Out to Pasture: Too Fair for the Common Good

December 28, 2010 07:30 AM

In W. Edwards Deming’s theories of management, there is a basic tenet that strikes me as immutable: You can’t inspect quality into a product; you must build quality in throughout the production process.

The people who purvey poultry know that. That’s why they’ve been able to enhance their competitive position so much in the last 50 or 60 years.

Some people in the beef industry know it. But others either don’t know it or don’t like it.
You don’t hear as much about Deming now as when his 1986 book Out of the Crisis was fresh. He is credited for helping the Japanese reinvent their industries in the postwar years—transforming “Made in Japan” from a double negative to a double positive. In his book, he lists 14 points important to the success of a business.

I credit the meat scientists at Texas A&M University (TAMU) with introducing Deming to the beef
industry. Beef was losing market share about as quickly as Detroit was, and the TAMU boys began talking about beef as an integrated industry.

At least five of the Deming points apply directly to the beef industry:

  • Build quality into a product throughout production.


  • End the practice of awarding business on the basis of price tag alone; instead, try a long-term relationship based on established loyalty and trust.


  • Work to constantly improve quality and productivity.


  • Drive out fear; create trust.


  • Strive to reduce intradepartmental conflicts.

Poultry’s business model. Do you see us making strides in those directions? I see some people within the beef industry trying, but I also see a lot of pushback that has surfaced in the form of the proposed new rules governing cattle marketing.

Let’s get my stance straight from the start. I don’t blame big packers for beef’s loss of market share. I don’t blame imports. I blame beef’s failure to compete with poultry. Poultry’s business model has all those Deming points going. If Messrs. Perdue and Tyson decide their chickens are too fat or too skinny—or, perish the thought, they finally notice the taste is limp—they have the power to change things. Their growers may hate them, but they have little choice except to change when the integrator says they’re missing the mark. Ruthless and cold they may be, but they “build quality into the product throughout production.”

And the chicken growers, while they may hate the bossman, at least get to stay in business.

Real competitors. The integrators have entered into long-term relationships with the people who grow their birds. They apply continuous pressure for improvement, and that Darwinian method has led production costs to shrink while consumer demand expands.

Where they seem to have fallen short—and where I hope we don’t go with the beef industry—is in the “drive out fear, create trust” part. There are a lot of disgruntled former chicken growers out there. But then, the rule of Darwin isn’t that the fairest and nicest survive. It’s the strongest. The best adapted.

We need to remember that as USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) and the Department of Justice (DOJ) consider the proposed changes in beef marketing rules.

There has been much talk in the beef industry about “a level playing field,” but what we need to worry more about is a level field between beef and its competitors.

We must compete not only with poultry, but with Brazil and Australia as well. This is the prism through which we must view the proposed rules.

Part of the proposal would tighten the reins on the poultry integrators, imposing new financial burdens and making it easier for growers to sue. The integrators sure don’t like that. To hear them talk, the rule changes will make it more difficult for them to impose their will—to “build quality throughout production”—on growers.

They argue that will add costs and make chicken more expensive. I’ve no doubt they’re right. But chicken is cheap enough now that I’m fine with that.

The price tag alone. What concerns me is beef and that these rules seem to forbid one of Deming’s primary tenets. They seek to institutionalize the idea of providing market access based on price alone.

None of us do business like that. When we buy, we use lots of criteria besides price: Do we like the local tractor dealer? Has he given us good service in the past? Will he be there next year when the tractor breaks down? Do we trust him?

I can see why people want to tie packers’ hands on choosing their partners. How else can we assure packers are treating producers fairly? We’ve heard stories about packers threatening boycotts of a feedyard for this or that reason. I have no doubt it has happened.

However, I would suggest there are times when it might be justified. I hate to tell you this, but there are people in the cattle business I’d rather not do business with. And I think I should have that choice without a lawyer looking over my shoulder.

My belief in the power of the market tells me that most bad situations correct themselves. But it may take a few Darwinian casualties. If packer A gets too high and mighty, packer B will move into the market. Or packer C will get a start. There are also non-USDA rules governing anticompetitive behavior.

That is what GIPSA and DOJ should be watching. As long as the major packers are competing fairly and robustly, let the market design the rules. This industry is trying to blunder its way into the 21st century. Leave it alone.

And there is, believe it or not, such a thing as “too fair” for the common good.

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