Adding and Extracting Value

from Paddock to Retailer

Gerard Keenan, CEO, Keenan

Crisis in the beef industry – prices drop by 20%

June 2005

Irish beef prices drop from €3.00 to €2.40 per kilo DW

September 2005

Irish Market prices €2.43 per kilo DW

KK Club contract prices €3.26 per kilo DW

KK Beef Club

Origins

1998

• Crisis in European beef markets

• New way needed

• Forum for change - processors, farmers union, farming press, Keenan nutritionists, Australian Total Quality expert

• Modest first steps

The challenge

1. KK Beef Club Specification: (heifers)

1. Carcase weight 240-320kg @ 20 mths. max.

2. Colour Fat - white (no yellow) Meat – Pink

3. Carcase conformation U(3,4L,4H) R(3,4L,4H)2. From grass-based production system3. On year-round basis4. Project scalability 5. Need for the project to financially work for all parties –

farmers, processors (and retailer)

Keenan’s role was to contribute at all 5 levels

Carcase description - % meeting KK Beef Club specification

KK Beef Club Specification: (heifers) Carcase weight 240-320kg @ 20 mths. max. Colour Fat - white (no yellow) Meat - Pink Carcase conformation U(3,4L,4H) R(3,4L,4H)

Source KK Beef Club grading figures 2000

2 3 4L 4H 5L/H Total

U 0 5 17 7 0 29

R 0 6 40 15 0

61

O 0 0 3 5

2 10

P 0 0 0

0 0 0

Total 0 11 60 27 2

90% 90%

hit targethit target

KK Beef Club

• Consistently hitting a tight specification on bulls and heifers

Characteristic % Hitting Spec.

carcase weight 84%

conformation 87%fat colour 98%meat colour 98%

Source: KK Club, bulls and heifers 2001

• Not possible with traditional production methods

KK Beef Club

• Dynamic competitive strategies to counter ‘copy-cats’

–Current market prices €2.48 per kilo DW

–Standard KK (bulls, heifers < 24 months, white fat, pink meat) currently €2.76 and normally 14c above market price (+11% on €2.48)

–GMO free (2001), strict codes of practice, currently €3.06 (+23% on €2.48)

–GMO free, strict supply basis, currently €3.26 (+31% on €2.48)

Outcomes

• Reliable market for producers and predictable supply to processor (6 months in advance)

KK Beef ClubOutcomes

• Guaranteed supply due to planned production process:

–1998 – 2,000; 1999 – 20,000; 2004 - 50,000

–2005 – 70,000 (40,000 on GM0 free)

• Keenan had critical role:

–Proving it was possible to efficiently produce white fat, pink meat from grass-based system

–Delivering technical know-how to producers; imparting capability at low cost

–Acting as ‘honest broker’ in relationship between farmers and Kepak

Key features

Trust between processor and farmerCommitment two-wayThe other side needs to win tooBoth sides faced challenges to their commitment

Lifted the gloom of the industry Branded KK Club by beef journalistPointed a new way forwardNext generation vision for the industry

Recognised as flagship for Ireland’s beef industry and role model for ‘subsidy-free’ beef industry

Adding and Extracting Value

from Paddock to RetailerThe elimination of causes of variation in quality and productivity will

create wealth for all parties in the supply chain. The potential benefits in a successful alliance are 20%-30% of total costs.

• Improving total business productivity and reduced unit costs

• Reducing quality ‘penalty’ costs and improved average prices

• Becoming reliable, valued suppliers - building market share

Adding and Extracting Value

from Paddock to RetailerThe elimination of causes of variation in quality and productivity will

create wealth for all parties in the supply chain. The potential benefits in a successful alliance are 20%-30% of total costs.

Long term

Building chain capability for next stage product innovation, differentiation and competitiveness

Powerful motivation for all participants