Created on 2021-10-19 16:34
Published on 2021-10-19 18:11
Might as well write this headline now, since the tragic story behind it is inevitable. A group of wealthy ranchers has decided to build a meat processing plant to compete with the big boys -- Cargill, JBS, Tyson Foods and National Beef Packing -- who already control over 80% of the U.S. beef market by aggregating feedlot cattle for slaughter at 24 plants.
Backers broke ground on the $300 million dollar plant on a 400-acre plot in North Platte, Nebraska. The operator’s intention is to market their beef as superior to the big packing houses, and to carry a price premium for designing the physical plant (and P&L) to be worker and wage friendly. In theory, the current consolidated operators are capturing all the profit in the market by buying live cattle low and selling cased beef high. By operating their own plant, the ranchers intend to maintain their own access to processing facilities and capture some of that profit for themselves.
The problem is that's not how the meat system actually works. JBS is buying full weight cattle from feedlots, who typically buy young feeder cattle off ranches and bring them up to market weight on cut hay and other dry matter, substantial grain feeding, synthetic growth hormones and growth promoting antibiotics. The rancher in this system makes almost nothing on the sale of their young cattle. The market is managed so there is one price offered by one buyer at any given sale - take it or leave it.
So, building the meat plant is an incomplete solution, unless these ranchers also intend to own the feedlots and capture the cattle sale and fattening system too. In such a scenario, they can control the flow of slaughter and processing while controlling when animals enter and leave the feedlot. In short, it's another (smaller) vertically integrated entity trying to optimize their place in the value chain.
There remains a missing piece to their success, however. American agriculture has always been a game of economic musical chairs where access to credit, land and markets determines who gets the diminishing number of seats at the table. The North Platte Sustainable Beef Plant secured land and credit - but will it have markets?
Based on current and past anti-competitive practices by Cargill, JBS, Tyson Foods and National Beef Packing, Sustainable Beef doesn't stand a chance. These are companies that not only buy up smaller community-based competitors, but also close those plants and strip the buildings so they can never be used for meat processing again. These are companies with longstanding arrangements with the five largest food retailers who control 80% of retail food sales: Costco, Target, Wal-Mart, Safeway and Kroger. Between them that's only nine companies -- whose shareholders demand growth and profits, and (apart from truly beautiful and poetic sustainability reports) won't accept excuses for failure. There is no product that Sustainable Beef can make better or cheaper that can't be matched in actual attributes or marketing puffery by the current meat processing magnates. Access to land and credit, yes. Access to markets, yeah no.
The last man who stood up against the system was black-balled by the feedlots and processors. He was stuck with 14,000 head of cattle along the Nebraska-Kansas border near North Platte. He had to sue the USDA and the marketers to force them to buy his cattle - at a loss - and was forced to leave the business.
The alternative to this impending failure is already tried and true: localized and regional slaughterhouses that cater to farms raising livestock to full harvest weight on pasture. This system has three key benefits: no feedlots and grain feeding; minimal transportation time and cost; and rebuilding local wealth among producers, workers and ancillary businesses.
Ideally, ranchers need to load and deliver at least a full truckload of animals to the processing plant to maintain basic economies of scale. When the plant is within 6-8 hours’ drive, the deliver can take place without unloading the animals while in transit - and possibly making it back to the ranch by midnight. Consider that eight hours from North Platte includes the closer parts of six nearby states - South Dakota, Iowa, Missouri, Kansas, Oklahoma, Colorado and Wyoming. But those states have their own plants, relationships, contracts and preferences. Those eight hours cast a wide net but do not guarantee customers.
Consider, instead, building a smaller processing plant in each of these seven states in this marketing area. That $300 million becomes a resilient set of plants costing $20 million each with $20 million in marketing and start-up capital. Each is a few hours’ drive from hundreds of farms and ranches. Each can kill and cut 100 to 1,000 animals a day. Each is a hub for selling meat to local restaurants, retailers, institutions, schools and direct to customers and carcasses to local butchers. Each hub employs 50-100 people with good jobs. The delivered cost of the finished meat is noticeably higher, but local people know they are paying to support their neighbors and community -- not far off investors in another place.
I've seen these locally focused plants and worked on their business plans and pro-formas. I have counseled them on finding markets. They are doable and relevant and necessary. They actually have a clear competitive advantage against Big Meat and can often circumvent Big Retail through institutions and direct selling. At very least, each rancher can use the facility as their shipping and fulfillment center to direct market their particular products to consumers across the country. Breed, locality, terroir, feed, management methods, family history, and environmental services become important product attributes to market and sell with. That animals are pastured throughout their life and that small farms can survive underpins the narrative. The Niche Meat Processing Assistance Network supports this approach, and its intensive training and information sessions are always over-subscribed.
Don't get me wrong: I would love the $300 million Sustainable Beef plant to succeed. But to succeed it has to become part of the problem - by acting like Big Beef in cahoots with Big Retail. It has to take access to markets away from the kind folks at JBS, Cargill, Tyson and National. I don't see that happening. Seven plants situated across struggling rural agricultural areas? In that I can believe. In fact, here is the headline I hope to see:
$300 Million Allocated to Local Beef Processing Leads to Renewal of Farms and Communities.
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