Producers Bear the Cost of Traceability

Traceability in the cattle business is a lot like a barbed wire fence -- you know you need one, but you don't necessarily want to pay for the whole thing yourself. Unfortunately, for the average cow/calf producer, that's where the penny lands when it comes to a voluntary national traceability system for beef.

It is estimated today that the cow/calf segment would pay 84.3% of the total industry cost required to adopt nationwide beef traceability. That estimate comes from a report on the economics of traceability by agricultural economists Hannah Shear and Dustin Pendell.

Using 2018 data, the researchers reported in 2020 that assuming no changes in domestic and international demand for U.S. beef, a national animal identification and traceability program would raise costs significantly for producers at the wholesale, slaughter and feeder levels, and lead to losses over 10 years. To offset the projected losses, a 17.7% increase in international demand for U.S. beef and a 1.9% increase in domestic demand would be required.

At the time their report was released, both Shear and Pendell were economists at Kansas State University. Today, Shear, who took the lead on the research, is at Oklahoma State University. She says one of the most important things they considered in doing their analysis was how economies of scale could either positively or negatively impact the cost of a traceability system to the individual producer.

Shear says they looked at five sectors -- cow/calf, backgrounder, sale barn, feedlot and packer -- and found total cost annually for the entire beef cattle industry to adopt the CattleTrace system would be about $154 million. Looking at who would bear the brunt of that, she estimated the share paid by cow/calf producers at $129,823,537 (84.3%). Backgrounders had 5% of the cost at $7,670,839; sale barns had 4.2% at $6,439,428; feedlots had 6.3% at $9,640,589; and packers had 0.3% at $512,936.

"For this research, we were analyzing the CattleTrace pilot project, which relies on electronic ID tags placed in cattle's ears. That would likely take place at the cow/calf stage, so the cost of the tag plus the labor to put it in is all required in order to start a traceability program. That cow/calf sector, then, bears a lot of the initial cost," Shear explains.

In addition to cost sharing, she notes that economies of scale were found to have a huge impact on the cost of implementing a traceability program. Shear explains that based on their research, the cost for the cow/calf producer could range from $2.84 per head all the way up to $6.06 per head based on number of cattle.

"In the cow/calf industry, most ranchers have 50 head or less. Small producers can only spread their costs over so many head. If you have a 200- or a 300-head herd, however, it's likely you already have a lot of the infrastructure in place to make this work, such as facilities to work cattle and labor. But, that's not going to be the case with smaller operators, so they start out with a higher burden."

Shear notes this additional burden isn't just about the cost of an ear tag; it's also about labor, the cost of handling the animals and even injuries to animals and/or handlers as a result of the increased handling. The cost can even vary based on whether an operator tags at weaning or at birth.

"In general, when we look at backgrounders, stockers and sale barns, they all have more head," she says. "They are positioned to spread the cost of animal identification over a greater number of animals. We estimated that feedlots and sale barns would only be replacing about 2% of ear tags as a result of loss. So, after the cow/calf producer, these downstream sectors typically have limited expenses for things like wands, software and panel readers."

A MODEL FOR CHANGE

A national, coordinated voluntary beef traceability system is something Callahan Grund hopes to see during his career. But, he admits the industry has a long way to go.

Grund is executive director for Kansas-based U.S. CattleTrace, as well as a cow/calf producer raising commercial and Gelbvieh-Balancer seedstock with his family. He says while U.S. CattleTrace has been built around the need for contact tracing in the event of a disease outbreak, he believes the technology could also allow for additional marketing and efficiency benefits at ranch level. He's keenly aware that cost is the major concern most cow/calf producers have with the program. To help, U.S. CattleTrace membership comes with a 20% discount on RFID (radio-frequency identification) tags. The annual membership fee is $25. At press time, tag prices with the discount ranged from $1.40 to $2.20 each.

Grund tells producers who have decided to take the leap into RFID tags to remember that each system and reader is different.

"There are many different types of readers in the industry, ranging from handheld to stationary," he says. "Working with a technology provider on how to best equip an operation with the proper infrastructure really allows a producer to get the full range of benefits."

