IBC2000-2 Economics

Partnerships and Profitability in the Bison Industry

Dr. Jill E. Hobbs
Department of Agricultural Economics
University of Saskatchewan
51 Campus Drive
Saskatoon, SK Canada  S7N 5A8

Kim Sanderson
Department of Agricultural Economics
University of Saskatchewan
51 Campus Drive
Saskatoon, SK Canada  S7N 5A8

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.

Abstract

Any assessment of the potential profitability and competitiveness of a bison farming enterprise should also consider the broader economic and industry environment surrounding that enterprise. This paper describes the North American bison industry and discusses some of the challenges and opportunities facing the industry. The industry has grown rapidly in recent years. While the bison meat industry has made much progress in a relatively short period of time, it still faces a number of challenges including limited slaughter and processing infrastructure, inconsistent supplies, variable quality and poor information about final consumers and the demand for bison meat. An important opportunity includes the chance to respond to a growing consumer demand for differentiated, value-added food. Bison appears well placed to meet this demand in numerous niche market segments. The opportunity to build mutually beneficial supply chain partnerships among producers, packers, processor, distributors and/or retailers is also important to the long-run competitiveness of the industry. Coordination, cooperation and communication are key features of successful supply chain partnerships.

Background

Building Herds

The bison industry is one of several relatively new specialized livestock industries developing in North America. The recent interest in specialized livestock has arisen partly in response to producers’ desire to diversify and move away from traditional crops and land uses (Lysyshyn 1998). The Canadian bison industry has grown rapidly over the last 10 years from an estimated 9,100 head in 1991 to 99,022 head in 1999 (Nixdorf, 2000). The Canadian Bison Inventory Census estimated that 745 bison farms operated in Canada in 1996 (AAFC 1999) compared with an estimated total of 1,400 farms in eight provinces in 2000 (Conacher, 2000). Fig. 1 charts the growth in the Canadian bison herd. The number of privately owned bison in the United States is estimated to be 175,000 (Albrecht, 2000).

Bison production is concentrated in the western provinces of Canada and the plains states of the USA.

 
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Fig. 1 Canadian Inventory of Bison. Source: Nixdorf, Saskatchewan Agriculture and Food

Fig. 2 shows that Alberta dominates the Canadian bison herd with 47% of the herd in 1999 followed by Saskatchewan with 22% and Manitoba with 12%.

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Fig 2. Breakdown of Canadian Bison Population by Province for 1999 Source: Nixdorf  (2000).

Five US states accounted for approximately 52% of privately owned bison in the US in 1999, with the remainder spread across a number of states, each with less than 5% of the national herd. Fig. 3 shows the distribution of bison numbers across these five states. Industry sources suggest that, relative to cattle, bison are more feed efficient, require less handling and maintenance, have lower veterinary costs, and bear calves up to 4 times longer (North Dakota Bison Association, 2000).

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Fig 3. Breakdown of US Bison Herd by Major States - 1999 (est.) (representing 52% of national herd) Source: Albrecht (2000). 

Most of the growth in herd sizes has been driven by the high prices obtained for breeding stock.  Average prices of Alberta and Saskatchewan bison in 1999 were Cdn$2,698 and Cdn$4,377 for bulls and two year old breeding heifers respectively (Nixdorf 2000). Average prices from Alberta and Saskatchewan auction sales weighted by the number of auction sales

Fig. 4 summarizes average bison prices at 1992 constant prices, i.e. taking out the effects of price inflation, over the period 1975-1999.  Clearly, the 1990s saw a rapid increase in prices, although there was a sharp drop in 1999.

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Fig. 4. Weighted Average Bison Prices (Alberta & Saskatchewan) Source: Nixdorf (2000)

The ongoing process of building herds has accounted for the high prices and strong demand for breeding stock.  However, breeding markets are not, on their own, sustainable indefinitely and it is critical to the long-term viability of the bison industry that markets for bison products are developed.  Thus, in recent years, the industry has begun to give serious attention to the development of markets for bison meat in North America and elsewhere.  The primary source of meat is young bulls (under three years), with females largely being retained for breeding stock (Armstrong et al. 1998).  Fig. 5 shows that slaughter numbers in Canada are on the increase but remain small in proportion to the size of the herd at just 2,854 in 1998 (AAFC 1999).  Accurate information was not available on US slaughter numbers, however, rough industry estimates put the number to approximately 12,000 slaughtered annually in inspected facilities, although some of these will be Canadian bison.  

