More Questions Than Answers: Let’s stick with the storyline from the previous column: assume you’re a Congressional staffer preparing for a meeting with lobbyist from one of the cattle groups. After reviewing their Farm Bill material regarding the issue of international trade, you’re left with more questions than answers.
Dismal Future?: Meanwhile, you note their material also contains an especially gloomy outlook: The long-term, negative trajectories associated with the decline of the cattle industry’s competitive infrastructure and economic viability portend a dismal future if the status quo is maintained, meaning if Congress does not intervene by enacting meaningful reforms.
That’s especially difficult to reconcile given the current realities of the business. Consumer spending has risen sharply over the past 20 years (versus the previous two decades in which spending was flat. (see first graph). Moreover, the fed market just scored new all-time highs on bigger volume compared to 2014. (see second graph) (see Guarding Against Defeatism)
Dr. Purcell: So, you go back to Dr. Purcell’s newsletter cited in the group’s Farm Bill document for direction. He provided some of the industry’s foundational work regarding beef demand during his esteemed career. The section that especially grabs your attention is entitled, “The Changing Marketplace”.
Dr. Purcell aptly summarizes findings from the first National Beef Tenderness Survey (1991), “Some 20 to 25 percent of fresh beef cuts in Select and Choice grades are too tough for an acceptable eating experience.” He then explains that occurred primarily because, “The price system could not send signals to producers to prompt needed change because product attributes like tenderness were not identified, measured, and brought into the grading process.” That is, cattle aren’t fungible and shouldn’t be priced as such.
Cattle Producer: Your lobbyist positions the organization as representing the independent cattle producer. Thus, you’re especially interested in Dr. Purcell’s observations regarding producers. Purcell notes the quality shortfalls referenced above were the result of “commodity-oriented business models,” and then subsequently explains what that means for producers (emphasis mine).
- “During the 1990s, [the shift] away from [those commodity] price-based systems gathered momentum…often initiated and encouraged by producers who recognized the problems associated with all cattle selling at one price each week.
- Accordingly, value-based pricing systems occurred, “…in some form because they are proving to be so important to demand growth which is, in turn, critically important to every cattle producer.” (See Real Money For Real Value)
- Last, Purcell closes with this: “If we keep the incentives right and don’t get caught trying to block changes that are being prompted by basic rules of economics and by profit-based opportunities along the supply chain, the beef market should be kind to cow-calf producers for years to come.” (See Pan Beats Knife)
Take A Stand: On one hand, the organization believes Dr. Purcell’s work to be credible – citing it as support for their claims about international trade. On the other hand, the organization’s caricature of the business completely disregards and contradicts the principles detailed by Dr. Purcell.
Now you have even more questions than before. The message is muddled. (Who didn’t do their homework?) And so, you’re planning on asking the lobbyist for some clarification. You can’t have it both ways. Which is best for the business?
- Government intervention – per your Farm Bill review: “We implore Congress to act decisively and comprehensively,” OR
- The free market – per Dr. Purcell: “…don’t get caught trying to block changes that are being prompted by basic rules of economics.”
Of course, the decision is an easy one. Dr. Purcell’s observations are right on target and have withstood the test of time (because those principles always do). Free market it is!
