PROCESSOR URGES: END DISTORTION IN MARKET

PAMELA BLAMEY

A meat processing executive called for an end to market distortion and its destabilizing effect on pricing, in a speech at the American Meat Institute's International Meat Industry Convention here.

An unnecessarily volatile market can be avoided through honest price reporting and compromise between participants in the trade, said Ronald Brockman, vice president of purchasing and commodity trading at John Morrell & Co., Cincinnati.

Brockman, who spoke during a session devoted to wholesale meat pricing, charged his colleagues within the industry with the responsibility of finding their own way to stabilize the market.

"To look to [the U.S. Department of Agriculture] to solve the problem for us is in my opinion wrong," he said.

"If we're going to be able to move away from elbowing each other, negotiating day to day, and the power things that go on, then we're going to have to change our attitudes in terms of how the companies relate to each other. You're going to have to do some 'satisficing,' instead of always trying to bat a thousand and always trying to get the other guy to bat zero," Brockman said.

Only 20% to 30% of eligible commodity trades are being reported to the USDA as required, for example, Brockman said. "We are the problem and we can be the solution," he told attendees.

"The problem will be solved when we look at what the real volume to be recorded is, and then we all decide to live with the consequences of our actions."

Accuracy in what is being traded becomes a problem also because

some companies buy meat for certain benefits of the deal that are not confined to the current value of the commodity, the meat itself. He identified some of those non-price benefits as trim, reliability of supply, uniformity of packaging or on-time delivery. The industry should be prepared for the volatility that this implies, he said.

"If we're going to trade on non-price-value kinds of issues, then we're going to have to live with the volatility; that's just a natural consequence."

Companies that try to secure an upper hand in negotiations on the basis of both price and non-price value are also part of the problem, according to Brockman.

"I've had some of the biggest consulting companies in the business tell me that you can have the best of both. And they're wrong. You have to decide, do you want price or non-price value? And once you decide, understand that you've given ground on the other side of the equation. It's a trade-off."

Brockman also suggested that many of the individuals responsible for purchasing are not adequately informed about the market.

"It only takes one person, who doesn't know what the market is, to pay too much or pay too little [for product] and distort it for everybody else," he explained.

He urged meat buyers to refuse to propagate "deceptive" trends.

"Sometimes there are pair trades; you buy five at this price and I'll give you two more at that price, and that affects the range."

One solution is to establish "circuit breakers" that kick in when price ranges begin to swing wide. "If the range gets wider than 'X,' we have to talk."

Brockman said other outside forces will continue to influence the market as well. The use of Efficient Consumer Response can have a positive effect on pricing efficiency, he said, at least as it is initially implemented by players throughout the system -- but it will not be a panacea.

"My gut [instinct on ECR] is that it is a one-time impact, as each person comes in, and we will see changes in production schedules, more frequent shipments of lower volume [that] will cause inventories to decline, some price-depressing influence."

Innovations in packaging also will have their influence, by improving shelf life and the marketing window for products. "Any time you have enhancement of packaging, it allows you to give the retailer the time that he desires [to sell product] and still gives you time to distribute," Brockman said.

"It allows for inventory, at least in some circumstances, and that has smoothing impact on price volatility."

During the same session, Bruce Ginn, chief economist and director of sourcing for Oscar Mayer Foods, Madison, Wis., also outlined current meat trends that are affecting the market.

"The meat industry is growing, we have record production, consumption, almost year after year, [but] not all of that growth is being shared by all of the sectors," he said.

Chicken and pork are still providing the success stories, Ginn said, mainly because these meat sectors have concentrated on meeting consumer needs and preferences.

Pork prices have stabilized, Ginn continued, and he suggested that the segment may begin to take over market share from other areas.

"The type of products/services the pork industry has brought to the consumer [is much better] than in beef or even poultry."

According to Ginn, the stubborn trend of oversupply in beef "says they need to be meeting consumer demand in terms of taste preferences, right price, right value. It says there's something going on here that isn't all that good."

The way the market channels have changed has significant effect on the way meat is priced and sold, Ginn said. In his estimation, few retail customers are as vigilant about forming partnerships with suppliers as are food-service customers, who now order amounts of beef that are at least equal to retail.

"Food-service people can work with their suppliers, and can come up with pricing mechanisms that may be somewhat unique, and [much] different from what's going on with retail," he said. "That's customer service, not only quality and service but the type of products the consumer wants."