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Fig. 5. Bison Slaughtered in Canada (EU, Federal & Provincial Inspected Plants) Source: AAFC (1999). 

The Product

The industry has emphasized the unique characteristics of bison meat as a potential source of competitive advantage. Bison is lower in fat and cholesterol than many other traditional meats (see Table 1).  Industry sources indicate that there are no reported cases of allergic reactions to bison meat and suggest that the organic raising of the bison may be responsible, however, to-date there is no scientific confirmation of this (North Dakota Bison Association, 2000). Other potential marketing advantages emphasized by industry proponents include the image of bison as a prestige meat in high end restaurants, its potential appeal to health-conscious consumers as a healthy red meat alternative and a potential cultural appeal to foreigners (Conacher, 2000).

Source: Armstrong et al. (1998)

There are a number of other potential bison products including the skull, hide and wool that could contribute to the long-run profitability of the industry.  A recent industry analysis suggested that if all bison by-products were fully utilized the additional wholesale revenue that could be generated from a bison could be up to Cdn$1,000 (PPD Technologies Inc. 1998). 

One of the challenges has been overcoming the consumer’s lack of familiarity with bison and how to cook the product. In both Canada and the US, initiatives are underway to develop a variety of processed “ready-to-eat” bison products with the objective of accessing a wider range of markets and eliminating the need for the consumer to cook the meat.  This would provide greater control over end product quality and greater surety of a positive eating experience.

The Supply Chain

Like many fledgling agricultural industries, farm gate meat sales dominated the industry’s embryonic years and although somewhat less prominent, continue today. Domestic consumption of bison meat has grown over the past ten years, although it remains extremely small relative to traditional meats. Canadian per capita consumption was estimated to be just over 0.13 kg (approximately 0.029lbs) annually in 1998 (Conacher, 2000).  To put it in perspective, this represents about 0.6% of Canadian per capita beef consumption. Growth has been hampered by a fragmented industry infrastructure.  In Canada, access to federally inspected slaughter and processing plants is required for inter-provincial sales or for exports to the US, while exports to the European Union (EU) require EU inspected facilities.  There are eight federally inspected plants that process bison in Canada, three of which also have EU export status (Conacher, 2000).  Of these, six are located in western Canada and the remaining two are in Ontario and Quebec. Many of these processors are involved in the distribution, marketing and retail sale of bison products. 

The largest US buyer of Canadian bison for slaughter and processing is the North American Bison Cooperative (NABC). The cooperative is the largest bison processor in the United States and industry sources indicate that it is the only EU approved plant for bison slaughter in the country. The plant has an annual processing capacity of 12,500 animals.  NABC is a producer-owned new generation cooperative formed in 1993 to provide slaughter, processing, and marketing services to its members, approximately 30% of which are from Canada.  The coop only slaughters bison supplied by its members.  The proportion of the coop’s equity held by a member determines the annual required animal deliveries of each member. NABC establishes prices annually and uses a carcass grading system to determine final payments to producers. All NABC meat is marketed through its subsidiary, the North American Provisoner, Inc. under the Buffalo Nickel label.  Recently a contract was signed with DOT Foods, a national foodservice industry distributor, to carry the Buffalo Nickel product line.

Markets

*Bison is classed as “bovine meat” under EU regulations.  This means that it can enter the EU under the “Hilton Quota” which is set aside for non-implant beef but to do so must compete with beef exports from the US and Canada for an allocation of that quota.  Under the Hilton quota, an average ad valorem  tariff of 20% applies.  Any bison meat entering the EU outside of the Hilton quota would be subject to an average tariff of at least 40% because it is classed as a bovine meat.  A tariff acts like a tax to increase the price of an imported good .

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Fig. 6. Canadian Bison Imports and Exports (Kilograms) Source: AAFC, 1999

Fig. 7. provides a breakdown of Canadian bone-in exports by destination over the same period.  The US and France were the most important export markets in 1998.  The French market has rapidly increased in importance, from just 8.3% of Canadian bone-in exports in 1995 to 48.4% by 1998.

