Dr. Gorham Hussey,
President Canadian Frontier Foods
#239, 6715 - 8th St. NE
Calgary AB Canada T2E 7H7
The following article was originally presented at the International Bison Conference in Edmonton, Alberta in August 2000. The conference covered a wide array of bison topics including production, marketing, genetics, history and much more. This article has been reprinted with the permission of the IBC2000 Chairman.
We're all enjoying this celebration of "Bison Are Back". There is still more to come in this 3rd day of Listen, Share & Learn Sessions. We've called this 3rd day, general morning plenary "SHAPING THE FUTURE".
My part in this Plenary today was originally billed as "The Economic Outlook for the Bison Industry". But I've shifted from trying to deal with a lot of speculative numbers about future conditions and outcomes.
There is enough evidence that the commercial bison industry has more than doubled in the past 5 years to where we are harvesting more than 30,000 meat bulls each year in North America. By rough calculation, that approaches 15 million pounds of bison meat products marketed from our production base, with a small amount going overseas.
With growth in production assured at 15% or more annually, that's 2-3 million pounds more each year that we must develop a marketing system to handle, moving our output through marketing channels to consumers! It wasn't too many years ago that 2 million pounds was all we had to market in total. And that "MORE" will move up to 4, 5, and 6 million "MORE" as time unfolds!
The economic conditions are still very attractive to produce live bison at maximum breeding of all bison cows and heifers. So the meat bulls will come at an increasing rate.
Canadian Frontier Foods Ltd.
My business role in life is now as partner & operator of a Canadian bison feeding and international meat marketing company, Canadian Frontier Foods. I speak from a background in agriculture and 40 years experience in the livestock and meat industry, mostly in management. Following a farm upbringing I appreciated a formal education in agri-science, agri-business and agricultural economics. The most exciting challenge of my food industry experience, however, has been my last 8 years as co-owner of Canadian Frontier Foods.
My partner and I see great potential for growth in the international bison business, but there are challenges - healthy competition for Canadian bison bulls, changing prices for feed stuffs, Canadian Dollar exchange rates, and changing customer needs. Over-riding these normal challenges however, has been a most significant change in the past year that affects all of us in the industry. I believe the industry has changed from a supply-driven sellers' market to a buyer and demand-driven situation. Unless better understood, and dealt with seriously, the burden now placed on marketers to develop new customers, will come back to haunt producers. This will come as a shock in the form of significantly lower prices for breeding stock as well as meat bulls.
Feeder/marketers typically own their bison for 12 months - from long-yearlings until their meat is sold (and paid for). In buying bison bull calves to feed and finish, this inventory is owned for 24 months. Feeder/marketers are therefore greatly at risk in falling meat markets. We would expect market changes over time, but we are seriously affected, as are producers, by declining prices. There have been a number of firms in the marketing end of this industry who have come and gone. Others are still involved who have "invested" or lost sizable sums building bison meat markets.
Bison Industry Marketing Structure
I would like to address the rest of my remarks today to an overview of the marketing structure we have in place today, and the role Canadian Frontier Foods has in marketing bison products. Then, I'll offer a few suggestions to relieve the congestion in this structure that I believe stifles if not strangles orderly growth of production reaching the buying public. We should target that demographic group of consumers who want and can pay for a delicious, healthy and natural food that has a gourmet image. This focus will save the time, effort and expense in thinking everyone is a potential customer and can be serviced economically.
The Bison Economic Structure
Fig. 1 depicts a condensed version of market flows of bison from farm & ranch to consumers.
The top represents the thousands of bison cow/calf operations spread from Alaska and the Yukon to Florida and from Maine to California. Yes, there is a small herd up in the Allagash Region of my home state of Maine! While most of these operators belong to either the NBA or the CBA, they are independent operators for the most part and make their buying and selling decisions as they see fit. I see no way that they will turn a strong majority of production and sales decisions over to a private or public monopoly to set price, quality standards, and bison volume produced. Therefore, it is unlikely that we will have a government-sponsored marketing board such as we have in some fruits and dairy, or see a private cooperative with essentially a monopoly controlling 70-80% of production as we have in cranberries.
