Oregon Country Beef: growing a solution to economic, environmental, and social needs

[this interview was published in 2000. Since then, the cooperative has expanded beyond Oregon, reverted to its original name of Country Natural Beef, and includes well over 100 ranchers in the western states.]

BROTHERS, OREGON--Futurists and students of paradigm shifts have observed that the important and significant changes do not originate in the center, but along the edges--of knowledge, of belief, of institutional influence, of economic security. In the following interview, Doc and Connie Hatfield tell how and why the Oregon Country Beef cooperative started, what its goal was, and why it became successful.

In the 1960s, the Hatfields moved from Enterprise, Oregon to a small irrigated ranch in Montana's Bitterroot Valley. Doc's large-animal veterinary practice was mostly occupied with the problems caused by inappropriate genetics and animal management. Connie tended a herd of 150 cows, which depended on heavy inputs of labor, fertilizer, and electricity to pump water to raise forage. In 1974, costs were way up and 500-pound steer calves were down to 28 cents a pound.

They began seeking a place where cattle and land could function together in a more profitable and sustainable manner. In 1976 they bought a 25,000-acre ranch in the juniper-clad hills north of this high desert junction with its gas station, highway maintenance division, and one-room elementary school. Their phone was an 11-party radio phone that didn't always work. Their two children went 12 miles to school in Brothers.

An hour away, the town of Bend was filling and spilling with urban people who cared about health, diet, and the natural beauty of the surrounding rangeland.

Nine years later, in 1985, things still weren't very encouraging in the cattle business.

CONNIE: We were going broke. We were borrowing from the PCA [Production Credit Association] and they gave us a bit of a lecture.

DOC: Cows were our lifeline. We thought the beef industry was going to be a severely declined, marginal business for a long time.

CONNIE: Doc would tell me it rained in Brazil and that made the price of cattle go down. What does that have to do with what we're doing? Just nothing. We needed to do something different.

We'd had six years of down markets. I said to Doc, I don't think we could get our payment made this next year. All you heard was, don't eat red meat, it's bad for you. Negativity, negativity. Ranchers are raping the land and not caring for it. Environmental people were all over us.

I had to go to town and find out: was everything that I was reading right? Should we stop raising beef, was it that bad for you?

I went into Bend, into a place called Nutrisystem, that helps people with weight control. A nutritionist said you can have your red meat: three ounces. I started to see that small portions were what the consuming public--not the ranch community with its 12- and 16-ounce steaks--was talking about. It wasn't all bad, red meat, but don't fill your plate up with it.

When we moved here in 1976 there weren't any fitness places in Bend. Now there are about six. In 1986 there was one. I walked in and asked, is there somebody who could give me an idea of what you people think of red meat? The lady says, sure, I'll have Ace come out.

This 25-year-old Jack Lalane, with big muscles, almost skipped out. "What can I do for you?"

I said, "I'm a rancher out here, and I'd like to know your opinion of red meat."

"Oh," he said, "I recommend it at least three times a week. But we're having the hardest time getting Argentina beef in here to Bend, Oregon."

"Argentina beef, why is that?"

"Well, it's produced without hormones, without antibiotics, and it's short fed, it doesn't have all that fat in it."

I drove home, and I said to myself: You call yourself a rancher. You live 55 miles from where this man is, who says they need meat from Argentina that doesn't have hormones and antibiotics, and that's exactly what we're raising. Right here. We're raising it, we've just never marketed it.

I got home and told Doc all about it. He put his feet on the desk and says, "yep, in three years that might be a pretty good idea."

I said, "why don't we call Ace back and see if he'll come talk to a bunch of ranchers, about what he just told me?" Ace was passionate about health for people. He was delighted.

We called the Southworths, McCormacks, Warnocks, HRM folks, and some folks from Jordan Valley we hadn't known before. Thirty-four came. In came Grace and Walt Morgan from Jordan Valley. I was sitting at the table, making name tags so Ace would know who we were and where we were from. I asked Grace, who was in her sixties, "Grace, are you a rancher?" And it was silent.

Think back 15 years--because it's gotten a little bit better. Especially if you were her age and a woman in agriculture, if you were the norm of a wife, your husband usually talked for you when you were out. Most women would not have called themselves ranchers. 'My husband ranches,' that kind of thing.

Grace said, "You're darn tootin' I'm a rancher. I've been a rancher all my life, but I've never thought of it that way. You put rancher down there."

For Doc and I, who'd grown up around agriculture and been agriculture, it was the first break we saw in this thing of the husband-wife team, where the men would have come out here and talked with Ace and taken care of it, and we women would have been in the kitchen saying what good recipe we could use or something--whatever women do.

The men and women were all here together, needing to do something. It was the neatest thing ever to see that happen. That was the breakthrough that makes Oregon Country Beef work.

DOC: It's easier for women to grasp and communicate this concept of raising cattle to meet a consumer need. Ranch men are so tied to making the profit in the segment of the industry they're most comfortable with, that it's hard for them to give up old profit-makers like maximum gain at the feedlot or cheap pounds on grass.

Ace brought out a new view of the world. He was enthusiastic about it, and he was genuine.

CONNIE: He asked us, can you raise cattle like that, and we said sure. Most of us weren't using hormones anyway. Well then, do it. It was just so simple. He just turned our minds around.

DOC: We counted up and we figured we had 10,000 mother cows represented in this group. We appointed Connie delegate of responsibility to go to Portland and sell the offspring from those cows. She had a tremendous advantage because she didn't know she couldn't do that.

The reason she got these appointments was that she said, "I represent a group of ranchers in eastern Oregon with 10,000 mother cows. What form could we put that beef into that would meet a need you don't presently have filled?" That's why they were interested--because in agriculture we don't market. We sell. We grow what we want and we try to find somebody to peddle it to. They had not had anybody come to them and say, "What need do you have that we might fill?" She talked to the Fred Meyer meat buyer and a whole lot of people.