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 Fig. 7. Breakdown of Canadian Bone-In Exports by Destination.  Source: AAFRD (1999) 

The Influence of Market Trends

A number of broad trends in the red meat industry are worth mentioning because they form the backdrop against which the bison industry is making its entry into global meat markets.  In some cases these create similar challenges for the bison industry but in other cases they may provide the industry with a competitive advantage.  The traditional red meat industry has undergone considerable change over the past ten years.  Packaging/processing plants are responding to both the pressures and opportunities of the “global economy” with access to export markets becoming increasingly important.  The traditional red meat industry is becoming more concentrated with fewer larger, more efficient packing plants. Per capita beef consumption has been declining.  In 1998, Canadian per capita beef consumption was 22 kg per year (48.4 lbs) on a retail weight basis compared with 29 kg (about 64lbs) in 1980. Although US per capita beef consumption currently is higher at around 31 kg (68lbs), it has also experienced a similar long-run downward trend. Coupled with trade liberalization, this has led to a greater focus on export markets.  The United States is Canada’s largest export market for red meat, followed by Japan (Food Bureau, 2000). An increase in direct foreign investment has been another visible trend in the Canadian beef-packing sector.

Technological innovations in food processing, packaging and refrigerated transportation have expanded the opportunities for trade.  These innovations have resulted in a greater variety of meat and value added products being produced and shipped around the world.  Consumer trends suggest a move toward value-added fresh and processed meat products and away from traditional commodity cuts (Food Bureau, 2000).  This trend has created the potential for higher returns for processors. With a more discerning consumer, however, has come a growing concern over food safety and quality. This has resulted in new regulations and standards in the production, processing, distribution and marketing of meat products.  Price and quality remain important competitive factors in the international arena.

Key Challenges

This section outlines some of the key challenges facing the North American bison industry.  Whether as an individual firm or as an evolving industry, when assessing one’s competitive position it is important to be aware of the challenges that exist.  This helps identify priorities for firm or industry strategies, including research strategies, product development, marketing strategies, improving organizational structures within the industry, improving communications, encouraging investment, etc. 

Quality and safety

Food quality and safety have become extremely important issues for the entire food industry.  As new regulatory “hoops” arise, the cost of doing business increases.  A variety of processing inspections and labeling requirements exist for domestic and foreign markets. The days of “one product for all” are gone.  In the bison industry, the production strategy historically has tended to emphasize increasing herd size rather than improving meat quality.  This focus on breeding stock, which is typical during the emerging phases of an industry, has resulted in animals being chosen and bred for their reproductive abilities rather than for their meat quality (Hobbs et al. 2000).  As the industry moves out of its “breeding phase”, this will change.  For example, the industry is addressing meat quality issues through the adoption of grading schemes at both an industry wide level and by individual processors.  NABC has adopted an internal grading system that is monitored by a grading committee.  The Canadian industry has developed a modified Canadian beef grading system and the Canadian Bison Association is currently implementing a bison calf check-off which will be used to fund product development and marketing efforts.  Research on meat quality is being initiated in response to the industry's growing awareness of its importance.

With food safety playing such an important role in consumption decisions, the bison industry must carefully monitor any diseases that appear in herds.  The Canadian beef industry has recognized the importance of a cattle identity system that allows the traceback of cattle in the event of a food safety or disease problem.  Neither the Canadian nor US bison industries currently have this capability.  Not only the disease but also the media portrayal of a disease can have devastating effects on an industry, as the British beef industry learned to its cost in the wake of the BSE (“Mad Cow Disease”) crisis.  Attention to food safety and quality at all levels of the supply chain is crucial.

Who are the Consumers?

The need for consistent quality has been acknowledged and discussed extensively by the industry but it remains unclear as to what qualities consumers are looking for.  Little is known about the preferences of consumers of bison.  Marketing strategies have primarily been aimed at “pushing” products into the market and on educating consumers about bison.  While this is important, there is also a need to listen to consumers and then respond by refining both production and marketing to meet consumers’ needs. A clearer understanding is required of the consumer’s definition of quality: what value do bison consumers place on leanness, colour, texture, taste, and appearance; what combinations of these attributes are they looking for? 

To date there has been limited market research to estimate the volumes and prices that the market will bear. Estimating these volumes and prices is critical for identifying export markets with a good profit potential. Only then can the industry critically evaluate the economic feasibility of penetrating those markets.  A thorough search of the literature revealed only limited analysis of bison demand and no comprehensive consumer market studies.*   A complete analysis of the costs and economic benefits of the proposed markets (both domestic and foreign) is essential.  Such analysis is needed to determine the economic viability of expanding the industry.  Each market requires a separate evaluation, as it has been the downfall of many marketers to assume that a product can be parachuted into a variety of markets without any modification. 

