Local Processing and Sales of Utah Beef - Potential for Growth in - December 2020 - Utah Department of ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Potential for Growth in
Local Processing
and Sales of
Utah Beef
December 2020
Prepared by:
FUNDING SOURCE AND
ACKNOWLEDGEMENTS
Ruby Ward, Professor, Utah State
University (USU) Department of
Applied Economics
This report was produced by Utah State University Extension
Karin Allen, Professor, USU at the request of and in collaboration with the Utah Department
Department of Nutrition, Dietetics of Agriculture and Food (UDAF). We wish to acknowledge
and Food Sciences both incoming Commissioner Craig Buttars and former
Haden Davis, Meat Lab Manager, Commissioner Logan Wilde for providing both funding and
USU Department of Nutrition, support for this report.
Dietetics and Food Sciences
Anne Whyte, Researcher, USU
Department of Applied Economics UDAF is one of the state’s oldest agencies.
It oversees dozens of legislatively man-
dated programs that promote the healthy
growth of Utah agriculture and food, the
UDAF Contributors:
conservation of our natural resources, and
• Linda Clark Gillmor, UDAF Director, the protection of our food supply.
Marketing and Economic Develop-
ment
• Leann Hunting, UDAF Director, An- UDAF’s Utah’s Own program
imal Industry works to reconnect consum-
ers with their food supply and
• Noel McSpadden, UDAF Manager,
promotes the benefits of Utah’s
Meat and Poultry Inspection Pro-
locally grown and processed
gram
foods.
Contact Author:
Ruby Ward, Ph.D.
In its programs and activities, Utah State University does not discrimi-
Department of Applied Economics
nate based on race, color, religion, sex, national origin, age, genetic in-
Utah State University
formation, sexual orientation or gender identity/expression, disability,
4835 Old Main Hill
status as a protected veteran, or any other status protected by Univer-
Logan, UT 84322-4835
sity policy or local, state, or federal law. The following individuals have
Ruby.ward@usu.edu
been designated to handle inquiries regarding non-discrimination pol-
icies: Executive Director of the Office of Equity, Alison Adams-Perlac,
alison.adams-perlac@usu.edu, Title IX Coordinator, Hilary Renshaw,
December 2020 hilary.renshaw@usu.edu, Old Main Rm. 161, 435-797-1266. For further
information on notice of non-discrimination: U.S. Department of Edu-
cation, Office for Civil Rights, 303-844-5695, OCR.Denver@ed.gov. Is-
sued in furtherance of Cooperative Extension work, acts of May 8 and
June 30, 1914, in cooperation with the U.S. Department of Agriculture,
Kenneth L. White, Vice President for Extension and Agriculture, Utah
State University.
TABLE OF CONTENTS Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Utah’s Agriculture Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Meat Harvesting and Processing Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Current Meat Processing in Utah. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Utah Beef Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Financial Feasibility Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Estimated Very Small-Scale Meat Processing Budget. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Sensitivity of Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Capital Budgeting Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Potential Economic Impacts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Conclusion and Discussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Appendix A- State Programs CARES Act Funding Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Appendix B - Detailed Meat Processing Budget Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Appendix C- Sensitivity of Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Appendix D- Capital Budgeting Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Appendix E - Utah Department of Agriculture and Food Compiled Meat Plant Data ��������������������������������������������������29 Appendix F - Utah Department of Agriculture and Food Compiled Regulatory and Statutory Recommendations . 30 Appendix G - Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
LIST OF TABLES Table 1. Meat Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Table 2. Factors Influencing Utah and Nevada Consumers’ Shopping Location ������������������������������������������������������������8 Table 3. Summary Enterprise Budget for Very Small-Scale Processing Plant in Utah With 675 Head of Cattle. . . . . . 9 Table 4. Wholesale Price and Net Income Estimation of Very Small-Scale Processing Plant in Utah . . . . . . . . . . . . . .11 Table 5. Value of Steer Calf in Utah Versus Value if Finished and Processed in Utah ������������������������������������������������12 Table A1. Summary of State Programs Offering CARES Act Funding to Improve Meat Processing Capacity . . . . . .16 Table A2. Initial Startup Costs for Very Small-Scale Meat Processing Equipment and Building ��������������������������������19 Table A3. Detailed Enterprise Budget for Very Small-Scale Meat Processing Facility With Mix of Meat Sold to Grocery Stores and Custom Processing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Table A4. Estimated Net Income of Very Small-Scale Meat Processing Operation for Various Prices Assuming a Cattle Price of $100 per cwt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table A5. Estimated Net Income of Very Small-Scale Meat Processing Operation for Various Prices Assuming a Cattle Price of $130 per cwt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table A6. Weighted Retail Prices Across Major Regions in Utah by Category of Beef Cut ����������������������������������������23 Table A7. Percentage of Carcass in each Beef Cut Category for Weighted Retail Prices Across Utah . . . . . . . . . . . . . 24 Table A8. Additional Small Tool Purchases in Year 1 for Capital Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table A9. 20-year Capital Budget for Very Small-Scale Meat Processing Operation in Utah ��������������������������������������27 LIST OF FIGURES Figure 1. Cash Receipts by Commodity for Utah by Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 2. Meat Establishments in Utah. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 3. Percent of Participants Willing to Purchase Locally Raised Ground Beef at Various Mark-Ups . . . . . . . . . . .7 Figure 4. Retailer Preference for Purchasing Locally Raised Meat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure A1. Price Spread of Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Potential for Growth in Local Processing and Sales of Utah Beef 1
EXECUTIVE SUMMARY
This paper’s overall objective is to examine the potential for in- scale meat processing facility can be feasible but would require
creasing meat processing capacity in Utah and assess the po- that beef is sold and positioned as a premium product. Smaller
tential demand for local Utah beef. Coronavirus Disease 2019 processing plants in regional areas can increase the resiliency of
(COVID-19) highlighted the need for increased capacity and resil- the meat supply in Utah and provide the potential for ranchers to
iency in our meat supply chain, with bottlenecks resulting from develop additional revenue streams.
decreased production. To address this, several states earmarked
Financial feasibility was estimated for a very small-scale meat
Coronavirus Aid, Relief, and Economic Security (CARES) Act
processing plant with a maximum capacity of 750 head per year.
funds to assist meat processing facilities with infrastructure ex-
This capacity is based on a singly shift, additional shifts may
pansion and COVID-related expenditures. The Utah Department
be used to increase the capacity, but are not considered here.
of Agriculture and Food (UDAF) performed in-person site visits to
With the price of livestock estimated at $115 per cwt. and whole-
a sampling of small to medium-sized meat harvest and process-
sale meat at $6.50 per pound, the estimated net income is over
ing facilities across the state.