With the economic incentives now in place, bison production can likely expand at the limits of bison biology and husbandry at 15-20 percent per year: -- for our lifetimes at least and perhaps for our grandchildren. By my estimates we can still be a relatively small specialty protein, a healthy and delicious food, until surpassing the modest consumption rate of lamb 15-20 years out (see Fig. 2). Someone recently calculated that it would take 50 years to reach even 10% of present beef consumption in North America. This assumes the industry and the inherent value of our product will carry meat values back to the farm above female liquidation values as meat. And, --- that we keep a healthy and safe image, backed by fact, with the consuming public.
At the other end of Fig. 1 are consumers - probably 10-20 million bison fans now, but hopefully expandable in this new decade to double that number. Increasing that number is critical as we expand production. A product with bison's inherent taste, nutrition, and heritage gourmet appeal will not be dumped in the ocean. Increased production will find markets at whatever price levels it takes to clear the volume produced. The issue then becomes one of value: at what price levels will the coming volumes of bison meat clear markets? The industry has enjoyed a past with relatively high meat bull returns on limited supply available. Now, however the volume of bison meat is getting ahead of present marketing capabilities.
We hear many reports of consumers liking the concept of bison meat, but they can't find it for sale in local markets or restaurants. We also hear reports of consumers trying our burger products and not wanting more. Has anyone else here today tasted a dry, over-cooked burger that resembles a hockey puck? Not much hope for a repeat by a new consumer until the restaurant staff is better trained.
Until now our industry has operated on the basis that once consumers eat well-prepared bison meat, they will repeat and tell their friends. With limited industry volumes, there was no push or need to spend unavailable industry marketing funds on consumer education, promotion or market research to any significant degree. It can safely be said, however, that if bison meat in any form is not available in local food service or retail outlets, then consumers can't consume.
So let's look at the marketing structure that presently exists in the chain between producers and consumers. Fig.1 would lead one to suspect that there is blockage in the middle, if producers want to sell more, and more consumers potentially want to buy.
Bison Market Channels
Let's look briefly at the present marketing levels that exist in the chain between producers and consumers. Fig. 1 would lead one to suspect that restrictions or blockage exist in the system if producers want to sell more and more consumers want to buy but can't.
There are 8 tiers (at least) involved with bison marketing on the North American scene (Fig. 3). It's a rather complex combination of paths from source to destination. Producers may market directly to consumers either directly or through local stores and restaurants. Similarly, a local distributor may own bison on feed, or a rancher may own bison through the feeding and processing stages, and perhaps on through a Master Distributor's function, serving local distributors. No one has made a detailed market analysis of who, how, what and why of North American bison distribution, but Fig. 3 is a reasonable approximation.
There are less than a dozen (12) Master Distributors in North America handling at least 1,000 carcass equivalents or more of bison annually. These identified handlers of bison meat products serve local distributors or go directly to end users (hotels, restaurants and some retailers) in their chosen market areas. The Master Distributors provide some support in end user development. Most distributors will agree that it is expensive to develop new customers and attract new consumers to economic levels of volume. After lengthy and costly market development efforts by one distributor, his business may be vulnerable to other suppliers swooping in with reduced prices to capture the business. Hence, a reluctance to expand in present or develop new markets where costly development is not assured of a profitable return. This aspect of bison marketing is little understood by most producers.
Canadian Frontier Foods Distribution
I will share with you my experiences and observations on changes in the industry. Our company has grown faster than the industry and now markets close to 1,500 bison annually. We started out buying a couple hundred feeders of all ages from yearlings to mature bulls. We fed in two locations in what we considered our normal buying area of the future: Alberta, Peace River and Saskatchewan. We fed, processed and sold truckload carcass lots mainly to one customer in the United States who would pick up assortments of finished bison carcasses at prior-agreed prices. Price differentials were reflected for different maturities (grades), weights, and the customer's distance from the two slaughter plants used on a custom basis. Production sources in the North American industry were scattered at the time (1993). Volume carcass buyers, who further distributed cuts, needed reliable sources of assembled supply at predictable prices. This one major customer when we started operated in turn as a further processor and Master Distributor in a wide geographic area.
Since 1993, we have more than tripled our volume of bison marketing. We now source our custom feeding with one of the largest specialized bison feeders in North America. This has become a close alliance arrangement where we plan and execute together on an annual and more frequent basis. Our basic business has been in the purchase of long-yearlings off grass, then their finishing, slaughter and marketing of bison meats. More and more our business has changed from carcass sales to vacuum-packaged boxed bison cuts. We own our live inventories for an average of 12 months. We also have been the marketing arm for other smaller feeder operators to combine uniform weight Canadian graded truckloads of carcass or boxed sub-primal cuts. We have a branded A-Grade "White Box" program and a "Brown Box" program" for the "fall-outs" and mature bull products. Our goal has been to be a total customer & marketer for our long-term yearling suppliers. For marketing we have relied on "alliances" with Master Distributors (who may also be further processors).
