn. The only silver lining in this cloud â€” and it is a dull and tarnished one at that â€” is that chicken has the best feed conversion ratio among all major species, so we have a measurable and definite relative advantage in dealing with high feed costs. Eventually, we will get to a more balanced situation in which poultry producers will be better able to cover their costs.
Production restraint: According to the USDA, in 2008, broiler production will be 36.6 billion pounds, an increase of 2.5 percent over 2007. In 2009, however, the USDA estimates that broiler production will actually fall to 36.3 billion pounds, down about eight-tenths of one percent from 2008. If this actually occurs, it will be the first year-over-year decline in broiler production in 34 years. Our extraordinary streak of increasing production every year for more than three decades will come to an end â€” not due to market conditions, but due to wrong-headed government interference in the market. The adjustment in production is, of course, a reasonable and predictable response to higher costs.
Export markets: A bright spot for the industry has been as been the export business. Thanks in part to a weak U.S. dollar, broiler exports in 2008 are expected by the USDA to increase 13 percent over the previous year and account for 18 percent of production. If major markets such as Russia, China and Mexico continue to buy more chicken leg quarters at higher prices, the actual market performance will exceed the USDA’s estimate. We believe that exports should remain stable in 2009, despite the threatened cutback in the Russian import quota due to growth in other markets.
Labeling: Mandatory country of origin labeling (COOL) became the law-of-the-land on September 30. All non-further processed chicken packages at supermarkets have to carry a “Product of the USA” or similar label. The costs and problems with implementation appear to be manageable. COOL may even turn into a net positive for chicken, since virtually all the product in the domestic market is U.S.-origin, in contrast to other meats, such as beef.
In summary, the outlook for the broiler industry is good, but not great. It would be more favorable if the government would take its heavy boot off the accelerator and let the free market better rule in the allocation of corn and soybeans.
For more information on the National Chicken Council, visit www.nationalchickencouncil.com.
Gobble upTurkey consumption continues to rise despite economic challenges.
By Joel Brandenberger, president of the National Turkey Federation
In 2008, U.S. consumption of turkey is expected to be nearly 18 pounds per person. NTF’s 2008 Marketplace Survey shows that ground turkey has made the most significant growth among consumers. Although whole birds make up a quarter of the products produced, cooked white meat (13.8 percent) and ground turkey (10.1 percent) follow. Increased consumption can be attributed to the nutrient-rich, tasty, versatile protein products the turkey industry is producing that make it easier for time-starved consumers to get meals on the table.
Exports comprise about 10 percent of total turkey production. In 2007, 547 million pounds of turkey were exported. The top four export markets for U.S. turkey meat were Mexico (308.7 million pounds), China (48.2 million pounds), Russia (30.7 million pounds) and Canada (23.4 million pounds). The top-three turkey products being exported are cooked dark meat (65.6 percent of the market), boneless dark meat (39.3 percent) and bone-in parts (33.6 percent).
With the U.S. consumer gobbling up mostly white meat, the export market’s desire for dark-meat products is important to the turkey industry’s economic health. It is vital that industry and government work together to ensure a free and open trading environment with our foreign customers, governed by food-safety and animal-health regulations that are science-based and properly and equitably enforced.
The turkey industry’s biggest economic challenge comes from a single source: ethanol. The Renewable Fuel Standard (RFS) federal mandate diverts massive amounts of corn from the feed supply into the nation’s fuel supply. Additionally, the federal government provides a tax credit that subsidies the cost of ethanol blended into gasoline, and it protects the American ethanol industry from competition through a massive import tariff.
These federal programs are combining to make it extremely difficult to feed turkey flocks. With corn as the principal ingredient in poultry feed, this has meant significantly higher input costs for turkey producers. These skyrocketing feed prices have increased turkey production costs by $40 million since December 2007. These tough economic times have resulted in turkey companies cutting back production, which means cutting back jobs, forcing companies to lay off workers and closing down plants and operations. Higher feed costs can translate into higher prices when purchasing turkey products.
Therefore, NTF developed a resource on its Web site, www.eatturkey.com, for consumers and foodservice operators to use to trim their food budget. Additionally, to view NTF’s cost-cutting ideas, visit www.eatturkey.com/consumer/cookinfo/groceryprices.html and www.eatturkey.com/foodsrv/value.html.
NTF supports federal immigration reform that ensures the government provides the turkey industry with comprehensive, accurate information to ensure it hires only legal workers and that protects companies from expensive and disruptive raids if they use the government information properly. This reform can be achieved most effectively through re-authorizing and improving the E-Verify program, which expires in November.
NTF is the national advocate for all segments of the $8 billion turkey industry, providing services and conducting activities that increase demand for its members’ products by protecting and enhancing their ability to profitably provide wholesome, high-quality, nutritious products. Its award-winning Web site offers consumers, food professionals and the media an extensive library of information, including healthy-eating and restaurant trends, turkey cuts and purchasing tips, turkey nutrition and cooking techniques, and turkey facts and trivia. Additionally, the site presents a searchable database of more than 1,800 recipes, offers a recipe e-mail program and provides special seasonal and holiday ideas.