$75,000. With an investment of $1.4 million, this equates to a re-
The COVID-19 pandemic has had a significant impact on process- turn on investment of 8%. It is financially feasible if the meat is
ing plants in Utah. Harvest and processing numbers are approx- positioned as a premium product. The internal rate of return is
imately double those from the same period of the previous year. 8.2%, and the modified internal rate of return is 7.4%. The desired
While backlog was not initially a concern for these plants, many pre-tax rate of return, discount rate, was 10%, with a desired af-
of them rapidly booked out for six to twelve months. For growth, ter-tax rate of return at 6.5%. There is the possibility of negative
physical needs included additional equipment and cooler space, returns with lower premiums or other assumptions.
access to trained butchers and meat cutters, and affordable insur-
Steers are normally sold in Utah at approximately 550 lbs. At
ance for facility staff. Another concern was access to capital for
a price of $1.55 per pound, this equates to $853 per head. The
expansion.
wholesale value of the meat would be $2,275 per head, and the
The Utah Department of Agriculture and Food (UDAF) imple- retail value of the meat would be $2,844, which is over three times
mented a 90-day “Temporary Grant of Inspection” which allowed higher than the value of the steer calf.
qualifying custom exempt establishments to market their product
Efforts to build awareness of the brand and availability will be
wholesale and retail within the state of Utah. These businesses
needed. Some programs like Utah’s Own and social media may
provided an important service to consumers who were unable
help with this process. An association or cooperative could collec-
to find red meat during the initial COVID-19 food chain disrup-
tively cover the cost of the marketing to jointly build a brand and
tion. UDAF also compiled a list of policy recommendations based
market the products. Programs that could help defray the cost of
on interviews with processing plants in Utah and provided the
the initial investment could increase the financial feasibility.
funding to conduct this preliminary feasibility study of expanding
both meat processing capacity and sales of Utah beef.
Overall, there is potential growth for Utah beef processing and
sales. Utah consumers desire local beef products, and a signif-
icant portion are willing to pay a premium for it. A very small-
Potential for Growth in Local Processing and Sales of Utah Beef 2
INTRODUCTION
Coronavirus disease 2019 (COVID-19) highlighted the vulnerabil- These businesses provided an important service to consumers
ity in our meat supply chain with production falling by over 40% who were unable to find red meat during the initial COVID-19 food
for pork, 30% for beef, and 15% for chicken in the spring of 2020, chain disruption. Both of the plants that participated were finan-
within weeks of the declaration of the nation’s pandemic status cially rewarded and have decided to come under a full grant of
(Reiley, 2020a,b; McDougal, 2020). As larger harvest and process- inspection moving forward.
ing facilities shut down, limited hours, or implemented social
Not all of the qualified establishments were interested, partly be-
distancing measures that slowed output, ranchers were forced to
cause they were already at capacity. In many cases, for an indi-
consider other options, including diverting livestock to approved
vidual to get a few head harvested, there was a four- to six-month
small to mid-sized facilities. The resulting bottleneck highlighted
wait time in spring 2020 (Appendix E). Currently, wait times can
the need for increased capacity and resiliency in the supply chain.
be more than one year.
To address this, several states earmarked Coronavirus Aid, Relief,
and Economic Security (CARES) Act funds to assist meat process- This paper’s overall objective is to examine the potential for in-
ing facilities with infrastructure expansion and COVID-related ex- creasing meat processing capacity in Utah and assess the poten-
penditures (see Appendix A for more information). tial demand for local Utah beef. Specifically, we need to under-
stand Utah’s current meat processing situation, understand the
As a response to the resulting meat shortages, the Utah Depart-
potential demand within Utah for Utah beef products, determine
ment of Agriculture and Food (UDAF) implemented a “Temporary
the financial feasibility, and finally assess potential economic
Grant of Inspection” which was good for a period of 90 days, and
contribution.
allowed qualifying custom exempt establishments with solid kill
floors the ability to market their product wholesale and retail
within the state of Utah. (Note: custom exempt is only approved
for private, noncommercial use.) Those plants that participated
were then able to supply their processed meat to restaurants and
grocery stores within Utah. Additional requirements for these
plants to participate were:
• Provide a written sanitation program approved by the state
• Develop a hazard analysis and critical control points (HACCP)
program approved by the state
• Develop a written recall program approved by the state
• Submit labels for approval by the state
Potential for Growth in Local Processing and Sales of Utah Beef 3
UTAH’S AGRICULTURE INDUSTRY
Utah’s cattle industry accounts for roughly 78% of the state’s cash Various meat processing feasibility studies have been completed.
receipts for meat animals, coming in just shy of $450 million Focusing on the Intermountain West, the most recent research in
(UDAF, 2020). In 2019, Utah had 820,000 cattle and calves. Figure this area was completed in 2014. A study that year in Montana
1 shows the cash receipts for different agricultural sectors in Utah examined 250 head per day (Bitz et al., 2014) and a study in the
from 2013–2019. Two other large sectors in Utah agriculture are same year completed in Idaho primarily focused on a larger scale
dairy and hay. Both of these sectors are favorably impacted by operation processing more than 8,000 head per year (Saul et al.,
local cattle and meat processing. Currently, most of the cattle are 2014). These more recent studies join a small body of literature
sold as calves that are then taken out of state to be finished. If that is generally more than 10 years old (Curtis et al., 2006 and
processing facilities were able, and there was enough demand 2008; Yorgey, 2008; Schahczenski, 2009). While these studies of-
for Utah beef products, cattle could stay in the state of Utah to fer good background information, most data need to be updated
be processed and sold. This would potentially provide additional with current pricing and cost structures. In addition to a much
revenue streams for ranchers and increased economic impacts. larger-scale operation focus than we use in this research, many
Assessing the issues with finishing animals in Utah is beyond the of the studies completed in this area are in locations that are geo-
scope of this study. However, a first step is determining the po- graphically dissimilar to Utah.
tential desire of consumers for local Utah beef and if it is feasible
to process it in Utah.
Figure 1. Cash
Receipts for Utah
Commodities
2013–2019
Source: Utah
Agriculture
Statistics
Cattle and calves Hogs Dariy products, milk Poultry and eggs
Misc animals and products Food grains Feed crops All other crops
Potential for Growth in Local Processing and Sales of Utah Beef 4
MEAT HARVESTING AND PROCESSING REGULATIONS
The Federal Meat Inspection Act grants regulatory authority over state-federal inspections, or State Cooperative Meat Poultry In-
the harvest and processing of most common meats and poultry to spection (MPI) programs (Table 1). State inspection requirements
the USDA (21 USC §601-695). Federal inspections are carried out must meet an “at least equal to” standard, meaning they can dif-
by the Food Safety Inspection Service (FSIS) branch of the USDA, fer from federal requirements as long as the same level of safety
and require that an inspector be on-site at all stages from pre-har- and sanitation is met. State-inspected meat can only be sold in
vest to final processing and packaging. These standards can be intrastate commerce. States participating in MPI programs can
applied to both permanent and mobile facilities. The Wholesome also choose to participate in federal-equivalent inspections, such
Meat Act of 1967 sets minimum sanitation standards for facilities as the Talmadge-Aiken (TA) Cooperative Inspection program or
inspected under state authority. In the 23 states that have chosen the Cooperative Interstate Shipment (CIS) program. Both of these
not to participate or were unable to meet the minimum standards, inspection schemes require federal-equivalent inspections to be
the FSIS assumed jurisdiction over meat harvest and processing conducted by state inspectors, but the restrictions on intrastate
activities within the state. The remaining states participate in commerce are lifted.
