Animal ID: Opportunities for Value-Added Marketing and Production Efficiencies Prepared by: Kynda R. Curtis Assistant Professor and State Specialist Department.

Animal ID: Opportunities for Value-Added

Marketing and Production Efficiencies

Prepared by:Kynda R. Curtis

Assistant Professor and State SpecialistDepartment of Resource Economics

University of Nevada RenoE-mail: [email protected]

Western Center for Risk Management Education

Western Extension Marketing Committee

Presentation Outline

• Overview

• Why might a national animal ID system be important?

• How might an animal ID system impact my bottom line?

• Case examples

• Summary

• Web resources

Overview• Animal traceability system motivation

– Minimize liability and bad publicity of food borne illness

– Traceability systems isolate source and scope of food safety

• Reduce recall costs

• Additional benefits to all members of food distribution system– Access to new markets– Price premiums– Production efficiencies

Why Might a National Animal ID System be Important?

• Traceability systems such as animal ID– Facilitate trace back during food-borne disease

outbreaks

– Minimize liability and potential bad publicity

• Governmental food safety standards in the U.S. reduce food safety hazards

• Increased food safety risks– Food imports (foods produced overseas)

– New food production technology• Biotechnology

Case Examples• StarLink

– Genetically modified corn product not approved for commercialization in U.S.

• Possible human allergen– Environmental activist group proved StarLink

introduced into human food supply– Resulted in costly recall program

• Mad Cow Disease (BSE): December 2003– Holstein cow in south-central Washington State– Resulted in two month investigation, 28 of 80

cohort cows traced back– Many overseas markets now closed to U.S. beef

• e.g. Japan and Korea

The National Animal Identification System (NAIS)

• Track animals from slaughter to herd or premise of origin

• Identification numbers for animal, herd of origin, and premise (ranch) of origin

• Record system of animal movement

• Assure consumers of U.S. beef safety levels

How Might an Animal ID System Impact My Bottom Line?

• Provide access to new markets– Overseas markets– Product quality attributes

• Provide access to price premiums– Value-added markets

• Aid in production efficiencies– Herd management– Improved profits

Consumers and the NAIS

• Food quality characteristics

are important to consumers– Rising consumer incomes in developed countries

– Studies show as income and education rises diet quality improves

– Consume more fruits, vegetables, chicken, etc.

• Consumers now spend more money on quality foods and food away from home

• Seek assurances from food industry regarding food safety and other quality attributes

Value-Added Markets

• Consumers willing to pay more for high-value products– Contain requested quality attributes

• Quality attributes/characteristics– Process oriented

• Growth enhancers, pesticides, feed, animal treatment….

– Content oriented• Fat content (lean), marbling, bacteria and/or

disease free

Credence Characteristics

• Many quality attributes are credence in nature

• Credence characteristics can NOT be discerned by physical inspection

• Consumer uncertainty regarding the existence of the attribute

• Seek quality assurances from industry and government agencies

Price Premiums

• Studies show consumers willing to pay premiums for:– Food safety – Specific nations/areas of origin– Natural/organic production – Humane animal treatment

• Traceability systems allow for process and content attribute verification

Case Examples of Companies Requiring Traceability

• McDonald’s, Jack in the Box, & Red Lobster– Purchase meat from processors which

ensure high food safety standards– Rewards include guaranteed sales

contracts and premium pricing

• Seek evidence of safety procedures through record-keeping– McDonald’s plan to have 10% of beef

purchases source traceable by end of 2004

Case Examples of Companies Using Traceability

• Maverick Ranch– Natural and organic products– 3rd party testing for antibiotics, growth

hormones, and pesticide residue– USDA certified “organic” label

• Coleman Natural Meets– Free range grazing, natural grass feed– No hormones or antibiotics– Humane animal treatment– USDA approved “natural beef” label

Case Examples of Companies Using Traceability

• Farmland Industries– Farmer-owned cooperative

– USDA “processed verified” logo

– Process verification system• Genetics

• Animal nutrition

• Animal health and welfare

• Safety measures

• Environmental protection

– 100% traceability of all products in program

Production Efficiencies

• Traceability systems enhance producer ability to:– Track animal performance from weaning to

slaughter– Identify most profitable genetics

• Herd management– Sell low performing cattle– Reproduce identified high performance

genetics

Example Case of Production Related Efficiencies

• Ranchers Renaissance– Cooperative of ranchers, stockers, feeders,

processors, and retailers

– Market Cattleman’s Collection, Harris Rancher, and Rancher’s Reserve brands

– Use electronic ID system since 1997• Efficient and economic way to collect data on each

animal and share with all partners

• Data includes animal source, process, and genetic verification

– Increased revenues by $2-$3 per hundred-weight on each calf

Summary

• Consumers seek high-quality foods• Uncertainty surrounding quality and safety

levels due to credence nature• Traceability systems may reduce consumer

uncertainty– Consumers willing to pay for greater traceability

• Access to new markets

• Increased pricing (premiums)

• Production efficiencies gained through increased information

Web Resources for Relevant Information

• Maverick Ranch– http://www.maverickranch.com

• Coleman Natural Meats– http://www.colemannatural.com

• High Plains Journal– http://www.hpj.com

• U.S. Animal Identification Plan– http://www.usaip.info

• Choices Magazine– http://www.choicesmagazine.org