They were fairly clear on what the need was. They felt a smaller cut of a leaner product grown in Oregon, from real ranchers that you could trace back to, who didn't use hormones and antibiotics, that tasted good all the time, would work. Then it became a problem of supplying that.

CONNIE: What I learned from the Fred Meyer meat buyer was that we needed a year-round supply. And I had no idea what that meant. I said, "we have that product for four months out of the year."

He said, "honey" (they all called me honey, they were really nice, with respect, I was 45 then and most of them were in their 50s) "honey, you have to have a year-round supply." I was still telling him what we had, even though I had asked him what he wanted.

I said, "but watermelons and things like that come during a certain season."

"Yes, but people eat beef every day. Whatever you do, you have to have a year-round supply." He went on to say that anytime you had a product that comes into the store, if it isn't on a year-round basis, it takes about six months for it to pay the extra money that it takes for the scanning, and setup costs. You start getting into the works of retail. It started sinking in.

I came home to our group and said, we need to have a year-round supply, and explained why.

Starting with a goal

DOC: Before we did anything, 30-plus ranchers developed a goal for what we wanted. We spent one day at a meeting. "Our goal is to provide a sustainable means through a group to profitably market quality beef products desired by the consumer while retaining every possible bit of independence." The keywords are that it's consumer-driven, profitable, sustainable, long-lasting. Then there were a few other pieces on it, like the cost of operation would come out of the profits returned to the ranch, and that Oregon Country Beef is an idea to be constantly examined, not an entity to be bought and sold.

Most businesses start with raising capital, which is used to write a plan, which is used to raise more money to start a business. In Oregon Country Beef we started with a goal, which we used to build relationships to get the product to the consumer. We never had a capital-raising event, we never had a plan. That was our plan, right there, and we operated on those principles.

How did you develop your pricing model?

DOC: Connie went to Portland and got these sales. We were having a meeting, and I said, how are we going to price this? Ken Bentz said we need to price it on what it costs, and what a fair return is.

Ken Bentz was put in charge of the committee to develop the pricing model. There's lots of ways you can look at that. We agreed to view the cattle ranches as worth $1100 a cow unit for the purpose of raising cows. And there are some cattle ranches in Nevada with public leases that you can buy for that. Obviously none of the ranches our people have would sell for that low a value. It's not fair to ask a cow to pay for scenic and recreational value. But it is fair to charge a value for what you do with a cow.

Then we figured the actual costs to operate, including depreciation on equipment, and including depreciation and replacement on the cow. Most of the models you see don't count a charge to the calf each year for cow depreciation, even though you raise her yourself.

Ken updates those prices every year. You need to cover the cost of production, make a return on investment, and some sort of a reasonable profit and be sustainable.

Then we go find a market, a demand, that will support that kind of a cost. It isn't that we say, "well here's what it cost, so here's what we're going to charge you, smile and like it." You have to run it both ways, constantly, from the cost forward and from the demand backward. And fortunately there's enough value in the demand from the consumers we're producing for to support a ranch that's sustainably run with environmental sensitivity.

CONNIE: It's what every other business does. At the end of the day, they're counting the money in the cash register, and they've got to know if they're making it or not. In ranching we never do count it up, never pay any attention. You just have to figure it out: everything that leaves your place has to make just a little profit to make it work.

It's a key to getting agriculture out of commodity thinking. We're not selling our product based on how many cattle there are, or how much corn there is.

DOC: But we don't expect to sustain a blue-sky, 200-cow operation with a bunch of hired men that takes 3 tons of hay per cow to winter. The ranches that are in Oregon Country Beef have to be pretty well tied to solar power and harvest the grass that the sun, the moisture, and the soil grew, not what somebody did with a big machine. Not that some of our ranches don't have machines, but the base of all of them is using the ruminant animal to convert that grass to a consumer product.

Learning to market

CONNIE: Our cattle were not worth anything, so we put "cattle capital" up. Everybody put a few cattle in--which worked.

Before Oregon Country Beef, we had a good relationship with Tom Norton, who marketed our animals. He had a small feedlot near Prineville. We knew him and trusted him. He had the passion to make this work too.

DOC: We all took turns putting some animals in the feedlot, just 15 or so, small amounts. Some people had fall calves so we could make this year-round supply.

CONNIE: The late calves worked. They are ready three months later than the other calves.

We had cattle in the feedlot, we needed to find a packer. There used to be nine packing houses on the slough in Portland and it was down to two when we started. I'd been over there a week, and things weren't working. Some people had told us about Larry Kline, and I got an appointment.

I got out of the car and there was this odor I wasn't used to. I walked up the stairs. The secretary looked puzzled. She went into his office and said there's a lady from eastern Oregon here to see you. He said, and I heard it, "tell her I've got five minutes."

Here I was, getting close to Friday afternoon, nothing much had happened all week, and I had five minutes. I was scared.

I went in there. Forty-five minutes later I walked out of there. And he said, "we're just going to help you." He took me down and showed me the plant. "I've never had any sodbusters"--that's what he called us--"come in here and ask what I could do. Anything I can do for you people, I will. If you want to start marketing your cattle, I'll do what I can do to help."

DOC: You were real, and you had passion.

CONNIE: We wanted to stay in ranching, and I really believed in this. They all responded. "You're really from the ranch, do you hunt on your place, and what are your places like?"

I came home. I'll never forget the first three head from our neighbors the McCormack's. We took pictures of them in the lot, what they looked like. At that time we had no idea what was under the hide of our animals. Tom Norton put them behind a partition in the back of a hog truck, to get them to Portland. Larry Kline put them through the packing house.