Table 1. Meat Inspection
Inspection Example of
Inspection Sales
agency for Utah Requirements for state participation inspection
program establishments restrictions
stamp
USDA Food
Safety &
Federal inspection None • Not applicable
Inspection
Service
• aka State Cooperative Inspection or Meat Poultry
Utah Dept. of Intrastate only, Inspection (MPI) Program (9 CFR §321.1)
State-federal
Agriculture and wholesale or • State inspection conducted by State inspector –
inspection
Food retail “at least equal to” USDA
• Utah is one of 27 participating states
• aka Talmadge-Aiken (TA) Cooperative Inspection
Program (9 CFR §321.2) Same as
Utah Dept. of
Federal-state • State must participate in approved MPI Federal
Agriculture and None
inspection • Federal inspection conducted by State inspector – Inspection
Food
“same as” USDA Stamp
• Utah is one of 9 states with TA facilities
• aka CIS Program (9 CFR §321.3 and §332)
• State must participate in approved MPI
Not applicable
Cooperative • Federal inspection conducted by State inspector –
(Utah opted to
Interstate Shipment None “same as” USDA
remain under TA
Program • Only facilities with 25 or fewer employees
program)
• 8 states participate
• Modified Federal Inspection Stamp
• Slaughter-for-fee for owner of animal (9 CFR
§303.1)
Depends on Cannot be sold, • Federal facilities inspected by FSIS Must be
other activities donated, or • MPI facilities inspected by State stamped
Custom-exempt
conducted in otherwise enter • TA and CIS facilities inspected by State per “NOT FOR
facility commerce* cooperative agreement SALE”
• CE-only facilities inspected by State (if MPI or
cooperative agreement) or FSIS
Potential for Growth in Local Processing and Sales of Utah Beef 5
Utah is one of 27 states with an approved MPI program. State make improvements necessary to pass federal inspection. If fa-
inspections are conducted by UDAF, and meat carrying the UDAF cilities do not become federally-inspected establishments within
inspection stamp can be sold to restaurants, grocery stores, and 36 months, the amount of the grant must be repaid. State (blue)
other retail outlets within Utah. Utah is one of nine states with TA establishments (Figure 2) would be eligible to use RAMP-UP Act
establishments, all of which opted out of CIS participation when funds to upgrade to a federal inspection scheme.
the program was introduced (Cooperative Inspection Programs
Custom-exempt (CE) facilities can harvest and process private-
Interstate Shipment of Meat and Poultry Products, 2009) because
ly-owned livestock that is not intended for commercial sale. CE
TA is generally viewed as the preferred inspection scheme. See
activities require minimal inspection (typically annually), and can
Figure 2 for the statewide distribution of meat establishments as
be conducted in state- or federally-inspected facilities as long as
of November 2020. Federal (yellow) and TA (red) establishments
the activities and resulting products are kept separate. The Pro-
can ship inspected product interstate and export. State (blue) es-
cessing Revival and Intrastate Meat Exemption (PRIME) Act of
tablishments can sell within Utah.
2019 was introduced in both the House (H.R. 2859) and the Sen-
There is recognition at the federal level that very small- to mid- ate (S. 1620) to allow intrastate sales of CE products. The PRIME
sized plants may view the shift to a federal inspection scheme Act would allow CE products to be sold direct-to-consumer, to
as too difficult or expensive. The House Agriculture Committee restaurants, and through grocery stores within the same state.
proposed a new program to address this. The Requiring Assis- Plants conducting CE activities (circles) would be eligible to sell
tance to Meat Processors for Upgrading Plants (RAMP-UP) Act CE product within state under PRIME Act (Figure 2).
of 2019 would provide grants for meat and poultry facilities to
Figure 2. Meat Establishments in Utah
Source: Utah Department of Agriculture and
Food
Potential for Growth in Local Processing and Sales of Utah Beef 6
CURRENT MEAT PROCESSING IN UTAH
UDAF performed in-person site visits to a sampling of small to Regulatory recommendations were compiled by UDAF based
medium-sized meat harvest and processing facilities including on input from owners/operators of 15 Utah meat plants visited
Custom Exempt, State inspected, Talmadge Aiken, and USDA in- during July and August 2020. These issues, summarized below,
spected plants across the state (see Appendix E) to see firsthand represent a sampling of small to medium-sized meat harvest and
what the demand was at that point in time for locally processed processing facilities including CE, MPI, TA, and federal. Find the
meats, find out how the meat plants were responding to demand, full list in Appendix F.
whether or not they were planning to grow their businesses, and
• Hazard Analysis and Critical Control Points (HACCP): Small- to
what type of support or resources they needed to be able to grow.
medium-sized plants face a higher burden for regulation re-
Surveys were completed in person. Data was gathered on each
quirements since they are using similar amounts of employ-
facility, including information on current operating capacities,
ee time as larger plants, but it is for less quantity. Though the
pre- and post-COVID-19 outbreak harvest and production infor-
USDA provides assistance and resources targeted toward
mation, and type of inspection they were under. Questions were
small and very small plants, the cost of implementation and
asked on the owner’s interest and limitations in growth of the
record-keeping is still a financial burden. A proposed solution
facility, employment information, and disposal of hides and offal.
is to offer federal tax credits to offset the increased cost of reg-
There was also an opportunity for the respondent to offer opin-
ulation compliance.
ions on regulatory issues and suggestions as well as challenges
they faced. • Increased Options for Sale to Neighboring States: Small- and
medium-sized plants would like to have more access and op-
The COVID-19 pandemic has had a significant impact on process-
tions for the sale of meat to adjacent states. In states with an
ing plants in Utah. Harvest and processing numbers are approx-
“at least equal to” MPI program (Table 1), state-inspected meat
imately double those of the same time period of the previous
cannot be shipped outside the state boundaries. A proposed
year. Of the 15 plants that were visited and interviewed, nine of
solution is to allow neighboring states to enter cooperative
them were operating at well over 100% capacity, adding addition-
agreements to allow the sale of state-inspected meat across
al labor and operating days, such as weekends, to their facility
state lines. This would require a change to the Federal Meat In-
to meet the increased demand. While backlog was not initially a
spection Act.
concern for these plants, many of them rapidly booked out for
six to twelve months. As the interviews progressed over a two- • Estate Tax and Family Business Succession: Current estate tax
month period in summer 2020, the wait times for processing were laws can be burdensome for transferring family-owned busi-
increasing. Recent anecdotal accounts have some producers in- nesses to the next generation. While this tends to affect large
dicating they are booked for 18 to 24 months. Ten of the opera- companies more than small companies, there are instances
tions’ owners expressed strong interest in growth opportunities. that can pose a significant burden to a family-owned business.
