Agriculture Secretary Tom Vilsack is promising to pour $500 million into expanding meat processing capacity, which farm groups say will be a great start toward increasing competition in the sector and boosting livestock prices.
Vilsack hasn't said how the funding will be divided up and plans to use upcoming public input sessions to inform the program's specifics. But farm group representatives say it's likely to be used in a combination of grants and loans.
The high capital costs of building processing plants will limit the impact of the initiative, something Vilsack essentially acknowledged when he announced the program, saying it would require collaboration from other sources.
“We’re not just talking about the power of $500 million to stimulate interest and then leverage those to act as a catalyst to draw those additional resources,” Vilsack said at a press conference in Council Bluffs, Iowa, on July 9.
Glynn Tonsor, an economist at Kansas State University, says a general rule of thumb when considering the cost of building a new facility, at least for beef cattle, is about $100,000 per head of processing capacity.
“The economic size of the meat and livestock industry and the cost involved with industry infrastructure expansion is way larger than most people recognize,” Tonsor said. “So $500 million doesn't go nearly as far as it sounds.”
From 2016 to 2020, the number of cattle relative to the processing capacity available for those cattle has increased from 102% to 112%, an indicator that more capacity is needed. However, as Tonsor told the Kansas House Ag Committee in March, the total U.S. beef herd size has been going down and should become equal to capacity by 2023.
“There's a legit risk, just as an unbiased analyst, that we're going to wake up in 2023 and have more capacity than we need again,” he said.
Jessica Roosa is the owner of This Old Farm Inc., a nearly 14,000-square-foot facility in Lafayette, Indiana, that can harvest between 60 and 80 cattle and about 50 hogs a week on top of some sheep and goat processing.
Roosa is hoping to add 10,000 square feet to double her operation’s capacity, but doing so would cost her more than $3 million, and it’s been difficult to find the funding to do that. Most small pieces of equipment like vacuum tumblers and stuffers cost at least $50,000, and bigger pieces of equipment like packaging machines start at $200,000.
“You can’t get started in the business without a million-dollar investment,” she said. “If you’re going to do slaughter of large animals like me, you’re not going to be doing anything without a million dollars.”
Kelly Nuckolls, a senior policy specialist at the National Sustainable Agriculture Coalition (NSAC), said USDA appears to be looking at three main options for the $500 million: grants, loans and technical assistance.
Nuckolls said she expects to see some grant opportunities for existing small processors that didn't fit the criteria to receive past grants, as well as grants for new, small federally inspected facilities. She believes USDA may also be looking at direct and guaranteed loans as well as some programs for training and supporting small processors.
“From the NSAC perspective, we’d be really excited to see USDA explore some direct loan options because small processors usually have a pretty hard time receiving and accessing credit,” Nuckolls said. `
Ethan Lane, vice president of government affairs for the National Cattlemen’s Beef Association, says even though $500 million may not be a large number when it comes to setting up meat processing plants, it is an important step in the right direction. He hopes the agency takes a look at how solutions may vary across the meat processing landscape.
“What works and what’s needed in Nebraska may not necessarily be the same as what works and what’s needed in the Pacific Northwest,” he said. “We have a really diverse supply chain and we need to make sure that they’re really thinking critically about solutions that are flexible enough to adapt to the circumstances of producers and potential opportunities wherever they may show themselves.”
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Patrick Robinette, owner of Micro Summit Processors in North Carolina and chairman of the Independent Beef Processors Task Force for the U.S. Cattlemen’s Association, told Agri-Pulse he's concerned about the lack of a concrete plan for the funding even at this early stage in the process.
USCA is pushing for a provision related to foreign ownership. "In our comments, we have made a request that they that they put in a stipulation that the money can't go to a foreign company or that the plant that is built can't go and be sold to a foreign company.”
The group is also concerned some of the plants built as a result of the funding will be too large as they attempt to compete with large meatpackers. However, if they are too large and don't have a sufficient customer base, they risk going out of business.
"We need to make sure that we're going to be impactful with the ability to move animals in, but at the same time, we don't want to overbuild one particular facility,” he said. “That's just going to consume funds and then if they don't have the animals, they're going to go under and it was a waste of money."
David Swenson, an economist at Iowa State University, called $500 million “mere peanuts” in the grand scheme of meat processing capacity.
Swenson points to two examples in the state of Iowa: Cattleman’s Heritage, a $325 million beef processing plant being built near Council Bluffs, and Iowa Premium Beef, a Tama-based facility that is seeing a $100 million upgrade.
When finished, Cattleman’s Heritage will be able to process a maximum of 1,500 head of cattle per day and Iowa Premium Beef will double its capacity to about 2,500 head of cattle per day.
“Those two projects will add very efficient capacity and represent 85% of the investment of what Vilsack is supposing will boost small packer competition, and those smaller operations, by definition, will not be able to process anywhere near the number of animals per $100 million in investment that the larger ones can,” Swenson said in an email.
Vilsack said he hoped that the USDA will start to create a plan in the fall and will be speaking to governors and state-level agencies about the program. Ultimately, however, he appears to be looking to Congress to support and expand upon the effort.
“This is a real commitment and a desire to get something done relatively quickly, to have some early wins in the process, and then to basically say to our friends in Congress, this is something that's worthy of a more permanent structure,” Vilsack said earlier this month.
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