Module III Section D Activities
Activities for Module III Fur, Feathers, and Fins – Animals in our food
Activities for Section D: The Economics of Livestock Production
Activity 1: What’s it worth to you?
Purpose: Students will learn about some of the complexity of valuing – and pricing – products.
Advance preparation: Print out the article on grass-finished beef (Adobe Acrobat PDF Document) and make copies. Have a way to record points from the discussion (flip chart, board, or overhead).
Estimated time: 20 minutes (5 minutes to read the article and 15 minutes for class discussion). (50 minutes extra for the optional activity extension)
Background information: A number of factors are involved in determining the price for a product. Production costs and supply are key factors that are relatively easy to quantify, though they may change over time and space. Other important factors such as demand and value are harder to measure. However, as any economist knows, demand is critical in setting price, and as any consumer can tell you, value helps determine willingness to pay (demand). The problem is that different people do not always agree on what is valuable, and also markets do not always do a good job of giving consumers the information they might seek to determine value. Moreover, ideas about value may change, either due to new information or just in response to advertising or fashions.
- Begin by asking the class what factors would influence how much they are willing to pay for meat. List these factors for all to see. Ask the students which of these factors reflect value (for example flavor, tenderness, appearance, fattiness) and which reflect other things (for example how much money they have, whether it is cheaper somewhere else, what it costs the farmer to produce, etc.).
(If you think your students won’t identify with purchasing meat, you can begin by auctioning off a few different types of candy bars and asking what factors influenced their bids.) - Hand out the article on grass-fed beef and ask the students to read it.
- After the students have a chance to read the article, discuss the following questions as a class:
Are there any values discussed in the article that could influence how much a person is willing to pay that were not listed earlier?
(possible answers include how the animals were raised, environmental benefits, possible health benefits such as Omega 3 fatty acids, animal welfare, support of local farmers)
Does the market normally let meat buyers know about these factors?
Not usually. Recently some stores and certification programs have emerged that market some of these values. Or a consumer can find out about these factors by purchasing directly from a farmer. But most of the time the conventional market ignores these factors.
Should consumers be able to know about these factors? Why or why not?
What does the article say about the flavor of grass-finished beef? What things can affect the flavor and quality of grass-finished beef?
Many Americans like it less than grain finished beef, though some people prefer it, especially if it is what they are used to. It tends to be leaner (and therefore less rich-tasting and less tender). The flavor and texture also depend on the genetics of the animals, the quality of the pasture, how the animals are handled at slaughter, how the meat is aged, and how it is cooked.
How many students would be willing to pay more for grass-finished beef than conventional, based on the article? How many students would not be willing to pay as much for grass-finished beef as conventional? How many students would not care?
Optional question: (You might want to ask students to try to interview a meat manager for a local grocery about this question for extra credit. Make sure each grocery is only contacted once. Or you can just let the students speculate about what factors influence prices.)
How are meat prices set in the grocery store?
Typically, grocery stores have a standard mark-up that they add to the cost of the item from their wholesaler. The manager may decide to sell some items at a lower than usual mark-up (put them “on sale”) to attract customers to the store.
The wholesale price, in turn, is determined by a variety of factors, including the cost of processing and distribution, the demand for meat, and the supply. The cost farmers pay to produce the meat is only a factor in that it can affect supply—but usually with a large time lag, especially for beef, which takes up to two years to produce. Big stores can often negotiate lower wholesale prices than small stores because as important customers they have more bargaining power.
How should a farmer who is direct-marketing her beef set her prices?
- They need to consider what their costs of production, processing, and marketing are and make sure the price covers those costs, including the cost of their own labor.They also need to consider how much people will be willing to pay. Think about the factors you listed above that affect how much people are willing to pay. One key factor is the prevailing price for comparable products. Remember that the same cut of meat in the grocery store is not necessarily comparable if the farmer’s product has special attributes (e.g., no antibiotics, grass-finished, locally grown, etc.)
For more information on pricing strategies see pages 121 to 124 of Building a Sustainable Business: A Guide To Developing A Business Plan for Farms and Rural Businesses developed by the Minnesota Institute for Sustainable Agriculture, http://www.sare.org/publications/index.htm.
Optional activity extension: Design an advertisement (50 minutes)
Divide students into small groups. Have each group design an ad intended to convince people to pay more for grassfed, locally raised beef. The ad can be designed for use on a billboard or in print (magazine or newspaper), or students can create a script and perform an ad meant for television or radio.
Give each group two minutes to present their ad and 3 to 5 minutes to follow up with class comments and discussion.
Divide students into small groups. Have each group design an ad intended to convince people to pay more for grassfed, locally raised beef. The ad can be designed for use on a billboard or in print (magazine or newspaper), or students can create a script and perform an ad meant for television or radio.
Give each group two minutes to present their ad and 3 to 5 minutes to follow up with class comments and discussion.
Activity 2: You’re planning what?
Purpose: Students will learn about the steps involved in developing a business plan and will understand why getting financing can be especially difficult for sustainable enterprises.
Advance preparation: Decide what scenarios you will use for the sustainable and the conventional enterprise.
If you do this activity as a classroom discussion, print out the table of contents for the business plan (pages 6-8 of the on-line pdf at http://www.sare.org/publications/business/business.pdf) and the questions and make copies or create a copy you can project for all students to see.
If you do this activity as a written assignment for small groups or individuals select the business plan task(s) they should discuss ahead of time and create worksheets with the tasks and questions on them.
Estimated time: 15 minutes
Background information:
One of the special economic challenges that sustainable farmers face is that it is difficult to get a banker to finance innovative enterprises. This reluctance is not because bankers are opposed to sustainability, nor is it because sustainable farmers are financially incompetent. In large part it is because the projects sustainable farmers propose are so often different than the norm, and therefore less is known about them. And to a banker, lack of information looks like risk.
To overcome this lack of information, sustainable agricultural enterprises seeking financing need to create very detailed and comprehensive business plans. One planning guide is Building a Sustainable Business: A Guide To Developing A Business Plan for Farms and Rural Businesses developed by the Minnesota Institute for Sustainable Agriculture (see http://www.sare.org/publications/index.htm)
Use the table of contents from this guide to compare the work a farmer would have to go through to get a loan for an innovative sustainable agriculture enterprise versus an established agricultural practice. For example, one of the case studies in this business guide is seeking a loan to help them set up a business processing and delivering milk from their sustainable dairy operation to customers’ homes. (see page 269 of http://www.sare.org/publications/business/business.pdf). Contrast this enterprise with a farmer seeking a loan to build a free stall barn to expand his milking herd. Or develop your own two scenarios.
You can run this activity as a classroom discussion or as an assignment for individuals or small groups.
Classroom discussion:
Project a copy of the table of contents for all students to see and ask the students to answer the following questions for planning tasks 2 and 4 (depending on how much time you wish to devote to this activity, you can choose how many of the items listed in the table of contents to discuss)
- Why would a banker want to have this information?
- Would a lender ask this question of someone seeking a loan for a conventional enterprise?
- Would the lender or Extension be able to help the farmer answer this question?
Written exercise for small groups or individuals:
Select one or several questions from tasks 2 and 4 from the table of contents and ask the students to answer the questions in writing. You can create worksheets with the task written at the top and the questions with space for the answers below.