How will Cattlemen Deal with the Future ?

How will Cattlemen Deal with the Future ?Range Beef Cow Symposium XVIII

Mitchell (NE), December 9-11, 2003

Range Beef Cow Symposium XVIIIMitchell (NE), December 9-11, 2003

© Marc Vanacht - December 2003

QuickTime™ and aDV/DVCPRO - NTSC decompressor

are needed to see this picture.

How will Cattlemen Deal with the Future ?

How will Cattlemen Deal with the Future ?

© Marc Vanacht - December 2003

Mc Donald imposes tighter rules on how its ‘supply chain animals’ are treated

Kraft will ‘reduce the size of its portions’ to help fight the issue of obesity.

Overreaction or ...

Kraft’s parent, Altria, owns Philip Morris & knows about grinding wars with public opinion.

Wal-Mart urges food industry to lower calories & sugar

Frito Lay launches the “Smart Snack” label (WSJ,

8/6/03)

Why do they ‘give in’ ?

QuickTime™ and aGIF decompressor

are needed to see this picture.

© Marc Vanacht - December 2003

BSESource: The Wall Street Journal, May 27, 2003

MEANWHILE ...

Europe tests 20.000 animals PER DAY

Japan tests EVERY bovine in the food chain

In 2001 the US tested +/- 7.000 bovines In 2002 the US tested +/- 20.000 bovinesGREAT !

© Marc Vanacht - December 2003

Fundamental Challenges to

AgricultureAvailability & Cost of Quality Water

Availability & Cost of Knowledgeable Manpower

Downstream Shift of Economic Power

Demanding consumers make future uncertain

International Politics and Power play

© Marc Vanacht - December 2003

The Western US remains in ‘drought alert’

Many pockets ranging from extreme to exeptional

Water

© Marc Vanacht - December 2003

QuickTime™ and aGIF decompressor

are needed to see this picture.

QuickTime™ and aVideo decompressor

are needed to see this picture.

The Issue of waterToday:

Shortages in dry areas

Competition with lawns

Competition with recreation

Competition with energy

2010: highly populated areas

2020: Global shortage (except Canada)

Source: Managing Freshwater Shortages and Regional Water Security Conference

October 24 – 25, 2002, Des Moines, Iowa, USA

© Marc Vanacht - December 2003

Reduced Availability:

Urbanization

Graying of operators

Natural & human disasters (like AIDS in Africa)

Cost: Global supply chain drives up rural wages

The Issue of manpowerSource: ‘Creating Digital Dividends’ Conference,

October 16-18, 2000, Seattle, Washington

© Marc Vanacht - December 2003

Concentration in the food chain (agriculture, transformation, processing & marketing)

Power of retailers

In US: value of agriculture = 15 % of value of food

In US: 50 % of food $$ “out of the home”

➥Need for further integration into the food chain

Shifting Economic Power

QuickTime™ and aGIF decompressor

are needed to see this picture.

QuickTime™ and aGIF decompressor

are needed to see this picture.

© Marc Vanacht - December 2003

The World’s biggest Company is Wal-Mart

Sales: > $244 bn ...

of which Food: > $ 54 bn

Employs > 1.3 million (non-union) ‘associates’ of which 300.000 outside USA

Every week 138 million customers visit a Wal-Mart store

As of 2005 Wal-mart will use RFID for supply chain management (pallet & case)

Power has shifted

Credits: Pink Floyd, A hole in the wall, and Wal-Mart, 2002 Annual Report

© Marc Vanacht - December 2003

Consumers needs and preferences change

Detroit car industry learned the hard way

“Health and Nutrition” is NOT a static target

Food industry is constantly adapting

Fickle Consumers ?

New prods Nutritional claims

‘93 ‘97 ‘01

Low fat 847140

5886

Low cal 609 742 170

No add/pres

543 142 833

Low Sugar 473 78 320

All Natural 449 587156

0

Organic 385 505105

9

Source: World Grain, Sept 2003, p.70

© Marc Vanacht - December 2003

“Origin” affects freedom & cost of product flow

“Cultural” sensitivities vs. process & content

Rural (farm) votes matter... everywhere

Governments want to be seen securing low cost, healthy food for the masses

Recent concerns re. tampering & bio terrorism

Food Politics ... Everywhere

© Marc Vanacht - December 2003

Amazing timing ...

