Animal ID: Opportunities for Value-Added Marketing and Production Efficiencies

1. Animal ID: Opportunities for Value-Added Marketing and Production Efficiencies Prepared by: Kynda R. Curtis Assistant Professor and State Specialist Department of Resource Economics University of Nevada Reno E-mail: kcurtis@cabnr.unr.edu Western Extension Marketing Committee Western Center for Risk Management Education

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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