Animal AgTech

Prime Future 85: Minimum viable management isn’t enough

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If we’re gonna do this topic then we have to follow the story all the way to the end. Are you in?

Last week an exceptionally forward thinking rancher said in a sustainability discussion that the lowest hanging fruit to level up the US cattle herd is for every calf to get an eartag. Not an EID, an old school humble visual tag.

That simple step, and marrying the calf’s number with the cow’s number, allows producers to get a handle on each cow’s productivity and performance which allows them to manage their herd more precisely.

That simple step is the first baby step in shifting from managing at a herd level to an individual cow level. It is cattle 101, something the good & great (even mediocre) producers have been doing for decades.

Yet, you’re telling me there’s a meaningful chunk of the US cattle industry that is not even tagging their calves?

The idea that tagging calves represents a meaningful way for a meaningful chunk of producers to level up is….alarming. And it should be alarming for the mediocre/good/great producers. If tagging calves is the bar, the bar is…low.

In a time where hyper-innovative producers are deploying advanced genetics strategies, intensive rotational grazing, or non-traditional marketing agreements, over on the other end of the spectrum putting a mere visual tag in every calf’s ear can be considered a proxy for minimum viable management.

Suboptimal cattle production isn’t just an innocuous segment that has no effect on the rest. Poorly managed cattle are a drag on the whole system. And the impacts of the drag are worsening as the industry looks to address the big challenges.

This begs a few questions.

What is good management? It starts with a business approach, not a lifestyle mentality, which means things like:

  1. Sound financial management.
  2. Strong resource management – capital, land/soil, water, grass, livestock.
  3. Clear KPI’s to manage and optimize.
  4. Pursuit of excellence – however you measure it for yourself and your business.

“If a man is called to be a street sweeper, he should sweep streets even as Michelangelo painted, or Beethoven composed music, or Shakespeare wrote poetry. He should sweep streets so well that all the hosts of heaven and earth will pause to say, ‘Here lived a great street sweeper who did his job well. ‘” – MLK

There are many excellence-oriented producers.

There are also many existence-oriented producers. (Synonyms in this context: mediocre, ordinary, status quo maintainers, hobbyists.)

And the gap between the two is widening. Imagine that at the extreme edge of excellence-oriented producers are those pushing boundaries in all areas or maybe even hounding feedyards and packers for individual animal data on how cattle perform in the feedyard and on the rail so the producer can use that data to iterate on genetics and produce a more premium end product. And on the opposite end of the extreme edge of existence-oriented producers are those still operating at a brand level (herd level), largely raising cattle the same way cattle were raised back in the day: low cost, low touch, no tech.

The easy thing to do would be to assume that large operations are better managed than small operations. In the United States, ~10% of cattle producers own 100+ cows, yet this segment owns ~56% of total beef cows. The average is ~43 cows, which means the average of the ~44% of cows is actually much lower than 43.

But herd size isn’t necessarily a good predictor. We have talked previously about an alternative mental model to think about quality of an enterprise than simply scale:

“Big business can be good, small business can be bad. Vice versa. Size is not the indicator of success and it’s definitely not the goal.

My hypothesis is that scale is a lagging indicator; velocity of business model innovation is the leading indicator of success.

I think the successful producers (or packers or xyz business) who will thrive come-what-may are the ones who don’t think of their business based solely in terms of the output (corn, soy, weaned calves, whatever), but rather view their business as a business model that is is in continual refinement. They constantly ask what’s the process that most effectively generates the output. They think in systems that can optimized.

It seems that the really successful producers are the ones that have a vision of where they are going and how they will get there. There’s no doing it this way because that’s how we’ve done it, there’s no growth for the sake of the growth. There is only relentless learning and improvement.

The great producers realize that they aren’t selling just a commodity output, they are selling their business model.”

Some portion of those <50 head operations are incredibly well managed operations that consistently send high quality cattle into the value chain.

And, some of those small herds exist for the fun of it, or so that someone’s ego is flattered by the status symbol of owning cattle, or so that a landowner qualifies for an ag exemption, reducing their property taxes by assessing the productive value of the land rather than the market value of land.

But again, excellence oriented producers come in all herd sizes. The distinction is in their objective and their management framework.

Take a producer with a lifelong goal to improve their business and steward their resources and pass on a viable cattle business to the next generation like the producer on Twitter who said he was going to start writing an annual report about his family’s cattle business for the benefit of both current and future shareholders, presumably his children. Then take the producer who really just wants an excuse to wear a cowboy hat, or a way to reduce their property tax burden, or does this because it’s all they know and they raise cattle the way their grandparents did.

The two are not the same.

As one cattle producer puts it, “it isn’t hard to be above average in this business.”

In the past, it’s been kinda easy for the excellent producers to ignore the existence producers, the below average producers. But as the industry leans in to address big problems (which happens to create opportunity for those at the front edge), the existence-oriented producers are creating a drag that could become an existential threat to the entire industry.

Which raises the next set of questions:

How do we level up the industry by bringing up the bottom x%?

How do you get producers to shift from existence to excellence?

How do you help those producers to level up or get out?

Maybe you don’t, maybe it is what it is.

Or, maybe you lobby USDA to pay them not to produce, or to produce something different. (Yes of course it’s a terrible idea but don’t act shocked – we’ve had crazier agricultural policies in this country.) Or, maybe you lobby to refine the ag exemption in the tax code (though sometimes its better not to poke the bear).

Changing behavior in a value chain often comes down to regulations 🥴 or market incentives, aka premiums & discounts.

As the aligned supply chain trend continues to grow and the variance increases from one aligned supply chain to the next as far as what farm/ranch level practices are incentivized, that could present an opportunity to incentivize these producers to level up…but only if they have a profit motive. Even then, there’s a high cost of coordination with small producers. Perhaps there’s a need for an aggregator platform to connect small producers with aligned supply chains.

Alternatively, as more innovative producers shift cattle into aligned supply chains, then more of the commodity value chain will be composed of cattle from existence-oriented operations. That doesn’t seem to be a good thing either, does it?

Look clearly I don’t know the answer, I’m just spitballing. And clearly it’s a complex problem.

What I do know is that as the industry looks to address the big problems like methane footprint, it’s going to take excellence across the entire value chain to be successful.

Anyone not striving for excellence is a drag on the beef industry.

Minimum viable management isn’t enough.

This extreme level of variance in production is largely only a cattle industry dynamic. Two questions:

  1. If different than above, how would you define minimum viable management in beef?
  2. What’s the proxy for minimum viable management in dairy? Swine?

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