KDC: Good morning Jim, could you tell our readers about your background?
JH: I was in other businesses for several years, eventually returning to the family farm. The farm has been in our family for 216 years. I wanted to keep the farm in the family so came back to farming. First I rented the land and then in 2000 I bought the family farm along with additional land. Since then I have been working to make it a sustainable business. Today I have an all cow/calf operation.
Through the evolution of my business, I continually noticed that the price I received for my cattle was consistently below the market price in other areas. This was even more pronounced with the cow/calf operation where I was only selling calves at 10 to 15 at a time. The economics just were not working even though I tried various marketing channels. Always I was looking for a better price. With everything I tried, still the price I received was $100 to $150 per animal below the market price.
Back in 2010, I finally had a meeting in Harrisburg with Russell Redding, the then Secretary of Agriculture (Russell just returned as PA’s newest Secretary of Agriculture). With his encouragement we organized a regional meeting with other beef producers. This brought together producers who had not previously been together; about two thirds of the people attending that meeting I had not met before. One thing that stands out in my mind about that meeting was finding out that one of the other producers in the room had been doing what I had been doing -- gathering price data from local markets over time. Our two datasets clearly showed the consistently below market price we were getting for our cattle. We realized that unless something changed, we were not going to survive.
The idea started for cooperative marketing started in that room. We began to work on details. The Keystone Beef Marketing Network (KBMN) was formed as a nonprofit organization in June 2010. The PA Department of Agriculture supported our start up with money for salaries, but nothing for operations. Since we also needed money for operations, we reached out to a farmer-owned cooperative headquartered in nearby Ohio. United Producers Incorporated (UPI) had interest in strengthening the PA beef industry. They agreed to partner with us in the new endeavor.
KDC: What is KBMN and what is your role?
JH: It is organized as a nonprofit, operating on cooperative principles. We are a coordinated beef-marketing organization focused on PA born and raised beef. We do the management of the marketing. Our goal is to handle multiple marketings of the same animal – calf, feeder, and finished cow – through to the grocery outlet. The sole purpose of this non-profit organization is the enhancement of income for all entities of the PA beef industry. Specifically, the business mission is to establish and organize the availability of PA born and raised beef animals into the retail marketing channel.
Other farmers and entities are trying to get the premium for branded beef. This is the price between commodity beef versus a branded product. We are trying to get our price close to the commodity price and to then allow the retailer to get the branded premium. We want to widen the marketing channel. We are doing that by increasing the efficiencies, watching costs along the route. We eliminate unnecessary expenses and are harvesting economies of scale.
KBMN does not have members, just an 8 person Board of Directors. Our partner cooperative, UPI, helps us aggregate and market most of our beef. The farmers in our network become members of UPI. I am one of the founders of KBMN and am currently President of the Board of Directors.
KDC: As you look to the future what do you see as the greatest opportunities and trends for KBMN?
JH: Let me segment the beef business into three stages: cow/calf, backgrounding, and feedlot. Each has their own opportunities and challenges.
For the cow/calf segment, we see consistent growth and a continuation of doing what we have been doing. We recently put together a third collection/aggregation station. We are also focused on bringing healthier calves to market. When we started, about 1/3 of the calves we marketed were vaccinated. We are up to 2/3rds now. Historically vaccinating was not profitable, the producer did not get back the cost of the vaccinations. But now that is changing. Producers are receiving $75 to $100 more per head for vaccinated calves.
The other thing we are doing is working on putting together more uniform lots of cattle. The buyers want as homogenous a lot as possible. This means similar weight and condition. There is a price premium for uniformity.
As I look into the future, I see a significant need more collection facilities. For example from my place to buying station is 60 plus miles. Others are 120 miles over ridges to get to sales facilities. We need to understand how to get facilities closer to the farms, so cattle aren’t trucked over a 100 miles.
The second stage is the backgrounding. The stocker/backgrounder is a key component in the production cycle. It is the process of taking a 400 to 600 pound weaned calf from the cow/calf producer and growing it to an 800 to 900 pound (adolescent) yearling. Backgrounders are the primary customers for weaned calves from cow/calf producers and are the first stage for a KBMN marketing.
In PA, the backgrounding industry is very small. So KBMN had been working to expand this industry. We want to keep these animals in the state and if the backgrounding industry grows, we will be able to do this. We are holding educational forums, hoping to expand the industry.
The final stage for marketing before retail is the feedlots. The PA feedlot people are in pretty good shape. We have significant feedlot capacity. But we still need to establish the market channels for PA only beef.
And at the retail level we are currently marketing PA-only beef into 8 grocery stores. One of things we are working on at the retailing stage is the packaging. The stores want Cryovac packaging and we had been shipping in wax boxes. Cryovac gives more shelf life and is less messy. A Cryovac machine is about $25,000 so this is difficult for a small processing facility to afford. Currently we are also looking at reusable totes for shipping the Cryovac packages into the grocery stores.
KDC: What attracted you and the other organizers to the cooperative model?
JH: We have more market power together than operating as individual businesses. We are increasing efficiencies in marketing and benefiting from economies of scale. Our philosophy is to work together to the benefit of the group rather than the individual. My understanding is this is the basis of the cooperative philosophy. And of course our main partner is a cooperative.
KDC: And finally, what is the view from your doorstep?
JH: Snow! But I also see some of our pastures and a few cattle. But mostly I just see winter right now.