Newborns

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Saturday, June 24, 2017

Can Direct Marketing Save the Ranch?

I've had several conversations recently with ranching colleagues (both of whom operate much larger ranches than we do) about marketing meat versus marketing livestock. To some extent, each of us had started marketing meat for a variety of economic and philosophical reasons. Economically, we felt that by bypassing the "middlemen" in the meat business (cattle or lamb buyers, processors, distributors, wholesalers, retailers, etc.), we'd be able to capture more of the consumer dollar and enhance the profitability of our operations. Philosophically, we wanted to provide food directly to our communities. We wanted to shorten the distance between the ranch gate and the dinner table. In each case, we've recently concluded that the meat business is very different than the livestock business. We've concluded that we enjoy the work of caring for livestock and land far more than marketing meat. And we've each concluded that if we can't sell a live animal off grass and make a profit, no amount of value-added marketing of meat will make the business profitable. In other words, at least for this admittedly small sample size of family ranches, direct marketing alone cannot save the ranch.

When we established Flying Mule Farm more than 15 years ago, we focused our marketing efforts on direct-to-consumer and direct-to-retail channels. We sold beef, lamb and goat - and for one season, chicken - at our local farmers markets and to local and regional restaurants. While we learned a great deal about our products, we also learned that direct marketing took an enormous amount of ,time. During the peak of our direct marketing efforts, I spent 7-8 hours each week driving to and selling at the Roseville Farmers Market. I also spent 6-7 hours selling at the Auburn Farmers Market. In the summer months, I added 15 hours each week going to the Tahoe City and Truckee Farmers Markets. From June through September, this meant 30 hours each week selling meat - on top of 40 to 50 hours each week irrigating pastures, moving sheep, and doing other ranch chores. Looking back at those years, I have a better understanding as to why I was tired all the time!

The decision to sell meat rather than livestock had additional ramifications for our business. Converting a finished lamb into meat incurs additional costs - by the time I paid for harvest and cut-and-wrap services, transportation of live animals and finished product, storage of finished product, marketing labor, and other "value-added" costs, I had an additional $100-125 per lamb in expenses. The logistics of selling meat took more time away from production activities. A trip to the processor (which happened 8-10 times per year) meant 4 hours on Monday and 4 more hours on Friday were consumed with loading, transporting and unloading lambs (and then loading, transporting and unloading meat). Finally, selling meat instead of selling live animals meant I would defer receiving payment for my work until the last package of meat was sold. When I sold lambs to the processor or at an auction, I had a check within 3-4 days; when I sold meat, I might not receive final payment for that load of animals for 3-4 months. The expenses were due when they were incurred; the revenues took much longer to obtain.

Even though we were capturing a higher price for our retail products, I came to realize that direct marketing meat was a volume-dependent business. Economic "laws" are difficult to break - and the law of economies of scale is especially severe. I used just as much fuel hauling 25 lambs to the processor as I used hauling 2. Other expenses were similar - the unit cost of storage, labor, and processing were all affected by the volume of lambs I was marketing. Volume impacted the demand side of my equation, too. Restaurants wanted to buy lamb chops by the case (for example) - and they wanted all of the lamb chops in the case to be identical in terms of size, thickness and quality. Such uniformity was difficult when we were harvesting just 15-20 lambs at a time. Every rancher who has sold meat has bumped up against the reality that there are only 2 tri-tips in every steer - or 2 racks in every lamb. Selling steaks and chops was easy; selling chuck roasts and shoulder roasts was far more challenging.

Without question, there is demand for locally produced meat products in the community where we ranch. My colleagues would agree - they've observed similar interest in their communities. That said, each of us has realized that the greatest driver of profitability in our ranching businesses is in the production of a live animal. As one friend said, "If I can't make money grazing my cattle, selling steaks isn't going to turn my business around." I'm not sure how to resolve this seeming contradiction. Consumers, increasingly, want to directly support those of us who produce their food. At least for me, I haven't figured out how to make this work on the production side of the equation.

3 comments:

  1. Thank you Dan. You've made some very valid points here. We have a long way to go in educating the consumer the true value of the food that they eat. It shouldn't just be our responsibility as well. I think new innovative models in land, livestock and food will be necessary for future viability of the family farm, healthy people and land. Thanks for your articulation of the common conundrum for so many great folk with virtuous commitments to our industries, good food and access to it.

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  2. Dan, Can you sell whole animals? I know so many people who would buy a lamb and pay the fees for ranch butchering and cut and wrap.

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    1. Thanks, Alison. For us the same economic principles apply to selling whole lambs - it's quite a bit more work and added expense. Due to a variety of factors (including drought and the economic issues outlined above), we've moved away from finishing lambs to be marketed as meat. Mostly we market live feeder lambs directly to Superior Farms (our processor) or to other people who want to finish lambs. Every operation is unique; for us, this has resulted in lower gross income but similar (and at times, greater) net income.

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