Jim Whitt

IN THE YEAR 2525
IF MAN IS STILL ALIVE
If woman can survive
They may find…

2525 seemed an eternity away when Zager and Evans sent us on a soul-searching journey 25 years ago with those lyrics from their song, Exordium & Terminus. It’s difficult enough to try to predict what will happen in 2005 let alone 2525. But we wonder — what will we find in the future? And for those involved in the beef industry, who will survive?

Before we try to predict the future of the beef industry we must first understand its evolution. Agriculture’s origins can be traced to the beginning of time when Adam and Eve were banished from the Garden and forced to scratch out a living on the first family farm. Production agriculture continued to provide the livelihood for most of the world’s population until the industrial revolution in the 19th century. The invention of the cotton gin and the other mechanized farm equipment resulted in a mass exodus from the farm to the city. This resulted in a shift from an agrarian-based economy to an industrial-based economy.

Horses still outnumbered tractors on farms until the early 1950s, but it was about at this time that the production segment of animal agriculture started taking advantage of economies of scale with the consolidation of the poultry industry. The beef industry made a quantum leap when cattle feeding shifted from the Corn Belt to the High Plains in the 1960s. Small farmer feeders gave way to large commercial feeding operations. The die for consolidation in the feeding and packing segments was now cast. Packers had to follow commercial feeders to the High Plains or face extinction. As a result, economies of scale enabled the feeding and packing segments to become models of efficiency.

Let’s stop here and ask a question. Do you see any similarity in the evolution of the beef industry and other industries? Consolidation is not unique to agriculture. If anything, it has come more slowly. And contrary to what we may wish, it will not reverse itself. It instead will accelerate. So, we might conclude, extinction is the next step. There is no place for the “little guy” in this world of giants. But take heart. Evolution is no respecter of species. I read an article in the paper recently that carried this ominous headline: “Doomed Dinosaurs?” The article, written by Harry R. Webber, documented the endangerment of a species of big birds—airlines. Not just any airlines, though—major airlines.

The big birds are what Webber referred to as the “legacy” carriers—Delta, United, American, Northwest, Continental and US Airways. The big birds ruled the airline roost until 1978. It was then that they experienced a climatic change that would be as catastrophic to their survival as the Ice Age was to Tyrannosaurus Rex. It was called deregulation. That meant competition. You know—survival of the fittest.

The problem was that the big birds had grown fat. Meanwhile a new mutant species was hatched on the plains of the Southwest—from which it took its name. Southwest Airlines was nearly consumed by the big birds before it was able to fly. The big birds were temporarily aided by a sinister climatic shift recorded by historians as the Wright and Shelby Amendment. This federal law prohibited Southwest from offering for sale or providing transportation between Dallas Love Field and any point beyond Texas, Louisiana, Arkansas, Oklahoma, New Mexico, Mississippi, and Alabama. This amendment was intended to starve Southwest while the big birds feasted unfettered.

But the little bird, in its struggle to survive, evolved into a lean, mean flying machine. It developed a business model that offered cheap fares, on-time flights and excellent customer service. The big birds discovered the little bird had created the ideal business model for the new Ice Age of deregulation.

New species of little birds evolved—JetBlue and AirTran. And then the unthinkable happened. The hunted became the hunter. The little birds are now the predators and the big birds face extinction.

This prospect has many people wringing their hands. But Phillip Baggaley, an airline industry analyst with Standard & Poors is quoted by Webber as saying, “There is no doubt that the overall health of the airline industry would benefit from some carriers shutting down and going out of business.”

I think what’s significant about Southwest’s story is that it flies in the face of a commonly accepted misnomer—the big eat the little. But that’s not how capitalism works. Build a better mouse trap and the world will beat a path to your door—as long as the free market remains unfettered. And, as the airline industry discovered, sometimes even when it doesn’t. The Wright and Shelby Amendment was designed to clip the wings of Southwest. But it was the very thing that forced them to build a better mousetrap. The little bird not only survived, but thrived.

Unfortunately, the overall health of the beef industry, like the airline industry, will benefit from some of its participants shutting down and going out of business. This is the natural evolution of the marketplace. Don’t assume that size will be the determining factor in who survives in the future. Size was no advantage to dinosaurs—or the big airlines. Being big has its advantages, but it also has its disadvantages. As an organization grows, the weight gain unfortunately most often comes in the form of fat. Remember, it’s survival of the fittest, not the fattest. We live in the age of the entrepreneur. The advantage no longer goes to the biggest, but rather to the fleetest. Entrepreneurs willing to form strategic partnerships that link them to the end product consumer will find that they can run an end-around the beef industry behemoths. I’ll always remember what a Southwest pilot once told me about Southwest co-founder Herb Kelleher, “Herb says we don’t want to be one of the big boys. We just want to run around their legs and bite ‘em on the ankle every now and then.”

The future is bright for those who follow Herb Kelleher’s advice in a recent address to the company’s senior leaders: “…we must always look out, instead of in, and forward instead of backward, because the great white sharks are cruising out there ready to eat our livers at any time… we can continue to prosper and endure—or we can go the way of so many other airlines. The choice is ours.”

The key word is choice. The power of choice is unique to the human species. The dinosaur had no choice. Its environment changed and it didn’t. You possess the power of choice but you have to use it. The rapidly changing environment of agriculture will reward those participants who choose to evolve. This will not be without struggle or pain. But, in the words of Friedrich Nietzsche, “That which does not kill me makes me stronger.”

In the year 2525 what will you find? Look out instead of in and forward instead of backward. You can prosper and endure or go the way of dinosaur. It’s your choice.

Please e-mail comments to Jim Whitt jim@whittenterprises.com