How Value-Added Products Beef Up Revenues for Arizona Grass Raised Beef Company

Over the span of three days, Tim Petersen’s company slowly cooks beef bones rich in marrow alongside organic vegetables in large 80-gallon stainless steel, double-jacketed steam kettles to extract the nutritious vitamins, minerals, and collagen. His small-batch, handcrafted technique is, as he describes it, “like my great-grandmother used to do it.” Chefs from Las Vegas, New York, and Chicago buy his beef bone broth in bulk, athletes drink it to boost their immune system and performance, and a Sedona restaurant serves shots of it topped with a dash of Tabasco. 

Petersen, Yavapai County cattle rancher and founder/co-owner of Arizona Grass Raised Beef Company, believes there are riches in niches. This philosophy – along with a winding journey of hard work and pivots – led him to create a unique line of value-added products, such as his beef bone broth, that keep his ranch and beef company profitable at a time when it’s difficult to make a living in agriculture. 

As more of the food dollar is being lost to processing, marketing, and distribution, producers find themselves receiving less income and struggling to stay in business. At the same time, people lead busy lives and cook less, meaning many are willing to pay a premium for someone else to make good food for them, especially when it aligns with their values of health, nutrition, and environmental stewardship. For producers, getting into the value-added space is a way to increase profit-margins, create a niche market, and connect people to where their food comes from.

“Do what nobody else is doing,” advises Petersen. “Be smart in business; the valued-added space can interrupt the market and allow you to tell your story.”

Why Value-Added Products?

As farmers and ranchers struggle to find ways to increase revenues, interest in “value-added” products has grown tremendously. Over the years, producers have been receiving a lesser share of what people spend on food in the U.S. Often referred to as the “farmer’s share,” in 2022 farmers received less than 15 cents per dollar spent on domestically produced food. 

Looking at the farmers’ share of the food dollar reveals a lot about consumer behavior. Consumers today buy more "ready-to-eat" or "ready-to-cook" convenience foods and are willing to pay more for them. Farmers generally produce and sell raw agricultural commodities, and so one reason the farmer’s share is decreasing is because consumers are buying more processed food, or value-added products. Producers are seeing the remaining $0.85 of the food dollar and are turning to value-added products as a way to recoup some of that dollar.

Value-added product: Steak Jerky

Value-added products are raw agricultural products that have been modified or enhanced to have a higher market value and/or a longer shelf life. The value of raw agricultural farm products can be increased in endless ways, such as by packaging, processing, distributing, cooking, dehydrating, culturing, grinding, smoking, handcrafting, and packaging. Some examples include fruits made into jams, meats made into jerky, and tomatoes and peppers made into salsa.

The development of value-added products can open up new markets for producers, helping them get the most out of what they grow and raise while preventing food waste and spoilage. Going the route of value-add can also contribute to community and rural economic development as new and expanded jobs are created to support the processing, packaging, marketing, and selling of value-added products. Developing value-added products is one of the best strategies farmers can employ to improve net profitability.

The Road to Operating a Beef Company 

Tim Petersen’s love of the outdoors, developed while growing up mostly outside in Arizona, translated into his love of ranching and raising food with integrity. His father had worked on ranches in northern Arizona and his grandfather owned three butcher shops in Chicago, so ranching and selling meat seemed to be his destiny. 

AZ Grass Raised Beef Company cattle ranching

Cattle ranching, however, wasn’t his first career. Early on he became a real estate appraiser, and, in the process of appraising farmland and ranches, he learned the financial knowledge necessary to manage a successful ranch. As a first-generation cattle rancher, having this kind of background would prove to be critical in helping him build a successful ranching and beef company.  

When the real estate market crashed in 2008, Petersen had been in the mule training business and had a small ranch in Humboldt, Arizona. During this time he decided to make use of his development and real estate skills and purchased run-down cattle operations. Through hard work, he rebuilt them, simultaneously focusing on strong cattle genetics for the topography and environment in which the cattle lived. 

Now, Petersen’s ranches total about 200,000 acres where the cattle roam free, feeding on the many native grasses found in Arizona. His cattle are range-bred, grass-fed and never see a feedlot. Petersen believes his “old school” ranching practices are the best in the business.

“We try to mimic the historical significance of the ranches and the old cowboy way of running cattle,” explains Petersen. “Our cowboys always ride on horseback, and our cattle come off of six million acres of Arizona rangeland. We work with a handful of partner ranches to include Navajo, Apache, and Hualapai Tribes that we buy cattle from. All of our partners are certified by the American Grassfed Association.”

From Gate to Plate 

Petersen started selling his meat products at farmers markets, but soon realized that to grow his  business and meet the increasing demand for grass-fed/grass-finished beef, he would need to operate his own USDA-inspected processing plant. Like most ranchers in Arizona, finding consistent access to a local meat processor or slaughterhouse is difficult, especially one that is USDA-inspected. Without a processor, cattle can’t be turned into sellable beef products. 

During a serendipitous conversation with the owner of a processing plant in Chino Valley where Petersen was processing some of his cattle, he saw an opportunity to buy his plant, which could be remodeled to meet USDA specifications. USDA certification allows meat products to be sold nationwide and can be game-changing for a beef business. This business decision allowed Petersen to control the quality of his beef product (like the drying aging of his grass-fed meat, which affects tenderness and taste), reduce processing costs, and maintain a consistent supply of beef products, which would prove critical in helping the company expand and keep up with demand during the pandemic and in other direct-to-consumer market channels.

