Romance vs. Reality
Hard Lessons Learned in a Grass-fed Beef Cooperative
By Annie Wilson
"We attended promotions and trade shows in which our passionate, western-clothed ranchers were popular attractions and generated great consumer enthusiasm. People loved to meet and visit with the actual producers of their food. The only problem was this was very time-consuming and expensive for the ranchers."  
   
Reprinted with permission from the Kansas Rural Center, a non-profit research, education and advocacy organization working for a sustainable agriculture and sustainable food system. Annie Wilson is a member of KRC's Tallgrass Prairie Producers Heartland Network cluster and ranches with her family in the Flint Hills of Kansas. See KRC's website at www.kansasruralcenter.org or contact ksrc@rainbowtel.net.  
   
   
   
"Our members faced the prospect of entirely mortgaging their family ranches to back what we knew was a worthy but extremely risky enterprise, competing in an absolutely cut-throat and volatile commercial arena. Finally, after five years of intense struggle, we made the painful decision to terminate our sales and stem our loss of equity."  

 

The purpose of this article is not to discourage other producers from niche marketing, but simply to share some of our experiences in our five years of marketing grass-fed beef. The variables in any business effort are so endless that we cannot conclusively pronounce what won’t or will work for others. Furthermore, times change, and undoubtedly some of the production and marketing realities we faced are markedly different now. A new and different formula may work today.

We only know what happened to us in our time, and will try to communicate our perspective here. First we will give a general overview of our business history. Next, we will outline what we feel are some critical elements of success, some of which we unfortunately lacked. Finally, we will provide some additional underlying observations, commenting on some of the contradictions and ironies we discovered in our strange adventures in the food marketing wonderland, where all is not as it seems.

Business History
Tallgrass Beef is a product produced by ten ranch families in a marketing cooperative called Tallgrass Prairie Producers Co-op, which actively operated from 1995 to 2000. Our original mission was "to produce and market meat products from livestock raised in a way to maximize conservation of natural resources and minimize use of fossil fuels and farm chemicals." We decided to raise cattle that spent their entire lives on the pasture, never in the feedlot, avoiding the grain and feedlot production model and producing a unique lean, grass-fed beef product raised without hormones or sub-therapeutic antibiotics.

To achieve these goals, we organized ourselves into a formal marketing cooperative in 1995 to develop our product, markets and distribution strategies. We received some grant assistance; however, all our actual operating capital was generated from investment in coop stock by the ten ranch families. Most experts who have looked at our business plan were amazed at how much we accomplished with so little capital.

The organizational structure under which we actually operated this business was member-based, with someone from each ranch serving either individually or as husband-wife teams on our Board of Directors which met monthly. All ranches also had to serve on either our Marketing or Production Committees which also met monthly, and our officers had an additional monthly meeting as our Executive Committee.

We had one non-member employee who provided part-time marketing and operations management services, and one member who served as business manager, taking orders, doing billing, handling internal and external communications, and another member who worked part-time at our storage unit assembling large orders for out-of-state shipment. All other jobs were performed by co-op members on a volunteer basis, including developing marketing strategies, attending marketing promotions, delivering orders, etc.

Early on we did nutritional testing on our grass-fed beef, discovering that it had an extraordinary nutritional profile, even better than we had thought, with a very low fat content and high nutrient content. We went through the onerous process of obtaining USDA approval for Nutrition Facts labels for all our products, as well as unique special label claims including natural, free range, grass-fed (to our knowledge, the first beef product in the nation to obtain this designation), raised without hormones, etc. We maintained intricate documentation on every animal processed, and recorded carcass data for all beef processed. The advantages of CLA and Omega-3 fatty acids were an area we only began to explore toward the end of our production and we did not do formal testing or labeling for these nutrients.

One of our great market successes was the effectiveness with which our members could personally market our beef when given the opportunity. We attended promotions and trade shows in which our passionate, western-clothed ranchers were popular attractions and generated great consumer enthusiasm. People loved to meet and visit with the actual producers of their food. The only problem was this was very time-consuming and expensive for the ranchers.
We performed taste testing and found the grass-fed beef flavor to be very appealing to consumers. At food trade shows, our samples were so delicious that customers flocked around our booth and kept asking what special flavor additives we used, but we explained that it was just the natural flavor of free range, grass-fed beef.

