DES MOINES (Iowa) Rusty Kemp, like many ranchers throughout the United States, complained for years about the rock-bottom prices he received for his cattle in central Nebraska. Even though the price of beef in grocery stores was increasing, it was still a bargain.
His neighbors and he blamed the consolidation in the beef sector that began in the 1970s. This resulted in four companies killing over 80% of the nation's cattle. The processors had more power to set prices, while ranchers struggled for a living. Federal data shows that the percentage of food dollars that went to farmers and ranchers dropped from 35 cents in 1970 to just 14 cents today.
Kemp was inspired to create an ambitious plan to raise more than $300 million from ranchers in order to build a plant for themselves. This would give them control of their future.
Kemp stated that we have been complaining about this for over 30 years. It's time someone did something about it.
This fall, crews will begin work on the Sustainable Beef plant, which is located on 400 acres near North Platte in Nebraska. Other groups are making similar unexpected moves in Iowa and Idaho. These enterprises will assess whether it is possible to be financially competitive against an industry trend which has swept through American agriculture, and played a part in the shortage of meat during the coronavirus pandemic.
This move is timely as the U.S. Department of Agriculture has taken a number of steps in order to increase diversity within the beef industry.
It's difficult to overstate the challenge of competing against large, well-financed companies that have highly efficient facilities and can sell beef at premium prices than smaller operators.
It is unclear whether smaller plants are able to pay ranchers less while still making a profit. A steer weighing in at 1,370 pounds is worth approximately $1,630. However, this value must be split between the slaughterhouse and feed lot, as well as the rancher who usually bears the greatest expense of keeping the animal alive for longer than one year.
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Sustainable Beef CEO David Briggs acknowledged the difficulties but maintained that his company's investors are still confident.
Briggs stated that cattle people are risk-takers and are willing to take a chance.
In the middle of the 1970s, consolidation of meatpacking began with mergers and buyouts of smaller businesses. The USDA cites census data that shows that there were 1,387 livestock slaughter plants in 1992, down from 2,590 in 1977. The big processors took over, handling 65% of cattle by 1997, compared to only 12% in 1977.
Four companies, Tyson Foods, National Beef Packing, JBS and Tyson Foods, control more than 80% of the U.S. beef industry. This is due to 24 plants that slaughter cattle. This concentration was made more difficult by the coronavirus, which infected workers and caused them to slow down and even close some large plants. A cyberattack last summer temporarily forced the shutdown of JBS plants before the company paid $11 million ransom.
A 14% rise in beef prices between December 2020 and August has been largely attributable to the declining competition by the Biden administration. The wholesale value of beef has increased steadily since 2016, while profits to the largest processors have increased, but prices paid to ranchers are barely changing.
The new plants are not intended to replace the existing slaughterhouses. For example, the JBS plant in Grand Island (Nebraska) processes approximately 6,000 cattle per day, four times more than the proposed North Platte plant.
They claim they will have significant advantages including modern equipment, and less employee turnover. The pay is slightly higher at $50,000 per year, plus benefits, along with more flexible work hours. The new Midwest plants also hope to build closer relationships with ranchers and encourage them to invest in their plants.
Companies would market beef from these plants both nationally and internationally, claiming that it is of higher quality than meat produced at larger facilities.
Chad Tentinger is the man behind efforts to build a Cattlemens Heritage Plant near Council Bluffs in Iowa. He said that while smaller plants are profitable, owners have shifted to larger plants to increase their profits.
He said that he wanted to revolutionize the plant to make it more attractive to workers.
Apart from paying ranchers more, and giving dividends to shareholders, the hope for their success is that more plants will open and new competitors will increase the openness of cattle markets.
Oklahoma State University agricultural economist Derrell Peel said that he hopes they are right. However, he noted that even a 30% decrease in the plant's size can make it less efficient. This means higher slaughter costs.
If smaller plants cannot keep costs down, they will have to find customers willing to pay more for their beef or make a higher profit margin than big corporations.
Peel stated that we have these large plants because they are extremely efficient.
According to the North American Meat Institute (a trade group that includes large- and medium-sized plants), the greatest challenge in the industry will be the shortage workers.
Shane Miller, president of Tyson Fresh Meats Group, stated that it's unfair for industry leaders to blame consolidation and big companies.
In spite of abundant cattle supply, many processors, Tyson included, are unable to operate their facilities at full capacity," Miller explained to a U.S. Senate Committee in July. This isn't an accident: Despite our average hourly wage of $22, there are simply not enough workers available to fill our plants.
The USDA wants to expand the supply chain and the new plants are part of that effort. The USDA has committed $650 million to funding small and mid-sized meat and poultry plants, and 100 million in loan guarantees. To distinguish meat from other countries, new rules will be implemented to label meat as a U.S.-made product.
Andy Green, a senior advisor to the USDA on fair and competitive markets, stated that we are trying to support new investments and policies that diversify and address the underlying problem that is concentration.
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