From the time homesteaders stretched the first strand of barbed wire America's beef industry was destined to change. And at every critical junction in the storied past of America's cattle industry, change was vehemently resisted.

Today, beef producers are faced with an industry that is struggling to find its place in a modern society. Consumers are demanding, yet impatient. They want quality food products with the convenience of easy preparation. If one product line, such as beef, can't deliver on those demands consumers quickly move to a product that can-poultry or pork, for instance. That, in a nutshell, is driving the upheaval of rapid change in today's beef industry.

Wal-Mart effect

Twenty-two years ago Americans consumed 95 pounds of beef per person. During 1999, consumption will be approximately 63 pounds, a decline of nearly 34 percent. Such rapid decline in consumption affects much more than just cow-calf producers. Every segment of the beef industry faces the same problem-trying to push product through a marketing channel which has weakened demand pulling it from the other end. Any industry with such a problem will experience consolidation as businesses close. Unfortunately, many beef businesses forced to close during the current economic squeeze are family operated cow-calf, stocker and feedyard operations. Many family owned packing and processing companies have also closed during the past 20 years, leaving just four firms controlling more than 80 percent of the industry's slaughter capacity.

"The whole food and fiber system is being Wal-Marted," says Wayne Purcell, professor of agricultural economics at Virginia Tech and director of the Research Institute on Livestock Pricing. "The Wal-Mart effect is: If you can do it bigger, you can do it cheaper. We may not like it, but the consumer likes cheap foods. At least some of the benefits of the larger, lower-cost processing operations are being passed on to consumers."

But consolidation of the packing industry and the resulting lower costs have not been enough to stop beef's erosion of market share. That's because despite their size and their ability to swing a big stick in the market, packers have had little control over product quality. Dr. Purcell suggests that today's pork industry is an example of how an industry took control of product quality.

"I think pork people would argue that they needed to coordinate vertically, including vertical integration, to gain any quality control. The pork pricing mechanism really wasn't distinguishing between low value and high value hogs in any effective way," says Dr. Purcell.

Quality control

Economic turmoil, such as seen in the beef industry the past few years, also presents opportunities for survivors and those willing to innovate. Beef's problems are nearly identical to those of the pork industry 10 years ago. And like pork producers, many beef producers are working to create new production and marketing systems that reward quality.

"There is more opportunity in beef agribusiness right now than at any time in history," says Tom Hogan, president of AGRI-PLAN Corp., a Marietta, Ga., agricultural business consulting firm. "We have technology just waiting for us to use that is worth literally hundreds of dollars per finished animal."

Many producers seem to agree, and are building production and marketing systems to capitalize on the opportunities ahead. For instance, at least 30 beef cattle alliances are operating that marketed between 2 percent and 4 percent of the total cattle slaughtered in America last year. Some of these programs are operated by packing companies, some by breed associations and others by independent ranchers and feeders. But all are functioning with similar goals-identify higher-value animals and reward those who are willing to produce higher value animals.

"Alliances are a way to create vertical coordination without one individual or one company having to own the animal at every stage of production," says Dr. Purcell. "We need alliances or some form of vertical coordination so we can develop some quality control in order to offer a product that the modern consumer wants. There will be an economic benefit and payoff to any group of people who identify a consumer sector and serve its needs."

Many alliances, and a growing number of independent producers and feeders, are utilizing new technologies to enhance performance and improve quality.

"We have very accurate EPDs available through our breed associations," says Mr. Hogan. "And we have ultrasound technology that, when used on an 800-pound animal, can predict with 90 percent accuracy when an animal should be harvested and what the animal should grade. Those are just two of the technologies all producers should be using to improve their product."

Most alliances or vertical coordination systems already are providing advanced services to participants, including collecting carcass data to improve future genetic selections.

Lifestyle or business?

For many beef producers, phrases such as vertical coordination, vertical integration, contract production and alliances carry a negative image. They suggest a loss of control and a lack of independence. Many ranchers believe current trends suggest the industry's future structure will look too much like the poultry industry-a handful of corporate players dominating the market. Can that happen to beef?

"It's unlikely," says an executive with one of beef's major corporate players. Speaking on the condition of anonymity, he says because the cattle industry is land- or forage-based, it would be impractical for a corporation to own the assets necessary to totally integrate. He also disputes the idea that the feeding industry is as concentrated as perceived.

"Concentration in the feeding industry is hard to identify, because the people who own the feedyards don't own all the cattle. If they did, this past year would have taken a lot of them out."

He says that value-based marketing systems, such as those found in alliances, may actually help control feedyard concentration. "There's always an incentive for people to retain ownership if they have cattle that they can increase in value. As cattle start selling in value-based ways, those that have better cattle will have the incentive to try to capture part of that value."

Alliances, however, will take some of a rancher's independence, says Dr. Purcell. "Alliance members are going to lose some of their decision-making authority because they must be subservient to the needs of the whole. But alliances are a way to get the coordination and quality control we need while compensating the original producer in accordance with value."

The reality of the evolving beef production and marketing system is that many successful producers will give up a little of their independence to participate in the more profitable alliances.

Mr. Hogan agrees, and AGRI-PLAN's business philosophy speaks volumes about the tough choices facing many producers:

"Agriculture as a lifestyle is a terrible business; but agriculture as a business is a wonderful lifestyle."

"I've had a lot of producers tell me they don't want to end up as a serf on their own land," Mr. Hogan says. "I ask them, `Do you want to maintain your lifestyle and give up a little of your independence, or do you want to just hang on to your independence? When the banker shuts you off you have zero independence.'"

The road back

Changes for beef producers over the next few years are likely to be dramatic. Whether you prosper during this time may depend on your willingness to make hard business decisions and embrace non-traditional ideas.

"It's going to be difficult to revitalize this industry unless we move toward alliances or some form of vertical coordination so we can control quality and offer a product consumers want," Dr. Purcell says. "There's a road back to growth and success and growing market share-if we'll just understand that the only dollars out there to compensate every participant in this industry are what the consumer is willing to pay. And we've got to offer consumers something they're willing to pay for."