Evaluating My Beef Checkoff Return on Investment, by Vaughn Meyer
Evaluating My Beef Checkoff Return on Investment
By Vaughn Meyer
In 1985 most cattlemen proudly acknowledged the passage of the Beef Promotion Act and Order that authorized a $1 per head checkoff assessment (Beef Checkoff) for the promotion of our own product, beef. These were exciting times with great expectations for improving both beef demand and severely depressed cattle markets.
The passage of the Act and Order culminated many years of congressional debate and wrangling which began in 1972. Many changes were made to the Act and Order leading up to 1985 but probably the most deceiving change was the striking of the letters “U.S.” preceding the word “beef” when used in conjunction with “domestic beef promotion”. The 1985 Act and Order and the 13 years of congressional debate were based off the 94th Congresses H.R. 7656 Public Law 94-294 which states the purpose of the program is to, “maintain and expand domestic and foreign market uses for United States beef”. We cattle producers were sold a U.S. beef promotion program only to realize packers and importers changed the terminology and gained control.
Our second lesson in marketing U.S. beef came about this past summer when many of the same large corporate interests tricked congress into killing mandatory Country of Origin Labeling (COOL). However this second time around these anti US beef corporates were aided and abetted by several of our own producer organizations with packer affiliations.
Looking closer at organizations that helped to deprive cattlemen of COOL, we find the United States Meat Export Federation (USMEF) joined the kill-COOL effort by urging Congress to repeal COOL. The USMEF did this after a U.S. appellate court rejected a multi-organizational lawsuit filed in 2013 alleging COOL was unconstitutional. Was USMEF, the second largest contractor of beef checkoff dollars and a recipient of federal matching funds, biting the hand that fed them? Phil Seng, USMEF CEO, may be having second thoughts after our 2015 beef exports declined to 11% of sales. Mr. Seng said, “We must continue to find innovative ways to differentiate U.S. products, win back market share and regain momentum for exports in 2016.” A novel idea Mr. Seng! If labeling safe and wholesome U.S. beef products is good for 11% of the exports, perhaps the same would be beneficial for 89% of sales that occur in our domestic markets! Kind of falls under cowboy logic; one might as well feed the other 89% of the herd as they are just as important to our survival.
The National Cattlemen’s Beef Association (NCBA) is the Cattlemen’s Beef Board’s (CBB’s) largest contractor and receives over 68% of CBB checkoff dollars, which make up over 82% of the NCBA’s annual budget, joined the 2013 suit to kill COOL. This was not their first “Anti-U.S. Beef” venture as they maintain a ”joined at the hip” alliance with the corporate packing industry. In other words, when it comes to marketing issues strike the word “cattlemen” out of their name! NCBA past president, Phillip Ellis, recently bragged on their success of killing COOL which effectively prohibits U.S. consumers from choosing safe and wholesome U.S. beef.
As cattlemen, our $1 per head checkoff investment sounds very minute alongside all the other associated production expenses. However, that dollar when combined with others becomes nearly $80 million dollars annually. So now that minuscule little dollar sounds more important, but compared to the 2015 market crash manipulated in part by our two largest checkoff contractors, that $80 million is still very insignificant.
In the early summer of 2015 the actions of these “Anti-U.S. Beef” cronies were effective in scaring Congress into passing legislation to begin killing COOL. Congressional action immediately initiated the downward plunge of our beef markets. In addition to Congress’s newly created captive supply, the loss of COOL relegated all cattle and all beef as generic commodities. In addition USDA lifted the import restrictions on South American beef thereby raising expectations for more future captive supplies and dropping cattle markets by 30%. Just six months earlier the NCBA’s own economist forecasted continued strong markets through 2018 but even he did not anticipate the captive supply factor of generic cattle and beef.
