Tuesday, December 5, 2023

Unhappy with prices, ranchers are building their own meat processing plants.


DES MOIN, Iowa (AP) – Like other ranchers across the country, Rusty Kemp grumbled for years about the underpriced livestock he raised in central Nebraska, even though the cost of beef in grocery stores continued to grow.

He and his neighbors blamed the consolidation of the meat industry back in the 1970s, which resulted in four companies slaughtering more than 80% of the country’s livestock, giving processors more power to set prices while ranchers struggled. make a living. Federal data show that for every dollar spent on food, the share of ranchers and farmers has fallen from 35 cents in the 1970s to 14 cents in recent times.

This prompted Kemp to pursue an ambitious plan: to raise more than $ 300 million from ranchers to build the plant on his own, leaving his future in his own hands.

“We’ve been complaining about this for 30 years,” Kemp said. “Probably, it’s time for someone to do something about it.”

Crews will get to work this fall, building a nearly 400-acre organic beef plant near North Platte, Nebraska, and other groups are taking similar unexpected moves in Iowa, Idaho and Wisconsin. Businesses will be testing whether it is really possible to financially compete with the industry trend that has swept American agriculture and played a role in meat shortages during the coronavirus pandemic.

The move is timely as the USDA is currently taking a number of steps to encourage a more diversified offer in the meat industry.

However, the challenge is hard to overestimate when faced with huge, well-funded competitors that operate high-efficiency factories and can sell beef at prices that smaller operators will struggle to match.

The question is whether smaller businesses can pay the ranchers more while still making a profit. The average 1370 pound steer costs about $ 1630, but that cost needs to be divided between the slaughterhouse, the batch of feed, and the rancher, who usually has the biggest costs of raising the animal for over a year.

David Briggs, CEO of Sustainable Beef, acknowledged the difficulties, but said his company’s investors remain confident.

“Livestock people love risk and are willing to take risks,” Briggs said.

Consolidation of the meat processing plant began in the mid-1970s with buyouts of smaller companies, mergers and a move to much larger enterprises. Census figures cited by the USDA show that the number of slaughterhouses fell from 2,590 in 1977 to 1,387 in 1992. Large processors gradually dominated, going from 12% of livestock in 1977 to 65% by 1997.

Currently, four companies – Cargill, JBS, Tyson Foods and National Beef Packing – control over 80% of the US beef market through the slaughter of cattle at 24 plants. That concentration became problematic as the coronavirus infected workers, slowed and even closed some of the massive factories, and last summer’s cyberattack briefly brought JBS factories to a standstill until the company paid out a $ 11 million ransom.

The Biden administration has largely blamed the declining competition for the 14% rise in beef prices from December 2020 to August. Since 2016, the wholesale price of beef and the profits of the largest processors have grown steadily, while the prices paid to ranchers have remained virtually unchanged.

Supporters of the planned new plants have no intention of replacing giant slaughterhouses such as the JBS plant in Grand Island, Nebraska, which handles about 6,000 head of cattle daily – four times more than the proposed plant in North Platte.

However, they say they will have important advantages, including more modern equipment and, they hope, lower turnover thanks to slightly higher wages in excess of $ 50,000 a year, plus benefits and a more favorable work schedule. The Midwest’s new factories are also looking forward to a closer relationship with ranchers, encouraging them to invest in factories and share profits.

Companies will sell their beef both domestically and internationally as being of better quality than meat processed in larger facilities.

Chad Tentinger, who is leading efforts to build a Cattlemen’s Heritage plant near Council Bluffs, Iowa, said he believed smaller plants were profitable even in the 1970s, but owners moved to larger plants in hopes of increasing arrived.

Now he said, “We want to revolutionize the enterprise and make it an attractive place to work.”

In addition to increasing payments to ranchers and paying dividends to those who own stocks, it is hoped that their success will encourage more factories to open, and new competitors will open up cattle markets.

Derrell Peel, an agricultural economist at Oklahoma State University, said he hoped they were right, but noted that studies show that even a 30% reduction in plant size will make it much less efficient, which means higher slaughter costs. every animal.

If small businesses cannot keep costs down, they will need to find customers who pay more for their beef or operate at lower margins than large companies.

“We have these very large factories because they are extremely efficient,” Peel said.

According to the North American Meat Institute, a trading group that includes large and medium-sized enterprises, the biggest problem will be the lack of workers in the industry.

“It’s not fair to blame big companies and consolidation for industry problems,” said Shane Miller, president of Tyson Fresh Meats.

“Many processors, including Tyson, are unable to use their full capacity despite the sufficient livestock supply,” Miller told a US Senate committee in July. “It’s not our choice: despite our average wages and benefits of $ 22 an hour, there are simply not enough workers to fill our factories.”

The proposed new plants are emerging as the USDA is trying to expand its supply chain. The agency has allocated $ 650 million to finance small and medium-sized meat and poultry businesses and $ 100 million in loan guarantees for such businesses. New rules are also planned for US labeling of meat to differentiate it from meat grown in other countries.

“We are trying to support new investments and policies to diversify and address this underlying concentration problem,” said Andy Green, senior adviser for fair and competitive markets at the USDA.


Follow Scott McFetridge on Twitter: https://twitter.com/smcfetridge

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