Journal of the NACAA
Volume 8, Issue 2 - December, 2015
USDA Certified Processing of Livestock and Poultry in Selected Counties: An Initial Evaluation of Feasibility and Need
- Harman, M.B., Extension Agent, WVU Extension Service
Local foods are a growing opportunity for the agricultural economy. Food animal agriculture is one of the slower adopters of this concept. The dilemma or delay in subscribing to this trend in marketing tends to revolve around market access and processing limitation. We evaluated the food animal agriculture opportunity, examined local agricultural statistics, and evaluated expected production in a feasibility model for a small mixed species slaughtering and processing facility. Our survey described a clientele ready for the local food movement with a reasonable year round distribution of product. Data indicates a discernible need for increased USDA certified slaughter and processing capacity and the necessary client base to make said venture successful.
While the traditional market farmers have benefited greatly from the local food movement, there seems to be a tremendous opportunity for growth in the food animal agriculture sector. In the eastern most counties of West Virginia this opportunity is amplified by the proximity to Baltimore, Washington D.C., and Northern Virginia with a regional marketing opportunity to serve a population in excess of 8.8 million people. However, in order to sell processed food animal products in multiple states, you need access to USDA inspected slaughtering and processing facilities. To date, the ever increasing demand for such products has done little to facilitate infrastructure expansion.
In Jefferson County WV, the agriculture committee of the economic development authority became interested in expanding the market opportunities for local beef, lamb, goat, and poultry producers. It became clear to the committee that difficulties in scheduling, distance to facilities, and USDA certification were obstacles to accessing the Baltimore, Washington D.C., and Northern VA markets. As part of a long-term strategy to expand local foods, the committee needed a deeper understanding of the regional food animal agriculture producers. It was the committee’s goal to determine if we had sufficient demand for another USDA certified slaughtering and processing facility in the region, and if local producers were interested in diversifying their farming operations to take advantage of this opportunity.
USDA’s Food Safety and Inspection Service (FSIS) is responsible for inspecting meat, poultry, and eggs. In recent years, the demand for locally grown food animal agriculture has been expanding (Johnson et al., 2012). USDA research has indicated that access to Federal or State-inspected slaughter and processing facilities is limited in some parts of the country and alternatives are either not practical or cost effective (Johnson et al., 2012). There are two potential solutions to this problem: 1) mobile processing units (MPU) and 2) new traditional facilities. While costs to MPU are less, transportation, byproduct disposal, and seasonality of livestock production prevented MPU from being successful in Maine (Jackson, 2013). Jackson (2013) indicated a growing interest in local foods, USDA inspected multi-species slaughter and processing facilities, and specialized “Halal” facilities. Evidence of the growth in local foods can be seen by the growth in direct to consumer sales. In 1997, direct to consumer sales accounted for $551 million and by 2007 that number had grown to $1.2 billion (Johnson et al., 2012). However, the number of slaughter plants in the US has decreased from 910 in 2001 to 841 in 2010 (Johnson et al., 2012).
It is clear there is risk and uncertainty in expanding into the USDA inspected slaughtering and processing business. However, determining startup costs for a new facility depends on many factors and the success or failure of a new business would depend in part on this cost. All-inclusive costs for a facility sized at 10,000 ft2 would be in excess of $1.5 million (Curtis et al., 2008). This facility would be expected to process on average 296 sheep and lambs, 10 swine, and 168 cattle per month and make a profit of approximately $1.4 million per year (Curtis et al., 2008). However smaller facilities, regions with higher land costs, and areas with lower processing demand could have dramatically different cost and income projections.
To facilitate the collection of producer data the committee developed a comprehensive survey. The survey asked a range of questions revolving around the type and number of animals raised, how they were finished or sold, and during what time of the year these sales occurred. Additional data related to their desires for cooperative marketing, to sell processed goods across state lines , and their willingness to change their management paradigm to facilitate a 12 month supply of product for a new facility were collected. The survey was hosted via an online survey company that generated a URL that allowed a link to the survey to be posted on social media and distributed via e-mail to local extension, and conservation district program participants across the region. The second part of this analysis involves utilizing the various collected data, some basic gross revenue projections, and the operating/production assumptions spreadsheet from the small meat plants template (Holcomb et al., 2012) to evaluate feasibility.
