About a week before Prime Minister Harper signed off on the Korean Free Trade agreement and released the text of the Comprehensive Economic and Trade Agreement between Canada and the European Union, Jeff Cline was giving the Canada Beef forum in Toronto a look at how a packer sizes up his various markets.
Cline started out his career by earning a teaching degree from Brandon University before collecting an MBA and heading to Japan to teach English and learn Japanese. After three years in Japan he joined Cargill in High River as a sales account manager and five years later transferred to the Cargill Beef’s headquarters in Wichita, Kansas where he is now the senior program manager, international beef, for Cargill.
A large portion of his talk dealt with variety meats (a nicer term for offal) and the role market access plays in his attempts to maximize the value of every carcass that comes out of the eight plants that Cargill operates in North America. They also market Australian beef through a joint venture with Teys Australia.
North Americans may turn their noses up at variety meats but in many parts of the world offal is sought after and can drive profits. Far from being the leftover bits, variety meats are a large and vital portion of the export business but it takes some management to gain the maximum value from this portion of the carcass. You can’t just throw it in a box and expect top price for it.
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Take tongue for example. Traditionally the highest-value product per pound among the variety meats, tongue also offers numerous opportunities to add value in processing. You can trim the tip off or skin it to produce a product that looks nothing like tongue when it is presented to a Japanese consumer in the supermarket.
Cline says tendons provide a good example of how access to multiple markets can leverage up the value of a beef product. There is demand for tendons in many countries but it isn’t a large market. If Korea, say, was the only market open for beef tendons Cargill alone could easily flood the market. But with access to Korea, Japan, Hong Kong and the U.S. they have buyers scrapping for a shrinking supply on this particular product. As a result the world price has gone from $1 to $2 and more recently $3 per pound. To gain that value though you must have the labour available at the plant to trim the tendons properly and in a fashion that suits the buyers in different countries. In Japan, for instance, consumers like to see them laying out straight like a cucumber.
Large intestine presents a similar marketing challenge where the return for the extra labour required has to be carefully assessed in each market. In Japan, for example, they need to be split and laid flat in the box. In Korea there is a market for inverted intestine to put the fat on the inside, so it almost looks like a sausage.
This is another of those products where demand and supply must be carefully managed. Cline learned that lesson the hard way when they had a Korean customer offer to take all the inverted intestine they could produce. They did, for six months, then had to call a halt because they had a two-year supply on hand.
“If I put one extra load of intestines into Korea that’s going to crash the market and what does that do to the 20 people at the plant who are producing that product. It’s just so sensitive,” he explained.
The small intestine is used in soups.
Abomasum, the fourth stomach, looks good on the grill in Japan and Korea. Honeycomb tripe, the second stomach, is an attractive product that displays well, and is popular in many cultures.
Omasum, the third stomach, is popular in Hong Kong and China and is starting to rival tongue, fetching close to $6 a pound, more than AA ribs or steaks.
Taken together with the rumen the stomachs can add $20 to $25 to a carcass if they are in good shape. With a burned-out rumen that value is lost. Add the liver, another organ that can be damaged by poor feeding management, and you strip $35 or more from the value of the carcass.
Each of these products puts certain demands on the staff in every plant that Cargill operates which comes with a cost that must be factored into Cline’s marketing plan. Net return is the measure he uses when targeting markets. With high-value cuts and offal the rule is the same, it goes to the highest net return.
In assessing the bigger picture for Canada Cline expects our shipments to the U.S. will shrink some more with time. Japan is probably the quickest win for Canadian beef as we are still running well back of our pre-BSE share of this market, and he thinks we need to target the manufacturing side of the market to regain that share. Focusing on Japan may slow down the growth of our Hong Kong and China business. South Korea will take more time but it will become a major market for years to come.