Trading on Trust

Businesses based on shared values benefit the bottom line
Doc Hatfield

Rancher Doc Hatfield (left) grills up a sampling of range-grazed, hormone-free beef for grocery store customers, a personal touch that helps to set Country Natural Beef apart from factory-farm meat and to build trust among consumers. (Photo courtesy of Country Natural Beef)

The search for sustainability is creating some strange bedfellows.

Take, for instance, Country Natural Beef. In the Oregon-based meat co-op, cattle ranchers — known for their fierce independence — have forged surprisingly strong alliances with other ranchers across the West. Even more improbably, these no-nonsense traditionalists are collaborating with progressive health-food aficionados, animal-rights advocates and environmental activists.

The unlikely partnering of 120 ranch families with the likes of national retailer Whole Foods Market (the co-op’s biggest customer), Northwest restaurant chain Burgerville (whose slogan is “fresh, local, sustainable”) and renowned animal-compassion expert Temple Grandin (a scientist at Colorado State University) represents a growing business trend, according to Oregon State University business professor Zhaohui Wu.

“Country Natural Beef is an example of a trust-based model where relationships are driven by shared values,” say Wu, who specializes in sustainable business practices and supply-chain management. Notions like “trust” and “values” may sound a bit warm and fuzzy to the ears of a financier. But a growing body of research suggests they can effectively cut transaction costs and boost profits. Basing business dealings on close and “voice-based” relationships (that is, talking things over) rather than on written contracts is the alternative to the typical American “arms-length” transaction in a fragmented supply chain, says Wu.

In the mainstream beef market, business is determined by producer costs, but prices soar and sink erratically as commodity traders bet against future supply and demand. In contrast, Wu explains, consumer values provide stability for the natural-foods niche. This highly discerning customer base demands strict synchronicity with the shoppers’ philosophical beliefs: holistic rangeland management, stress-free cows, connectedness to the land, fair labor practices and additive-free meat traceable to its source. They’re willing to pay a premium for a product that reflects their deeply held beliefs.

Trust and collaboration among producers also make for more nimble decision-making, essential in a rapidly changing marketplace. Co-op members control beef supply cooperatively and negotiate stable pricing with buyers. The volatility and unpredictability that can devastate independent ranchers is minimized. Wu even has a term for cooperation among competitors: “co-opetition.” He is the lead author on this topic in an upcoming issue of the Journal of Operations Management.

Wu and Professor Mellie Pullman of Portland State University studied 30 member ranches of the beef co-op’s network, traveling to some of the range’s most remote reaches, from Frenchglen to Hell’s Canyon. They interviewed people at every link in the supply chain, from pasture to feedlot to slaughterhouse. They talked to the co-op’s customers, as well, including New Seasons grocery stores and Bon Appetit Management Co.

They learned that sustainability practices flow like an unstoppable flood inside a values-based business model. Pressure from the co-op’s customers in 2008 pushed distributor Fulton Provision company (owned by food-services giant Sysco) to undergo a third-party audit of waste management, worker conditions, water and energy conservation and transportation by the Food Alliance. The result: Fulton now runs its trucks on biodiesel, recycles packaging materials, salvages wood pallets, re-circulates water and uses more energy-efficient machines.

Values-based approaches can be the salvation for struggling mid-sized and family-owned operations, argues Wu. In the late 1980s when Country Natural Beef was launched as Oregon Country Beef, family ranches were endangered. “Many small ranchers were in dire straits under a combination of factors: mounting pressures from dieticians to eat less red meat, a popular perception of the abuse of public land by over-grazing, rising interest rates and wildly fluctuating commodity beef prices,” the professors assert in their case study.

In the two decades since the co-op formed, it has “evolved into a key player in the natural beef industry,” the researchers say. Country Natural Beef has the power to sustain not only the landowners but also the land for generations to come.

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