This page explains why local investors and lenders should back farmer-owned food brands that feature pasture-based production methods. Although our focus for this page is on branded specialty beef (see Branding below), the concepts outlined here apply to all foods.
Why Local Investors?
There is simply not enough profit in the commodity beef business to fund a producer-controlled specialty beef program in the Missouri Valley. I will address the need for producer-controlled marketing below.
As to farm profits, a 2017 USDA report on farm size and income stated that farms with gross incomes of less than $350,000 are in risky financial territory. Further, only 54 percent of the farms with annual sales of between $400,000 and one million dollars earned more than 10 percent on their gross receipts. A separate but related 2014 Iowa State survey found that thirty-eight percent of the cow-calf producers who expect to be raising cattle for 10 years or less do not have a succession plan in place. This same study also indicated that cow-calf producers were having trouble buying or renting pasture because corn and beans have replaced high-quality permanent pasture. When taken together, these two studies point to low cow-calf profits as the single most important barrier to ranch and farmland succession and the preservation of rangeland and permanent pasture.
Structural Barriers to Sustainability
Because of its existing rangeland and pasture assets, the cow-calf sector offers the best opportunity to rebuild diversified agriculture in the Missouri Valley. However, since the majority of the owner-operators and tenants in this sector are not consistently profitable, they cannot expand their holdings and pass their land to the next generation. These producers are slowly going out of business because of a major structural flaw in the beef industry.
As price takers in regional and national commodity markets, cow/calf producers are subject to the profit requirements of the major food retailers who ultimately control or influence prices paid to feeders and meat packers. Further, the prices quoted to feeders by ethanol producers and grain traders also influence cow-calf profits. Without better cow-calf profits, we will continue to lose young farmers, ranchers and biodiversity in Missouri Valley agriculture.
Better profits require sustained investments in marketing, genetics, animal health and affordable production technology. Although government, the beef industry and foundations can help, systematic private sector investments are essential because low prices for calves and fat cattle (past and present) have drained farm and ranch bank accounts among the small and midsize producers who control important pasture and rangeland resources.
Raised Free Business Model
In order to increase cow-calf profits, we are organizing a producer-controlled marketing cooperatives under the Raised Free banner. We will start by contracting for beef processing and other essential services. Our investor-funded co-op will be managed by experienced cow-calf producer with input from a producer-controlled board of directors.
We intend engage experienced cattle buyers to negotiate forward contracts with backgrounders, feeders, packers and processors. These contracts will govern production methods, quality, delivery dates and prices. Our objective is to organize a relatively large number of cattle under a single producer-controlled management system in order to: 1) Reduce costs across our specialty beef supply chain, and 2) Position cow-calf producers and investors to benefit from documented sales of specialty beef.
As non-member shareholders, co-op investors will participate in these contract negotiations. The co-op board will approve all final versions of these contracts and oversee the distribution of profits to producers and investors.
As part of the contract development process, we intend to build working relationships with geneticists, veterinarians and other industry specialists who will benefit from better cow-calf profits and expanded pasture and rangeland resources.
Specialty beef is certainly not a new idea. Several Missouri Valley operations integrate cow-calf production with processing and marketing of pasture-raised beef. For example, the Rain Crow Ranch produces, processes and markets all of its own beef. However, because of high capital costs for processing, this vertically integrated model cannot be easily duplicated and scaled up for retail grocery and food service markets. As noted above, we will use contract processors to control these costs.
Creekstone Farms is another example of a closely held firm that processes and markets specialty beef. Like Omaha Steaks, Creekstone buys cattle from farmers, ranchers and feeders. This reduces long term capital costs and short term financial risks by allowing it to pay less for cattle in down markets while maintaining retail prices. However, this model is limited in its ability to increase farm and ranch profits because the packinghouse, with its marketing arm, is the profit center. In effect, packer and retail-owned brands tend to obscure livestock origins and cow-calf profits because they stand between the consumers and producers.
For us, highlighting the origins of foods is a key marketing strategy. Omaha Steaks is a case in point. Retail grocery and food service brands are also built on benefits like good taste, improved health, and more recently, humane animal care and environmental benefits.
In developing the Raised Free brand, we intend to emphasize our local origins, humane treatment and pasture-based production methods. We will investigate consumers’ response to antibiotic, hormone, and GMO-free production methods.
To date, consumer preferences and price points for specialty beef have not been systematically tested for their effects on farm profits, particularly cow-calf profits. Valid and reliable consumer research will require adequate sample sizes for both cattle and consumers.
We intend to seek funding for this research once we have secured an adequate supply of local beef. In other words, the first step toward marketing cattle under our own brand is to work with Omaha and Kansas City area cow-calf producers, feeders and meat packers who already market various types of specialty beef under their brands.
Short Term Goals
Before moving toward retail, the first Raised Free marketing cooperative must demonstrate its ability to organize cattle for existing specialty markets. Our initial goals are to measurably improve producer profits, pay a fair return to investors and compensate the professionals who market, background, feed and process partnership cattle.
I would be delighted to arrange meetings with investors, their advisors and experienced cow/calf farmers and ranchers.