For growth, physical needs included additional equipment and This is a larger issue for family-owned businesses compared
cooler space, access to trained butchers and meat cutters, and to estates composed of stock portfolios. A proposed solution
affordable insurance for facility staff. Another concern was access might entail tax law changes at the federal level.
to capital for expansion. As shown in Appendix A, these expenses
were covered with CARES Act funds for eligible facilities in sev-
eral states. In addition to the interest in expanding the capacity
of current facilities, this year there are at least seven new meat
processing plants being developed or considered in Utah.Potential for Growth in Local Processing and Sales of Utah Beef 7
UTAH BEEF DEMAND
Understanding consumer demand for local beef is an essential Many participants were willing to pay a premium for locally raised
part of assessing the growth for Utah beef sales. There have been ground beef (Figure 3). At an equal price to other beef products,
several definitions of what “local” means. For this study, local is about two-thirds of Utah respondents would prefer locally raised
defined as beef produced within the state of Utah. Recently, the ground beef.The questions about price premiums were structured
authors completed a study of consumer preferences for local beef to make the results more accurate, which is why we see a slightly
in Utah and Nevada. Find detailed results in “Consumer Prefer- higher percent desiring local beef at a 30% markup than at a 20%
ences for Locally Raised Beef” (Ward et. al, 2021). Highlights on markup. Statistically, there is no difference between the two. The
the desire of Utah consumers to purchase Utah beef are provided consumers’ willingness to pay a 40% markup drops to about one-
here. The study used an outside company to administer an online fourth of respondents. These are stated preferences and do not
survey, which yielded 1,000 responses evenly split between resi- mean every purchase will be local beef, but does indicate desires.
dents of Utah and Nevada. That survey indicated that consumers This indicates consumers desire locally raised ground beef. Utah
generally define “local” to be within 100 miles of their residence. respondents had a higher desire for local beef but were more
price-sensitive than Nevada respondents.
In Utah, 42% of respondents had purchased meat or produce di-
rectly from a local producer, while only 28% had in Nevada, and Quality of the food was the most influential factor in determining
of all respondents, 65% had never purchased meat directly from where to shop (Table 2). Price was also influential or very influ-
a local farmer. Of those respondents, only 30% said price was a ential. This would indicate that Utah beef sales could increase as
concern, though they believed it was cheaper to purchase meat consumers are willing to pay more, but any local product or brand
from their regular retailer. would need to be positioned as a premium, quality product.
Figure 3. Percent of
Participants Willing
to Purchase Locally
Raised Ground Beef
at Various MarkupsPotential for Growth in Local Processing and Sales of Utah Beef 8
Table 2. Factors Influencing Utah and Nevada Consumers’ Shopping Location
Shopping factors Before COVID-19 After COVID-19
Most influential Very influential Most influential Very influential
Online, self-pickup 6.3% 11.4% 14.7% 16.0%
Online, delivery 6.5% 9.8% 13.4% 16.0%
Price 20.5% 34.8% 23.8% 35.3%
Quality of food 19.9% 43.7% 21.7% 40.5%
Cleanliness 20.3% 38.9% 32.8% 31.7%
Mask mandate -- -- 36.4% 24.1%
Location and convenience are also important aspects in looking was the ease of getting meat from their regular retailer (33%),
at increasing sales of Utah beef. Over half of Utah respondents followed closely by not knowing how to purchase meat directly
ranked supermarkets as their desired place to purchase locally from the producer (24%). This information indicates the demand
raised meat (Figure 4). This was followed by almost a quarter of for locally produced meat is present, even at a premium price, if
consumers desiring to purchase directly from the farm. This was producers are able to make it easy for consumers to know how
also the least preferred by a large part of the respondents. to purchase their products. Programs such as Utah’s Own might
serve a role in educating consumers about locally produced pur-
The same study found the most common reason for consumers
chasing options.
not purchasing their meat products directly from the producer
Figure 4. Retailer
Preference for
Purchasing Locally
Raised MeatPotential for Growth in Local Processing and Sales of Utah Beef 9
FINANCIAL FEASIBILITY ASSESSMENT
Given respondents’ desired outlets of supermarkets and pur-
chasing locally raised meat directly from the farmer, the finan-
cial feasibility provided focuses on a combination of wholesale
and CE processing. To examine the financial feasibility of a very
small-scale meat processing plant (maximum 750 head per year)
in Utah, this study includes a budget, analysis of profit sensitivi-
ty, and capital budgeting analysis, summarized below. Additional
details are provided in the appendices. It should be noted that the
maximum capacity is based on a single shift. Additional shifts
could increase capacity, but are not considered here.
ESTIMATED VERY SMALL-SCALE MEAT PROCESSING BUDGET
A sample Utah meat processing facility operating budget was stores in regions throughout Utah was completed through online
built using current budgeting information for the USU Meats Lab shopping websites at each store location. Prices of individual cuts
and gathering current market pricing data from Waltons, Inc., Pro- of meat were aggregated into categories and weighted based on
cessor Division Koch Supplies, and Ultra Source for equipment the general percentage of meat that comes from each major sec-
and supplies. Given the variance of land prices across the state tion of the carcass. See Appendix C for regional summary pricing.
and other initial startup costs such as running utilities to the build- A price of $115 per cwt for cost of purchasing cattle is used. Addi-
ing location, this budget focuses on the operating costs of current tional details of assumptions and a breakout of sales and expens-
facilities, with a number of assumptions. Based on the survey es can be found in Appendix B. While custom harvesting does not
discussed above, our budget shows a combination of wholesale provide a large profit, it is used to help cover labor and overhead
meat and custom harvesting. expenses. In the example budget, the estimated net income is
over $75,000. With an investment of $1.4 million, this equates to
The budget in Table 3 is based upon a wholesale average price of
a return on investment of 8%. Actual results will vary and are de-
$6.50 per pound for meat. This is the mid-point high and low retail
pendent on various sets of assumptions.