To communicate our product features, at first we assembled our own promotional material, but later hired professional graphic designers who produced award-winning labels and promotional materials for us. We were fortunate to receive attention from local and national media, and won Best of Show awards in our state food exhibition. It is our strong opinion that we had one of the most healthy, delicious and environmentally sustainable food products ever offered to the American consumer.

At our peak, we were marketing our beef in 23 states through three large natural foods distributors. Also, from the very beginning we sold some beef in our local area, to individuals as "direct marketing" and also to a small hospital and to some restaurants. However, our local markets were so low in volume and high cost in service that they were never profitable. The markets that worked the best economically for us were the large distributor markets.

Barriers we encountered were numerous. Many we were able to overcome through hard work and determination, such as development of our products, official labels and promotional events. Others had become insurmountable at the point at which we finally perceived them clearly, and we found ourselves caught in a vicious cycle.

Our volume was too low to obtain processing of our product at an economically viable, competitive rate (our costs were triple those of other high volume suppliers). Yet even managing and distributing the volume of orders we had was exhausting our members and employees. We lacked adequate supply to access the markets we needed to reach the volume we needed to obtain affordable processing and transportation, and we did not have the capital to acquire professional management to guide our company in these directions.

Despite painstaking monthly analysis of our gross margin and exploring every cost-cutting measure we could think of, including heroic subsidization of our business with free labor from our members, we were consistently losing equity. We could not see any improvement in sight within the economic structure in which we were trapped. At that point, we utilized our now considerable experience to produce a thorough business plan.

Using this plan, we looked everywhere we could for outside help including private investors, financial institutions, government agencies, foundations and other rancher alliances; however, we could not find the help we needed. Ultimately, we lacked the capitalization to escape our quandary.

Our members, who had already made significant financial investments in the co-op, faced the prospect of entirely mortgaging their family ranches to back what we knew was a worthy but extremely risky enterprise, competing in an absolutely cut-throat and volatile commercial arena. Finally, after five years of intense struggle, we made the painful decision to terminate our sales and stem our loss of equity, so that at least we would be able to pay all of our co-op’s bills and would not cause financial injury to others.

In hindsight, we realize that we probably should have initially leveraged our investments and borrowed heavily from a financial institution, based on a sound business plan developed by professionals that would have established a much larger, viable scale, professionally managed operation. Instead we tried to avoid co-op debt and do it all ourselves, learning as we went, which didn’t work.

Nevertheless, in retrospect, we have also learned that even larger specialty meat companies we had thought were very successful are also struggling. The phenomena of concentration both within the processing industry and retail arena is so intense that the profit margins are very slim for everyone. There are fewer and fewer processors available for mid-size companies. The expense and burden of service and promotion are almost entirely passed on to the supplier by retailers.

We wonder now if it would even be possible to survive today as a mid-size company, with volume of around 30,000 head a year, which was what we were considering as our expansion level goal, an astronomical increase from our peak of 400 head a year.

Our co-op is made up of extremely committed and activist members. We still feel the co-op model is an excellent one, except that the Board of Directors shouldn’t actually run the business. A professional manager should do that. We certainly discovered the synergy of group effort where the sum is greater than the parts. Our members made many individual sacrifices for the good of the co-op, and developed strong loyalties toward each other. In fact, we attribute our remarkable level of progress on such little capital and without professional guidance to the sheer commitment of these ten families.

Many have described our odyssey as a remarkably successful effort that took us much farther than most groups of this type ever get. One expert characterized our activities as a "successful test market" of a product that could be someday be taken to the commercial level with adequate capital and proper professional guidance.

In recent months, our co-op has also been exploring the possibility of joining together to develop a cooperative tourism enterprise in which we would host guests on our ranches and offer authentic experiences in ranch daily life and prairie ecology. We are also considering remaining as a ranching cluster that shares production ideas and economic information in an effort to assist and advise each other on economically and ecologically successful ranching strategies.

We don’t know where all this will lead us. What we do know is that we have been fortunate to know each other and have developed tremendous loyalty, respect and affection for one another. No matter what happens, we have been through an adventure together that we will never forget, and we will always be friends.

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