Feed manufacturers operated independently of domino effect in food chain for too long, and consequences now becoming apparent in rising meat costs.
By BRAD GUYER*
OVER the Memorial Day weekend, I stopped by the local market to pick up a few things for the BBQ I was having. As I approached the meat counter — debating in my mind the virtues of New York strip versus Porterhouse steaks — I nearly fell over when I saw the prices.
I guess it has been a while since I've gone to the grocery store. I knew meat prices had increased, but there's nothing like the sticker shock you feel when it's your turn at the checkout.
When I got home, I realized that although I did buy four beautiful Porterhouse steaks, this might well be the last time for a while. While I knew that wholesale meat prices had risen, I decided to find out just how much more consumers were paying.
What I learned confirmed my experience at the market: Since 2010, the inflation-adjusted price for beef has risen 45%, and feed costs have increased significantly over the same period. That, folks, is simply unsustainable for American consumers.
After I recovered from that shock, I realized that there is a bigger issue at play — one that we, in the feed business, need to own. That's the fact that feed is the largest single-cost item for livestock and poultry production, accounting for 60-70% of total costs. That's huge and should be a cause for concern for the feed industry-at-large.
So, why haven't we seen a significant shift among feed producers to better contain costs through greater efficiencies, smarter ingredient purchasing decisions and higher productivity at the mills? Simply put, because the feed industry has not yet had to shoulder the market pressures created by higher feed prices.
For nearly a decade, livestock and poultry producers — operating in a competitive market — have chosen to absorb these higher costs, often with significant financial loss, but no more.
After a decade of increasing feed costs and flat consumer prices, meat producers can no longer sustain a viable business without raising wholesale prices, which now are being passed directly to the consumer. The result, according to recent surveys, is that 39% of Americans are eating less red meat, citing higher prices as a leading deterrent after health concerns.
In case any feed producer is still uncertain about what this means for business, it's time to press the reset button. If your customers can't sustain their business, you will need to do whatever is humanly possible to help them contain costs, or else your business will not be sustainable.
What I'm talking about here is moving toward a sustainable feed supply. By that, I mean recognizing a couple of things:
* Animal feed is a vital part of the larger "food chain."
* Animal feed producers must offer a wholesome, competitively priced product to their customers, taking into consideration their margins and market pressures.
* A "domino effect" occurs in the food chain when one segment fails to consider how its actions (or inactions) affect the entire chain.
* Feed manufacturers have, for too long, been operating independently of this larger universe, and the consequences are now becoming apparent.
* Technology is a vital tool in modern agribusinesses that helps create efficiencies, drive down costs and improve quality.
* Animal feed producers must step up their use of smart operations, ingredient purchasing and formulation solutions to deliver better products at more competitive prices.
As I thought more about this issue, the stark reality of technology adoption in the feed industry came squarely into focus. What's happening in the larger world of agribusinesses is that adoption of smart technologies has entered a second wave. That means animal producers who have already automated and digitized their own data are now looking outside to share and integrate data for better efficiencies, safety and quality controls and cost management.
For the feed industry, especially manufacturers that have yet to even digitize their internal data, I am afraid that the news is not so good: You are way late to the tech party and in great danger of being marginalized. The reality is that many of your customers are looking into ways to share information with their service providers and supply chain. If you are not ready to do this, they may just move on.
For those feed producers who appreciate the implications of this trend, a world of discovery awaits. There are amazing tools and very smart people available and ready to help optimize your operations, formulations, ingredient purchasing strategies and customer engagement.
With the right strategy and solutions, feed enterprises can effectively integrate their information systems with their customers and supply chains and deliver wholesome, competitively priced animal feed.
The virtual world of agriculture is fast becoming a reality, and soon, a digitized, integrated feed manufacturing enterprise will be the price of entry into this hyper-connected world. With information being shared seamlessly and instantly among ingredient suppliers, feed manufacturers, meat producers and others, any business without the wherewithal to merge into this information superhighway will surely be left out in the cold.
In parting, I share with you one friendly piece of advice. If you haven't done so lately, take a trip to your local grocer, and check out how much money you must fork over for a couple of your favorite steaks. Hopefully, this will provide the reality check you need to embrace the information infrastructure that will redefine American agriculture well into the 21st century.
*Brad Guyer is a global operations portfolio manager for Feed Management Systems. He focuses on the development and direction of new products, solutions, services and continuous improvement consulting for feed industry manufacturing and operations. Guyer can be reached at [email protected]