And, using technology like this to help with herd inventory and tracking can be one way to add efficiencies to an operation, he adds. "The technology we have available allows producers to garner and gain value from an operational standpoint."

For now, though, Grund says the most important thing is tracing a diseased animal with this technology. While the USDA has an animal disease traceability rule that pertains to breeding and exhibition cattle moving interstate that are over 18 months of age, Grund notes there is a key missing area.

"Feeder calves are not covered by this rule," he explains. "If there is a disease outbreak of any kind, many of the cattle entering our food supply chain would not be covered by this current USDA rule. We are trying to make that work and to find a way to cover those cattle -- but with disease traceability just operating in the background."

He hopes the work of U.S. CattleTrace can serve as a model for a nationally coordinated effort that is for and by producers.

"I believe it's important to be proactive as producers before the government ever mandates a system," Grund says. "We want to be able to collaborate with the government in the event of a disease outbreak, but we also want to make sure the system we have in place works for us as producers and that we can have business as normal yet with a way to trace.

"There's a lot of good work in different states on this issue, but we really do need that nationally coordinated effort," he continues. "We need to be able to move at the speed of commerce for traceability to be meaningful."

VALUE-ADDED POTENTIAL

Pull-through demand is something John Stika likes to talk about when it comes to beef. He is a master of branding and, as president of Certified Angus Beef, knows firsthand how much value can come from building customer loyalty to a product.

Stika says while the story of the rancher is still a big part of the sourcing information that is important to market beef today, there is now a new quality revolution he calls "best sourced." He says this helps identify ways for sellers to connect more intentionally and intimately with buyers.

"We aren't just talking about a location anymore, like where that animal was born. We are talking about its experience throughout its life. How was it treated? What is the background of the people and businesses that handled the animal? These questions are being driven by a changing consumer who has hot buttons around things like animal welfare, health, the planet and overall social responsibility."

Stika says this idea of a value-added approach can be paired with traceability to help cover the costs of these programs at the producer level.

"Value-added pursuits require a mental shift from producing to producing into something. I'm talking about producing into a specific outcome, a specific consumer market. The difference between the idea of just producing and producing into is very important."

Stika says beef traceability is not an end game, it's a vehicle to trust. While he notes that consumers say they trust farmers and ranchers more than any other segment to protect animal welfare, there is still room to improve trust scores across the six pillars Stika says many marketers follow today. Those pillars are: labor and human rights; animal welfare; health and wellness; food safety; occupational safety; and environmental impact. These are measured on a scale from 0 to 5, and Stika says reaching a 4 on that scale could boost overall daily protein consumption by 13%. To date, all six pillars score between 3 and 4.

Traceability, Stika believes, would help boost these scores, meaning it would create value for producers beyond that of an insurance policy.

"Producers think in dollars per hundredweight," Stika says. "It's fair to have that mindset with traceability, but we also have to consider what this can do to increase demand moving forward. I believe that, too, has an important value. We may not see it in dollars per hundredweight, but I believe that building more trust, awareness and confidence in our system boosts that ultimately."

How the cost of traceability is handled and, ultimately, shared is key, Stika adds. He says downstream players are asking themselves if implementing a national traceability system creates value for them. If they believe it does, then they will be more likely to want to help share that cost.

"That can be more challenging in smaller herds, but it is a challenge we can offset. We need to be able to show a tagging program leads to more efficient capture of data and, as a result, overall better management," he says, adding he is hopeful there will one day be a true national traceability system.

"I think every time technology improves, we get closer. It's a big ask of our industry. But, as it becomes more affordable, and the technology gets better, it becomes a little easier.

"Today, more people expect to have this kind of information available when they buy a package of beef at the store, and when it's not available, they may wonder why," Stika continues. "I don't believe a lack of information today creates distrust. I do think, however, that by not providing that information to our consumers, we take the risk that someone else will try to fill that information gap for them."

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FOR MORE INFORMATION

-- U.S. CattleTrace: https://www.uscattletrace.org/…

-- Certified Angus Beef: https://www.CABcattle.com/…

-- USDA Animal Disease Traceability Rule: https://www.aphis.usda.gov/…

-- Follow Vicki on Twitter @myersPF

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