Professional colleagues in surrounding counties in West Virginia, Virginia, and Maryland were asked to forward the survey request to all their food animal agriculture producers. Additionally, social media sites for farmers markets in the region were identified and the survey link was posted in hopes that any farmers market vendors not otherwise reached would have an opportunity to participate in the survey. The survey was active for 30 days, and 10 days prior to close, all e-mail contacts were reminded of the nature and importance of the survey. Survey data was then summarized and presented.
Gross revenue projections:
The survey data was used to calculate total annual gross revenue expectations. The number of animals anticipated for sale at local and interstate markets was multiplied by typical processing fees to estimate gross revenue opportunities. Additionally the seasonal availability of the total animals produced were examined and potential revenue calculated assuming 100% would be processed locally. Additionally the Ag census animal populations for Cattle, Sheep, and Swine within five counties region in WV and VA were tallied and processing fees applied to examine local opportunity (United States Department Agriculture, 2014a; United States Department Agriculture, 2014b).
Operating / production spreadsheet:
Holcomb et al. (2012) developed a feasibility template for small multi-species meat processing plants. The template was designed to determine the likelihood of a new slaughter facility succeeding. The template uses plant capacity, species breakdown, facilities and equipment costs, and employee expenses. The template is based on a plant with a capacity to process 25 animals per week. We evaluated feasibility by applying a weight-based portion, reflective of the species break down from our survey to the template model. Specifically we assumed a supply of 642 cattle, 198 swine, 1,110 sheep or goats, and 2,500 poultry.
Survey data were sorted and grouped to better generalize the responses. A one way ANOVA was used to identify significant (P<0.05) differences in seasonal sales for each species. When significant differences were located a Bonferroni correction was applied to control for experiment wide error.
Results and Discussion
Completed surveys were recieved from 48 of the over 500 individuals contacted via e-mail and social media. The number of respondents per species group ranged from 6 (swine) to 30 (cattle) (Table 1). The percent of the respondent’s animals available for sale via local and interstate farm markets ranged from 48.2% for goats to 100% for swine (Table 1). Overall, 26 respondents indicated how far they presently travel to have animals processed. It is important to note that many of these animals are processed at state inspected facilities. Fourteen of the respondents travel less than 40 miles to a processor. Eleven respondents travel between 40 and 100 miles to get their animals processed. One individual travels in excess of 150 miles to get their poultry processed. The producer response indicates a desire to retail or direct market a significant portion of their annual animal product through these higher return markets in the surrounding metropolitan area. It would seem likely a new slaughtering and processing facility would pick up a great deal of business particularly for locations over 40 miles away.
|Species||Survey responses||Annual sales||Interstate Market Availability||Potential gross revenue|
|Total potential revenue||$323,290.00|
Table 1. Producer interest in local and interstate farm markets.
A successful regional processor will need a regular supply of animals. The survey questioned the total annual sales of each animal species and when these animals were sold. We combine the data by season to examine the general capability of these respondents to supply the facility year round. We examined the total sales and excluded the data where seasonal sales numbers were not provided. These numbers are not specific to the local and interstate farm markets sales but rather total sales. While there are more animals to process in the fall and winter months compared to spring and summer, there still is remains reasonable number of animals to process in the other seasons (Figure 1). Additionally, we statistically examined the reported seasonal sales by species by single factor ANOVA. The variability of the data was extensive and there were no significant differences (P > 0.05) between seasons for any of the species (Table 2) negating the need for a Bonferroni correction.
|Confidence level (95.0%)||10.27||19.19||18.17||20.89|
|Confidence level (95.0%)||11.07||10.09||47.76||61.05|
|Confidence level (95.0%)||7.21||8.86||9.06||5.17|
|Standard Deviation||53.05||101.04||78.26||-- nv --|
|Sample Variance||2,812.50||10,208.33||6,125.00||-- nv --|
|Confidence level (95.0%)||476.48||250.99||97.18||-- nv --|
|Confidence level (95.0%)||17.51||17.51||12.27||17.51|
Table 2. Summary Statistics for seasonal livestock sales across all species. nv = no variance.