© Marc Vanacht - December 2003

Emerging Food Regulations

Satellite TeleconferenceWednesday, June 18, 200318 Downlink sites in Arizona, California, Idaho, Oregon,North Dakota, Washington, Wisconsin & Canada!

BIOTERRORISM PREPAREDNESS RULES

PRIOR NOTICE RULES FOR IMPORTS

COUNTRY OF ORIGIN LABELING (C.O.O.L.)

FDA FIELD SECURITY ACTIVITIES / USDA INCIDENT PROTOCOL

TRACEABILITY STRATEGIES FOR LARGE & SMALL PROCESSORS

© Marc Vanacht - December 2003

To protect their franchises, food companies & retailers exercise influence upstream

They will achieve new requirements of

- Origin - Management - Process - Product Specs

And Food Companies...

They will get it done ... directly, or through intermediaries / agents

© Marc Vanacht - December 2003

Food: Cargill Inc.

Biggest privately held company ($55 bn)

Integrated chains: Orange juice, Baby food

Converted elevators to Identity Preserved

Cargill owns Excel Beef...

Value Chain Integration

© Marc Vanacht - December 2003

US Business Culture favors

entrepreneurial freedom over regulation

detailed bi-lateral contracts

competition over cooperation

Financial markets do not see food as a investment & growth opportunity, so $$$ will have to come from cash flow

However ...

© Marc Vanacht - December 2003

‘Adversarial’ (zero sum) thinking in the value chain

Inefficiencies accepted as ‘cost of doing business’

It is difficult to change behavior of participants

Obstacles to change

© Marc Vanacht - December 2003

QuickTime™ and aVideo decompressor

are needed to see this picture.

Changes in one part of the value chain will impact (many) other parts of the system

Will Initially try to avoid change, and then try to limit the scope / speed of change

Ultimately change will happen

incrementally

with new infrastructure

with speciality markets

enabled by cash flow created by value

So... System Inertia

© Marc Vanacht - December 2003

Grow food with a lot less resources and people

Sell food to fewer & more global oligopsonistic customers

Make food fit increasingly demanding & diverse consumers needs and tastes

Operate with less clout, leverage & protection

Summarizing: Agriculture (& Beef) will...

© Marc Vanacht - December 2003

How possibly can we do all that without using our brains,

& develop the right strategies ?

How possibly can we do all that without using our brains,

& develop the right strategies ?

Now ...Tell me ...

Now ...Tell me ...

© Marc Vanacht - December 2003

Recent successes ...

DownstreamBar code scanners at the point of saleCleaned, cut & bagged lettuce, mixes &

saladsSupply Chain Management

UpstreamIntegrated water, pest & fertility

mgtImproved genetics & biotechnologyAutomation of field tasksPrecision Agriculture

© Marc Vanacht - December 2003

Large acre arable crops: improve productivity

50 m ac yield monitored, > 15 m ac VRT

~ 30% of acres in corn & soybeans

~ 10% of acres in wheat

Adoption in cotton with new yield monitor

Forestry: GIS & images for early warning

Precision Ag. in the US

© Marc Vanacht - December 2003

Credits: Trimble Navigation

Farms confronting sustainability issues:

large animal confinement: manage ”byproducts”

range land: to avoid overgrazing

Managing ‘land’ aspects of livestock operations

irrigated crops: water shortages

high manpower cost: automation, productivity

social pressure at the rural - suburban edge

P.A. Expansion

© Marc Vanacht - December 2003

Wireless &Wi-Fi (802.11) TODAY:

Wine Estates, for real time data transfer from equipment & monitors

Trucks & elevators

‘Les Culturales’ Ag Show

InfoAg 2003 (Indy, July)

Imagine ... in ? years: field equipment & animals wirelessly connected to dealers, farm computer(s), service providers, customers ...

