Monday, September 17, 2012

If We Build It, Will They Come?

Drop in on a group of livestock producers in northern California (or anywhere in most of the U.S. for that matter), and the discussion will eventually turn to the challenges of ranching, economic and otherwise.  Chief among these challenges, based on the conversations I've participated in, is the lack of meat processing capacity.  The lack of processing facilities, the theory goes, depresses the prices paid to ranchers and restricts our ability to market meat directly to our community.  The system is rigged in favor of large producers and large processors.

For me to sell meat legally, federal law requires my animals to be processed in a plant inspected by the U.S. Department of Agriculture's Food Safety Inspection Service.  Many of the existing USDA-inspected plants in California are already operating at capacity, and building a new plant is expensive (partly due to the federal, state and local regulations involved).

Based on this reasoning, the solution is to re-build a system of smaller-scale, community-based, USDA-inspected meat processing plants.  Local ranchers would "flock" to these plants - and local consumers would as well.  Like the baseball diamond in the midst of a corn field, people assume that if you build a small-scale meat processing plant, "they [ranchers and consumers] will come."

Having raised and marketed lamb, mutton, beef, goat and chicken, I sometimes wonder if this is true.  While the raw numbers look positive (a plant that can process 2500-3000 head of cattle each year appears to generate a positive return on investment), the details of actually operating such a plant are far less clear cut - for several reasons.

First, many producers talk about marketing their animals as meat directly to customers, but relatively few actually follow through on this marketing strategy.  Marketing meat is much more labor intensive and people-oriented than hauling my lambs to the auction.  Many ranchers would rather leave the marketing to someone else - they'd like to think that a local processor would pay them more for their animals AND handle all of the marketing responsibilities.  I'm not convinced that there are enough of us who want to raise, process and market our animals to support this type of smaller-scale plant.

Secondly, for decades, the meat processing business has largely been organized on the factory or manufacturing model - processors purchase raw material (live animals), convert it to another form (meat), and market this product to the end user.  The factory model profits by using labor and technology to convert raw materials into a product that consumers want.  Those of us who market our own meat rely on a different model; we need a processor to provide a service.  In this service provider model, ownership of the raw material and the finished product is retained by the producer of the raw material.  The processor earns income through the service provided by its labor rather than through the margin between the cost of inputs and value of outputs.  In my experience, there is a tension between these two models - most processors try to serve both roles (with varying degrees of success).

Third, my decision about which processor to use is driven by the value of the service I receive.  My current USDA-inspected lamb processor charges me $75-80 (depending on how many lambs I deliver) to harvest and process my lambs.  If I can process 20 lambs in one lot, my transportation costs are less than $10 per head - in other words, I can get my lambs converted into products I can sell for $85-90 each.  Conversely, having a ranch slaughter service and a local meat processor provide the same services will cost me at least $125 per head.  This is a significant difference that can make a big impact on my bottom line.  To win my business, a new local USDA processor would have to offer similar service at a competitive price.

Theses are complicated issues without clear solutions, obviously.  I'd love to work with a local business to process my lambs, but I also need high quality, affordable service from my processing partner.  I'd also love to get a premium for my lambs while being able to simply sell my live lambs to a processor.  These goals may be unattainable given the current regulatory and economic environment.  I fear that a group of producers and local food advocates may invest in a plant with great intentions but without a clear understanding of the appropriate business model.

Another solution might be to tackle the meat inspection regulatory system.  Our meat inspection system was created to prevent the contamination of our food supply.  Perhaps we need to look at a separate regulatory system that recognizes the differences between meat products that are marketed locally versus those that are shipped across the country or around the world.

As I grow older, I find myself more suspicious of seemingly easy answers.  I think the issue of local meat processing is a question without easy answers.  If we build a local plant, will enough people (both ranchers and customers) support it to make it profitable?  Am I making this question too complicated?

1 comment:

  1. Great comments Dan. I agree it is a very complicated system and I am also skeptical of the "if we build it, they will come" approach. I would love to see a stronger presence of local meat products in the regional market place, but we are facing a number of issues that constrain this from happening. I am hopeful that the by-local food movement will continue to build a stronger demand for local farmers/ranchers, but as you mention there is often an increase in cost for this. If the market can’t support this increase, farmers and ranchers will not participate. It must be financially sound and that is going to be a challenge. The current USDA harvest/processing system that exists in the U.S. is based on a factory model. Huge input to lower overall overhead. The new models that are being proposed are boutique plants that will do very small numbers. Because the overhead of doing business is similar between the small and large plants, the end result is a higher/unit cost. Unless this cost can be captured in the market place and not on the backs of the rancher it will not be successful.