We found out there's a big difference between a cow killer, which Larry Kline was, and a finished beef killer. The people who cut it up aren't as finessed. Cow killers usually just make hamburger. His cryovac wasn't as good, and you'd get little holes in the plastic and the meat would turn green, and a few things like that happened--but Larry was passionate about helping us and he did.

After the first year, one of our meetings was in Portland. Larry had taken an animal completely apart and had the parts spread on tables. All of us went over and he explained it all. With Larry, we learned what was under the hide of our animals, and the challenge in marketing all the different cuts.

Although he's now retired, Larry will always be a lifelong honorary member of Oregon Country Beef.

DOC: In the beginning, we each put $100 up. There were 20 some of us. That was a little less than $3,000 and Connie used that for just expenses. It paid her gas, and an occasional motel, to get the beef sold. We took it to the packing house, and the packer wrote a check for it based on what Connie had sold it for to the store--we were selling whole cattle packs at that time. The check was to the rancher who owned the cattle, and the rancher just left the check lying around for three weeks, so that the packer could get collected--he wasn't making any big margin. So that's how we handled our cash for the first two or three years.

Connie developed partnering relationships with a feeder, a packer, and some retailers. Each ranch took a turn at filling a pen in the feedlot with cattle to make a year-round supply.

Kyotaru

Country Natural Beef, the original name, was organized as a cooperative. There was a richness of talents and abilities among the rancher members. Mary Forman of Antelope, a CPA, is the financial officer. Liz Turner, who ranches near The Dalles, coordinates cattle supply. Doc and Connie did the marketing, receiving power of attorney from the member ranches to run cattle through the feedlot and packing house.

But no one is ever off the hook in terms of quality. The ranchers, along with every element of the supply chain, began to learn how to be fully responsible for quality to the consumer.

In the early 1990s, a Japanese export market enabled Oregon Country Beef to make a significant contribution to the financial stability of its member ranches.

The Hatfields'ability to form relationships based on their core values was critical to the success of the cooperative, as was the ability of the member ranch families to work together as a team.


CONNIE: After we had struggled for the first few years with retailers, we got a telephone call from John Kratochvil at the Oregon Department of Agriculture. He said we have a restaurateur over in Japan who has asked us to find beef that is grown in the state of Oregon.

Mr. Tanaka, who had 800 restaurants, knew the tariffs were going to be opening in three years. He wanted beef from Oregon. (A western TV show, "From Oregon with Love," inspired him to look for Oregon food products.) The Department of Agriculture said, you're the only folks we know who have Oregon beef.

DOC: In the whole state of Oregon, and all the cattle there are, and we were selling eight to ten head a week, and we were the only company in Oregon that was handling Oregon-grown beef.

CONNIE: We said let's think about this. What do they want?

They said in Japan they often like to know where their product comes from. They'd like to have someone from their company learn about that product from the point where you put the cow and bull together clear through to the consumer's plate. Would you like to have a young man come and stay with you?

DOC: Kind of a corporate exchange student. So Yuji came, a neat little Japanese man, 25 years old. He'd grown up in Tokyo, learned English in Dallas, and had been to Los Angeles. He arrived with his bags in Brothers, Oregon. We had this 11-party radio phone, and Stacy and Elaine Davies, who had just come to work with us, had no phone. Yuji stayed with them for a year and a half. Talk about cultural change. But he did real well.

CONNIE: He'd ridden some motorcycles in Japan and so he fit in with us because we use motorcycles--so we have time for marketing.

We got a phone call after Yuji had been here about four or five months, from the Department of Agriculture again, saying that there was going to be a party in the West Hills of Portland, and Mr. Tanaka who owns the Kyotaru restaurant chain was going to be there.

DOC: Mr. Tanaka had done a big teacher exchange with Goldschmidt when he was governor. It was a West Hills garden party and we were invited because we were hosting Yuji, who was from Mr. Tanaka's company.

CONNIE: Yuji had been here for three or four months, and he knew what the words chute, corral, and heifer meant, he'd learned the language of ranching. He visited most of the Oregon Country Beef ranches.

DOC: He knew a steer from a heifer from a bull from a finished animal from a yearling. We knew that only Yuji could communicate to Mr. Tanaka what our group had. Yuji and I drove to Portland and we walked in to the party.

We weren't there five minutes, and Mr. Tanaka, the interpreter, Yuji, and I were standing around the pool. Soon the interpreter was out because he didn't understand ranching. We completely monopolized Mr. Tanaka for the half hour before dinner. He was really interested in the ranch, how it worked.

John Kratochvil flew him over. We served him pot roast out of a three-year-old dry cow.

CONNIE: The one thing that we needed to have him know is that we have to sell the whole animal. He took seconds on the pot roast.

DOC: Connie said, I don't think the beef we have is what you want, because we know in Japan they eat heavily marbled, very fat Kobe beef.

CONNIE: Ours isn't like that. We're working for a leaner product. He said, "oh no no no, you don't understand. The meat you're talking about is gourmet. We want to know where our product comes from, we want to know where our meat is raised. We want to know the people who are raising it."

Then he looked down at Elaine, who was sitting at the end of the table with Zed on her lap. He said, "do you nurse your baby?" Zed was about six months. Elaine said yes. He said, "many of the young women in Japan cannot nurse their babies because the babies get sick."

This was a mercury problem from the fish--the mercury goes right to the milk. He said, "we want to know where our product comes from and that it doesn't have anything in it that would be a danger to the people who come to our restaurants."

DOC: Mr. Tanaka said this is the kind of beef I want. He stood up and I stood up, and we shook hands across our dining room table. We said when the imports open up in three years, we'll have it for you. And that was the deal.

He sent his people to talk with us about it. The Japanese were known to be hard negotiators and traders, and would not work with women. None of this was our experience. Mr. Tanaka operated on a shin rai principle of two companies working together. We'd not talked about price. He laid out four principles.

