Part 2 in a 3-part series. Part 1: Inside McDonald's quest for sustainable beef. Part 3: Can the beef industry collaborate its way to sustainability?
Transforming any supply chain to embrace sustainability is a messy and time-consuming exercise. You’ve got to get companies at every link of the chain to do things differently. There can be new levels of accountability and transparency and lots of communications. It may require new technologies or investments. Suppliers may need to let go of old habits in favor of new mindsets.
Above all, it requires change on everyone’s part.
McDonald’s announcement Tuesday that it plans to source “sustainable beef” in the coming years has the potential to transform the more than 60 million tons of beef produced globally each year for restaurants, supermarkets and food processors. To accomplish that, however, McDonald’s — along with other large beef customers — will need to effect change on a complex, sprawling and entrenched industry whose practices and terminology vary from region to region, even farm to farm. It won’t be easy.
To understand the complexity confronting McDonald’s means delving into the value chain of a typical hamburger patty.
Its life begins, as you would imagine, on a cattle ranch. There are 4 to 5 million such ranches around the world, ranging from a few head of cattle to a few thousand. (Around 800,000 cattle ranches are in the United States alone, about half of whose beef end up in a McDonald’s burger.) All told, there are just over 1.4 billion head of cattle in the world, according to the United Nations Food and Agriculture Organization.
On the cattle ranch, cows eat grass, hay or other roughage. From there, the story diverges.
In North America, when they are 8 to 12 months old, most beef cows and bulls are sent to one of about 7,000 feedlots, where they are “finished” — a term synonymous with “fattened up.” During their last 90 to 100 days, they are put on a high-starch, high-energy diet — corn, for example, or a barley/sorghum mix — in addition to grass or hay. The goal is to boost their weight and achieve the desired grade of meat. (USDA meat grades, such as Choice or Prime, are designations of intercellular fat — a.k.a. “marbling” — which gives beef its flavor and tenderness, much of it the result of grain feeding.) In the process, the typical animal’s weight grows from between 600 and 700 pounds to between 1,100 and 1,500 pounds.
About 20 percent of the beef used for McDonald’s hamburgers in North America take a different route, starting as dairy cows, specific varieties bred to produce large volumes of milk. Around four years of age, nonproducing dairy cows are culled from the herd and marketed for beef. Whereas beef cows end up primarily as high-value cuts — steaks and roasts — dairy cows end up primarily as ground meat. Their meat is leaner and is typically blended with trimmings from beef cows in order to achieve the desired fat and taste.
No grain, no pain
A small percentage of cows in the U.S. are fed only grass throughout their lives, no grain, which is preferred by some consumers for flavor and lower environmental footprint compared to grain-fed cows. There is evidence that grass-fed beef may be higher in omega-3 fatty acids, considered a health benefit.
Outside North America, the vast majority of cows are entirely grass-fed — 96 percent in Brazil and Argentina, for example. But there are differences from country to country. In Europe and New Zealand, for example, cows are raised primarly for dairy production, then are slaughtered for beef at the end of their milk-production output. In Australia and Brazil, cows are raised primarily for beef.
At this point, they stories converge somewhat. Cows — whether grass-fed or grain-fed, raised for dairy or beef — end up being slaughtered (the industry prefers the term “processed”) at slaughterhouses (the industry calls them “abattoirs”).
Roughly 50 percent of a typical animal by weight ends up as meat. About 40 to 45 percent is turned into byproducts such as leather, soaps, candles and adhesives. (It doesn’t amount to much: The average value of a 1,300-pound cow’s byproducts was about $182 in 2012, about half of which is the hide, according to the U.S. Department of Agriculture’s Livestock Marketing Information Center.) The remaining 5 to 10 percent is waste.
The meat then starts its journey to market. A 1,300-pound average steer yields 683 pounds of retail cuts. About 60 percent of this is roasts and steaks. The balance is turned into ground beef, stew meat, stir fry and other uses.