 *See Schupp et al. 1998 and Torok et al, 1998 for consumer market research on aspects of the demand for bison

Useful lessons can be learned from other industries.  For example, on the surface the Danish pork industry would appear to be uncompetitive relative to the US or Canada on the basis of a simple comparison of production costs.  Yet Denmark accounts for almost 30% of global trade in pork.  One of the secrets of its success is the industry’s ability to tailor different products to meet the needs of different markets: longer hams plus darker red meat to Japan, bacon and cured products to the UK, lower quality products to Russia, etc. (Hobbs et al. 1998).  Identifying consumer preferences for different qualities in important markets is a major challenge for the North American bison industry.

What is the Competition?

An essential component to understanding the market and the ultimate consumer is to identify, understand and monitor the competition.  Although bison is a unique product, it is a red meat.  Red meat consumption has been declining in the US and Canada and in most developed countries. The bison industry must pay attention to the activities and trends in other meat industries as an increase in bison consumption may only come at the expense of market share for other meat products.  Retail prices of bison are high relative to beef. For example, Armstrong et al. (1998) suggest that the price of bison meat was twice that of beef in 1998.  Is beef the competitor for bison? Or are the competitors other “luxury” foods such as lobster? It is important to understand what consumers are looking for in a food product and then to base the competitive strategy on these quality characteristics.  Once these characteristics have been identified, production, processing, distribution, marketing and retailing decisions can be targeted towards producing these characteristics.  Communication of market information along the supply chain from consumers back to producers is critical. This requires an industry structure conducive to open communication and cooperation between vertical stages.  This idea is explored further in the “Opportunities” section below.

Sources vary on the anticipated consumer demand and retail price of bison meat.  There are diverse opinions on the required price relationship between bison and beef. The Canadian Bison Association suggests that the price of bison will in future be comparable with other products preferred by high-end consumers in white tablecloth restaurants (Conacher, 2000).  A report prepared by PPD Technologies Inc. (1998) suggests that to be accepted as a red meat alternative bison must come closer to beef in both price and quality.  There may be some truth to both viewpoints, depending on the cut of meat and the intended end market.  Again, the Danish pork industry provides an interesting lesson – with luxury high quality pork targeted to high-end markets and lower quality products tailored to an entirely different set of price-conscious markets.  A thorough understanding of the array of potential market segments available to the bison industry is important in planning marketing strategies and in determining what are the key competitor foods for bison in these different market segments.

 The need to adopt a framework for estimating the price and final consumer demand for bison meat is recognized by the industry:

“There has been absolutely no base line research done on pricing of the end product, thresholds for consumers and no work done on consumer preferences.  All of these factors affect the marketing approach used by the Canadian bison industry.”(Conacher 2000, p.12). “There is a need to become increasingly in touch with the market place for bison meat.” (Conacher 2000, p.8).

 Lack of Consumer Familiarity

A key challenge facing the bison industry is the consumer’s lack of familiarity with the product.  This has two aspects: getting consumers to try the product in the first place and, for products sold for home preparation, lack of familiarity with how to cook the product.  Bison meat has been described as a nutritional and healthy dark red meat with a distinctive, yet not wild taste (Armstrong et. al. 1998).  The low cholesterol and fat content should appeal to health conscious consumers but also restricts the cooking methods that can be used with this meat. Bison is not a “frying” meat and requires some care and attention in preparation. Due to the low fat content, the meat can dry out and become tough if not cooked properly. Negative consumer cooking and eating experiences can seriously erode a product’s image.  This underlines the importance of understanding the consumer and the conditions under which they would purchase bison and for which occasions or uses.  This information is important for new product development strategies.

Access to Export Markets

Like any emerging industry, bison is dependent on several niche markets and on access to export markets. A recent tariff problem with exports to the US served to illustrate the vulnerability of the Canadian industry and heightened producer interest in diversifying into other markets and expanding domestic markets.*.  The classification of US and Canadian bison exports to the EU as bovine meat, such that they must enter under the Hilton Quota to avoid the 40% tariff, is a severe limitation. Access to a greater proportion of the Hilton Quota would probably require that the bison industry apply extensive lobbying pressure on the US and Canadian governments.  Better still would be the removal of bison from the Hilton quota altogether.  This should be possible, as, unlike its beef industry, the EU does not have a domestic bison industry to protect.  However, this can only be done at a government-to-government level and would require that the US and Canadian bison industries expend valuable time and resources lobbying their respective governments to press for this change in EU regulations.