For more information on the National Turkey Federation, visit www.eatturkey.com.
Market upswingVeal usage up on menus as producers transition to group housing amid difficult business conditions.
By Dean Conklin, CAE at the National Cattlemen’s Beef Association, and Chip Lines Burgess, on behalf of America’s veal producers
With the introduction of four new cuts, targeted advertising and leadership by veal producers who have taken a proactive approach to animal housing, veal usage continues to grow in both the casual/theme (up 5 percent) and fine-dining (up 6 percent) restaurant segments according to market research conducted by Restaurant Hospitality Magazine annually for The Beef Checkoff completed in November 2007.
By targeting advertising and marketing toward menu decision-makers, restaurant leaders and primary purchasing points within the casual/theme and upscale chains, veal is showing up on more menus through versatile, innovative recipes. Veal as a regular menu item (offered daily) was also up 8 percent.
Although demand in certain foodservice areas is positive, veal slaughter numbers are on a downward trend. Numbers released by USDA in early September indicate that milk-fed veal slaughter is down 8.73 percent from 2007. Higher energy, transportation and overall input costs add to the difficulties faced by veal producers committed to meeting customer demands while moving to new housing methods.
One year after the board of directors of the American Veal Association (AVA) unanimously adopted a resolution calling for all U.S. veal farms to transition to group-housing systems, veal producers are making the transition, and today group housing accounts for approximately 15 percent of U.S. veal production.
The resolution passed by the AVA in May 2007 calls for an industry-wide conversion by December 31, 2017 and encourages continued industry research to refine and perfect group-housing methods to aid producers in the transition. The veal industry will spend $250 million to transition to new group housing systems during this time.
To provide added flexibility for customers, The Beef Checkoff launched four new veal muscle cuts identified from the remaining 80 percent of the square cut chuck: Osso Buco for Two, Double-Bone Veal Chop, Bone-In Veal Chop and Boneless Osso Buco. The 2008 Veal Go to Market Strategy introduced the new cuts to industry leaders including packers, processors, state beef councils, and national and regional distributors through one-on-one cuttings. These four new cuts bring additional diversity to the veal product line that has expanded over recent years with veal bacon, ribs and the Chicago chop as well as pre-cooked pot roast and pre-cooked osso buco. (For more information on these new veal cuts, please contract Tom Houlton of Thomas Marketing Group at firstname.lastname@example.org.)
Responding to veal industry market conditions, a veal retail-marketing initiative will launch in October 2008 to stimulate retail sales in high-volume consumption markets such as New York, Boston, Philadelphia and other major cities.
The veal industry is the epitome of the American small family farm with a rich tradition of animal care and stewardship. There are no CAFOs in the veal industry, where the average veal farm in the U.S. has between 200 to 225 animals. Wisconsin, Pennsylvania, Ohio and Indiana lead the nation in veal production. More than 15 percent of veal producers are Mennonite or Amish plain farmers.
The American Veal Association represents 1,000 producers, processors and others involved in the $1.5 billion U.S. veal industry. Veal producers purchase calves at 100 pounds, raising them until they reach a market weight of 475 to 500 pounds. Veal producers contribute $350 million to the dairy industry through purchase of dairy byproducts and calves. The veal industry purchases 5.5 percent of all the milk solids produced in the United States.
For more information about veal, visit www.vealfarm.com and www.veal.org.
Lamb demand remains constantIn the second quarter of this year, the sheep and lamb industry was characterized by increasing freight and feed costs coupled with increased concerns of tight supplies. Heightened concerns about available supplies and availability of fall run supplies likely trumped higher production costs in supporting stronger feeder, slaughter and meat prices in the second quarter.
Lamb and mutton production fell 5 percent to 85.5 million pounds in the first half of the year compared to the first six months of last year.
A slowdown in domestic production, coupled with a slowdown in imports, led to contracted total supplies. In the first trimester, total lamb availability (imports plus domestic production, including exported lamb and mutton volume) was 98.32 million pounds, down from 107.35 million pounds during the same first four months in 2007.
However, a couple key market indicators are suggestive that lamb demand is remaining strong. For example, between January and May, the average retail-beef price averaged $3.04 per pound â€” up from $2.97 per pound a year ago for the same period. Higher beef prices make lamb appear relatively more competitive to consumers and increases consumption of lamb. Data reveal that personal disposable income (after tax, in constant 2000 $s) increased from $28,730 in Q4 to $28,770 in Q; income can be positively correlated with lamb demand. However, total lamb availability â€” domestic plus imports â€” was down in the first trimester of the year. The higher prices seen thus far this year could be explained by tighter supplies, and not necessarily increased demand.
Demand is likely constant.
Source: The American Lamb Board
For more information, visit www.americanlambboard.org.