At the abattoir, some meat is cut into steaks and other cuts, then boxed and shipped directly to supermarket chains, steakhouses and their ilk. In other cases, the meat goes to wholesalers or food distributors, which then sell them to markets and restaurants. Other meat ends up at processors; some of it ends up as ground meat, which comes from the trim around steaks and roasts. In order to get the right mix of lean to fat (for example, an 80/20 blend), processors typically blend trim from a number of animals.
Those are the basics, from birth to burger. There are variations on this theme, depending on the country and region, market forces, farming practices, grain prices and other factors.
The takeaway is that there’s no straight path. Cattle and beef, especially ground beef, can pass through a lot of hands on their way to a fast-food outlet or supermarket; a typical cow may change hands two to four times before being slaughtered, at which point its meat may be comingled with that from other cows. Just as a carton of milk typically contains milk from a number of dairy cows, a single hamburger patty can contain meat from multiple cattle originating at multiple farms, even multiple continents, raised in different climates and on different diets.
“You’ve got hundreds of thousands of people out there that have one or more animals at any given time that ultimately find their way into the animal product chain,” explained Todd Bacon, U.S. vice president, quality systems, at McDonald’s. “In the U.S. you’ve got 800,000 breeding operations where you’ve got cows and bulls. They’re creating offspring, and those calves are being produced for a number of different purposes, but almost in all cases, those calves will change hands. So if you take a look at the value chain, it’s far from being completely vertically integrated under one set of players having shared interest, or one company having vertically integrated operations.”
McDonald’s first direct contact with meat comes when it buys finished patties from about 20 processors worldwide, whose machines shape and freeze them into what the industry calls IQF, or “individually quick-frozen,” patties. The patties are tested for sensory factors, including “cupping,” which is when they curl up on the sides or otherwise become distorted during cooking. That’s a fast-food no-no.
The farmer and the bell curve
So, how does a company such as McDonald’s nudge this complex and convoluted system toward sustainability? Transforming the beef supply chain begins with understanding where all of its participants fit on what, for better or worse, is called the “sustainability journey.”
“I suspect the beef industry, those 800,000 ranchers, are more or less a bell curve,” Jessica Droste Yagan, director of sustainable supply chain for McDonald’s U.S. operations, explained to me over a lunch of Big Macs and fries at the company’s global headquarters in November. “There’s a whole bunch of them in the middle that are mostly doing the right things. There’s some out here that are great, and there’s some that you’d want to clean up and move out or up. One of the biggest challenges is just validating where everybody stands today.”
The traditional M.O. for companies seeking to get information from suppliers — having them fill out questionnaires or surveys — isn’t likely to cut it, she said. “To get them to do the paperwork, the sample audit, whatever we need to prove it, is very overwhelming to figure out in an efficient way. When it comes to farmers and ranchers, doing paperwork is not why they’re in the business.”
Besides, the meaning of the word “sustainability” varies by company and country. For some, it is about food safety, traceability and quality. For others, it is about air and water emissions or resource efficiency. Still others focus on issues such as animal welfare, deforestation or community well-being.
That means getting a global consensus on a definition for “sustainable beef” means developing standards that work for all of the various players around the world.
“Cattle can be raised in any environment on Planet Earth outside of Antarctica,” said Cameron Bruett, chief sustainability officer at JBS USA, the U.S. division of the world’s largest beef producer. “They’re an incredibly adaptive animal. Because of their ruminant, they can take just about any forage and convert it into nutrients and then beef.
"So, with an extremely flexible biological animal like that in all these diverse ecosystems, you can’t just come out with some cookie-cutter that said, ‘Do X, Y and Z and your cattle are sustainable.’ I think a lot of people would love to have that kind of system, but it’s not going to promote the type of on-the-ground improvements that we all desire in sustainability. What you do in western Montana may not be relevant in southern Georgia.”