*In February 2000, an administrative error at US Customs resulted in the imposition of a 26.4% tariff on bison imports from Canada.  While the error was eventually rectified, this took considerable lobbying efforts on the part of the Canadian Bison Association and exports were disrupted for approximately 6 weeks.

Limited Supplies

In addition to quality consistency, essential to establishing viable domestic and international markets is the ability to provide consistent and reliable quantities of bison as required by buyers.  This has been a challenge for the bison industry because, with attractive returns from the breeding stock market, producers continue to build herds, leaving a limited supply of carcasses for the evolving meat industry.  This makes it hard to capture any economies of scale advantages, which come from slaughtering and processing larger numbers.  Economies of scale enable the industry to spread the fixed costs of processing, shipping and marketing over a larger throughput, leading to lower average costs. Several analysts have suggested that a limited and unstable supply has deterred processors and distributors from handling bison and that processors appear to be waiting for the industry to mature sufficiently to provide a reliable, continuous supply and animals of consistent quality before undertaking major infrastructure investments (PPD Technologies 1998; Simba Enterprises 1997).  This becomes, to a certain extent, a “chicken and egg” problem - with further investment in bison by producers hampered by a lack of federally inspected and EU approved packing plants, the logistics of shipping and difficulty accessing distributors - yet investment in these facilities is hampered by the absence of a consistent supply of animals for slaughter.  This discourages entry into the industry and slows industry expansion.  It is a problem of “who moves first” – do packers build slaughter and processing facilities in the hope that producers will supply a sufficient volume of animals to make the plant viable – or do producers move first and expand herds with the expectation that this will draw in investment in processing facilities? In either case, the investment made by the party who “moves first” may be vulnerable to opportunistic behaviour by the other party.  This is where there may be roles for collective action on the part of producers and for cooperation along the vertical supply chain in recognition of the potential mutual benefits.

Historically, agricultural producers in Canada and the US have tended to act independently. The value of collective action should not be underestimated in an emerging industry.  One route is for producers to collectively invest in processing facilities, as is the case with NABC.  Industry associations also have an important role to play in fostering cooperation and coordination among producers and processors.  For example, the Potato Growers of Alberta played a pivotal role in obtaining the supply commitments from potato growers in Southern Alberta that were necessary to encourage two major processing plants to locate in that region.  The role of industry associations and supply chain coordination is explored more fully in the next section. 

Clearly, the bison meat industry faces a number of challenges related to insufficient volumes, inadequate infrastructure, consistency of product quality, price discovery, availability of market information, regulatory hurdles and consumer awareness of the product. For established industries, either introducing new products into existing markets or introducing existing products into new markets is fraught with uncertainty. The challenge for the bison industry is magnified – it is breaking new ground, introducing new products into new markets and building new supply chain relationships. Thus, it faces a business environment with a high degree of uncertainty, requiring new skill sets and competencies and where accurate information on the needs of the marketplace is of paramount importance. Forward thinking parts of the industry in both Canada and the US have recognized these challenges and are developing strategies to overcome them.  At the same time, there are a number of opportunities upon which the industry can build. The next section discusses these opportunities and the role of supply chain partnerships in the development of a competitive, successful bison meat industry. 

Key Opportunities

At the farm level, bison offer an opportunity for diversification of the individual farm enterprise.*   More generally, they offer the opportunity for producers to play a direct role in a value-added industry.  Given higher relative production costs and infrastructure limitations, bison is unlikely to ever be a “commodity” product.  It will not replace beef.  Nor should we expect it to.  The properties that make bison attractive as an alternative food are not those that one commonly associates with a mass-produced commodity.  In this sense, it is well placed to respond to the growing consumer demand for differentiated, value-added food products. 

 *It is beyond the scope of this paper to delve into individual farm cost and return models for bison.  This is dealt with in the papers by Metzger (2000) and Dyck (2000).