price with a 30% price premium and a 30% retail margin or price
spread. A survey of meat pricing in supermarkets and grocery
Table 3. Summary Enterprise Budget for Very Small-Scale Processing Plant in Utah with 675 Head of Cattle
Total Wholesale Custom
Dollars Percent Per head Per pound Per head
Sales $1,132,875 100% $2,275 $6.50 $485
Cost of goods sold:
· Animals $672,750 59% $1,495 $4.27
· Marketing & distribution $31,500 3% $70 $0.20
· Labor $155,480 14% $230 $0.66 $230
· Supplies/inputs $28,658 3% $42 $0.12 $42
Total cost of goods sold $888,388 78% $1,838 $5.25 $273
Gross income $244,487 22% $437 $1.25 $212
Overhead $128,268 11% $190 $0.54 $190
Net income $116,219 10% $247 $4.71 $22
Tax $40,677 4% $86.51 $0.25 $7.76
Net income after tax $75,542 7% $160.66 $4.46 $14.41Potential for Growth in Local Processing and Sales of Utah Beef 10 SENSITIVITY OF PROFITABILITY Overall, we found that the local meat products would need to be in Utah of 20%. This analysis provides 24 estimations of whole- positioned as a premium product and have a higher price com- sale prices. For each of these, we estimated the profit (or loss) pared to other meat. As seen in the previous section, while con- assuming operating at 100, 90, and 80% capacity. The results in sumers are price-sensitive, a portion do indicate a desire for a Table 4 are based upon purchasing beef at $115 per cwt. We also local Utah meat product. Around 30% of consumers are willing examined the wholesale prices and profit estimations of all the to pay a 30% price premium, and around 25% indicated a willing- combinations using $100 and $130 per cwt cost of meat. See the ness to pay a 40% price premium. results in Appendix C. Three factors affect the level of returns and financial feasibility Overall, we find that profit is very sensitive to wholesale price of the operation. These include the cost of cattle, the markup at changes. A Utah beef product would need to be positioned as the retail establishment, and the price premium the meat prod- a premium product with a minimum 20% price premium on av- ucts will have. Table 4 examines the average wholesale price per erage. Because consumers are price-sensitive and this product pound based upon current meat prices and a 20, 30 or 40% price will cost more, not every consumer would choose it. However, premium. This is accomplished by looking at three different re- given that 25% of consumers indicated a wiliness to pay a 40% tail margins or price spreads (20, 30, and 40%). The price spread premium, a potentially viable business and market exists. Further or margin is the percentage difference between the retail price research could examine consumers desire for particular quality and the wholesale price. The average price spread according to characteristics such as natural, organic, or grass-fed in combina- USDA-ERS is 40% over the last 10 years (Figure A1). From anec- tion with locally produced beef products. dotal information, we have seen average margins at some stores
Potential for Growth in Local Processing and Sales of Utah Beef 11
CAPITAL BUDGETING ANALYSIS
Capital budgeting analysis is done by estimating the annual cash More information about the differences in these measures can be
flows over a period of time. A discount rate can be used to find found in Appendix D.
net present value (NPV), internal rate of return (IRR), and a modi-
There are various programs for financing a small-scale meat pro-
fied internal rate of return (MIRR). Appendix D provides details for
cessing facility. USDA-Rural Development has several of these
a 20-year capital budget. This is based on a discount rate of 10%
programs, including the Value-Added Producer Grant. This is a
pre-tax or 6.5% after tax. While similar to an ROI, this is a more
competitive grant program with a goal to help agriculture pro-
robust technique and allows accounting for the timing of the cash
ducers enter into value-added activities related to the processing
flows. It also allows for assumptions on decreased operating lev-
and marketing of new products. It can provide up to $75,000 for
els in the first years as the business is starting. Only 50% capacity
planning grants and $250,000 for working capital grants. Another
was assumed the first year and 75% in year two. Half of the initial
program is the One RD Guarantee which can be used to guaran-
investment was financed at 5% for 15 years. We also added an
tee loans for financing up to 80% of the project. Other possibilities
extra $20,000 in the first year to the overhead to account for addi-
for financing include Small Business Administration loans along
tional small tools purchased. Additional costs were added in year
with USDA - Rural’s Business and Industry Loan Guarantees
10 for purchasing new equipment.
(B&I). Several of the Associations of Governments have revolving
The NPV is over $150,000 which indicates a higher return than loan funds with gap financing. The Rural Office at the Governor’s
the discount rate. This does not account for all risk as seen in Office of Economic Development (GOED) administers the Target-
the sensitivity section above. This was only done for the scenario ed Business Tax Credits which may also help defray the costs.
in the summary budget in Table 3. The MIRR was 7.4%. MIRR They are associated with Enterprise Zone Areas in counties with
is a more accurate measure than the IRR which was over 8.2%. a population of less than 25,000.
Table 4. Wholesale Price and *Net Income Estimation of Very Small-Scale Processing Plant in Utah
Avg. retail prices 20% Premium 30% Premium 40% Premium
Retail price $5.74 $8.52 $6.89 $10.22 $7.46 $11.08 $8.04 $11.93
% Margin retail Wholesale prices
40% $3.44 $5.11 $4.13 $6.13 $4.48 $6.65 $4.82 $7.16
30% $4.02 $5.96 $4.82 $7.16 $5.22 $7.75 $5.63 $8.35
20% $4.59 $6.82 $5.51 $8.18 $5.97 $8.86 $6.43 $9.54
% Margin retail Estimated net income for various wholesale prices at 100% capacity**
40% (370,956) (79,056) (250,416) 99,864 (190,146) 189,324 (129,876) 278,784
30% (270,506) 70,044 (129,876) 278,784 (59,561) 383,154 10,754 487,524
20% (170,056) 219,144 (9,336) 457,704 71,024 576,984 151,384 696,264
% Margin retail Estimated net income for various wholesale prices at 90% capacity
40% (365,101) (102,391) (256,615) 58,637 (202,372) 139,151 (148,129) 219,665
30% (274,696) 31,799 (148,129) 219,665 (84,846) 313,598 (21,562) 407,531
20% (184,291) 165,989 (39,643) 380,693 32,681 488,045 105,005 595,397
% Margin retail Estimated net income for various wholesale prices at 80% capacity
40% (359,246) (125,726) (262,814) 17,410 (214,598) 88,978 (166,382) 160,546
30% (278,886) (6,446) (166,382) 160,546 (110,130) 244,042 (53,878) 327,538
20% (198,526) 112,834 (69,950) 303,682 (5,662) 399,106 58,626 494,530
*Note: The estimated net income is a before tax profit estimation. Typically, owner(s) would need to pay self-employment and income tax on
the profits. However, the rates would vary and losses could be used to reduce tax obligations from other income.
**100% capacity is 500 head processed wholesale and 250 head custom processed. 90% capacity is 450 wholesale and 225 custom with 400
head wholesale and 200 custom for 80% capacity.Potential for Growth in Local Processing and Sales of Utah Beef 12
POTENTIAL ECONOMIC IMPACTS
The majority of Utah’s cattle and calves currently are sold at about
550 pounds, subsequently being taken out of state to be finished.
Table 5 shows the difference in value if livestock could be kept in
Utah to be finished and processed. The value of the meat would
be over three times the value of the calf. For the size of this facility,
that would be the difference between $575,000 and $1.9 million.
There would also be four additional jobs created just from the
processing of that meat.