The differences between those two regions of the United States — it’s about 2,300 miles between the cattle farms of Missoula, Mont. and Valdosta, Ga. — are telling. Farmers in Montana and Georgia raise different breeds of cattle. There are fewer cattle per acre in Montana, which is more spread out and has different soils and grasses, which affects how grazing lands are managed. Heat and humidity are detrimental to most production traits for cattle, who generally perform at a higher level in northern climes, so Georgia cattle farming can require additional inputs. Montana is closer to the feeding grain belt of the United States, so transportation impacts may be less.
“It’s a totally different ecosystem just within the United States,” said Bruett.
The traceability challenge
The criteria for “sustainable beef” are being developed by the Global Roundtable for Sustainable Beef, a multi-stakeholder collaboration that includes large beef producers, customers such as McDonald’s and Wal-Mart, and others, including environmental groups. The criteria — currently being reviewed by GRSB members and expected to be available for public comment in March before being finalized later this year — will include a wide range of impacts associated with bringing beef to market, including the impacts on people, communities, the animals and the environment. It will be implemented at the regional level to reflect differences in conditions, cultures and concerns.
To meet the standard — whatever it turns out to be — will require that a company such as McDonald’s engage every link in the supply chain. “If one of those pieces is not sustainable, it could impact our supply chain, and we want to make sure that doesn’t happen,” said Gary Johnson, McDonald’s senior director, global purchasing and supply chain management. Getting the entire beef supply chain on board will be a major feat.
One big challenge is traceability — the ability to track meat as it moves along the value chain and is combined with other meat to create finished hamburger patties. Some countries have animal identification programs. A cow within the European Union is given an ear tag and an ID number nearly as soon as it is born. An E.U. database tracks the cows throughout their lives, and then some. Not so in the United States and many other countries.
Therefore, it’s unlikely that a given batch of hamburger patties will have the required traceability to ensure that every ounce of beef comes from ranches or processors that meet the GRSB standard. That will be especially true early on as the industry ramps up; it could take a decade before a critical mass of certified sustainable beef is on the market. So, if McDonald’s can’t easily slap a sustainability logo on a box of patties — let alone a Happy Meal — it may need to find alternative ways to tell its sustainable beef story to the marketplace.
The company may find lessons in the sustainable palm oil market, where there’s a certificate-trading program for certified palm oil, similar to carbon credits used in greenhouse gas reduction efforts. The GreenPalm option allows growers certified by the Roundtable on Sustainable Palm Oil to convert their certified oil into certificates, which are traded on the GreenPalm Market.
“Product manufacturers who use palm, palm kernel oil or any palm-based derivative and fraction in their products then place offers for these certificates, offsetting their physical oil with the equivalent amount of certificates,” explains the RSPO website.
If that sentence makes your head spin, McDonald’s Yagan offered a simpler explanation of GreenPalm: “You get to support the right practices with your market power, but you didn’t have to pay for all the extra infrastructure of separate ships and separate pipes.”
Could certificates similarly be a way to reward companies producing sustainable beef? It could be straightforward: a farmer sends sustainably harvested beef into the mainstream beef market, but gets a certificate that is sellable on the open market to companies wanting to attest that they are “buying” sustainable beef. No one is currently developing such a scheme, but it’s not out of the question.
It’s also possible to certify or otherwise reward ranchers who can independently validate that they have the best practices or are meeting some kind of sustainability criteria, without actually saying, “This burger came from a certified farm.” That could allow companies such as McDonald’s to tell a sustainable beef story without necessarily certifying every patty’s provenance. “There could be a scenario where that burger I just ate wasn’t necessarily from a sustainable source, but you’ve covered it in some fashion,” said Yagan.
Then again, Yagan added, maybe there’s no need to overthink this. “Sometimes, people get caught up on the traceability piece as the barrier. I think we can make a lot of progress even without that.”
A premium on the table?
One important goal is to show that sustainable beef practices are simply more profitable.