Figure 1. Animal sales by season and species based on survey responses.
Another way to evaluate processing potential is to calculate potential gross revenue seasonally. We used per animal processing costs of $350.00 per head for cattle, $130.00 per head for swine, $2.50 per head for poultry, and $60.00 per head for sheep and goats. Based on the known seasonal production, potential gross revenue’s ranged from $63,037.50 for summer to $156,467.50 for fall (Table 3). In total, cattle have the potential to generate $336,700.00 in gross revenue. The combined species total could reach $441,625.00 if 100% of the respondents utilized the regional interstate markets (Table 3). Similarly the potential annual gross revenues for the annual sales committed to local and interstate farm markets, equates to $323,290.00 (Table 1).
|Across Species Totals||$83,732.50||$63,037.50||$156,467.50||$138,387.50||$441,625.00|
Table 3. Seasonal potential gross revenue.
While the survey did cover a large region, the actual potential is much larger than what is reflected in the survey responses. When we examined the Ag census data (United States Department Agriculture, 2014a; United States Department Agriculture, 2014b) it became very apparent there were significantly more animals raised in the region. We compiled data from Jefferson and Berkeley Counties in West Virginia and Loudoun, Clarke, and Fredrick Counties in Virginia. If 2% of the total cattle, swine, and lamb market were process at one facility it would generate $302,040.60 in revenue. Similarly if the market share were 5%, the facility revenue would increase to $755,101.50. If a new facility could secure 10% of the market it would generate up to $1,510,203.00 in revenue (Table 4).
|Species||2% market share||5% market share||10% market share|
Table 4. Gross revenue potential across Berkeley, Clarke, Fredrick, Jefferson, and Loudoun counties based on variable market shares of NASS reported animal numbers.
Given the need for this service is somewhat contingent on the ability to sell food animal agriculture products across state lines into the neighboring metropolitan markets. When asked “What obstacles prevent you from selling local beef, lamb, or goat to the DC / Baltimore metropolitan markets” the top response was costs. Cost is a conglomerate of any and all costs such as comments like too much time, not profitable enough, can’t afford all day at farmers market and other costs. The second most common obstacle listed was processing to include difficulty securing appointment at a processor, lack of a processor, regulations, and rules related to processing (Table 5). An additional obstacle to starting a USDA certified slaughter and processing facility is the perceived obstacles, opinions, and beliefs of potential clients. When asked, about their satisfaction with their current processor, 11 were not satisfied and 19 were satisfied. When asked if they would consider changing their business model or plan to access the DC / Baltimore / Northern VA metropolitan markets, 8 said no, and 22 said yes. In terms of cooperative marketing, 9 respondents indicated they had no interest while 18 were interested. Over 76% of respondents indicated they would be willing to commit to standardized vaccination or treatment protocols in order to cooperatively market. However only 66% were willing to serve on any board or council to operate such a venture.
Obstacles preventing the sale of local products
in the DC / Baltimore / Northern VA market
Table 5. Listed obstacles that prevented selling local beef, lamb, or goat to the DC / Baltimore metropolitan markets.
