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Friday- 13:06, 04/02/2022

Changes forecasted for beef industry

(VAN) A report out from Rabobank shows some changes ahead that could mean higher costs for beef industry.
Cattle in pasture. Photo: Getty

Cattle in pasture. Photo: Getty

Beef demand is high and expected to stay that way for several years—however, there are changes ahead for the industry. That’s what a new report out from Rabobank has to say.

Let’s face it: No industry is the same or will be the same as it was before COVID-19 in the post COVID-19 world.

The pandemic has led to some positives in the beef world, one of which has been increased demand. The pandemic altered people’s lives in a major way—less eating out and more in-home meals. And due to government stimulus and changes in many workplaces individuals and families had more disposable income and time to cook at home.

However, COVID-19 also showed problems in the supply chain when it comes to beef. While there might be enough beef being raised, getting to the public proved to be problematic and costly.

The Rabobank report says, “Transitioning from a just-in-time delivery system to a just-in-case delivery system sounds great. But how can that resilience be built into the system without the escalating costs becoming prohibitive?"

It is not realistic or economical feasible to think producers can build and hold an increased inventory of cattle with the elasticity available when market conditions call for contraction or increased supplies of cattle to the market, the report notes. "A more durable and flexible supply chain will largely depend on changes and adaptations post-harvest.”

Cattle producers have little or no control over what happens in the beef supply chain once the animal is harvested. However, producers are going to have to be aware of changes in the supply chain.

For example, since COVID began, beef plant entry wages have increased by 33%. Boxes and shipping materials have increased by 25%. Costs increases are constant throughout the production chain and will mean a direct impact on retail meat prices to consumers.

The question for consumers now is whether they will be able to purchase beef at levels seen over the past two years as the economy slows and inflation takes a toll on pocketbooks.

There are four major issues driving system changes in the beef supply chain in the United States. They include labor vs. automation; changing packing requirements; sustainability and transportation.

Labor automation

Wages for labor have increased by 33% and those that haven’t increased are on the way to the same level as labor contracts are being negotiated along with retention bonuses. Plus, due to the pandemic, there has been a high rate of absenteeism which is also contributing to labor and processing costs.

Costs have crossed a tipping point, bringing high-tech technology and robotics into processing plants at an accelerated pace.

The introduction of automation at beef plants will likely focus on traceability, boxed been transfer, labeling and beef storage, order filling and driverless forklifts. Software advancements for product tracking, traceability and order filling will add a great deal of efficiency. Automation will also be applied in plant efficiency and plant monitoring for energy and water use. Plants will be using maintenance staff to check early warning indicators for system breaks. Sensors and cameras will be used for monitoring to create data to help micromanage product flows and operations. The transition to automation will requirement different skills sets or extensive retraining and further education for the existing employees.

Changing packaging requirements vs. waste management and sustainability

The days of cellophane covered meat with a foam tray are coming to an end. It was designed to keep meat looking good for a few hours and not for a long-shelf life. The problem is that longer shelf-lives are becoming necessary, especially given the different ways of purchasing meat. This includes meal services, delivery services and when consumers make a beef purchase—once a week or a few times a week. With the changes in the way consumers get their groceries mean, price increases to keep meat safe and healthy.

Sustainability is going to become more important as time moves on. Companies are being asked to reduce greenhouse gas emissions, to capture carbon and reduce emissions. Companies in the beef industry are being pressured to provide documentation of production practices and more third-party audits and verifications. All the documentation costs add up to higher production costs.

Transportation

According to the Rabobank report, experts agree on one thing in the transportation sector. There are a lot of parts broken with no easy fix. The entire network of ocean freight, rail and trucking needs to be fixed to modernize the system.

The trucking industry has been reduced by 30% due to the pandemic. There is a shortage of 61,500 long-haul drivers. But the problems don’t stop there.

The U.S. rails system has challenges and opportunities. While locomotives are designed to last 39 years and rail cars are expected to last 50 years, there are issues with it. The rail system was designed to haul bulk commodities long distances efficiently. However, intermodal trains need to be developed so that they are faster, smaller, and more efficient and can be targeted to specific markets.

And there are the port backlogs that are proving problematic. Consumers were stuck at home during the pandemic and had more disposable income. This meant they were shopping online which got backed up at the ports. Now, some ports want to install more automation and unions fear that would eliminate some jobs.

The outcome

Rabobank says there are three critical issues in the beef industry in a post-COVID world. The biggest one is that each of the challenges mean increased costs. The second issue is that the system must stay operational. If there is no food in the grocery store, there is no profits being made.

The third challenge is that escalating costs within the beef supply chain narrow the price spread between beef and the alternative products, increasing the risk of competition from alternative proteins.

“As costs escalate through the supply chain, they will change the historical ratios of live cattle to cutout, as well as live cattle to retail beef prices. As costs throughout the supply chain increase, retail meat prices are likely going to stay high from a historical perspective. For cattle feeders, it likely means that live cattle to cutout and live cattle to retail prices will not get back to their historical ratios. This does not mean lower cattle prices. It does mean there will be more factors that cattlemen will need to be monitor and be aware of,” states the Rabobank report.

Tr.D

(Beef)

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