Separating Itself from the Herd
Country Natural Beef
When the mid-eighties saw cattle ranchers struggling with interest rates and cattle prices, the founders of Country Natural Beef met and discussed ways to differentiate the company from the competition by going after a niche market. The decision was made to specialize in meat without antibiotics or hormones.
From there, business took off, and Country Natural Beef developed a solid reputation for being the best there is in the environmentally-conscious segment of the beef industry. We spoke with Alec Oliver in marketing, and Jack Southworth, company chairperson, to find out more.
In the 1980s, cattle ranchers were dealing with high-interest rates and low cattle prices. Some ended up going out of business, and it was a growing concern. Jack and his wife, Teresa met at the ranch of Doc and Connie Hatfield in central Oregon with a group of ten other eastern Oregon ranchers for a think tank to ask what ranchers could do. Connie went to Portland to visit some stores and meat packers on a fact-finding mission and discovered that there was a niche for meat that did not include any antibiotics or hormones.
“We were very much a small-scale operation with only a few head per week. Then a Japanese company came along – called Kyotaru – who heard about us and gave us a leg up. With Kyotaru, we had more of a presence in the marketplace. Gradually, we increased production to fifty head a week, which is the equivalent of a truckload – which is amazing – and we grew from there.”
Demand increased and Country Natural Beef then began to offer cattle that were raised sustainably on the land. Finally, it produced cattle that met the Global Animal Partnership (GAP) certification required by Whole Foods, which is presently its biggest customer. Currently, it supplies several hundred head a week to Whole Foods as well as an additional two hundred to four hundred head a week to independent retailers in the Pacific Northwest.
As a business organization, Country Natural Beef is unique. Each rancher it works with is a member of the board of directors and has quite a bit of input into the direction of the company. They decide the attributes, number of head to be sold each year as well as the desired Return to Ranch. Each rancher’s voice is heard in a collaborative process that strives for consensus in decision making. Deciding issues in this way is a slow process, but by taking ownership of the decision-making process, everyone stands by the result.
“This enables us to make tough decisions, and sometimes it may take a while, but once made, they are taken on by all of us. It is very unique to have the ranchers have a lot of control over the co-op.”
There are three internal partners: Stacey Davies takes care of marketing; Mary Forman is in charge of financial reporting, and John Wilson, the owner of Beef Northwest Feedlot, is responsible for the procurement and finishing of cattle. These three run the day-to-day operations for Country Natural Beef.
For it to function well, requires a great deal of communication, transparency and effort on everyone’s part to know what’s going on and to keep moving in the right direction. “That’s probably our biggest challenge is to maintain that communication on through the various branches of the company.”
Country Natural Beef is one of the best at dealing with the environmental aspects of the beef industry. Each ranch receives third-party auditing from IMI Global, the leading provider of livestock and meat verification services to the food industry. IMI checks for humane cattle handling practices and the state of the land used along with the environment in which the cattle are raised. The auditor wants to see clean drinking water, healthy stands of grass and, of course, quality animals.
“That third-party audit is very important and gives us the credibility that a simple advertising slogan would not. So, third-party auditing, doing a good job on the land, making sure that families stay on the land for generations and raising our cattle in a humane manner are our goals. This is the picture we present to the consumer. Credibility is very important to us.”
Environmental Stewardship Awards have been given to many of the rancher members of CNB. These awards acknowledge the responsible use and protection of the natural environment through conservation and sustainable practices. Several awards have also been given to the beef producers through the Food Alliance, an environmental auditing company in the Pacific Northwest.
“Let me say that cattle ranchers have received environmental stewardship awards, not because of Country Natural Beef, but that is the kind of rancher that we attract.”
One challenge involves perceived value. A customer walking into a Whole Foods, for example, will see that Country Natural Beef’s meat is more expensive than meat from a Safeway or Walmart and possibly walk on by the meat counter. For a certain percentage of the population, however, the quality is worth the extra price. The company still has to be careful setting the price, even in a niche market.
The production costs per cow are averaged for the group’s ranches to create a base value from which the market price is derived. However, the reality is that the market works independently of what may be needed to keep the ranchers in business. While the company strives for a return on the cost of production, it also needs to be responsive to the marketplace. It does no good to price the beef so high that it doesn’t sell or to sell the cattle at a price that does not turn a profit and makes staying in business that much more difficult.
“It’s a constant balancing act for Stacy’s marketing department to get the pricing just right,” Alec explains. “That balancing of price is needed not just so that the rancher can stay on the land but also the price has to work for the retailer.”
Growth and keeping up with it have been an issue that has been complicated by the spike in cattle prices over the last two to three years. Finding the necessary cattle to supply the market and then getting the costs of producing that cattle translated to meat prices that that the customer can afford has been a challenge that has caused Country Natural Beef some financial stress. It has to keep the meat case full for the customer and also return a price that works for the rancher.
Cattle prices have dropped in the last six months, and that makes it less complicated for Country Natural Beef to acquire the necessary cattle to meet consumer demand. “It’s getting easier, but the last three years have been a challenge. Two challenges specifically of finding the necessary cattle and the price to the rancher keeping up with the generic market as well. The generic market went above our cost of production. We never envisioned that. It’s been an interesting thing to deal with. There are constant hurdles to jump over.”
The company must be responsive to the commodity market while covering the additional costs involved in raising animals of this caliber. During an economic slowdown, demand will inevitably drop somewhat, leading to a need for further price adjustments.
“We could see that with the economic downturn and with a big drop in cattle prices and the widening spread between our meat and the commodity or generic priced meat in other stores. It was a big enough gap that our demand started to drop off, and we had to adjust our pricing. It’s an ongoing thing.”
Jack explained that as a rancher, one of the reasons he is in Country Natural Beef is due to the stability of pricing. The company will only change its price to the retailer on a quarterly or semi-annual basis. That gives an amount of confidence to ranchers so they can budget and plan.
“That certainty in pricing and that stability is something that our rancher members really hang their hat on. We have to adjust to the generic market, but it isn’t a panic thing. It’s more about working with our retail partners and making sure that it’s working on their end as well as ours.”
Hopes for the future include more rancher members to cope with expansion and for continued good relations between the ranchers, the feedlot, the packer and the retail customers. Better systems of communication will be set up between Country Natural Beef’s internal partners and customers to make sure that everyone has the necessary information.
In the beef industry, somebody is usually taking a loss at some point, whether it be the rancher, feeder, packer or retailer. “In Country Natural Beef, we are trying to do the difficult thing of enabling each of us to make a reasonable profit at all times. That’s an incredible challenge in such a competitive industry, but when we succeed, we have something that is really hard to replicate, and that is our competitive niche which we want to continue with in the future.”