If you assume the processing of 2,500 poultry is equal on a resource basis to 300 deer, you can evaluate the survey numbers to see the facility can process the expected workload. The Holcomb et al. (2012) theoretical facility can process about 684,380 pounds of livestock and 300 deer assuming 25 animals per week, 70% cattle, 5% sheep and 20% swine, for the afore mentioned total pound figure. Based on our survey, we have lower percentage allocated to cattle and a much larger percentage of processing time and space for lambs and goats. However our head count will exceed 25 animals per day. Based on our surveys we only need to process 546,480 pounds of livestock, but 39 animals per day. On a weight basis, this will allow for 3-4 additional cows per day. The Holcomb et al. (2012) feasibility template, indicated this facility should generates over $577,469 in gross sales, with an after tax profit $88,146 per year. Using our survey inputs, gross sales declined to $482,670 with an after tax profit of $24,924. When the capacity is maximized with the additional 3 cows per day, the gross sales increase to $561,196 and an after tax profit of $75,737 (Table 6).
|Workload||Gross sales||After tax profit|
|Holcomb et al., 2012 rate||$577,469.00||$88,146.00|
|Committed rate from survey data||$482,670.00||$24,924.00|
|Survey rate optimized for cattle||$561,196.00||$75,737.00|
Table 6. Selected results from feasibility template for small, multi-species meat processing plants.
Survey response indicates a desire to harness the geographic potential of a mid-Atlantic metropolitan market and sell local food animal agriculture across a multi-state region. Current travel times for processing have a negative impact on this opportunity and the wait time to schedule slaughter appointments is perhaps a greater issue. Johnson et al. (2012) stated “Limited slaughter and processing capacity is often cited—particularly by producers—as a key barrier to marketing their meat and poultry locally.” It would seem processing is a consistent obstacle (Lewis and Peters, 2011 and Johnson et al., 2012; Jackson, 2013). We know consumers are willing to pay for freshness and for knowing the face that goes along with the product (Govindasamy et al. 2002 and Hardesty, 2008: Gwen and Lev 2011). However, in Jefferson County we still have a regional slaughter and processing deficit.
One solution to the existing obstacles related to processing is a USDA certified slaughter and processing facility located within the region. Locally was defined by the 2008 farm bill as originating within 400 miles or in the state of origin (Johnson et al., 2012). Any new facility with USDA credentials will have an operational advantage over state inspected facilities in that it will generate multi-state access for its customers. Likewise any facility that offers services such as poultry processing has the potential to help evolve a custom poultry business in the region. While there are inherent risks in small scale processing, the data supports a real opportunity for success. Our survey model is indicative of an expanding sheep and goat market with declining cattle numbers. When considering only processing fees per pound of meat produced, larger animals can be more profitable. Processing with a considerably higher percentage of workflow dedicated to cattle could be a more profitable enterprise than a mixed species business model, but the long-term sustainability is based off of servicing the local foods market. As such, to discount market and profit potential of any species would be short sighted.
Given the wealth of information, there remains some uncertainty. Timmons et al. (2008) stated “Attention to quantitative indicators of local food production and consumption can be an important component of developing successful local food programs.” Clearly, the local indicators show potential. Likewise Holcomb et al. (2001) pointed out the necessity of evaluating all cost and revenue estimates in any feasibility model. Clearly there are elements of the survey responses that indicate the local potential in Jefferson County may be less robust than those associated with the Holcomb model (Holcomb et al., 2012). However, when all data is examined it is apparent there is opportunity and a strong likelihood of success. Moving forward, potential investors should examine the findings in this introductory analysis, due diligence supports a more formal feasibility study.
On the surface the numbers indicate a potential for a successful enterprise given the survey respondents answers. The local food animal agriculture industry recognizes the opportunity. Perception and production are appearing to shift as agriculture embraces the local foods movement. As our new agricultural economy grows and develops, simplistic and formal feasibility studies will be needed to assist agricultural service providers in making sound recommendations to investors, producers and agricultural entrepreneurs.
This publication would not be possible without the support of the Jefferson County Economic Development Authority's Agriculture Committee, Elizabeth Wheeler, and Shepherd Ogden. Their guidance, support and direction on this and other projects is much welcomed. They support the industry of agriculture, and mission of cooperative extension. For their efforts, many thanks.
Curtis, K.R., Cowee, M. W., Lewis, S. R., & Harris, T. R. (2008). Financial Potential for Livestock Slaughter and Processing in Nevada. (Special Publication-08-01). Reno, NV: University of Nevada Cooperative Extension.