Increasing efficiency and adding value to

Australian feedlot beef production through

supply chain alliances

By

Andrew Ross Slack-Smith

A Thesis submitted for the degree of

Master of Rural Science
of the University of New England.

February 2009

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Declaration

I certify that the substance of this Thesis has not already been submitted for any degree and is
not currently being submitted for any other degree or qualification.

I certify that any help received in preparing this Thesis and all sources used, have been
acknowledged in this Thesis.

Andrew Ross Slack-Smith

February 2009

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Acknowledgements

I wish to offer my appreciation and acknowledgment to all those involved in the completion

of this Masters Thesis. I am greatly appreciative of, and wish to thank the Cooperative

Research Centre for Beef Genetic Technologies for giving me the opportunity to take on this

Masters project. Without this professional and financial support I would not have been able to

undertake or complete this project. Thanks also to this projects collaborators, Meat and

Livestock Australia and the industry collaborators whose assistance with this project is greatly

appreciated. I am confident that we have made valuable progress within the beef industry.

I would also like to thank my supervisors Professor John Thompson and Professor Garry

Griffiths. I am extremely thankful to have had access to your expertise throughout my Masters

- your knowledge, guidance, helpful criticism and input has been invaluable and resulted in a

level of accomplishment and understanding far greater than I had anticipated.

To all the staff and students at the Department of Meat Science and New South Wales

Department of Primary Industries, thanks for your assistance and support over the last 2 years.

Diana Perry, Professor Hutton Oddy, Dr Brad Walmsley - your insight and our numerous

conversations during this project were greatly appreciated. Thanks also to the industry feedlot

staff that have provided help via their insight, discussions and data; I apologise for your

anonymity.

I would like to thank my parents for their tireless support during the last 2 years and beyond. I

have always had everything I needed in life but your greatest gift was opportunity. Were it

not for your sacrifices, I would not have had the opportunities in life that I have had, and I am

eternally grateful and hope I have made and continue to make you proud.

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Last but by no means least, I owe thanks to my family. Tania, Jakob, Phoebe, Charlotte and

Naeve; you have on countless occasions waited patiently for me to finish just one more

analysis, sentence, paragraph . . .rarely complained, maintained an interest in my work, shared

my hopes and goals and been my inspiration. If it were not for your support and

understanding I could not have achieved as much as I have. Thankyou.

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Table of contents

Declaration ................................................................................................................................. ii
Acknowledgements ...................................................................................................................iii
Tables .................................................................................................................................viii
1. General introduction ................................................................................................. 1
1.1. Statement of research problem .................................................................................... 8
1.2. Statements of Hypotheses.......................................................................................... 11
1.3. Outline of the thesis chapters .................................................................................... 12
1.4. Contribution of this work .......................................................................................... 14
2. Literature review ..................................................................................................... 17
2.1. Supply chain alliances ............................................................................................. 17
2.1.1. Structure and concepts ............................................................................................... 20
2.1.2. Enhancing the supplier to customer relationship....................................................... 23
2.1.3. Consumer requirements ............................................................................................. 24
2.1.4. Processor requirements .............................................................................................. 27
2.1.5. Benefits and disadvantages of supply chain alliances ............................................... 28
2.1.6. Benefits from an integrated supply chain .................................................................. 29
2.1.6.1. Participant benefits .................................................................................................... 29
2.1.6.2. Risk and quality management ................................................................................... 30
2.1.6.3. Information flow and coordination ............................................................................ 30
2.1.7. Disadvantages from an integrated supply chain ........................................................ 31
2.1.7.1. Loss of control ........................................................................................................... 31
2.1.7.2. Effects of concentration ............................................................................................. 32
2.1.7.3. Mutual trust, investment and equity transfer ............................................................. 32
2.2. Customer relationships ........................................................................................... 33
2.2.1. Customer relationship management (CRM) .............................................................. 34
2.2.2. Customer acquisition and profitability ...................................................................... 37
2.2.3. The means-end chain ................................................................................................. 40
2.2.4. Value concepts in the supply chain ........................................................................... 42
2.2.4.1. Value adding .............................................................................................................. 43
2.2.5. Marketing .................................................................................................................. 46
2.2.5.1. Marketing value ......................................................................................................... 46
2.2.5.2. Market segments ........................................................................................................ 48
2.2.5.3. Relationship marketing and marketing channels ....................................................... 48