â€” Pamela Accetta Smith
The right sliceDespite fears of an economic downturn, deli meats’ popularity shows no sign of slowing down.
By Kathryn Kingsbury, spokesperson for the International Dairy•Deli•Bakery Association
Full-service meats continue to be one of the key factors that influence a consumer’s choice of supermarket deli. Despite our economy, upscale and super-premium deli meats are thriving, particularly in the top three proteins: turkey, ham and beef.
Imported dry-cured hams made with “traditional” or “natural” methods are doing quite well, as are domestic meats that advertise as additive- or preservative-free. Consumers continue to seek out these products, along with organic meats, because of a perception of healthfulness. Households with children are increasingly seeking out deli meats that make claims of being natural, organic or lower in fat. IDDBA’s newest research piece, Health & Wellness: The Purpose-Driven Consumer, details the way that consumers’ desire for good health is affecting their purchases and how the retail-food industry is responding.
On the pre-sliced front, manufacturers are offering more pre-packaged, pre-sliced proteins in both thin- and thick-sliced versions to provide an alternative to the service deli. Salami is the top pre-sliced meat sold in the deli, followed by ham, then turkey.
Packaging trends center on convenience, attractiveness, food safety, and quality preservation or enhancement. Environmental considerations are also increasingly coming into play. IDDBA’s trends report, What’s in Store 2009, details these meat-packaging trends. Easy-to-open, resealable tubs are becoming increasingly popular over vacuum packs as a way to increase product convenience and attractiveness. The reclosable packages also have the benefit of better preserving freshness after opening. But that’s not the only way that processors are communicating a freshness message. At least one is offering single-serve packages of deli slices. Technology has a big role to play here. A film that absorbs oxygen released by packaged meats and reduces the risk of microbial growth is already on the market. Nanotechnology continues to show promise for improving deli meat packaging.
Consumers want food that tantalizes their taste buds, provides emotional satisfaction, builds their health, and even brings their families closer together â€” all while meeting their budgetary and time constraints. In short, they want solutions for their meal needs.
IDDBA has partnered with LearnSomething Inc. to produce an online training program that teaches perishable-food department associates to deliver these solutions. Called Prepare to Serve: Product Solutions for Customers, Fresh Perishable Foods, uses online simulated interactions to teach deli, cheese, bakery, produce, meat and seafood associates how to increase sales. Right now, we’re developing a companion course, Product Category Training: Deli Meats, which teaches associates all about the top-selling deli meats so they can answer customer questions with confidence.
For more information on IDDBA, visit www.iddba.org.
Weighty mattersBuyer-seller relationships: no longer business as usual.
By George Melnykovich, president and COO of the Food Processing Suppliers Association
“We need help.”
These three simple words captured the attention of suppliers to the meat and poultry industry participating in a processor/supplier roundtable sponsored by the Food Processing Suppliers Association (FPSA).
The weight and importance of that statement was heightened by the fact that the speaker represented a major food processor. Those words also illustrate a subtle rebalancing of the processor-seller relationship. Previously, a supplier would hear, “Here is what we need,” and now, increasingly, suppliers hear, “What do you think we need?”
The speaker described the dilemmas facing processors in 2008, including higher commodity prices, skyrocketing energy costs, the inability to transfer higher costs to retailers, and a crisis of public confidence in the safety of our food industry.
“I am being told,” he concluded, “that I have to produce more, at a lower cost, and, oh yes, do not jeopardize safety or quality. We need your help.”
The Meat Industry Suppliers Alliance (MISA), one of seven industry sector councils operating under the administrative umbrella of FPSA, has focused its attention as a representative of over 100 suppliers to the meat and poultry industries to tailoring a response to that request for help. The issues that populate the agenda of MISA seminars and roundtables are at the core of the challenges facing the industry â€” food safety, sanitary design of equipment, sustainability, total cost of ownership, automation, reducing energy usage and reducing downtime.
“We want to hear from our customers,” says Scott Gregory of Bettcher Inc., and chairman of MISA. “So we invite them to speak and to engage our members in working cooperatively to find solutions to their problems.”
For example, the president of a major meat-processing company said at a recent MISA seminar: “The supplier who earns our business is the one who understands our business, who understands the commitment we make to our customers and is ready to work with us to achieve our goals and objectives.”
Understanding the needs of the customer, working cooperatively to develop solutions and developing a partnership between supplier and buyer are the hallmarks that characterize the relationship between processors and their suppliers. There is no more room for a ‘one-size-fits-all’ mentality (if there ever was).
Although not ignored, price is neither the final nor single most important element in the deal.
“I will pay more,” said one processor. “If you can show me that over the lifetime of the machinery you bring greater value.”
He concluded with the following caveat: “And I don’t mean a lot of hocus pocus and smoke and mirrors. I want clear and practical results. If you don’t know the lifecycle value of your products, don’t call on us.”
For more information on FPSA or MISA, visit www.fpsa.org.