As was discussed earlier, bison has a number of characteristics that may make it attractive to specific consumer segments.  The concept of consumer segments is worth emphasizing. Consumers are not a homogenous mass with identical tastes and preferences.  A typical market research process identifies separate groups or segments of consumers within a market who have similar preferences for a specific set of product characteristics.  However, one segment might have quite different preferences relative to another segment.  While this represents a challenge for the industry in distinguishing between different segments and targeting the right product at the right segment, it is also an important opportunity. A bison carcass consists of a range of potential products and by-products with different quality characteristics, which may be suited to different market, segments.  Further, bison produced under different production systems may produce meat suited to different end markets.  The over-riding message here is that consumers are different and the opportunities for the bison industry lie in responding to these differences, rather than taking the “commodity” beef route in which the emphasis is on volume production and little if any product differentiation and value-adding.  For example, there may be a demand from a health conscious market segment, which also values convenience in food preparation.  Another segment may value the “experience” of consuming bison, valuing its image as a “heritage” meat.  Others may perceive it as a luxury product, rich in taste but who may be less interested in the “healthy” aspects of the product.  Further market research is needed to identify market segments, the product characteristics preferred by consumers in those segments and consumers’ willingness-to-pay for those product characteristics. 

Bison is a relatively new industry, requiring the establishment of new supply chain relationships and the introduction of new products into new markets.  Although this was identified as a challenge, it can also be an opportunity. It means that the industry can build new supply chain relationships and need not be bound by the adversarial producer-packer relationships that so often characterize the traditional meat supply chains.  In a sense, the bison industry has started with a “clean slate” and has the opportunity to build mutually beneficial “win-win” supply chain partnerships between producers, processors and distributors.  The structure of supply chain relationships affects the flow of information from consumer to producer; it affects product quality and the responsiveness of the industry to the needs of the consumer.  Fundamentally, supply chain relationships affect the competitiveness of an industry.  While we often think about industry competitiveness in terms of relative costs of production, we should also think of it in terms of how the supply chain - which links producers with consumers - is organized.

The Role of Supply Chain Partnerships

The “supply chain” describes the set of vertical industry relationships from farmers, through packers, processors, distributors and retailers to final consumers.  This might include occasional “spot market” transactions where there is no long-term business relationship between two parties, or it might include longer-term partnerships between firms sharing a common strategic objective. Longer-term partnerships can take the form of a strategic alliance between a processor and a distributor or between a group of producers and a processor, or they might involve a more extensive “value chain” relationship between successive vertical stages of the supply chain from producer to consumer.  Key features of these relationships are communication, cooperation, coordination and trust.

In forming supply chain partnerships, the partners should have a set of mutually agreed-to objectives.  The relationship needs to offer tangible benefits to all involved, although these benefits need not be distributed equally.  If one party has assumed a greater share of the risk or has made a greater investment outlay, then we would expect this party to receive a proportionally greater share of the benefits in return.  By working closely together, producers, packers/processors and distributors can overcome some of the challenges facing an evolving industry such as the bison industry.

Many of the key challenges outlined above are routed in an information problem that creates uncertainty for the industry.  There is relatively limited information about consumers and the demand for bison meat in different markets.  Ultimately this demand will be the lynchpin or driving force behind the future growth of the industry.  There is limited information about the product qualities required and how the necessary product qualities and quantities can be guaranteed to a market at the required times.  Fundamentally, many of these issues are organizational.  Retailers and the restaurant trade are the contact points with consumers.  Involving these firms in vertical supply chain partnerships reduces information costs for producers, packers and distributors in finding out what types of products consumers require.  Improved information flows are one benefit from closer supply chain partnerships. 

Closer supply chain partnerships may offer logistical efficiencies.  Packers are better able to plan production schedules if they are assured of a specific supply of bison at a specific time.  This facilitates efficient use of plant capacity, thereby lowering average costs.  This should be an advantage for producer-owned processing coops such as NABC if they have good information about the availability and timing of supplies.  Information and negotiation costs are reduced for producers and packers if they do not continually have to seek out new buyers/sellers and renegotiate the terms of the transaction.  The costs of monitoring the activities of supply chain partners, for example to ensure that food safety and quality regulations are adhered to, is reduced for long-term regular relationships. 