By the fall of 2015 with all the stop gates thrown wide open, it was an opportune time for packers, processors and retailers to steal record high producer profits to line their own pockets. Packer profits for the period since June of 2015 have risen to $199 per head according to Sterling Marketing while producer feeder cattle declined nearly $533 per head. Throughout this same period consumer beef demand remained high with over the counter prices at record levels indicating producer losses were not passed through the production chain into the shopping cart.
Just how large were these producer losses? Using Sterling Marketing and Beef USA figures the feeder industry lost $4.7billion, beef producers lost $9.6 billion and the dairy and veal industry lost nearly $1.8 billion for a grand total of $16.1 billion.
To put these figures in perspective the market losses are about 200 times the value of our total checkoff revenue. The two major benefactors of our $1.00 per head checkoff dollar used their checkoff- bolstered clout to turn our U.S. cattle herd into a generic cattle herd by repealing COOL. As a result our $1.00 checkoff investment was effectively used to extract billions of dollars from U.S. cattlemen. However, the full amount of the $80million checkoff revenue cannot be attributed to contractor actions because one-half of all revenues are retained by state beef councils that invest in research, promotion, education and communications. Also, a portion of the revenues received by CBB is used effectively by the hard working staff of the CBB that promotes beef’s image, educates consumers and producers and initiates research projects to improve our product.
To step back and assess the value of that single checkoff dollar let’s review a 2014 CBB contracted Return on Investment (ROI) study conducted by Dr. Harry M. Kaiser of Cornell University. That study analyzed years 2006-2013 and found a return on investment of $11.20 for every checkoff dollar invested. This was a very healthy ROI but one also has to remember that most of those years were associated with a domestic market that was responding very positively to the 2008 nationwide implementation of mandatory COOL.
So one has to ask, “If the checkoff ROI was positive during the high market-price years and Dr. Kaiser’s research is taking credit for the market gains resulting from the implementation of mandatory COOL, what is the current ROI for the 2015-2016 markets after being pillaged by the kill-COOL actions of our two top checkoff contractors?”
To calculate an answer to the above question we find that within the CBB’s 2015 Authorization Requests for contract work, these two top contractors were awarded $47.1 million, or 96% of the total CBB budget. Taking into consideration the $16.1 billion in equity losses suffered in 2015 which were aided and abetted through the litigation and lobbying efforts carried out by these largest checkoff contractors, we can calculate a 2015 return on investment of a minus $342 per head! Giving credit for the Dr. Kaiser study (2006-2013) your 10 year ROI for each checkoff dollar invested would be a negative $331!
Having served for 11 years on my South Dakota State Beef Council and almost 6 years as a director on the CBB, I have witnessed many positive outcomes from our consumer education efforts, including the recent reinforcement of beef’s role in the Federal Dietary Guidelines. However, if we continue to allow these checkoff abuses by our two top CBB contractors and we continue to neglect the original Act and Order’s intent to expand domestic and foreign market uses for “United States” beef, we are jeopardizing our ability to maintain the beneficial state and national consumer information programs.
Since 1985 we have lost over 400,000 beef producers and 25 million cows. Since June 2015 those of us remaining have needlessly lost $533 per animal and have realized an unfathomable negative $331 return on each dollar invested with our two top contractors! If producers and their beef checkoff are to survive, these statistics need to be reversed! It is time for responsible checkoff reform from our congressional leaders. It is time to direct our Secretary of Agriculture to initiate beef checkoff reform immediately!
That minuscule checkoff dollar translates into the cow/calf producer’s largest production expense when CBB contractors are allowed to run roughshod and unchecked!
The Kaiser study is highly deceptive. Kaiser never evaluated returns to cattlemen. He evaluated returns to the “industry,” which included packer profits; he did not separate the benefits (costs?) to cow/calf operators and to feeders from packer profits.
Kaiser and the CBB have refused to publicly disclose the data used for the study. Heck, there is so much CON in eCONometrics that reputable academic journals now require disclosure of data. With good reason.
CBB, show us your expenditure data and anything else you provided to Kaiser.
C. Robert Taylor
Professor Emeritus of Agricultural Economics