Table 5. Value of Steer Calf in Utah Versus Value if Finished and Processed in Utah
Item Number Weight Price Total Per head
Steer calf 675 550 $1.55 $575,438 1.00 $853
Fed cattle 675 1300 $1.15 $1,009,125 1.75 $1,495
Wholesale meat 675 350 $6.50 $1,535,625 2.67 $2,275
Retail meat 675 350 $8.13 $1,919,531 3.34 $2,844Potential for Growth in Local Processing and Sales of Utah Beef 13
CONCLUSION AND DISCUSSION
Overall, there is potential growth for Utah beef processing and The feasibility of selling a local Utah beef product and making a
sales. Utah consumers desire local beef products, and a signifi- very small-scale processing plant work is dependent on position-
cant portion are willing to pay a premium for it. A very small-scale ing it as a premium product. Utah consumers want local products,
meat processing facility can be feasible but would require that but are unsure where or how to find and buy local meat. Efforts
beef is sold and positioned as a premium product. This works for to build awareness of the brand and availability will be needed.
niche products. Smaller processing plants in regional areas can Some programs like Utah’s Own and social media may help with
increase the resiliency of the meat supply in Utah and provide this process. It will also be difficult for one small business to hire
the potential for ranchers to develop additional revenue streams. a brand manager to build the brand and do the marketing on
Some of the issues that should be considered are below. their own. An association or cooperative could collectively cover
the cost of the marketing to jointly build a brand and market the
This analysis is for a very small-scale operation. The advantages
products. Additionally, utilizing sources of startup funding such
of small and very small-scale operations include increasing the
as grants and tax breaks could increase the financial feasibility.
resiliency of the meat supply by allowing for multiple regionally
Further research could examine Utah consumers’ desire for par-
located operations in Utah. These operations could be located in
ticular quality characteristics of beef in combination with locally
rural areas and provide meat to local retailers. This could increase
produced.
efficiency from a transportation standpoint. One of the dangers
is being highly dependent on one customer. Making a very long- As stated earlier in the paper, the actual cost for the land and
term investment in a facility based upon only one customer is infrastructure will vary based upon location. The infrastructure
very risky. Local arrangements have benefits, but an overall plan would include any hookups required for water, electricity, and
should look at having multiple customers, such as a few stores other necessary utilities. There may be issues with access to these
in a region. utilities in urban areas and even rural counties. These issues will
only increase as the population grows.Potential for Growth in Local Processing and Sales of Utah Beef 14
REFERENCES
Arkansas Department of Agriculture (2020). Arkansas meat and Iowa Department of Agriculture & Land Stewardship (2020).
poultry processing grant program. Arkansas.gov. https://www. CARES Act grant funding. https://iowaagriculture.gov/grants
agriculture.arkansas.gov/arkansas-meat-and-poultry-process-
ing-grant-program/ Jekanowski, M.D., Williams, D.R., & Schiek, W.A. (2000). Consum-
ers’ willingness to purchase locally produced agricultural prod-
Bitz, M., Belasco, E., Latta, M., Quanbeck, K., Bowling, R., Pharr, ucts: An analysis of an Indiana survey. Agricultural and Resource
O., & Bass, T. (2014, September 9). One Montana meat processing Economics Review, 29 (1203-2016-95135), 43–53.
facility feasibility study. One Montana. http://opportunitylinkmt.
org/wp-content/uploads/2015/07/One-Montana-Meat-Process- Kansas Department of Commerce (2020). Economic Development
ing-Facility-Feasibility-Study-Final-Report-9.29.14-full.pdf and Connectivity. COVID-19 Response. https://www.kansascom-
merce.gov/covid19response/covidrelief/
Burnett, P., Kuethe, T.H., & Price, C. (2011). Consumer preference
for locally grown produce: An analysis of willingness-to-pay and Lim, K.H., Hu, W., Maynard, L.J., & Goddard, E. (2013). US con-
geographic scale. Journal of Agriculture, Food Systems, and sumers’ preference and willingness to pay for country-of-ori-
Community Development, 2(1), 269–278. gin-labeled beef steak and food safety enhancements. Canadian
Journal of Agricultural Economics/Revue canadienne d’agroeco-
Campbell, J. (2016, August 4). Understanding beef carcass nomie, 61(1), 93–118.
yields and losses during processing [Fact sheet]. Penn State
Extension. https://extension.psu.edu/understanding-beef-car- Loureiro, M.L., & Umberger, W.J. (2003). Estimating consumer
cass-yields-and-losses-during-processing willingness to pay for country-of-origin labeling. Journal of Agri-
cultural and Resource Economics, 287–301.
Cooperative Inspection Programs: Interstate Shipment of Meat
and Poultry Products 74 Fed. Reg. 47648 (proposed Sept 16, 2009); MacDonald, J. M., Ollinger, M. E., Nelson, K. E., & Handy, C. R.
76 Fed. Reg. 24714 (finalized May 2, 2011) (codified at 9CFR pt 321, (2000). Consolidation in U.S. Meatpacking (Agricultural Economic
332, and 381). Report No. 785). Food and Rural Economics Division, Economic
Research Service, U.S. Department of Agriculture.
Corkery, M., & Yaffe-Bellany, D. (2020, May 14). Meat plant clo-
sures mean pigs are gassed or shot instead. The New York Times. McDougal, T. (2020, May 8). Poultry plants in the US affected by
https://www.nytimes.com/2020/05/14/business/coronavirus-farm- Covid-19. Poultry World. https://www.poultryworld.net/Meat/
ers-killing-pigs.html Articles/2020/5/Poultry-plants-in-the-US-affected-by-Covid-19-
580294E/
Curtis, K., Cowee, M., Acosta, A., Hu, W., Lewis, S., & Harris, T.
(2006). Locally produced livestock processing and marketing fea- McKay, L.C., DeLong, K.L., Jensen, K.L., Griffith, A.P., Boyer, C.N.,
sibility assessment. Technical Report 2006/07-13. University of & Lambert, D.M. (2019). Estimating restaurant willingness to pay
Nevada, Reno, University Center for Economic Development. for local beef. Agribusiness, 35(4), 610–624.
Curtis, K., Cowee, M., Lewis, S., & Harris, T. (2008). Financial po- Merritt, M.G., Delong, K.L., Griffith, A.P., & Jensen, K.L. (2018).
tential for livestock slaughter and processing in Nevada [Fact Consumer willingness to pay for Tennessee certified beef. Journal
sheet]. Special Pub. SP-08-01. University of Nevada Cooperative of Agricultural and Applied Economics, 50(2), 233–254.
Extension.