“We inherently know that if you’re more efficient, that should mean your inputs are going to be less, and therefore you’re going to make more money at the same cost,” said Michele Banik-Rake, McDonald’s director of sustainability, worldwide supply chain management. She said McDonald’s is funding research and other projects to demonstrate that.
That means diving deep into the supply chain. “The people that are really hard to get on board are the nameless, faceless meat patty manufacturers and commodity traders because they work on really tight margins, and if there’s any premium on the table at all, somebody is going to have to pay for it,” said Jason Clay, senior vice president, market transformation, at WWF, which has worked with more than a dozen supply-chain transformation initiatives, ranging from salmon to soy.
“If you’re a trader and your margin is 1.5 to 3 percent and the cost of certification is 1 percent, it is a huge part of your profits. That’s why the business case is so important. We don’t think that a premium is on the table for any of this stuff, at least in the medium to long-term.”
Instead, said Clay, the business case for sustainable beef should be about increasing efficiency, market access and reputation — the things that get companies such as McDonald’s to form long-term supplier relationships.
“A number of companies that we’re working with are locking in longer-term contracts, and they’re giving preference to suppliers who are certified or who don’t do deforestation or other kinds of things,” he said. “The people that get those contracts can walk into banks and borrow money at lower rates, or can get loans where their competitors can’t. So we’re beginning to see that resonate and translate into benefits that aren’t just a price premium.”
Rewarding the sustainability leaders is only part of the equation, said Clay. It’s also important to help the laggards. “The irony is that the bottom producers probably produce 50 percent of the impacts and only 10 percent of the product. It’s moving the bottom half that’s going to give us the biggest productivity gains, income gains and reduced impacts.”
I asked Bob Langert, McDonald’s vice president, global sustainability, whether the company plans to pay a premium for sustainable beef. “McDonald’s is willing to invest in sustainable beef and we have already demonstrated this commitment by funding sustainable beef field projects,” he said. “We envision sustainable beef being similar to our safety standards: they are a standard part of doing business, not a niche, premium program.”
Langert said it is too early to predict whether beef prices will be affected in the future as the result of increased sustainability practices, but suggested the opposite might be possible: “Efficiencies are often a byproduct of implementing sustainable practices.” Moreover, “the real value is improving practices now to ensure the supply of beef, and beef farmers, for generations to come.”
Going whole hog
It’s possible to see examples of regions going whole hog, as it were, on sustainable beef. Take Ireland, for example — 61 percent of its land mass is agricultural. Its leaders have committed that by the end of 2014, three-fourths of all food and beverage exports will come from farms and food businesses that have signed on to Origin Green, the government’s voluntary sustainability program. It calls for food companies to develop individual sustainability plans that set out clear targets in areas such as emissions, energy, waste, water and biodiversity. By 2016, 100 percent of exports will come from these companies, according to Bord Bia, the Irish Food Board. In November it announced a $4.75 million marketing campaign for 2014 to promote Ireland as a source of world-class sustainably produced food and drink.
McDonald’s has been working with farms in Ireland, and chairs the Brussels-based SAI Platform Beef Working Group, part of the Sustainable Agriculture Initiative’s effort to develop sustainability standards in Europe. The company provided seed money to Dawn Meats, one of its major Irish beef suppliers, to learn sustainability principles from farm to fork.
The money is being used to purchase a farm to raise cattle, so the meat processor can get first-hand experience in sustainable beef practices, Banik-Rake said. “And through the running of the farm, they are going to pay for the farm and will be employing all of the sustainability practices coming out of the SAI Platform, as well as those aligned to the principles and criteria under GRSB.”
“If you were to talk to the Department of Agriculture for Ireland, they are determined to have sustainable beef be a big part of the Irish production system,” said Langert. “They’re proud of their beef, and they have a lot of integrated sustainability practices. It could be that they’re producing sustainable beef today. We just don’t know. We don’t have validation for it yet.”
Part 2 in a 3-part series. Part 1: Inside McDonald's quest for sustainable beef. Part 3: Can the beef industry collaborate its way to sustainability?