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2.3. Sorting and resource allocation .............................................................................. 50
2.3.1. Price averages and individual animal value .............................................................. 51
2.3.2. Precision agriculture .................................................................................................. 53
2.3.3. Ultrasound determination of fat depth ....................................................................... 55
2.3.4. Growth and composition models ............................................................................... 56
2.3.5. Model predictions ...................................................................................................... 57
2.3.6. Sorting ....................................................................................................................... 57
2.3.7. Optimal allocation decisions ..................................................................................... 59
3. The costs associated with non compliance in Australian beef carcasses ............ 63
3.1. Abstract...................................................................................................................... 63
3.2. Introduction ............................................................................................................... 64
3.3. Materials and methods ............................................................................................... 68
3.4. Results ....................................................................................................................... 69
3.5. Discussion and implications ...................................................................................... 77
3.6. Conclusion ................................................................................................................. 79
4. Factors effecting temperature at pH of 6.0 in Australian beef carcasses ........... 80
4.1. Abstract...................................................................................................................... 80
4.2. Introduction ............................................................................................................... 81
4.3. Materials and methods ............................................................................................... 83
4.4. Results ....................................................................................................................... 86
4.5. Discussion.................................................................................................................. 92
4.6. Conclusion ................................................................................................................. 96
5. The effect of induction traits and health status on hot carcass weight, marbling
and fat depth in cattle from the case study feedlot during an 11 year period ... 97
5.1. Abstract...................................................................................................................... 97
5.2. Introduction ............................................................................................................... 98
5.3. Materials and methods ............................................................................................... 99
5.4. Results ..................................................................................................................... 105
5.5. Discussion................................................................................................................ 126
5.6. Conclusion ............................................................................................................... 135
6. Purchase and management optimisation of feedlot animals. ............................ 137
6.1. Abstract.................................................................................................................... 137
6.2. Introduction ............................................................................................................. 138
6.3. Materials and methods ............................................................................................. 140
6.4. Results ..................................................................................................................... 144

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6.5. Discussion................................................................................................................ 155
6.6. Conclusion ............................................................................................................... 161
7. Overall conclusion ................................................................................................. 164
7.1. The cost of out-of-specification ............................................................................... 166
7.2. Factors effecting temperature at pH 6 in beef carcasses. ........................................ 167
7.3. Sources of variation in beef feedlot carcass growth and composition .................... 169
7.4. Procurement and management optimisation of feedlot animals .............................. 171
8. References .............................................................................................................. 173

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Tables

Table 1. The estimated “lost opportunity” per individual steer and heifer slaughtered in the US
in the year 1991 ........................................................................................................... 4
Table 2. Feedlot cattle exit specifications ................................................................................ 65
Table 3. Comparison of pre-feedlot growth treatments over all breed types ........................... 66
Table 4. The estimated “lost opportunity” per individual steer and heifer slaughtered in the US
in the year 1991 ......................................................................................................... 67
Table 5. Over the hook beef cattle grid prices for the short fed and long fed markets ............ 70
Table 6. Factors affecting out-of-specification costs for the short fed export and long fed
export markets ........................................................................................................... 76
Table 7. Means, standard deviations and maximum and minimum values for carcass traits and
electrical inputs from the MSA abattoir audit database. ........................................... 86
Table 8. F ratios, numerator and denominator degrees of freedom, regression coefficients and
standard errors for TemppH6. ...................................................................................... 87
Table 9. Predicted means for TemppH6 by state ........................................................................ 88
Table 10. Predicted means for TemppH6 by abattoir. ................................................................ 89
Table 11. Summary table of the factors affecting TemppH6. .................................................... 92
Table 12. Description of continuous and discrete traits included in the analysis of hot carcass
weight, marble score and external fat depth. ........................................................... 101
Table 13. Hormonal growth promotant implants used at induction ....................................... 102
Table 14. Means, standard deviation, minimum and maximum values by market group ...... 103
Table 15. Factors affecting HSCW, marble score and hot P8 fat depth ................................. 105
Table 16. HSCW, marble score and hot P8 fat depth categorised by HGP implant status .... 108
Table 17. Hot standard carcass weight, marble score and hot P8 fat depth categorised by
induction frame score .............................................................................................. 111
Table 18. Hot standard carcass weight, marble score and hot P8 fat depth categorised by breed
type .......................................................................................................................... 113
Table 19. Hot standard carcass weight, marble score and hot P8 fat depth categorised by
induction dentition ................................................................................................... 114
Table 20. Hot standard carcass weight, marble score and hot P8 fat depth categorised by
illness type ............................................................................................................... 116
Table 21. Regression coefficients and standard errors for the effect of animal and
management factors ................................................................................................. 120

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Table 22. Adjusted means and standard errors for hot standard carcass weight, marble score
and hot P8 fat depth categorised by producers. ....................................................... 121
Table 23. Correlation, significance and number for hot standard carcass weight .................. 125
Table 24. Correlation, significance and number for marble score ......................................... 125
Table 25. Correlation, significance and number for hot P8 fat depthbetween producer adjusted
means within market groups .................................................................................... 126
Table 26. Revenue structure used to value the case study feedlot cattle at slaughter for
statistical models and simulations ........................................................................... 142
Table 27. Cost structures applied to the simulations used to determine the optimal days on
feed .......................................................................................................................... 143
Table 28. F ratios, numerator and denominator degrees of freedom, regression coefficients
and standard errors for carcass value....................................................................... 144
Table 29. Days on feed and carcass trait means, standard deviation, minimum and maximum
of data from the case study feedlot simulation ........................................................ 151
Table 30. Carcass trait means, standard deviation, minimum and maximum from the
simulations for optimal days on feed....................................................................... 153
Table 31. Means, standard deviation, minimum and maximum of the net value, cost
components and carcass component values simulated to the actual days on feed and
the simulated allocation in scenario 1. .................................................................... 153
Table 32. Means, standard deviation, minimum and maximum of the net value, cost
components and carcass component values simulated to the actual days on feed and
the simulated allocation in scenario 2 ..................................................................... 154
Table 33. Means, standard deviation, minimum and maximum of the net value, cost
components and carcass component values simulated to the actual days on feed and
the simulated allocation in scenario 3 ..................................................................... 154
Table 34. Means, standard deviation, minimum and maximum of the net value, cost
components and carcass component values simulated to the actual days on feed and
the simulated allocation in scenario 4 ..................................................................... 155