Minnesota Department of Agriculture (2020). Livestock process-
Dobbs, L.M., Jensen, K.L., Leffew, M.B., English, B.C., Lambert, ing rapid response mini-grant. https://www.mda.state.mn.us/live-
D.M., & Clark, C.D. (2016). Consumer willingness to pay for Ten- stock-processing-rapid-response-mini-grant
nessee beef. Journal of Food Distribution Research, 47 (856-2016-
Montana Department of Commerce (2020). Montana Coronavi-
58216), 38–61.
rus relief grant awards. Montana Coronavirus Relief. https://com-
Drabenstott, M., Henry, M., & Mitchell, K. (1999). Where have all merce.mt.gov/Montana-Coronavirus-Relief/Awarded-Grants
the packing plants gone? The new meat geography in rural Amer-
National Provisioner. (2020, November 19). More than 200 small
ica [Fact sheet]. Bureau of Business Research Publications, 13.
meat and poultry processors awarded CARES Act funds to grow
University of Nebraska – Lincoln. https://digitalcommons.unl.edu/
their businesses. Industry News. https://www.provisioneronline.
bbrpub/13
com/articles/110246-more-than-200-small-meat-and-poultry-pro-
Hoff, G. (2016). Self-Employment tax [Fact sheet]. Rural Tax Educa- cessors-awarded-cares-act-funds-to-grow-their-businesses
tion. University of Illinois Tax School. Ruraltax.org. http://ruraltax.
org/files-ou/SE_Tax.pdfPotential for Growth in Local Processing and Sales of Utah Beef 15
National Provisioner. (2020, November 25). Gov. Beshear an- Stewart, H., & Dong, D. (2018). The relationship between patron-
nounces $2 million in CARES Act fund for meat processing ex- izing direct-to-consumer outlets and a household’s demand for
pansion. Industry News. https://www.provisioneronline.com/ fruits and vegetables. USDA Economic Research Report. United
articles/110271-gov-beshear-announces-2-million-in-cares-act- States Department of Agriculture. www.ers.usda.gov
funds-for-meat-processing-expansion
United States Department of Agriculture: Agricultural Marketing
National Provisioner. (2020, November 30). 41 meat processors Service. (2018). Packers and Stockyards Division. Annual Report
in Indiana awarded $4 million. Industry News. https://www. 2018. https://www.ams.usda.gov/sites/default/files/media/PSDAn-
provisioneronline.com/articles/110284-meat-processors-in-indi- nualReport2018.pdf
ana-awarded-4-million
United States Department of Agriculture: Economics, Statis-
North Carolina Department of Agriculture and Consumer Services tics, and Marketing Information System (1980 – 2020). Livestock
(2020). Increasing meat production and capacity grant program. slaughter annual summary. https://usda.library.cornell.edu/con-
https://www.ncagr.gov/MeatProcessingGrants.htm cern/publications/r207tp32d?locale=en#release-items
North Dakota Department of Agriculture. (2020, May 12). New pro- United States Department of Agriculture: Economic Research Ser-
gram available for meat processing plants. https://www.nd.gov/ vice. (1970–2020). Meat price spreads. https://www.ers.usda.gov/
ndda/news/new-program-available-meat-processing-plants data-products/meat-price-spreads/
Reiley, L. (2020a, April 16). Meat processing plants are closing due United States Department of the Treasury: Internal Revenue Ser-
to covid-19 outbreaks. Beef shortfalls may follow. The Washing- vice. (2020). Publication 946: How to depreciate property. https://
ton Post. https://www.washingtonpost.com/business/2020/04/16/ www.irs.gov/pub/irs-pdf/p946.pdf
meat-processing-plants-are-closing-due-covid-19-outbreaks-
beef-shortfalls-may-follow/ Utah Department of Agriculture and Food. (2020). Utah agricul-
tural statistics and annual summary report. https://www.nass.
Reiley, L. (2020b, 4 May). Tyson says nation’s port production usda.gov/Statistics_by_State/Utah/Publications/Annual_Statisti-
is down 50%, despite Trump’s order to keep meat plants open. cal_Bulletin/2020-Agricultural-Statistics.pdf
The Washington Post. https://www.washingtonpost.com/busi-
ness/2020/05/04/tyson-says-nations-pork-production-is-down-50- Ward, R., Lacy, K., Bordigioni, M., Emm, S., Allen, K., & Whyte,
despite-trumps-order-keep-meat-plants-open/ A. (2020). Consumer preferences for locally raised beef. Research
Brief Western Rural Development Center. Forthcoming.
Salisbury, Karli A. (2018). Examining market channels for local
produce: Consumer affordability and producer profitability (Pub- Washington State Department of Agriculture (2020). Meat proces-
lication No. 7408) [Master’s thesis, Utah State University]. All sor pandemic relief grant. https://agr.wa.gov/services/grant-op-
Graduate Theses and Dissertations, Utah State University Digital portunities/meat-processor-grant-en
Commons. https://digitalcommons.usu.edu/etd/7408
Wyoming Department of Agriculture (2020). Meat processing ex-
Saul, D. A., Newman, S. M., Lee, T., Peterson, S., Devadoss, S., pansion grant program. https://wyagric.state.wy.us/component/
Shrestha, D. S., & Sanyal, N. (2014). Increasing prosperity for content/article/42-press-releases/486-meat-processing-expan-
small farms through sustainable livestock production, process- sion-grant-program
ing, and marketing. Journal of Agriculture, Food Systems, and
Yorgey, G. (2008). Local meat for local meals: An assessment of
Community Development, 5(1), 21–37. https://doi.org/10.5304/
demand for a mobile slaughtering unit in Pierce, King, Kitsap and
jafscd.2014.051.004
Thurston Counties, for the Puget Sound Meat Producers Cooper-
Schahczenski, J. (2009). Final report: Natural livestock feasibility ative. [Master’s thesis, University of Washington, Seattle, Daniel
study. National Center for Appropriate Technology (NCAT). https:// J. Evans School of Public Affairs].
parasitology.cvm.ncsu.edu/vmp991/beef/supplement/beef_feasi-
bility.pdf
State of Vermont, Agency of Agriculture, Food and Markets (2020).
Agriculture and working land assistance application. Vermont
COVID-19 Agriculture Assistance Program. https://agriculture.ver-
mont.gov/covid-19-information/vermont-covid-19-agriculture-as-
sistance-program/agriculture-and-working-landsPotential for Growth in Local Processing and Sales of Utah Beef 16
APPENDIX A - State Programs
CARES Act Funding Overview
Table A1. Summary of State Programs Offering CARES Act Funding to Improve Meat Processing Capacity
Total
State Program Program overview
funding
• Arkansas Department of Agriculture https://www.agriculture.arkansas.gov/
arkansas-meat-and-poultry-processing-grant-program/
Meat and Poultry • Up to 90% reimbursement (depending on number of applicants)
Arkansas $5M
Processing Grant • Current and soon-to-open federal and custom-exempt facilities
• Increasing slaughter and processing capacity
• Worker safety and training
• Indiana State Department of Agriculture https://www.in.gov/isda/grants-and-
Meat Processing funding-opportunities/
Expansion & • 50% reimbursement up to $150K per facility, 41 processors funded
Indiana $4M
Development • Federal and state-inspected facilities
Grant • Increasing slaughter and processing capacity
• Worker safety and training
• Iowa Department of Agriculture & Land Stewardship https://iowaagriculture.
gov/grants
• Business Improvement Grant
Meat Processing
o 109 processors funded
Expansion and
Iowa $4M o Increasing slaughter and processing capacity
Development
o Upgrades to allow participation in higher-level inspection program
Program
• Direct Marketing Grant
o 85 livestock producers
o Develop tools, services, and technology to promote direct-to-consumer sales
• Kansas Department of Commerce https://www.kansascommerce.gov/
covid19response/covidrelief/
Securing Local $130M • Portion of SPARK grant program available to all businesses, no specific dollar
Kansas Food Systems for entire amount listed for meat establishment applicants
Grant program • Federal, state and custom-exempt facilities withPotential for Growth in Local Processing and Sales of Utah Beef 17
• North Carolina Department of Agriculture & Consumer Services https://www.
