Academic journal article Economic Review (Kansas City, MO)

From the Plains to the Plate: Can the Beef Industry Regain Market Share?

Academic journal article Economic Review (Kansas City, MO)

From the Plains to the Plate: Can the Beef Industry Regain Market Share?

Article excerpt

Over the past several decades, the beef industry has seen a sharp drop in its share of the retail meat market. While per capita meat consumption has grown, per capita beef consumption has plunged. Explaining the drop in beef's market share has become a favorite pastime of industry analysts. In fact, a family feud of sorts has broken out in the industry between those who think the decline largely reflects increases in beef's price relative to competing meats and those who stress nonprice factors such as lifestyle changes, health concerns, and so forth as causes of decline. Regardless of the cause, however, the solution to the problem is likely the same.

Whatever the cause of beef's declining market share, the pork and poultry industries have clearly benefited. Poultry, in particular, has seen its market share soar in recent years as per capita consumption boomed. Most analysts attribute the success of the poultry and pork industries to their ability to achieve a high degree of vertical coordination between different links in the production chain. In particular, vertical coordination has allowed them to become consumer-product driven industries while achieving significant cost reductions that have lowered retail prices.

For the beef industry to recapture its lost market share it must become a consumer-driven industry. A critical step in the process is achieving a greater degree of vertical coordination across the production chain. Vertical coordination in beef production may take many different forms. In fact, three alternative forms of vertical coordination in the beef industry seem possible, from modest changes in how beef is priced, to marketing cooperatives and producer alliances, to the most radical change--developing a supply-chain structure for beef production. Which path of change the industry will follow is unclear.

The first section of this article discusses why the beef industry has lost market share to poultry and pork. The second section explains how the structure of the beef industry has contributed to its failure to achieve greater vertical coordination. The third section discusses various forms of vertical coordination the industry might pursue, and the relative merits of each. The article concludes by arguing that marketing cooperatives offer the best chance for the industry to recapture market share.

I. WHY HAS BEEF LOST MARKET SHARE?

The beef industry has lost its competitive advantage against the pork and poultry industry over the past two decades. Where beef was once the meat of choice for consumers, it has seen a steady decline in market share since the 1970s. In 1975 beef accounted for roughly 48 percent of consumption of meat products (including poultry). By 1997, that share had plunged to 32 percent (Chart 1).

[CHART 1 OMITTED]

Beef's decline in market share has prompted analysts to propose a number of explanations for the American consumer's waning interest in beef. Analysts disagree as to whether the decline in beef consumption represents the effect of price or nonprice factors such as consistent quality, lifestyle changes, or health concerns. Regardless of the cause, overcoming beef's inability to compete with other meat products is the critical challenge facing the industry.

Perhaps the key to meeting the competitive challenge posed by other meats lies in understanding the success of the other segments of the meat industry. Many analysts believe that the poultry and pork industries have been successful by transforming themselves into consumer-driven industries, a move that has both driven down costs and enhanced the consumer appeal of their products. A key in accomplishing the transformation was achieving a high degree of coordination between different links in the production chain, or vertical coordination. Beef's failure to achieve greater vertical coordination, and thus transform itself into a more consumer-driven industry, may explain its declining market share. …

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