One of them he was really strong about was that we would work together to reduce cost. He wanted to reduce cost whenever we could--not reduce profit. Any time either one of us, on either side, were able to reduce cost, we'd equally share in the benefit.

They opened a Kyotaru plant in Salem to take boxed beef, cryovac primal cuts, and make them into restaurant-ready frozen portions--so they had individual steak cuts, individual slices to send to Japan.

At the grand opening of Kyotaru, we still hadn't decided what the price would be, and Mr. Tanaka announced to the press he was buying beef from Oregon Country Beef. We had a big ceremony, and afterwards we went out back. Through the interpreter he said, "I'm counting on you for that beef." We worked the price, and it worked, and we delivered the beef, and it worked. We had a wonderful relationship.

We had been processing in a small plant in western Oregon and they were overcharging us a little, considering the volume we were doing, about 60 head a week at that time. Mr. Tanaka leased space from a department store in Tokyo and they were talking about this beef, and the department store owners said, "we own Washington Beef, why don't you process there?"

Washington Beef was doing a thousand head a day, and we're doing 60 a week. So the Japanese owners had Washington Beef come down and visit with us. We didn't realize at the time that 60 head sold through retail is a significant number.

We moved our packing process to Washington Beef, and that saved us $100 a head, because of their efficiency compared to a small plant. We were making our cost of production, return on investment, and a reasonable profit at the regular price, without this $100 a head.

I'll always remember this. Ken Bentz, Connie, and I met the Japanese folks from Salem in Sisters. Ken said, look, you haven't sold any beef at all yet. The price we're getting is more than adequate. Why don't you just keep that $100, and put it into promoting the product? Dr. Kira looked over his glasses and he said, "Mr. Tanaka's principle is, we split 50-50. You'll take 50, and we'll take 50."

So our first year with Kyotaru, a lot of those 800-pound yearlings returned a dollar a pound net to the ranch. They put our beef in some family-style restaurants. Big steaks didn't sell in family-style restaurants, but the meatballs and shredded beef moved.

Kyotaru took the whole carcass, and they told Washington Beef how they wanted it cut. And Washington Beef cut it to their specs.

Then the Japanese economy crashed. Interest rates went from 3 percent to 8 percent. Property values dropped a third in six months. They had planned on opening some American-style restaurants in Tokyo, using our beef.

CONNIE: They wanted Doc to be like Colonel Sanders.

DOC: They were going to have me with my hat on as the mascot. All that stuff went out the window. Mr. Inamata, who ran the plant in Salem, came over and said we need to have a meeting with you. That's the way they always did it--they drove 200 miles to see us personally, as a way of showing respect for the relationship. To our houseful of ranchers he explained all these things that were happening to the Japanese economy. It had basically wiped out their liquidity. A lot of their money was in real estate, which had lost all its value. They weren't going to open their restaurants, but they would honor the 18 months left on this contract, which was $1.5 million, but then it would be all over because they weren't able to do what they'd wanted. Mr. Inamata left.

Somebody said, what would happen if we just threw that contract away and tried to make something work? Ken Bentz called all 14 ranches and they all said it's a good idea. And so we went over to Kyotaru and met with them, and yes, they could use the end meats [chucks and rounds; see chart below].

CONNIE: Yuji knew that the middle meats in America sell easily, and end meats are hard. He said, we make sushis, we have a lot of traditional dishes that can use end meats.

DOC: We reduced our price and numbers, we did everything to make it work, and then it did. When Kyotaru was full force we were at about 60 head a week. Then we got into the Pine Tavern in Bend, we got in some restaurants, and we got in some health food stores. We replaced Kyotaru with the domestic and health food market.

CONNIE: Luckily we found the natural food niche.

DOC: Kyotaru continued to go downhill. We supplied these end meats in a steadily decreasing amount for three years. Then we knew that we had 18 months and it was going to end.

All this time, Kyotaru was putting tremendous pressure on their suppliers to reduce costs because they were in financial difficulty. But Mr. Tanaka said, don't mess with Oregon Country Beef. We delivered the last beef to them in June a few years ago and they took bankruptcy in August.

In Japan, business, culture, religion, and family are all in one package. That's why Americans don't understand it very well. It doesn't exactly fit here. They're on a competitive basis, but it's a different kind of competition. Americans call it collusion or restriction of trade. Shin rai is when two companies work together for the benefit of both, in a marriage together, they share costs and profits. We have to continually work at keeping that going because that's not traditional in the U.S.

The main lesson we learned with Kyotaru, and it's the key to Oregon Country Beef's success, is that integrity, commitment, and responsibility are universal languages. We really learned the value of shin rai, of being deeply involved in one another's businesses to capture opportunities that exist. Last year we did $5 million in sales, it should be $7 or $8 million this next year, and we have no written agreements with anybody. Nobody has a contract to do anything in Oregon Country Beef. It's 100 percent integrity, trust, and commitment.

A parts business

DOC: We had a graduate course, over those seven or eight years, in how the meat business works. I don't know where else we would have gotten that.

Nobody sells whole carcasses anymore. It's a parts business. It's like being in the auto wrecking business. You can sell windshields, but it's hard to sell steering wheels.

We're getting the meat cutters to put the chuck and the round into smaller portions and cuts so they cook easier. They're priced at a level that almost anyone can afford.

CONNIE: The meat cutters are helping with the problem that we have. They feel really good about it if they get into it.

What's your arrangement with your packer, Washington Beef?

CONNIE: The neat thing about our packer, Washington Beef, is that they're all things to all people. They get everybody's cattle, and everybody's cattle aren't the same. They'll have x amount of Prime every week, that just comes on a percentage basis, they'll have so many Standards, Selects and so on. They have their little markets where they put those particular animals. So they're marketing to a consumer need.

