- Author: Dan Macon
Direct marketing, for some farmers and ranchers, can be a way to capture more of the consumer dollar. By bypassing the middlemen - wholesalers, distributors and retailers - direct marketing can allow a producer to receive retail value for his or her product. But direct-market meat is a different story. Direct-market meat requires substantial processing - the harvest and cut-and-wrap services provided by processing facilities and butchers require significant skill and capital investment. Over the last 50 years, we've lost local meat processing capacity - small local butchers simply don't exist in very many places. Many of us assume that increasing this processing capacity would solve the problem. In my experience, the solution isn't quite so simple. As someone who has marketed meat directly to consumers at a modest scale (120+ lambs per year at our peak), I have observed a variety of complicated questions regarding the real issues involved increasing harvest and processing capacity.
As a small producer, I wanted the ability to call a plant one week and deliver animals the next week. However, most of the small plants in our region are fully booked as much as a year out. A new small plant would be similarly impacted eventually – and from the perspective of the plant, it would be easier to have 10 clients bringing 200 steers (or 500 lambs) per year than to have 200 clients bringing 10 steers (or 25 lambs). In my mind, the only way to address this need for scheduling flexibility for the producer would be to build a plant with excess capacity, which is not economically efficient. This excess capacity would allow me to call the plant on Thursday to schedule a harvest, deliver my lambs the following Sunday, and have packaged meat by the next Friday. If the plant were running at capacity, it could not accommodate me.
Seasonality is related issue, in my mind. Grass-fed meat is a great opportunity for some producers, but typically not a year-round product for many small-scale ranchers. What will a new plant do to keep its crew busy on a year-round basis? I think this is another factor that pushes plants to find fewer, larger-scale customers.
Meat processing has largely been organized on a manufacturing model. The plant buys the raw product (livestock), converts it into meat, and then sells it to distributors, wholesalers, consumers, etc. The model we're talking about is a service model – the plant has to make money on the service it provides rather than adding value to product it owns. That's a very different model, one that is a struggle for existing operations (let alone new ones). For example, when we started with our regional processor, we could get a lamb harvested and fabricated for $50/head. The company soon realized that the cost of providing this service was much greater than the cost of the labor involved – they had to deal with 100 or more operations like mine that each wanted to harvest 10-15 head once a month. The cost is now $120-130 depending labeling and other factors. This is reflective of true cost of providing a service rather than selling a product.
Despite the interest in new processing capacity locally, there has not been any significant financial commitment from local citizens or producers towards the construction of a facility. This is where the rubber meets the road. And I suspect that this is the crux of the issue – there are both regulatory and economic barriers to entry in the meat processing business. The low return on investment for a service-oriented meat processing facility may make the economic barriers the more difficult to fix. I think if the economics were positive, we'd see private investment in new USDA-inspected processing capacity.
Alternatively, we may want to consider focusing on the regulatory barriers. Along those lines, a couple of things come to mind for me:
- There are inspection-exemptions for direct-marketed poultry based on scale of operation. In some circumstances, a poultry producer could harvest as many as 20,000 birds a year without USDA inspection and sell the meat directly to end users. No similar exemption currently exists for livestock.
- There was state legislation adopted last year making it legal for cattle producers to sell a live animal and for the buyer to then arrange for harvest and cut-and-wrap. There has been some confusion as to whether this new law applies to other livestock; the California Department of Food and Agriculture (CDFA) is taking the position that it only applies to cattle since cattle producers pay for an ownership inspection (e.g, brand inspection) at harvest. There is interest among other livestock groups (California Wool Growers, California Pork Producers, etc.) in extending this option to other species.
- CDFA could provide more state inspection (for a fee, perhaps). This could facilitate direct marketing of meat products.
This is probably WAY more information than anyone wants on this topic, but I do think it's important for us to understand the complexity of the issue. I guess I see a couple of important needs:
- Economic analysis and extension – I think UC Cooperative Extension (and others) could help small-scale producers (and large-scale, for that matter) better understand the economics of selling meat versus selling live animals. My very simplistic assumption when I started was that I would be more profitable selling $350 worth of meat than I would be selling a live lamb for $150. Reality was much more complicated. I think there's a need to help folks better understand this question. Producing a finished product (as opposed to a live animal) at scale is a complicated production and economic model for most livestock producers. It requires a very different set of skills.
- Research-to-policy – I also think there is a role for extension and others to help regulators understand the opportunities and barriers involved in direct-market meat production. This runs the gamut from ensuring food safety to understanding economics to quantifying consumer demand.
Many of my extension colleagues - in California and elsewhere - have spent considerable time and effort examining this problem. Their work has been exceptionally valuable - we have a much better understanding of the complexity of these challenges today than I did when I started in the direct-market meat business more than a dozen years ago. Perhaps these questions are part of the maturity process - the early pioneers must expose the weaknesses in the system. Some of these weaknesses are economic; others are regulatory. I'm hopeful that we're making progress towards discerning - and addressing - the most critical barriers.
This article first published in Ranching in the Sierra Foothills blog