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Ranchers Raising Money For Private Processing Plants

Is It Feasible?


Everyday animals are transported to the Midwest to be processed, packaged and shipped to grocery stores all over the world. They come from everywhere; South Dakota, Texas, Pennsylvania, Idaho,  even Canada and Mexico. The Midwest is home to the “Big Four” , the four major meat packing companies; JBS, Tyson, Cargill and Brazil’s National Beef. 85% of the meat consumed by Americans goes through one of their facilities. 


The meat industry wasn’t always dominated by these four entities.  In fact, in the early 1900s two-thirds of the market was controlled by five major packers. Such a consolidated market prompted the Federal Trade Commission to act and the Big 5 no longer held the monopoly.  By 1980 the Big 4 were on the scene, but only controlled 36% of the meat industry in the U.S. Through a series of meat mergers each of these companies assimilated many small operations into their own, and for the past 50 years they have been steadily claiming higher percentages of the poultry, pork and beef markets and consolidating the industry. One-hundred years have passed since the Federal Trade Commission stepped in, and we have managed to circle back to the same situation.


The pros and cons of a consolidated meat industry have long been debated. The Midwest is an ideal location in terms of resources as well as transportation infrastructure. Bigger processing plants have become more efficient and are typically able to sell products at lower prices than smaller operations. They have a steady flow of money, big name buyers, consistent clientele, and access to larger populations of potential labor forces.  


It’s become increasingly difficult for small and even mid-sized ranches to generate enough income to stay afloat. More market concentration means less competition for animals. Ranchers are forced to be price takers.  Having a few big processors has created many efficiencies in the market, but some argue that it has hurt rural economies and in the long run, eroded food security.


Potential Economic Revival for Rural Communities


In several central states farmers and ranchers are working together to regain a percentage of the beef market arguing that the current dynamic is far from fair. In South Dakota, Iowa, Nebraska, Missouri and Texas, cattlemen have joined together to raise capital for their own meat processing and packaging facilities. Though they are hardly neighbors, they share common goals; to strengthen national security by decentralizing the industry, support their rural communities by providing jobs for local people in turn, ensuring that more money is kept in the local economy, and supplying urban communities with more food options. Currently, disruptions at large facilities directly impact the price and availability of meat to consumers.


Successful co-op models could shift the flow of money in the agricultural sector. More money would land in the hands of rural farmers and ranchers rather than large corporations. Dr. Rabinowitz found that small-scale processing does have positive socio-economic impacts on the community. Historically, an agricultural operation of this size produces economic growth in the surrounding area. When a processing plant is up and running beef related industries start to pop up. Small farms supplying livestock feed, grain processing plants, and trucking business, tend to also grow as they build adjacent to the co-op model.


The economies of many small towns have the potential to stabilize allowing rural community schools, shops, and small businesses to flourish. Some processing plants aim to make agri-tourism and culinary demonstrations part of their business model as well. From berry farms in Florida and Michigan, to cattle ranches in England, agri-tourism has worked as an additional income stream for small operations that need multiple income streams. Culinary classes offering a pasture to plate experience would add to transparency and possibly the value of the meat being processed.


Adding an element of competition could also be beneficial for consumers. Controlling 85% of a market gives The Big Four opportunities to sell at higher prices. The Big Four can buy low from ranchers and sell high to grocery stores, maximizing their profits. 


One processing plant under construction in Nebraska aims to process 1,500 head of cattle per day by 2025. If this becomes a reality they would represent 1.5% of the beef market. Even if this doesn’t sound like a lot, Drs. Pudenz and Schulz research suggests new plants strategically located near where plants have been closed or exited can help ranchers capture more value from their animals.


Farmers and ranchers are quick to point out that they don’t want to compete with large corporations. They are not launching a takeover. Instead, they want to maintain their place and legacy by regaining a bit of ground that was lost. They care about their local economies and want to produce high quality meat and also ensure that customers get exactly what the label says, American beef.


Long-Term Feasibility


The last 50 years has proved that the small farm and ranch model is a tough one to build with durability. Though the co-op business model provides some solid structure, there are still big hurdles to jump if these processing plants hope to be successful for a long time.


Securing capital is any facility’s first challenge. It costs millions of dollars to build a beef processing plant. Some co-ops have partnered with the USDA to secure startup funds, while others have opted to work towards privately funding their building projects; not wishing to use U.S. tax dollars. Several states have also incentivized projects in an effort to bring more jobs to their territories.


Finding buyers will be another obstacle for many of these private plants. Meat processing plants with plenty of cows and streamlined operations have sunk simply because they didn’t have consistent or substantial buyers. The Nebraska facility has partnered with Walmart. The collaboration will certainly give the North Platte area plant an edge, and other beef processing plants hope more big name buyers will follow suit. But as we’ve seen above, only having one buyer is risky as well. The buyer can lower the price they will pay or stop buying altogether.


One, often less considered obstacle, is labor. The agricultural workforce is already under strain which means that finding employees for these jobs could be difficult. Tyson recently said that they could process more animals in their facilities, but they lack the manpower to operate at full capacity. The hope is that the jobs help facilitate the community infrastructure that in turn propels rural growth.  However, it’s hard to find families willing to relocate for a job in a place that doesn’t already have a grocery store, a high performing school, a well stocked library, extra curricular activities for kids and families, or a variety of home buying options. 


A handful of meat processing plants are already headed up the hill of battle, propelled forward by increasing consumer interest in where their food comes from and how it was raised. If consumer demand for traceability and decentralized industry continues, this model can help. Smaller plants can produce more customized products to meet local demand.  But it will take more than consumer demand for survival. Large retailers and institutions will have to partner with regional processing plants to ensure longevity. And these cattlemen co-ops will have to give consideration to employee provisions if they want to hit the ground running with reliable laborers.

 




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