Allen’s Update: June 30, 2014

Chipotle recently announced that they want to be 100% GMO-Free and will start serving 100% grass fed beef at all their locations on a nationwide basis. Great news for our domestic grass fed producers and grass fed beef branded programs, right? Wrong. It appears that Chipotle’s grass fed beef supply will be primarily sourced from Australia. The reason? According to Chipotle spokesperson, Chris Arnold, “there simply isn’t a consistent enough supply of grass fed, antibiotic-free, hormone-free beef in the U.S. to meet our demand”.

Many in the beef industry have taken exception to Chipotle’s position as they have made the same statements in the past about the domestic supply of “All Natural” beef. Chipotle is now sourcing beef from Australia stating that U.S. beef producers can’t meet demand for its “Responsibly Raised” beef standards. Chipotle Mexican Grill founder, chairman, and co-CEO, Steve Ells, stated in a Huffington Post op-ed that “The restaurant chain doesn’t want beef that’s been shot up full of hormones and antibiotics; instead it’s looking for true grass-fed beef that are free from those foreign substances, and Australia is a leader in that field”. He went on to write that “The meat produced by these ranchers (Australian) is “grass-fed” in the truest sense of the term: The cattle spend their entire lives grazing on pastures or rangelands, eating only grass or forages (by definition, forages are hay and grass–corn is not forage). It meets or exceeds the husbandry standards set forth by the American Grassfed Association, not to mention all of the protocols we apply to our domestic Responsibly Raised beef. The cattle are raised without added hormones, antibiotics or growth promotants by ranchers committed to humane animal husbandry.” Chipotle champions its products as “Food With Integrity”.

In Ells’ op-ed piece he writes, “When it comes to beef, for one thing, there are many different ways to raise cattle — from conventional (with antibiotics and hormones) to the higher standards we require for our Responsibly Raised brand beef (without antibiotics and hormones), and from grain-finished to entirely grass-fed cattle. Over the years, we have had great success serving the premium beef we call Responsibly Raised, which is produced according to high standards requiring, among other things, that animals be raised without hormones or antibiotics. But lately, we have been wrestling with a particularly vexing issue regarding this beef. Over the last five years, as our restaurant count has grown from about 800 restaurants to more than 1,600, so have our demand for all of the ingredients we use. Sometimes the existing supply of the premium meats we serve is unable to meet our growing demand. On occasions when we are unable to secure sufficient quantities of a particular Responsibly Raised meat, we temporarily replace it with a conventionally raised alternative — always informing our customers about this substitution with signage in our restaurants. This has been the case recently with a portion of the steak we serve, as the size of the total U.S. cattle herd has shrunk to its lowest point in more than 60 years. Rather than serve conventionally raised steak, we recently began sourcing some steak from ranches in Southern Australia, which is among the very best places in the world for raising beef cattle entirely on grass.”

In response to this recent announcement, Texas Commissioner of Agriculture, Todd Staples, issued a strongly worded statement calling Chipotle’s position “misguided” and “irresponsible” for even believing that Australian cattle are raised any more responsibly than Texas cattle. Staples went on to say that “We have a wide variety of producers and processors and it seems foolish to discount these immense, local resources when making decisions about where to source your beef. Texas is home to the nation’s largest cattle herd and nearly 249,000 farms and ranches that cover an astounding 130.2 million acres. We have a wide variety of producers and processors. It seems foolish to discount these immense, local resources when making decisions about where to source your beef.”

Many consumers are under the impression that all the beef currently served at Chipotle is 100% grass fed or at the least “All Natural”, meaning antibiotic and hormone free, and source verified back to farm or ranch of origin. The fact is Chipotle procures beef from a number of different sources, stressing antibiotic-free beef, but only serves U.S.-sourced grass fed beef at certain locations where they feel the local supply of grass fed beef can meet an individual restaurant’s demand. Chipotle does source conventionally raised beef stating that the severe drought conditions throughout many Western and Midwestern regions of the U.S. decimated the U.S. cattle population. Steve Ells does indicate that their future goal is to serve entirely U.S. raised grass fed beef. Chipotle does purchase small amounts of U.S. raised grass fed beef from branded programs like Rain Crow Ranch in Missouri. However, Ellis does say that U.S. grass fed beef that “meets our standards” is simply not produced in sufficient quantities to meet Chipotle’s demand.

Certainly there are many beef producers in the U.S. who feel that if Chipotle were quite serious about sourcing U.S. produced beef that meets or exceeds their standards, it could be done. Many are of the opinion that the primary concern for Chipotle is the price point for U.S. beef compared to imported beef. No doubt that Chipotle has built their model on fairly low price points based on their “Fast Casual” restaurant atmosphere. In order to maintain their current margin, they have to be quite cost conscience and with the ever rising price of U.S. cattle, their margins would shrink significantly using predominantly U.S. barring a significant increase in price at the point of sale. Chipotle has the right to operate their business as they see fit, but not to build that business through denigration of U.S. beef producers or by insinuating that U.S. beef producers cannot produce beef to their standards.

Chipotle has built its reputation through promotion of foods that are “local” and “fresh”. However, the Texas Department of Agriculture determined that the grass fed beef imported from Australia would travel an average of 8,000 miles before arriving at Chipotle restaurants. Chipotle spends a lot of advertising capital talking about environmental responsibility and global carbon “footprint”. The Texas Department of Agriculture takes exception with that stating, “Chipotle plans to import beef from Australia. 8000 miles doesn’t seem local to us”.