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Figures

Figure 1. The nominal retail price and farm price for beef in cents per kilogram hot carcass
weight for the years including 1970 to 1997 ............................................................... 3
Figure 2. Overview of the research problem. ........................................................................... 11
Figure 3. Flow structure for the spot market and supply chain alliance for beef livestock and
carcass transactions.................................................................................................... 20
Figure 4. Factors affecting beef supply chain alliance product and information flow ............. 22
Figure 5. Australia’s domestic consumption of Beef and veal, lamb and mutton, pig meat and
poultry meat per capita in kilograms for the years 1979 to 2007 .............................. 25
Figure 6. Australian cattle numbers graded in the Meat Standards Australia grading system . 26
Figure 7. The price premiums across all cuts under the Meat Standards Australia ................. 27
Figure 8. The consumer oriented new product design concept ................................................ 36
Figure 9. The efficient relationship paradox ............................................................................ 38
Figure 10. Profitability of customers over time........................................................................ 39
Figure 11. The response rate to acquisition campaigns and cost per customer acquired ......... 40
Figure 12. The effect of value adding strategies in a long term relationship. .......................... 45
Figure 13. A simple marketing system ..................................................................................... 47
Figure 14. The present value of total returns minus total costs for a feedlot over time and their
difference ................................................................................................................ 60
Figure 15. Taguchi quadratic quality loss function. ................................................................. 68
Figure 16. Distribution of hot standard carcass weight for the short fed export market .......... 70
Figure 17. The cost for out-of-specification hot standard carcass weight wiithin the short fed
market ..................................................................................................................... 71
Figure 18. Distribution of Hot P8 fat depth for the short fed export market ............................ 72
Figure 19. The cost for out-of-specification hot P8 fat depth for the short fed export market 72
Figure 20. Distribution of hot standard carcass weight for the long fed export market ........... 73
Figure 21. The cost for out-of-specification hot standard carcass weight for the long fed
export market .......................................................................................................... 73
Figure 22. Distribution of AUSMeat marble scores for the long fed export market................ 74
Figure 23. Number of animals within the estimated percentage Bos indicus from the MSA
abattoir audit database. ........................................................................................... 87
Figure 24. Plot of the effect of kill date on TemppH6 from the MSA abattoir audit database .. 90
Figure 25. Plot of the predicted seasonal effects on TemppH6 by Bos indicus percent ............ 91
Figure 26. Hot carcass weight and its interaction with implant type ..................................... 109

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Figure 27. Marble score as affected by days on feed from the overall analysis ..................... 110
Figure 28. Distribution of illness by illness type for the case study feedlot........................... 115
Figure 29. Hot carcass weight as affected by induction weight ............................................. 117
Figure 30. Marble score as affected by hot carcass weight .................................................... 118
Figure 31. Hot P8 fat depth as affected by hot carcass weight............................................... 119
Figure 32. Adjusted producer means for hot standard carcass weight against producer means
for marble score .................................................................................................... 122
Figure 33. Adjusted producer means for hot standard carcass weight against producer means
for hot P8 fat depth ............................................................................................... 122
Figure 34. Adjusted producer means for hot P8 fat depth against producer means for marble
score ...................................................................................................................... 123
Figure 35. Variation in hot standard carcass weight for two producers ................................. 124
Figure 36. Plot of the interaction between implant and days on feed on carcass value ......... 145
Figure 37. Plot of the predicted means and standard errors for carcass value by induction
frame score ........................................................................................................... 146
Figure 38. Plot of the predicted means and standard errors for carcass value by induction live
weight ................................................................................................................... 147
Figure 39. Plot of the predicted mean loss differences from no feedlot illness ..................... 148
Figure 40. Plot of the predicted means and standard errors for carcass value by breed......... 149
Figure 41. Histogram of the centered differences in predicted producer means for carcass
value ..................................................................................................................... 150
Figure 42. Density distribution of days on feed indicated by the case study feedlot simulation
.............................................................................................................................. 152
Figure 43. Single animals net value curveincorporating carcass weight and marble score
premiums; discounts for hot P8 fat depth, purchase price $kg liveweight and cost
of feed ................................................................................................................... 160

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