DOC: On a commodity basis.

About 10 percent of our animals get culled from our program because they don't quite fit our carcass target. We don't get any extra for those cattle, but it's a huge help to us that we have this shin rai relation with Washington Beef. They take what we can't use.

CONNIE: We've taken a lot of our ranchers to Washington Beef, and a lot of them have started to see it. They say, why can't we find a market for our Prime? Because Prime is Prime, and everybody thinks it's special. But if it's one carcass a week, or if it's 10 carcasses a week, that's what you need, because that store's going to buy x amount every single week. And so we might have three Primes one week, one the next, and none for the next three weeks. It isn't consistent.

DOC: We don't want to select for Prime, so they're accidents when we get them. We might go two months without ever having one.

CONNIE: We don't look at Washington Beef as our adversary, we look at them as doing us a service. They humanely kill our animals, they go in the one door, they come out in boxes on the other one, in the finest state-of-the-art packing house around. And we reap the benefits. We pay them for a service well done.

DOC: It's not like they're a contract service or a hired man, or a custom slaughter. They are in fact a working partner because they do a lot of things for us they wouldn't do on just a straight dollar transaction basis.

CONNIE: The reason Washington Beef puts up and cares with us is that we have it sold out the other end. We're pulling our product through their plant on its way to our customers.

DOC: Next week we'll send 200 head to Washington Beef. The USDA grader with Glen, the cooler man, will take carcass stats, measure ribeye, backfat, and marbling, how much fat is in the meat, and then they fax that to us here at the ranch. Our son Travis and Connie and I cull the ones that don't meet our standards. Some of them will not have enough fat, they'll be Standards and won't make Select. Some of them will be high Choice or Prime and we sell those to Washington Beef, along with the real small ribeyes and the real large ribeyes. So what our customers get in the box is a very consistent quality product, week after week, month after month. There are a number of other niches that could be targeted, but what you can't do is try to be everything to all people all weeks. You have to pick a market you can fill and strive to hit it every week.

What was the idea behind your in-store event where the rancher talks to the consumers?

DOC: The in-store idea was that we had no money to provide promotion. Most retailers want some kind of promotion, and a real rancher in the store is a huge benefit to them.

As soon as we did it, we realized that it totally changed the view of the rancher. People are different once they interact with a customer.

You can talk about these things forever, but once somebody spends two days in a store talking to consumers, they realize that people who want to buy a known product, of some health benefit and a lot of perceived health benefit, are rational, reasonable, well-intentioned folks. It makes that tie between the ranch and the consumer real, and not just something you talk about.

One of the biggest questions that we get asked in the natural food stores is how the animals feel about being killed.

CONNIE: They will ask, what is the killing like?

DOC: My answer is that we've seen it, we're comfortable with it, and the animals are not frightened, and I certainly hope that when my time comes, it's that gentle.

What is your Customer Appreciation Day?

CONNIE: It's having the meat coordinators and meat cutters from all the stores, and the store owners, and their families, and people from Washington Beef, out to one of our members'ranches. We all get together and have a good afternoon picnic. At the last one, our retail meat person at Nature's came with a little quiz for us.

DOC: Such as, what is shrink in a retail market? It includes theft, roasts that you have to grind into hamburger, and pieces that are fat and bone that you have to throw away.

The point is for the retailers to see the ranchers in their own environment, with their families, and for the ranchers to put faces to some of these retail folks. We usually have a good turnout from San Francisco and Seattle and Portland.

How did the Grazewell principles come about?

CONNIE: Remember the saying, 'Cattle free by '93'? In about '92, the Oregon Natural Resources Council, Andy Kerr's group, went into one of the Nature's stores in Portland. Someone in a dairy cow costume deposited some yellow liquid along the front of the meat counter, in protest that the meat that was in this counter came off of public lands.

DOC: It was a demonstration. Twelve of our 14 ranches operated on public land, and we had just been in Nature's a short time. Nature's ran a story about Oregon Country Beef and the ranchers. Those groups had a Boycott Public Land Beef in effect. We became well acquainted with the owner of Nature's, Stan Amy, who handled it well.

CONNIE: I found out who the picketers were and made an appointment with them. It was the Oregon Natural Resources Council people, Andy Kerr's people, and they were on the fifth floor of one of those bigger buildings in downtown Portland. I was there an hour. She talked 45 minutes and I talked 15. I really listened. She got a lot of her frustration out on how horrible ranchers were, and what we were doing to the land. She said, what do you do with your coyotes?

I said, coyotes aren't a problem on our ranch, because we calve after the sage rats come out and the coyotes go after the sage rats and they leave our calves alone. It seems to work out pretty well.

She said, is that right. Do you have wildlife on your ranch?

I told her how much we enjoyed the wildlife, and how we tried to live in harmony with the wildlife, we feel that's our responsibility. I said, if anybody wants to come over . . .

Then they sent the Audubon man over, Mark Liverman. At that time we had one aspen grove, old granddad aspens. And we love aspens, but we hadn't thought much about why there weren't any young ones. We went to the Savory school, and started thinking. Doc said, "you know why there aren't any young aspens down there? Because the junipers have taken over above them. If we cut those junipers down I bet it will bring the water source up, and I bet we'll get some more aspens." We cut down a few. Where some of them fell down, the next year we noticed a lot of little aspens coming up. Then we noticed what we'd been doing is letting the cows in there in the fall of the year and they were eating all the new sprouts. The next year, we pulled some of the old still-down juniper around so that some of these would have some protection. We started getting some teenage ones and a bunch of little ones. We kept the cows out that time of year.

The aspen grove is a neat place to go, so we went by it. Mark Liverman said, "can we get out here? This is phenomenal, this is fantastic. Can you think of what you're doing for the neotropic migrants?"