Facebook comments regarding Steve Ells’ op-ed piece show that a number of U.S. beef producers take exception to his reasoning. A comment from Riven Rock Farm responds by saying, “We walked into a Chipotle an hour from our mountain farm and saw a sign that stated that Chipotle had to serve conventionally raised beef for awhile until they could find local suppliers. Our phone has not rang. My other grass finishing friends phones have not rang. No emails either. We are a growing operation- with higher standards than Chipotle. I fear Chipotle has outgrown their ability to stay true to their roots. Australia- really?? That’s not a local, sustainable food supply model. The reason is dollars. Big corporations in Australia peddling industrial grass fed beef. Low price points- big margins.” Beef producers in California put out an article directed at Chipotle entitled, “Need Responsibly Raised Beef ? Call Us.”

A consumer comment posted on the Chipotle Facebook page stated, “I am ALL for grass-fed beef! I LOVE Chipotle. My problem with sourcing beef from Australia is the fact that is has to be transported in the most environmentally unfriendly way. This stuff can’t go by ocean, right? And even if it does, that means millions of gallons of fuel and refrigeration liquid. That meat won’t be fresh. I would so love to see American farmers go back to the good ol’ days, where animals weren’t hopped up on drugs and hormones. I just don’t see this as an advantageous endeavor for anyone except Chipotle.”

In an article looking at facts about Chipotle, it was found that Chipotle is similar to many other fast food and fast casual restaurants in that not all their cooking is done at the individual restaurant location. Chipotle states on their website that they pride themselves on “fresh cooking using classic culinary techniques – no shortcuts”. Chipotle actually uses a couple of outside further processing companies that are used by McDonalds and several other popular fast food chains. These companies are OSI and Miniat Holdings and are both based in Chicago. OSI and Miniat braise the carnitas and barbacoa, trim the steaks, cook the beans, and make all the bases for the green and red tomatillo salsas used in Chipotle restaurants.

With further processing and cooking being performed at OSI and Miniat, even when product is sourced “Locally” (defined by Chipotle as within 350 miles of a restaurant location) the transport to OSI and Miniat plants and back to individual restaurants adds quite a few miles to the equation. Chipotle believes this is necessary for product consistency purposes even if it does add hundreds or thousands of miles to the final product. Chris Arnold defends this practice by stating that, “You get cuts delivered and packaged to our specifications and it’s prepared in a really efficient and consistent way by having that done in fewer places than you would doing it in multiple places”. All quite true and reasonable, but at odds with the Chipotle website which says, “The less distance food has to travel the better. Sourcing locally has long been part of the Chipotle mantra. It’s good for local economies, the environment, and the consumers, who get to enjoy the freshest foods.” If you have ever eaten at a Chipotle restaurant you are familiar with the brown paper bags they use and the advertising message written all over the bags. Consumers want consistency in message, not just in their foods.

Another big part of Chipotle’s message to the consumer is their “Food With Integrity” philosophy of producing “responsibly raised” meats. Chipotle has three primary requirements for “responsibly raised” meat: no added hormones, no antibiotics ever, and humanely raised. However, Chipotle does not provide a clear definition of their “responsibly raised” standards, nor do they require producers to have 3rd party certification. According to Chris Arnold, the reason Chipotle does not share their standards is because, “We struggle with getting people to understand the most basic elements and adding details really runs the risk of muddying that understanding further”. How’s that for confusing? Vagueness in clarifying standards allows Chipotle to quickly adjust supply sources in regards to demand and price point.

What is clear is that when Chipotle cannot meet needs for responsibly raised meat, they use conventionally sourced commodity meat. Their commodity meat and poultry purchases in 2014 amounted to 7.8 million pounds and 88 million pounds of chicken. They do claim that 100% of all pork used in their restaurants meets their responsibly raised standards.

Getting back to the sourcing of grass fed beef from Australia, Steve Ells said that, “the U.S. supply (of grass fed beef) isn’t growing quickly enough to match our demand”. However, Marilyn Noble, the Communications Director for the American Grassfed Association (AGA) disagrees, stating that, “We firmly believe that Chipotle could find domestic sources for all their beef”. Todd Staples, Texas agricultural commissioner, make it clear that Texas ranchers would jump at the opportunity to meet the demands of a Chipotle and would produce grass fed beef is market demand dictates. According to AGA, Chipotle did not contact them prior to making their announcement, nor did they respond to an AGA offering of domestic grass fed supplier names. Chris Arnold of Chipotle does cut to the chase when he says, “The price premium on grass fed beef in the United States makes it a less viable solution unless we’re willing to raise prices”.

It is clear that environmental groups would like Chipotle to find a way to source all their meats domestically rather than importing from abroad. Doug Sims of the Natural Resources Defense Council, says that he hopes Chipotle importing grass fed beef from Australia is a “temporary measure while they work to improve and transform the U.S. supply chain”. He goes on to say, “Clearly, the best option is to minimize transport costs and impacts and have more U.S. sources of better beef”. Another factor that will play a role in Chipotle’s beef sourcing decisions is that prices for Australian beef may increase significantly in the near future due to growing global demand for Australian beef.

Chipotle touts the fact that their beef from Australia is 100% grassfed and antibiotic/hormone free. However, they will not provide the names of the packers they are sourcing their grass fed beef from. This prevents consumers from researching the environmental and humane aspects of the grass fed beef sourced from Australia. Without this information and without 3rd party certification, this leaves consumers having to trust Chipotle’s claims.

The bottom line is that for Chipotle to be consistent with their website rhetoric, they do need to openly source grass fed beef from domestic suppliers, be clear and transparent concerning their responsibly raised standards and price points. There are many producers who are highly interested in supplying Chipotle and would love to have open conversation. The question is, what will be Chipotle’s next step?