Different firms and individuals have abilities and skill sets that constrain what they are able to do well.  There are benefits to closer relationships with other firms to gain access to the wider set of skills and competencies necessary to get the right product to the right market and at the right time.  In some cases there is a strong desire among producers to retain ownership of their products until they reach the consumer in a “gate-to-plate” producer-driven supply chain.  While this enables activities and information to be coordinated along the supply chain and may maximize value to the producer, it requires a substantial investment by producers in acquiring the necessary human capital skills and experience. Few producers have experience in the food processing, distribution, retailing and marketing activities necessary for success on a commercially viable scale.  Alternatively, access to an existing set of skills is available through partnering with experienced and knowledgeable processors and distributors.  

Cooperation rather than confrontation along the vertical supply chain is crucial.  As outlined earlier, this means avoiding the “them and us” adversarial producer-packer or packer-distributor relationships which often characterize traditional meat industries.  At the heart of this is the recognition that the competitiveness of the entire supply chain is important to the success of each individual component.  This requires trust among the partners.  Communication is an important part of establishing that trust.  This involves determining mutually-beneficial objectives, understanding the concerns of each party and understanding the advantages and new skill sets which each party brings to the alliance.

 The Role for Industry Associations

Industry associations, such as the Canadian Bison Association (CBA), the National Bison Association (NBA) in the US and provincial and state level associations, have important roles to play in industry development.  While they may have a role in encouraging the development of supply chain partnerships between independent industry players, these relationships may evolve without the need for the direct involvement of industry associations.  Nevertheless, the associations can still play a central coordination role in responding to broader industry-wide issues such as regulatory threats, providing marketing information and responding to research needs.  For example, the Canadian Bison Association played an important role in resolving the US tariff error in February 2000.  Through its national check-off, the CBA will coordinate product development and market research activities of benefit to the whole industry.  The NBA in the US performs a similar function.

It is helpful to return to the example of the Danish pork industry.  The Danes’ ability to tailor different products to different markets has been cited as one of the reasons behind their success in global markets.  How are they able to do this?  A central player in the Danish industry is “Danske Slagterier” (DS), an industry body which provides a forum for intra-industry communication and which coordinates from a supply chain perspective - market research, meat science research, breeding and production research.  For example, through its market research, DS determined that Japanese consumers prefer pork of a darker red colour than in some other countries.  This led to DS-sponsored breeding research to attempt to breed a “Japanese quality” hog specifically for that market and meat research into methods to objectively grade carcasses for meat colour.  It is the coordination of these activities and the communication of research results to the entire industry that makes DS such a valuable component of the Danish industry.  Of course, the Danish example may not apply exactly to the North American bison industry due to various economic, institutional and cultural differences.  However, the fact that the close coordination of producer-processor-distributor activities enables the Danish industry to be highly competitive in world markets despite significant production cost disadvantages holds considerable promise for the North American bison industry if sufficient attention is paid to the organization of supply chain relationships.

Summary and Recommendations

The North American bison industry is a dynamic, rapidly evolving industry.  To date most of the growth has been based on the breeding market.  This is beginning to change and must do so for the long-run viability of the industry.  Several industry-led activities are underway in Canada and the US to develop meat markets and the capacity necessary to service those markets.  While the industry has made admirable progress in a relatively short period of time, it still faces a number of challenges.  Opportunities exist to respond to consumer demands for differentiated, value-added food products. Producers, packers, processors and distributors need to give careful consideration to the supply chain relationships that will enable them to respond competitively to the needs of consumers. Industry associations have a key role to play in fostering cooperation and in coordinating industry-wide activities. Ultimately, the industry needs to focus on being demand, rather than supply driven.  This means understanding consumers, who they are, what they want and how the industry can respond to them. Research into consumer preferences and into the types of supply chain relationships necessary to respond to these preferences should be priorities for the industry.

Acknowledgements

Financial support from the Canada-Saskatchewan Agri-Food Innovation Fund is gratefully acknowledged.

References

AAFC 1999. Bison Sector Statistical Briefer. Red Meat Section/AISD/MISB, Agriculture and Agri-Food Canada, Ottawa. 

Albrecht, S. 2000.  Bison Population of the World.  Bison World, July/Aug/Sept, p.41-42.

Armstrong, J., M. Ayars, D. Barber, S. Dobbs, M. Patterson, M. Ferguson and R. Nixdorf. 1998.  Bison Production: Economic and Production Information for Saskatchewan Producers. Saskatchewan Agriculture and Food, Regina, March.

Conacher, G. 2000.  International Market Strategy for the Canadian Bison Industry. Canadian Bison Association, Regina, January.

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