In the first months of operating the processing plant, Petersen and his crew would throw away parts that they couldn’t sell, such as marrow bones, knuckles bones, and tendons. Since he didn’t like to see anything go to waste, Petersen began searching for what to do with the byproducts. At the time, his business partner and wife were drinking bone broth as a nutritional supplement, as it was a burgeoning product used by athletes, ketogenic and paleo diets, restaurants, and health-conscious consumers since it provides bioavailable collagen, vitamins, and minerals. They suggested Petersen start making bone broth, and the idea resonated. He realized this could be his avenue to enter the value-added market.

Petersen soon signed a lease for a small space in Camp Verde that had once been a restaurant, complete with a kitchen. Here, his small-batch, handcrafted beef bone broth business was born. 

Now, instead of throwing the bones away or only selling a small amount for pet owners, he had another level of profitability. Petersen eventually purchased the kitchen and remodeled it to meet USDA standards, enabling him to sell the hundreds of gallons of bone broth the kitchen makes each week to consumers across the country.

Beef Tallow

To further maximize carcass use – or extract as much value from a harvested animal as possible – Petersen started rendering suet, the fat found around the kidneys and loins of cows, to make tallow. Tallow can be used for high-heat cooking, body lotions, and even candles. Petersen and his staff bottle thousands of jars of tallow every week, which they sell online under their brand, as well as co-packing – or ‘contract packing’ – as the third-party manufacturer for a commercial brand of cooking oils found in popular stores like Sprouts and Natural Grocers. AZ Grass Raised Beef Company serves as the manufacturer that renders the suet and then packages and labels it with the other company’s brand. The co-packing partnership has helped cover the costs of operating the USDA commercial kitchen.

Then, yet another value-added product opportunity came when Petersen needed to figure out what to do with excess ground beef. When an animal is processed, 70-75% becomes ground beef. After cuts are made for steak and other prime pieces, thousands of pounds of ground beef are left. Since he already had the infrastructure in place, Petersen created a way to turn excess into profits.

“Having our own processing facility and commercial kitchen has given us control over the full cow carcass use and the quality of the beef. We can take that excess ground beef and make other profitable value-added products like beef jerky, spiced sausages, pet food products and pasture pup treats,” explains Petersen.

Arizona Grass Raised Beef Company is fully vertically integrated from gate to plate, meaning they manage their own ranches in Arizona, own and operate their own USDA-inspected processing plant, and run their own USDA commercial kitchen.

Answering the Call of the Consumer

Eighty percent of Arizona Grass Raised Beef Company’s business is done online. Petersen’s ability to tell his story and the quality of his products through social media has been a significant contributor to that business.

“Social media seems to work the best to tell our story. Local companies telling your story is the biggest part of marketing your product and what you do,” Petersen says.

Tim Petersen, founder and co-owner of AZ Grass Raised Beef Co

Value-added meat product sales continue to increase at double the rate of the other raw meat products. Value-added products, in general, are continuing to grow. This creates new market opportunities for small producers. 

“The best advice I can give is to make a value-added product, or two or three,” says Petersen. “The market for value-added products is growing. It’s timely. People love to buy from a local farmer and rancher if it’s a quality product. You’re that local product.”

Customers can see the care that Petersen and his company put into the products they develop and the creative niche approach they take. He believes in only using quality and simple ingredients, since that’s what people want. For example, the company researched hundreds of kinds of beef jerky and decided to not add sugar to their jerk products, as people were wanting a product without added sugars. To make his jerkies tasty, they use unique seasonings like Taco ‘Bout It , Top O’ The Morning, and Chow Bella. He believes in delivering what the customer wants. 

“My passion is to answer the call of the consumer. Consumers have never been or wanted to be more engaged with farmers and ranchers than [they are] today. The most important phrase is: I want to know where my food is coming from. They want to know; you just have to tell your story,” says Petersen. 

Getting into value-added products is a sure path to help build a more profitable ag business, but Petersen also notes: “There's no magic bullet. It's all hard work. It’s taken us a decade to do this.”

Getting into the Value-Added Space

Having the infrastructure in place to create value-added products can be costly and take time to build; fortunately, there are resources for producers (and food businesses) to help with some of those challenges. 

The Value-Added Producer Grant Program (VAPG), administered by the Rural Business-Cooperative Service of the U.S. Department of Agriculture, assists agricultural producers to create new value-added products, expand marketing opportunities, and increase producer income. Through a competitive grant process, individual or groups of producers, producer-controlled entities, and farmer or rancher cooperatives can apply for the funding to create or develop value-added, producer-owned businesses.

The VAPG grant types include: planning grants, which may be used to fund business development and marketing plans and feasibility studies needed to establish viable marketing opportunities for value-added products; and working capital grants, which can help pay for eligible expenses related to the processing and/or marketing of the value-added product. The grant cycle typically opens at the beginning of each year, and applicants have 60 to 90 days to complete and submit their application. 

One of Local First Arizona’s Community Kitchens

For those needing access to commercial kitchens, Local First Arizona has established several low-cost Community Kitchens and kitchen incubator programs to guide food entrepreneurs through the process of growing their business. The Community Kitchen amenities include a large walk-in refrigerator, dry food storage, dedicated wash area, free WIFI, and a network of other food entrepreneurs. The kitchens are located in downtown Mesa, South Phoenix, Maryvale, and Eastlake. Before gaining access to the kitchens through the kitchen incubator program, applicants must first complete the Good Food Boot Camp. Those interested or wanting more information can submit a kitchen interest form.

Where to Find AZ Grass Raised Beef Products & To Learn More:

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