(It took me six months to learn to say that, now I can flip it right off my tongue.) I said, "what are neotropic migrants?"

He said, "they're the little birds that fly from Canada down to Mexico and back again. They fly along, they find an aspen grove, and there are all these bugs in an aspen grove that need to be eaten. So they kind of rest up, and gas up, and then they fly on to the next one. When they don't have enough along the way, it really makes it bad. That's the trouble with grazing in the west, and dam building. All the aspen groves and the cottonwood trees are being taken out. Look what you've done, you're bringing back one of these aspen groves!"

DOC: Not that he was happy with cows, or real happy with us, but he did recognize the aspen regeneration. Probably they had a little discussion and decided we were a poor group to make an issue out of. So they just backed off and went away.

Then in Oregon Country Beef we said, hey, this is a consumer need. We spent a lot of time building these Grazewell principles.

CONNIE: Jack Southworth, who is our environmental team leader, made the word grazewell, which turns it around and helps all us ranchers to become better ranchers. He helps each ranch work with their land and ecological goals.

Expansion

DOC: The first three years of Oregon Country Beef we didn't make money, but we didn't lose anything much. The stores we were in all lost money on us. Then we got Kyotaru and we made lots of money. We had lots of yearlings that returned a dollar a pound. We had a year of unparalleled profit. Kyotaru tapered down, and we made a little money until they went broke.

The next two or three years, the Nature's Fresh Northwest stores in Portland, the Puget Consumer's Coop stores in Seattle, and Newport Market in Bend came on. They were delighted that they didn't lose money. Stan Amy at Nature's said this is the first time I've ever had a meat department that didn't just kill me.

When we first got acquainted with Whole Foods Natural Markets in San Francisco, they had four stores. Their meat departments were not doing very well. They went through three meat coordinators in two years.

They built eight stores. We were getting to the point where we were a little short on supply from our original 14 ranchers. Walter Robb, the regional president, invited us to come down. As Connie said, he had us come down to go to the woodshed, because we weren't quite meeting the meat departments' needs. Walter is known as a hard negotiator. Everybody who works for him said, Walter is a negotiator's negotiator. I was interested in seeing a negotiator's negotiator in action.

He said, "when Oregon Country Beef came down here, our meat departments weren't in very good shape. They have made tremendous improvement, they're profitable, they're not quite where we need them to be, they're close, and we think a fair amount of that success is due to your product." He looked right at me and said, "we were attracted to Oregon Country Beef by your strong goal and mission of tying people on the land with consumers. We have access to the consumer. You have the ranchers. We're going to grow, and we'd like you to grow with us, and I think you'd want more ranchers to do good things on the land."

We came back and doubled our coop membership, which was not our intention. Later I thought, he is a negotiator's negotiator. If he'd said, "you've been doing a million dollars worth of business, and we'll be able to do $2 million in two years and $4 million in three years," we would not have been interested.

Whole Foods pretty well walks their talk and we were pleased with that. In the last two years, the meat departments in Whole Foods are leading the store in growth, they are making their margins and they are a high-profit departments. The team leader for meat at Cupertino Whole Foods won the store team leader for the best department in the whole store. In Newport Market, the meat department is leading the growth.

One thing that bothers me, and this is particularly in San Francisco and in California, a lot of people are eating our expensive steaks because they think they're the best steak you can buy, and they taste good every time. They're buying them more for their eating quality than they are for their environmental integrity. I pointed that out to some of the owners of these stores, and they say "well, if you're making ranches sustainable, and consumer dollars are fueling it, maybe you shouldn't try to make everybody do things for the right reasons, if they're doing the right thing."

That's why we work so hard to try to have our end meats, our chucks and rounds, priced so the consumer who is not particularly affluent can afford them, if they want to know what they're feeding their families. We've achieved that, and it's very rewarding.



In 1999, Oregon Country Beef's marketing arm hired Norm Birch, who had been with Pacific Seafoods and had been a Safeway meat manager, to help them meet customer demand, and assure that all carcass parts are merchandised to the growing number (now 40+) of stores that buy Oregon Country Beef. The mission of the marketing arm is to make Oregon Country Beef and its customers successful. The key to this success is personal relationships.

DOC: When Norm Birch came on, he was astounded by the relations we had with the buyers--the meat coordinators who have to get in the beef for their retail customers. There are three major buyers we work with in Seattle, Portland, and San Francisco, and they've all been here on the ranch. We're continually saying now, "did you folks meet your margin, is this cut priced too high and this cut too low?"

And Steve Keville, who is with Whole Foods in San Francisco, our biggest account, knows how much we have to have per carcass to make our cost of production, return on investment, and reasonable profit.

CONNIE: He was here, and Doc was AI-ing, lifting the cow's tail and putting the semen in, and Doc said, "yeah Steve, in two and half years, here's two strip loins." And you know that makes you think, and it made him think. Strip loins only make up 3 percent of the carcass, but the New York steaks that come from them are very popular.

DOC: It's really hard for him to understand where we're at on the ranch, and really relate to it. They're so used to saying, "I want two pallets of prime rib for Christmas"--which is 50 cases, which is the prime rib out of 100 animals. Well, what happened to the rest of the animal? And, "after Christmas we don't need any prime rib."

And it's really hard for a rancher to relate to what a meat manager goes through, who's got to make a certain margin, and got to make a certain sales target, and he's got to satisfy the consumer--because they really are into consumer satisfaction.

Ranchers are a tenth of a percent of the remaining population that has some tie with nature, integrity, and how a whole natural system works. But they've led a sheltered life. Most producers want to do the same thing they've always done, and get paid a lot more for it.