Increasing Meat ncagr.gov/MeatProcessingGrants.htm
North Production • 66% reimbursement
$20M
Carolina Efficiency and • Existing facilities only
Capacity Grant • Increasing slaughter and processing capacity
• Worker safety and training
• North Dakota Department of Agriculture https://www.nd.gov/ndda/news/new-
program-available-meat-processing-plants
North Meat Plant Cost • Reimbursement dependent on total number of approved applicants
$1.3M
Dakota Share Program • State-inspected and custom-exempt facilities only (cannot be under federal
inspection)
• Increasing slaughter and processing capacity
• Vermont Agency of Agriculture, Food and Markets https://agriculture.vermont.
Agricultural gov/covid-19-information/vermont-covid-19-agriculture-assistance-program/
Producer and agriculture-and-working-lands
Vermont $5M
Processor • Up to $50K per facility, based on annual gross sales
Assistance • Federal and state facilities only (cannot be solely custom-exempt)
• Expenses must be directly related to COVID-19
• Washington State Department of Agriculture https://agr.wa.gov/services/grant-
Meat Processing opportunities/meat-processor-grant-en
Infrastructure and • Up to $150K per facility, based on number of approved applicants
Washington $5M
Capacity Relief • Federal or state facilities withPotential for Growth in Local Processing and Sales of Utah Beef 18
APPENDIX B - Detailed Meat
Processing Budget Estimation
This section provided additional details and analysis of the bud- Marketing and distribution. This cost will depend on the actual
get estimation. Below are details on the various assumptions, in- situation (i.e., distance and how it is transported to the retail es-
cluding the initial cost, and budget for a very small-scale meat tablishments and customers). In some situations, the plant may
processing facility. This is followed by an examination of the sen- be in a rural area serving a local store. It could also be in a ru-
sitivity of profit (Appendix C) and then a capital budgeting analy- ral area and travel to other locations. An estimation of $0.20 per
sis (Appendix D). The tables in this and other sections of the ap- pound was used in the budget in Table A2. Because the products
pendices are part of a very small-scale meat processing financial need to be sold at a premium price, a brand will need to be built.
feasibility tool (available at extension.usu.edu/apec) which would An association or some type of cooperative may accomplish this
allow customization of individual plans. Items in gray are adjust- in a cost-effective manner.
able, and data adjusted on one table would be updated automat-
ically on the others. Labor. Four employees would work full time. The three cutters
would have a wage rate of $17.50. The wage rate for these types
Enterprise Budget of jobs vary from $15 to $20 per hour. In addition, there would be
A list of equipment and building startup costs for a very small- a wrapper at $12.50 per hour. This is an entry-level position and
scale meat processing facility is included in Table A2. A detailed wage rates could vary from $10 to $15 per hour. A benefits rate
enterprise budget is provided in Table A3. As with any budget, this of 15% was used, which includes benefits, employment taxes, in-
is only an estimate and actual profits will vary. Below is informa- surance, etc. This is the most significant cost behind purchasing
tion on the various assumptions in each category. This is followed cattle.
by a discussion and results of examining profit sensitivity. There
is a net income of $116,219 with an 8% return on investment. Af- Supplies. The amount of supplies needed is based upon experi-
ter paying self-employment and income taxes, the after-tax net ence of the Utah State University Meat Lab. The prices were gath-
income is $75,542. ered from personal communications with sales representatives
and online sources from Waltons, Inc., Processor Division Koch
Building and equipment. The prices were gathered from personal Supplies, and Ultra Source. The amounts and prices for each item
communications with sales representatives and online sources is included in Table A3.
from Waltons, Inc., Processor Division Koch Supplies, and Ultra
Source. It should be noted that the costs of land and infrastructure Cost of goods sold. This is the variable cost of operating the pro-
needed, including various utility hookups, are not included in this cessing plant. It is the total of the cost of cattle, marketing and
budget. These costs would depend heavily on the actual situation distribution, labor, and supplies.
and location. The building is estimated to be 1,600 square feet for
Gross income. This is the income after deducting cost of goods
the processing floor and 1,600 square feet for the harvest floor.
sold from sales.
Sales. Sales come from a combination of wholesale and custom
Overhead. This is the fixed costs of operating the business. Inter-
processing. Livestock processed for wholesale cuts are purchased
est is included for working capital. This was estimated using an
and the meat is sold to retailers, such as grocery stores. The
interest rate of 5% on 50% of the cost of goods sold. Maintenance
wholesale price used was $6.50 per pound. It was estimated that
is included at 1% of the initial cost of buildings and facilities. Prop-
there would be a yield of 350 pounds of wholesale cut meat from
erty taxes will vary with each location. As estimate of 1% is used
each carcass. An explanation of the variance and risk is provided
here. Insurance is based on personal communication and esti-
below in Appendix C on sensitivity of profit. At full capacity, three
mated at $6,000. Workman’s comp insurance would be an addi-
animals per day could be processed. Assuming 50 weeks for the
tional $6,000 and is included as part of the labor costs. Insurance
year (two weeks for holidays), this would enable 750 animals to
could vary quite a bit and depend on the situation. Some associ-
be processed. The budget assumes 90% of that will be done, with
ations may provide members with access to reduced insurance
a mix of 450 head for wholesale and 225 head for custom process-
rates. Business management, including accounting and legal, will
ing. Additional shifts could be used to increase the capacity but
vary on the individual situation, and $5,000 is used here. Depreci-
are not considered here. While the profit on custom processing is
ation is included using straight line depreciation with no salvage
low, adding it in allows for efficient use of labor and facilities. The
value. Most of the equipment has a 1-year life, with the building
rate used for custom processing was $485 per head.
and stamps having a 30-year life. A breakout of equipment cost,
Cattle. The cattle market goes up and down. A midpoint of $115 life, and depreciation can be found in Table A3.
per cwt was used for this analysis. An explanation of the variance
Net income. This is the gross income less overhead. This is also
in the market and range of prices can be found in the section
the net income estimation used in Tables A3 and A4.
on sensitivity of profit below. A live weight on fed cattle of 1,300
pounds was used.You can also read
