INTO THE HANDS OF A FEW
ANIMAL INPUT SUPPLIERS MOVE TO ADAPT TO INDUSTRY CHANGES
Barb Baylor Anderson, Contributing Editor
Tough times in the livestock industry are no secret. Producers have seen their share of red ink recently, which has sparked some belt-tightening and heightened awareness of consumer interests. The result is fewer larger producers. Now, animal input suppliers must position themselves as personal partners in producing safe, high-quality, profitable food products.
"Change comes from the type of producers we deal with more than economics, but the producers have changed because of the economics," confirms Jack May, president, Kent Feeds, Muscatine, Iowa. Kent serves primarily beef, dairy and pork producer feed needs. "We've replaced caps and jackets with more personal contact among large producers."
That's not to say that economics haven't played a role in the recent rollover throughout much of the livestock industry. May and others say it has affected business.
"The animal health industry is growing slowly, but primarily from the companion animal business. Livestock sales are stagnant," says Bob Verdugo, senior marketing director with Merial, Iselin, N.J., one of the leading animal vaccine and pharmaceutical suppliers. "Generally, animal health sales go the way of ag economics, although we find that producers seem to be sticking with products that add value for them now, regardless of the financial picture."
"Feed product sales are experiencing a similar trend," says Tom Koch, marketing manager of Hubbard Feeds, Mankato, Minn., an upper Midwest feed company for pork, dairy, beef and companion animals. "The feed industry as a whole is struggling with overcapacity and consolidation," he says.
How producers respond to tough times and consolidation also varies by species. Both Koch and May report the most noticeable changes in the feed industry have come from pork producers. "Smaller producers are leaving the business and many of the larger producers buy direct," says Koch. "We are seeing continued changes in our distribution channels."
The dairy dealer business is also changing, migrating to areas where larger dairies are concentrated. In fact, Mike Connell, vice president of supplies and distribution for Westfalia-Surge, Galesville, Wisc., says the number of Westfalia-Surge dealers in North America has gone from about 600 to 300 doing 30 percent more business. "Our company has shifted to regional business centers to be more responsive to regional needs," he says of Meltec, the wholly-owned subsidiary of Westfalia-Surge that provides a full line of service parts and health products for dairy producers. "The dairy industry as a whole has thrived the last three years, but the trend is toward expanding larger dairies."
The bright economic spot may be the beef industry, which has begun to recover economically. Feedlots have periodically enjoyed black ink during the last year, especially in light of strong consumer beef interest. But input suppliers now face a stronger alignment between cow-calf producers, feedlots and consumers as a result of cyclical low prices.
STAY THE COURSE
Such changes in the livestock industry have encouraged input suppliers to revisit their marketing strategies, although most say changes they've made come more in the tactics used to achieve the same strategies. Many agree that reaching producers now requires more personal contact, value-added services and technical training for staff.
Says Koch, "Products are important, but more important are the people we hire, their experience and the value they can bring to their relationships with producers."
May shares a similar philosophy. "We need to help producers solve their individual problems. Producers are more technically oriented now," he says. "We used to have meetings with 75 to 100 producers and the information we provided was very general. Now, we meet with one or two producers at a time and talk about their specific needs. We can't feed pigs like we did in the 1980s, and we can't work with producers like we did in the 1940s.
For example, May says Kent has begun helping producers in such areas as employee training. "Producers want help training employees to make their operation more efficient," he says. "We also do more research and train our reps to communicate the results. Fewer colleges are doing research and producers have fewer options to get information."
Kent Feeds also offers nutritional services for larger-species producers and financial services for both producers and dealers. "We calculate cash flow and profit-and-loss statements to help producers and dealers select the most desirable source of financing for them," says May.
Merial finds value in working with producer groups. Their Ivomec "Generations of Excellence" program is a youth-focused scholarship, leadership and mentoring program for cattle producers. Merial provides services for beef producers through their Beef Results Network, an alliance with Allflex and AgInfo Link that serves as an information source for producers to better understand animal performance and individual animal management.
"If the marketing strategy is working, we stick with it," says Verdugo. "We change tactics based what's relevant. That might include copy in mailers. You have to demonstrate the benefit your product or service provides to producers."
Connell says Meltec has made changes in its marketing efforts, too, primarily to target the varied needs of a segmented dairy industry. "Marketing animal health for us is all about concentrating our promotions around the needs of each audience," he says.
Connell says marketing changes also reflect the fact that producers are more sophisticated. "We are no longer a commodity supplier, we are a management partner," he says.
As management partners, Verdugo finds producers often need more information about complex issues. "When you provide information on sensitive issues such as antibiotics resistance, you need to make sure the information is accurate and may be seen by non-ag audiences," he says. "The key is to offer solutions, not just products."
Verdugo encourages agency execs and company product managers to take the time to understand customers and talk about the benefits of product use, not just features. For example, a parasite control program should not only show that a product controls parasites, it should also analyze the impact the parasite can have, show the cost of the input and the value of preventing parasite problems. "Be educated, make it relevant and tell the truth," he says.
While pleasing the producer is still number one, animal input companies say pleasing the ultimate consumer is becoming nearly as important. That increasingly means producing meat, poultry and dairy products that consumers want with an eye on food safety and the environment.
"We look beyond the producer to the consumer and be sure we are not producing an obsolete product," says May.
More integration with the food chain from producer to consumer is likely to continue, too, Koch adds. "Food quality, food safety and the environment are becoming much bigger issues for producers and consumers," he says.
Koch sees that connection particularly in the pork industry. He expects more producer/packer alignments, along with greater attention paid to the environment. One example is the use of phytase in swine feed and other technology that contributes to environmental solutions.
Koch expects the beef industry to evolve in much the same way, although at a slower pace than the pork industry. "We see feedlots aligning with cow-calf producers with the objective of producing a more consistent product," he says.
Kent's May anticipates greater livestock activity in the Midwest. "There will always be a place for family operations, but they will continue to grow in size," he says. "In many instances they may be the low- cost producer. They will already be contracting with packers and will compete with mega producers by using the same technology."
Consolidation among dairies is also likely. "Less than 10,000 farms are supplying more than 30 percent of the milk," says Connell. "But as fast as things change, the dairy cow itself and how you must treat her are not going to change that quickly. There will always be a place for improved animal health, and producers will choose products that improve efficiency and cut costs."
"The demand for improved herd health, however, could put more pressure on animal health companies to provide even greater quality assurance," says Verdugo. "We are going to see more company consolidations in the animal health industry; mergers for research and development that will yield innovative technology to meet that quality level," he says. "The companies that survive will add value and innovation. We will go from disease treatment to prevention as novel vaccines and products become available."
Connell echoes those thoughts. "Companies that embrace change and look for new opportunities will be the ones that survive," he says, adding that the Internet will become more of a marketing factor. "Use of the Internet is limited right now, but there is pressure to be there. We could see the Internet automate the sales process.
"But when it comes right down to it," Connell continues, "we are still talking about people. Producers need to know what you are doing, how you can add value and whether you can demonstrate new technology."
Finally, animal input companies with staying power, sums May, will be those that make sound marketing decisions in serving the changing needs of producers. "Companies will have to be flexible," he says. "We used to talk about the 30-year rule here - if it's been done the same way for 30 years, it must be working. Now I talk about the 30-month rule. If we're still doing something the same way after 30 months we better take another look." AM
Barb Baylor Anderson is a freelance writer from Edwardsville, Ill., who covers a wide variety of ag issues.