CONNIE: When they get together, they continually whine that everybody's against them. A lot of it is almost like a born right to whine and complain about how tough things are. There's nothing tougher than to have to go to that packing house every day, get your stuff on, and stay there eight hours.

DOC: That's not as tough as the guy who runs the retail meat counter. Eight, 10, 12 hours, this person didn't show up, you have to cut meat, you have to have all these turkeys ready for Thanksgiving.

CONNIE: You don't know how many are going to come in to get the turkeys, how many you're going to have left over, you're not going to make your margins.

DOC: The public's on your case one day about wanting something, and the corporate's on your case the other day to make your margin and your sales.

The easiest piece of the whole chain from the land to the consumer's plate is the cow-calf operator. We have the most options, the most opportunity for profit, the most opportunity for change. We have 24 months to get it marketed profitably, we have the advantage of acquiring equity on pretax dollars, everything we do on the ranch is a tax deduction. We flush our toilet with pretax dollars. We gain assets in land, it's not taxed. There's so much opportunity at this level compared to the others.

If a retailer went to a ranch and saw four people moving 100 cows somewhere horseback when one guy could do it on a motorcycle, those four horses are history tomorrow. Heeling calves and dragging them to the fire is an important cultural tradition on many ranches but it has little to do with the bottom line.

Teamwork: a year-round supply

At the annual fall meeting, the coming year is divided into 52 weekly slots for putting 800-pound animals into the feedlot to meet store orders, which fluctuate according to season. Each member ranch agrees to deliver one or more week's supply of cattle (now 200 head or more) at the appropriate date, and they are billed individually by the feedlot. Each ranch receives carcass data from the packing plant, and are paid twice: first by Washington Beef on the generic cattle price, and then in OCB "dividends," according to how well their animals hit the OCB carcass target, which is defined in terms of ribeye size, backfat, USDA grade of High Select to Low Choice, yield grade, and hot weight.

Oregon Country Beef cattle are now finished at Beef Northwest's feedlot in Boardman, where Bill Gover is manager. He is a key person in making Oregon Country Beef work. Every Sunday, he sorts out (using low-stress methods learned in part from Bud Williams) the required number of truckloads from the OCB pens at the feedlot to go to Washington Beef in Toppenish, where they are killed and processed on Monday morning.

OCB cattle are fed separately from other cattle at Beef Northwest, with no animal byproducts or hormone supplements. They are not the cheapest or highest-performing cattle in the feedlot, but Bill Gover understands that the function of the feedlot segment is to assure an even, consistent, high-quality supply, rather than to just add pounds quickly and cheaply.

DOC: From Memorial Day to the fourth of July we sell twice as many steaks a week as we do the rest of the year.

We can use the feedlot to even out the flow of supply. We can feed some a little faster and some a little slower. Even though it's only a three- or four-month period of time, we can adjust it to make the endpoints hit at the right time, to have the needed numbers every week. You need someone like Bill Gover who understands the program and believes in it.

Liz Turner, our supply coordinator, is really good at knowing when people's cattle will finish.

With these winter grazing programs, is you can make almost a nine- or ten-month supply out of a March calf, depending on how you winter the calf [see related story on page 16]. If he's born in March and maybe weaned in October he can be roughed through the winter on grass, with a little supplement, and end up weighing 800 pounds in August or October. Or he could be put on one of these growing programs and weigh 800 pounds in March or June. We're confident we're going to have enough different environments to make all this fit.

In taking grassroots, small, historical, tied-to-the-community ranch family operations, and tying them together, Oregon Country Beef has included some large agribusiness people. From our view, they are highly ethical, honorable people. The land doesn't recognize land ownership, it only feels land management. They produce cattle according to OCB production standards, and their land is managed under our Grazewell principles. Just because they are big, doesn't mean that they are less pure or less honorable or less sustainable or less important in the community. We don't feel bad at all that we rely on them to take up the slack in these times of rapidly fluctuating demand.

It's critical that no Oregon Country Beef customer goes without a prime rib for Christmas. They will not. We will have prime rib for them for Christmas. The customers our stores have, we're the only beef that customer eats. And if they're having a big dinner, and counting on Oregon Country Beef, and it isn't there, we're out of business. That's the difference between a demand pull and a production push.

It doesn't matter what the product is, it has to really taste good. It's easy to make fat beef taste good, and it's easy to make lean beef. But it's not so easy to make lean beef that tastes good. So we found out right away that they needed a smaller portion that tasted good that wasn't overly fat, that had a story behind of the principles behind how it was raised, and who raised it, and what was in it. And of course the consumer we have is not interested in having any kind of hormones or low-level feed antibiotics or any of these growth promotants that are "not natural." They want it to be grown just the way the animal grew himself, and they want to be assured that the animal is humanely treated, and all those things tie into eating quality.

CONNIE: We get hardly any complaints about eating quality, and we're all just plain old ranchers with plain old cattle. But we know the age of the cattle, we know they've never been sick, we know how they've been taken care of.

DOC: The fortunate thing is that animals that work on our land, kind of in a balance like the elk and the deer, in tune with what our ranches will provide economically, also happen to meet all those needs at the consumer level. Now they don't win any gain contests in the feedlot, and there are lots of animals that are bigger. And lots of them have more fat.

Somehow the animals that work on the land also work at the consumer level. It's almost alarming how many of these things mesh together. And you hear people say, oh you can't select for carcass, you ruin your work on the land, or you've got to have them grow so much, or they've got to be High Choice. We have not found that to be the case at all.

How OCB is organized

DOC: It's been a slowly evolving program, and I'm not sure we're completely there yet. But what we have now is working better than anything else we've had. Originally we just elected a board of directors, and they were kind of overseeing somebody who did the work, and that didn't work very well. Now, each ranch elects a director to the coop--which means each ranch has a vote. Then those directors elect a chairman. Then we divide up into an environmental team, a marketing team, a production team, and a financial team. The teams elect leaders. Then the chairman and those team leaders serve as an executive management team.

