Testimony

of

John S. Butler, President and CEO

Ranchers Renaissance Cooperative, Inc.

to the

Senate Agriculture, Nutrition and Forestry Committee

The Honorable Tom Harkin, Chairman

July 16, 2002

Proposed Ban on Packer Ownership

and

Enforcement of the Packers and Stockyards Act

Introduction

Chairman Harkin, Senator Lugar, and members of the Senate Agriculture Committee, I am John Butler, President and CEO of Ranchers Renaissance. I represent beef producers who are involved in every segment of beef production, ranging from ranching to marketing branded beef. I have been involved in the cattle and/or beef industry my entire life, and am pleased to be given the opportunity to discuss with you an issue that is a top priority for us all.

You are holding this hearing to consider government intervention and/or regulation to resolve the beef industry's marketing challenges. I appreciate your desire to help. However, there are a number of issues--including fundamental supply and demand challenges--that have created this situation. Whether or not packers are involved in the ownership of cattle will not change these significant factors.

I am here today to briefly explain to you an initiative that was created by producers six years ago to address many of the fundamental problems associated with the commodity beef marketing system. Ranchers Renaissance is an example of how producers and packers can work together to regain precious market share and most importantly sustain long-term profitability. Removing any participant of this system dramatically and negatively affects those remaining.

Ranchers Renaissance Cooperative

In 1997, a meeting initiated by a group of beef industry leaders was held to address key marketing problems facing the ranching community. They agreed that it would be necessary to have a common focus to affectively address concerns related to the flawed commodity pricing and marketing system. They agreed the focus should be driven by the consumer, and that consumers would embrace a branded beef product that delivered on a promise. Such a commitment would require consistent processes to meet the quality and consistency elements essential to a successful brand. It was also agreed that this consistent process would require a steady supply of predictable cattle to fill the products of a branded line. In addition, being fairly rewarded for producing value based on consumer demand was a priority. From this initial meeting, it was obvious that developing partnerships that cross over from one segment to the other in the beef-producing value chain would be the solution to pursue. The result of these discussions was Ranchers Renaissance. Ranchers Renaissance was conceived as a vertically integrated cattle marketing cooperative. Our mission is to be "A customer-focused, high-quality, integrated beef production system with profits derived from increased efficiency and consistent, value-added, finished products."

The Ranchers Renaissance membership consists of ranches, feed yards, and a packer/processor. Our cooperative was designed to accommodate ranches of varying sizes. Our ranch members own or manage 100 cows or more and are located in numerous states from Florida to Hawaii. Our feed yards are privately owned and range in size from 12,000 to 45,000 head capacity. We utilize different genetics based on environmental conditions and are able to use cattle from different regions with different calving seasons so that we can produce beef that will meet the agreed upon specifications 365 days a year. After five years of working with these producers, I can assure you that they have at least two things in common--one, tremendous independence, and two, a passionate commitment to our vision.

The Structure

Essentially, we have created a systems approach to beef production. Rather than operating as individual segments within the system, the members of Ranchers Renaissance have aligned and have agreed to a number of quality standards for the entire value chain that were developed to ensure the production of consistent beef that will meet or exceed consumer expectations. The system we have implemented is not rocket science. It is, however, a series of validated production and best management practices that result in a higher quality, more consistent product. You might say "So what? You have a system that has the ability to produce higher quality, more consistent cattle. How does this help cattlemen?" Good question.

The next step in our process was to merchandise our efforts to an end user and to develop economic drivers to reward producers for creating value in a product that the consumer demands. We have done so, and have now become a critical supplier to the brand "Cattlemen's Collection" which is now being merchandised as the every-day beef product and represents the entire fresh meat case in more than 350 Kroger stores. In less than a year, the consumer has changed buying behavior in these markets and actually purchased more beef products. In addition, the consumer is gaining brand recognition as well as loyalty. We are now in the process of expanding this program into additional regions of the country.

It is important for you to appreciate that the ultimate value in our branded product is the result of synergy between segments (rancher, feed yard, and packer/processor). In other words, each of our members is responsible for a contribution to the promise we have made to the consumer. As an example, the ranchers add value by using the right genetics and best management practices to produce a healthy calf to be nominated to Ranchers Renaissance. The feed yard members add value by managing and feeding the cattle in a processes verified manner, and harvesting these animals to meet featuring needs of the end user. Our packer/processor member adds value by disassembling and fabricating the animals to ensure the timely delivery of product. In addition, their expertise in marketing and merchandising our beef to meet the brand criteria is a critical responsibility.

In total, we have twenty-four quality control points that build on the promise to our brand. Adhering to these specifications is not easy, nor is it cheap. We have added costs to our system, including better genetics, more intensive management, and electronic identification tags. Our members are convinced that making these changes to develop a differentiated product for the consumer creates more value.

Shared Risk and Reward

Traditionally, if a rancher manages the animal from start to finish, he assumes virtually all the risk. In our system, we have created a financial model that shares risk between segments. This has allowed our ranch members much more flexibility since they now have a true partner who shares a portion of the risk of what can be a volatile business.

The beef industry, and ultimately the American consumer have suffered because of the commodity cattle marketing system, a system that does not send clear economic signals relative to value. Traditionally, poorer cattle are unfairly rewarded as they have been accounted for in the "average." At the same time, higher-quality cattle have not been adequately rewarded for the same reason. This commodity system has resulted in a very inconsistent product for the consumer. In fact, research indicates that one in four eating experiences of commodity beef is unacceptable by the consumer. Our system has been designed to recognize value, reward those responsible for the creation of this value, and provide the consumer an exceptional eating experience every time.

As I mentioned earlier, each segment, the rancher, the feed yard, and the packer/processor, is a part of the system and therefore receives a portion of the added value. The ban on packer ownership would create restrictions that would force us to dismantle what is a very successful system.

Summary

There are volumes of consumer research indicating that beef demand has halted its decline and in fact turned the corner and is on the way up. A significant portion of this increase in demand has been the result of the successful implementation of a number of branded programs which are now bringing more beef value to the consumer. As I said earlier, our program is neither rocket science nor a silver bullet. We have a long way to go and I ask that you give careful consideration to restricting our freedom and ability to implement a business strategy that could result in strengthening the long-term viability of cattle producers.

I would also like to share with you that Ranchers Renaissance has been invited to participate in a coalition of cattle alliances. There are now 22 participants in the Cattlemen's Alliance Coalition. Though each of these alliances belonging to the coalition is structured differently, the vast majority would be in jeopardy if the ban on packer ownership became law.

Eric Davis with the National Cattlemen's Beef Association has outlined a series of recommendations from the Price Discovery Think Tank that is supported by the membership of Ranchers Renaissance. I would encourage support for the study requested to evaluate the meat protein complex. It appears that the results from such a study would provide all of us with an objective foundation from which we could work together and make appropriate changes within our industry if necessary.

Chairman Harkin, thank you for the opportunity to participate in this hearing and I would be happy to answer any questions you may have.