Our customers have changed their ways of doing business. We try to plan ahead with key accounts on a volume, product mix and pricing basis. This doesn't always work out as planned, as business changes to meet changing conditions. We are on a friendly business basis with present and former main customers, with our business planning still depending on a base of boxed bison truckloads, in a natural ratio of cuts overall. With Western Canada's rapid growth in bison production and our small population base, we must export to the United States and abroad. Since USA bison breeders historically sold Canadians their starting herds of excellent stock, you might understand that Canada has excellent bison meats for many markets today. And we will have more in the future.
Our future growth aims more at selling individual cuts in relation to the customers' needs - middle meats of loin and rib sub-primals sell well for most bison meat marketers. Most of us in the marketing game have tough challenges in selling the balance of the round and chuck products. Bison trim is becoming a virtual commodity, quoted and sold on a lean content and price basis. Our challenge here is to develop higher value products for defined market targets. Table 1 tells the numerical story of why our success depends on how well we sell our trim and end cuts (over 60 % of the carcass).
With the 15-20 % volume annual growth rate in our industry beginning to mean big tonnage increases each year, the bison industry and its participants, including us, face real challenges. Some now believe the dire economists: --- that demand is relatively fixed and that increasing supply will surely mean lower prices to all.
Canadian Frontier Foods has a positive attitude toward the future: Here's our strategy in a nutshell:
Keep our base with selected Master Distributor customers as we can, building on our "quality and service" reputation. Here we expect increasing price competition from bison companies that think it's easy and profitable to market bison meat -- particularly if they're willing to cut present prices.
Invest significant dollars per head in developing selected value-added products and penetrating selected local target markets. We are developing new distributor customers who want consistent quality and service for their bison meat potentials. Here we operate as a Master Distributor, supplying hotel and specialty local distributors and providing promotional support for end user development.
Our business depends on cooperative "alliances" with our distributors, adapting to their needs. We do not sell around our distributor friends in their defined market areas where we have agreements. Our experience has taught us that you can't find most wide-line meat distributors willing to devote the time and dollars necessary to develop new end users for our bison products at the low-volumes initially expected. Therefore we must provide marketing support with our staff Executive Chef and hosting events such as Chef Dinners with products, recipes and menu suggestions.
We are ready to help these distributors and food service establishments with product knowledge for staff, persuasive sales tools and motivation to achieve profitable bison returns. It is not an easy assignment.
Suggestions for the Industry
1. Don't expect wide line distributors to introduce and promote our bison products to the end users and general public. These distributors usually depend on several product lines (beef, pork chicken, etc) to deliver volume and margins to pay the bills. It takes time and effective promotional efforts to develop new bison meat customers on a sustainable profit basis.
2. Producers have the greatest long-term economic interest in price levels and returns back from the marketing system. They need to understand that the more effective the marketing efforts are in building markets, the higher will be the producers long range returns.
3. To sustain price premiums on bison, it will require at least $1.5 million in industry marketing support. This is based on $0.10 per pound for the 15 million pounds, likely marketed in Y2000. This is a quite modest level compared with the introduction of other new food products by the grocery people, and the level of support now given to New Zealand venison and the Certified Angus Program.
4. The National Bison Association (NBA), the Canadian Bison Association (CBA), and affiliates can assist bison market development efforts through "generic" marketing support. More efforts are needed in recipe contests, more development of professional promotional materials and target market public relations. Consider an Executive Chef cadre. Market development should be focussed in the larger population centers with cost-sharing support by the bison distributors involved. Consider cooperative merchandising contracts with shared joint funding
Bison producers and marketers have a rapidly growing, dynamic and vibrant industry. We have a Natural, Great-tasting, Gourmet and Healthy product. More attention to marketing by the industry is needed to stem price erosion and reduced producer returns. Financial support by the industry is required to support marketers development efforts. It's challenging and exciting, and I believe we are all committed. Together we can succeed!
Fig. 1. Market flow schematic of bison products from farm and ranch to consumer.
Fig. 2. United States per capita annual consumption of selected meats.
Fig. 3. Marketing tiers - from producer to consumer.