The financial team leader is Alva Mitchell, who is responsible for Mary Forman, our chief financial officer. Stacy Davies, production team leader, is responsible for feedlot placement and management. Mary Bradbury, who is the marketing team leader, is responsible for Connie, Norm, Travis, and I, who do the marketing. And that doesn't mean that she's telling us what to do--it means we're in constant communication about what we are doing.

It's the responsibility of the people who are doing the work under a shared value, common shin rai interest process, to just carry it on, and inform the team leaders, who are the executive committee, who ultimately are responsible to the directors. Each ranch provides all the financing for all their cattle all the way through, so they are the people who are financing the whole business. It's working quite well.

It's a virtual corporation, and it is financed by the cow-calf rancher. Those are the dollars that fuel the system, clear through until it gets to the retailer and the consumer, when the dollars flow back to the ranch. But the entities that carry it out--the cow-calf producers, feedlot, the processing, the distribution, the marketing, the retailer--those folks all have a common core value, shared sense of mission and purpose. They all know that if there's any problem, anywhere, we don't say it's their fault, we say, I wonder where this originated. We can find it immediately, because we control every piece, from putting a cow with a bull to presenting this to the end consumer.

The reason we've been able to make this work in what appears to be a loose structure is because everyone participates in two two-day meetings a year, and each ranch is a director--they have a full voice in what happens.

CONNIE: Many of our ranch couples drive 200 miles to our meetings, and on the way back they discuss what went on. Generally the wives heard things that their husbands weren't aware of, and vice versa.

DOC: It takes a long time to go around the circle and get 60 people to get their voice in the room and to get their opinion out. Almost everything we have an issue with, if we take half a day and keep going around the room, we can find a common ground that everybody can agree to before we go ahead. We don't do anything on a nine to one vote, because that one is critical for filling a certain slot in the supply wheel. If he's against, he's not going to have his heart into filling it.

When you have that 100 percent support, and there's trust between the people doing the work and the people with the cattle, then Connie and I, Norm, Travis, Mary Forman, Liz Turner, and Bill Gover at the feedlot basically just run it, as if we owned all the cattle. Without all of these people, doing the piece they know how to do, it wouldn't work.

CONNIE: We do tend to be slow in getting things done. And that's kind of painful, and yet it's probably the strength. If you are your own little ranch family, you would make a decision much faster.

DOC: Maybe a representative democracy doesn't work very well in this information age. You about have to have a participatory democracy to really do things. Probably the representative democracy worked fine when you're talking about commodities, and unlimited land to tame. Now we've got to iron out these differences before we make the solution.

How do you change the orientation of commodity agriculture?

DOC: You do it like the Margaret Mead quote: "it's amazing what a small group of committed people can do to change the world, in fact that's the only way it has ever occurred." And so you don't do it on a broad-scale basis, you don't do it through the national publications or through the National Cattlemen, you do it through a few committed, passionate people who believe that the consumer should be tied to the producer and it should be fair value for both.

CONNIE: Most people think of marketing as merchandising, advertising, and fluff. We realized that all it really is, is finding out what people want and then figuring out a way to get it to them at a profit.

What's the most rewarding thing to you about the last 14 years?

DOC: The most rewarding thing is realizing that there are a whole lot of urban consumers with high integrity and high core values who are as interested in the things we're doing as we are.

CONNIE: There are five young ranch families that have come back to the ranches, probably solely because Oregon Country Beef exists. There's a future. When you go to pregnancy test your cow, that little embryo is sold for a profit. It's sustainable, it's working.

DOC: The final rewarding thing is knowing you are out of the victim mentality. You won't ever go to an Oregon Country Beef meeting and hear anybody even hint that oh, these guys are taking advantage, or this is unfair, or that's unfair. It's always, how are we going to make this happen? How are we going to reach this goal? How are we going to service this store that takes way more New York steaks than chucks, and where are we going to find somebody who wants our chucks, and how are we going to wrestle that around so we can fill Whole Foods'needs, the Pine Tavern's needs?

Those are the big challenges we have, and those aren't anybody's fault. That's just a reality that people eat beef every week, and they don't eat the same cut every week.

The reason Oregon Country Beef has worked, where other producer-branded programs have failed, is we've operated 100 percent from a demand pull. Who would have ever dreamed that one of the biggest demands in a natural health-food store would be for a hot dog? And that's the first value-added product we made because everybody wanted a natural hot dog. People like hot dogs, kids like hot dogs, and the folks who are filling that demand want a good hot dog they can trust.

The real challenge with people trying to help rural people develop something is they start out with the product before they have the demand. You've got to start with the demand, and build the product to fill the demand. Skip Lawrence at Washington Beef says that it's the consumer who creates value, everyone else adds cost. We continually keep that fact in mind.

If you tie existing resources together, and make it shin rai--as the Japanese two companies working together for the benefit of both--then all these retailers and distributors and processors and producers and feeders are there already. If you can put them together, you don't have to generate a bunch of capital to reinvent the wheel. So many of these branded programs start out immediately raising a bunch of money that they have to pay back, and there really isn't that much margin in it. Even if you're quite successful, there's not enough margin to build a new packing house, or new feedlot, or a huge processing facility.

Our experience in talking with consumers and evaluating carcass data on thousands of head has changed us forever. It's really difficult to get the right number of cattle, in the right quality, available to provide fresh beef, every week, 52 weeks a year.

Last year was a $5 million a year sales business, which will be $7 or $8 million next year, without ever raising any capital or borrowing any money. As Martha Stewart would say, it's a good thing.

Oregon Country Beef's Grazewell Principles

From Patterns of Choice, 2000