Digital Disruption: Technology is Transforming the Meat Business
Rapid, often startling technological changes are forcing businesses around the globe to defend their territories and reevaluate outdated product lines. The phenomenon has been dubbed the digital disruption, and it has already crippled traditional industries such as retail and media.
The effects may not yet be visible from your perch at the local auction, or from the saddle as you ride pastures checking cattle. But the digital disruption is rapidly upending the meat industry, too, which spells changes to the type of cattle packers will want to buy.
Clues to the meat industry’s digital disruption can be found in recent actions taken by Cargill and Tyson Foods, Inc. A profile on Cargill published last month by Bloomberg Businessweek, details how the company has shifted away from its 153-year-old business model to one of a modern, flexible, integrated
food company.
Under the direction of CEO David MacLennan, Cargill, already the world’s leading supplier of ground beef and the second-largest U.S. beef packer behind Tyson, is betting on the growing global demand for proteins. Cargill is expanding into aquaculture and even alternative, plant-based and lab-grown meats.
Cargill’s transformation includes the sale of some underperforming units, such as the energy trading unit, a hedge fund, and its pork operations that were purchased by JBS SA for $1.45 billion in 2015.
Tyson has made similar strategic business moves.
The Springdale, Ark.-based company with $38 billion in revenue last year, initiated Tyson Ventures in 2016 with $150 million to invest. Like Cargill, Tyson has invested in lab-grown meat startups Beyond Meat and Memphis Meats. Last month Tyson sold its Sara Lee Frozen Bakery and Van’s businesses to private equity firm Kohlberg & Company.
Analysts say the moves by Cargill and Tyson indicate a shift to focus on being protein companies, not just meat companies.
“The traditional supply chain models are changing,” says Janette Barnard, sales and marketing director for DecisionNext, a prescriptive analytics company that translates forecasts into recommendations to help meat and food companies make better business decisions.
“Packers are streamlining their business model. They’re investing human and financial capital in a clear digitization initiative,” Barnard says. “Packers are interacting with their customers—the Kroger’s, and now, hopefully, the Amazons of the world—in entirely new ways. New iterations of supply-chain morphing is happening between packer and retailer.”
The result, she says, will be shortened, more transparent, completely disrupted supply chains. “It’s inevitable that disruption will drive all the way back to feedyards, backgrounders and cow-calf producers.”
If the thought of such disruption to your ranch makes you uneasy, maybe it shouldn’t.
Tom Field, director of the Engler Agribusiness Entrepreneurship Program at the University of Nebraska-Lincoln, says that while change might create fear in people, “in the entrepreneurial world fear creates opportunity. And a lot of fear creates huge opportunities.”
Obvious changes to the retail food industry include home delivery, which has gathered speed over the past year as Amazon bought Whole Foods Market and Wal-Mart announced its own home delivery service.“The market is converging into very clear supply-chain alignments,” Field says. “Now there are some big players, and it’s clear, if you—as a raw ingredient supplier—want access to all of the channels that are offered by Amazon, Target and Wal-Mart, you’re going to have to document and verify some certain aspects of where the product comes from, what you’ve managed and what technologies you’ve used.”
Producing beef that meets certain specifications will require a verification system, but that’s also an information system that can flow both directions. Producers aligned with packers that supply products to new-age retail food companies will receive valuable feedback.
“There has to be a flow of information,” Field says. “Producers can do a better job if they have feedback regarding feedlot performance, morbidity and mortality, even taste and tenderness. A producer can’t be everything to everybody, but once he knows where he’s performing, he
can begin to pick the supply chain that he wants to align with and make things happen.”
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New players in the retail beef business and home delivery systems also suggest new opportunities to Harvey Dietrich, whose career has straddled both the production and packing segments of the industry.
“What Amazon’s entry into the business means is an opportunity to grow and reach new consumers who are loyal to that brand,” Dietrich explains. “Amazon and the other new players will demand integrity, consistency, quality and appropriate animal welfare.”
Dietrich speaks from experience. He owns Cholla Livestock and the 750,000-acre Diamond A Ranch, the largest ranch in Arizona. His operation consists of 6,000 cows, and he owns cattle in other Western states. In 1982, he started Sun Land Beef Co. in Tolleson, Ariz., which became one of the top 20 beef packers in the U.S. In 2008, Dietrich sold Sun Land, which processes 1,700 head per day, to Packerland Beef. The facility is now operated by JBS USA.
“As producers, we must realize we’re in the food business, not the cattle business,” Dietrich says. “Decisions are more difficult in the food business because we are striving for consistency, quality and to offer a story to consumers of some significance. With all of the effort and heartache that it takes on the ranch to produce a steak, we want to pass on the highest quality to consumers.”
Barnard suggests producers embrace the digital disruption and seek opportunities to create additional value for your production.
“Disruption is not a word to be feared,” she says. “We want to get in front of these trends so that we are driving them and benefitting from them as opposed to having these things done to us. That disruption, whether that’s in the form of processes or business models, could mean we’re reducing costs in the system or increasing value in the system, and building some premiums based on entirely different business models.”
An Entrepreneur’s Reading List
As holder of the Engler Chair in Entrepreneurship at the University of Nebraska-Lincoln, Tom Field has a tremendous influence on students who might become tomorrow’s beef industry leaders.
Now in its eighth year, the Engler Agribusiness Entrepreneurship Program was made possible through a $20 million gift to the University of Nebraska-Lincoln from the Paul F. and Virginia J. Engler Foundation. Engler is a Nebraska native who became a pioneer in the Texas cattle feeding industry and founder of Cactus Feeders, which now operates nine feedyards with a one-time capacity of more than a half-million cattle.
Field’s job is to execute the mission at the Engler Agribusiness Entrepreneurship Program, which is: To build enterprises that contribute value to agriculture and communities by nurturing, challenging and equipping entrepreneurial talent.
He encourages students to expand their knowledge and learn from the experiences of others. Drovers asked Field to identify books he asks entrepreneurial students to read. Here are his top three.
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The Power of MomentsWhy certain experiences have an extraordinary impact By Chip Heath and Dan Heath. |
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EssentialismThe disciplined pursuit of less By Greg McKeown. |
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It’s My Company Too!How entangled companies move beyond employee engagement for remarkable results By Kenneth R. Thomson, Ramon L Benedetto, Thomas J Walter, with Molly Meyer. Greenleaf Book Group, Copyright 2012. |