Wireless in Agriculture

© Marc Vanacht - December 2003

Small devices that receive, store & send data

‘Read-write’ capability of RFID could turn it into “embedded traceability”

Ruggedness seems no issue

Costs are coming down fast (5ct now)

RFID (Radio Frequency IDentification)

© Marc Vanacht - December 2003

GPS: First military tactical use in Gulf War I,

First agricultural use within 5 years

RFID: First military tactical use in Gulf War II,

Navy (dogtags)

All supplies by 2005!

When will we see agricultural use ...?

GPS & RFID... From military to civilian

use

© Marc Vanacht - December 2003

In 2003 Gillette buys 500 million RFID tags @ 10 cents/piece for inventory management

P & G will implement in 2004

Air Canada asset tracking

Luggage handling @ Las Vegas, Brussels and Stockholm airports (End 2003)

Ford’s engine plant in Windsor Ontario (A.)

Michelin Tires (Sensors & tracking)

Commercial use of RFID...

© Marc Vanacht - December 2003

June 10, 2003, Wal-Mart announces it expects main suppliers to switch to RFID by Jan. 2005, for pallet & case inventory management

Library of Rockefeller University in NY (A.)

Sainsbury’s (UK grocer) (Experimental)

RFID in Retail & Services

© Marc Vanacht - December 2003

Animal ID Systems (Greeley, CO)

VeriPrime Inc. (Wichita, KS)

EC Research Center Test

1998-2001

440,000 beef - 490,000 sheep - 30,000 goats

France - Germany - Italy - Holland - Spain - Portugal

Injectable - Digestive tract - Ear tag

Technology works and is ready for commercial implementation - inclusion in management systems

RFID in Agriculture

© Marc Vanacht - December 2003

Technology CyclesClassic Model: Paced Succession

Example:Wind to Steam to Diesel

© Marc Vanacht - December 2003

Technology CyclesHi-Tech Model:Time Compression

Example:Intel Pentium 1 - 2 - 3 - 4

© Marc Vanacht - December 2003

QuickTime™ and aVideo decompressor

are needed to see this picture.

When your next truck ... phone ... computer ?

Who will buy your calves in 2004?

A few questions ...

© Marc Vanacht - December 2003

How many cycles before 2010? Two? Three? Four?

Which ones will we participate in?

New Zealand Lamb, and Tyson Foods (our biggest customer) put RFID tags on their shipments to Wal-Mart

Argentina Beef effectively complies with Bio-Terrorism Act traceability requirements

Chronic Wasting Disease becomes a household word, just like .....

How prepared will we be when ....

© Marc Vanacht - December 2003

Quality

© Marc Vanacht - December 2003

Consumers pay for Quality

Customers pay for Quality

Quality means profit

Quality usually entails:

Something tangible / measurable

A repeatable process & predictable results

Up/downstream traceability (documentation)

Genetics

Grid

Boxed

Weight

Consistency

Tangible & Measurable

© Marc Vanacht - December 2003

Formal planning

Record ‘as done’

Track results

Analyze deviations

Feedback loops

Integrated: compliance by the entire chain

Process & Result

Been there - Done that: Salmon ... 5 years Hogs ... 15 years Poultry ... 25 years Kosher ... 2500 years

Been there - Done that: Salmon ... 5 years Hogs ... 15 years Poultry ... 25 years Kosher ... 2500 years

Notebook --> handful of units

Ledger & tags --> few dozen units

PC & Worksheets --> low hundreds

Database & barcodes --> mid/high hundreds

RFID beyond thousand

RFID if special value or high integration, whatever the size of herd !

Documents - Traceability

© Marc Vanacht - December 2003

Now is the time to ...Now is the time to ...Enjoy the prices ... before they self-destroy

Invest in Cost reduction, for the next downturn

Invest in Quality, to get more value

Integrate into the Value Chain

Enjoy the prices ... before they self-destroy

Invest in Cost reduction, for the next downturn

Invest in Quality, to get more value

Integrate into the Value Chain

THINK QUALITY & PROOF of QUALITY

SO ... THINK FOOD LOTS OF FOOD

THINK SECURITY & PROOF OF SECURITY

© Marc Vanacht - December 2003

QuickTime™ and aVideo decompressor

are needed to see this picture.

Thank You !