In July, the Biden administration launched a “whole of government” approach to addressing competition issues across a range of US industries. For the meat and poultry processing industries fair and competitive agricultural markets joined a list of adverse events buffeting the industry within a two-year period – fire, a global pandemic, cyberattacks – events that likely resemble a plot in a movie but were all too real for participants up and down the supply chain.

In response to the snags and long-standing issues facing the industry, the US Department of Agriculture (USDA) launched a series of investments stemming from $500 million in American Rescue Plan funds. The government’s strategy is to strengthen local and regional food systems, reduce barriers to processing, create jobs and lower costs for consumers by expanding their options for meat and poultry products through investments in small- and medium-size processors.

To start, USDA announced a first round of more than $223 million in grants and loans toward growing competition and expanding meat and poultry processing capacity in the United States. USDA spread this first round of funding, a total of $73 million, across 21 grant projects in 19 states as part of the Meat and Poultry Processing Expansion Program (MPPEP). USDA is investing an additional $75 million for eight projects through the Meat and Poultry Intermediary Lending Program (MPILP), as well as more than $75 million for four meat and poultry-related projects through the Food Supply Chain Guaranteed Loan program (FSCGLP).

“At USDA, we have been focused on developing more markets for our producers by expanding capacity and competition,” said Agriculture Secretary Tom Vilsack during a November conference call with journalists to discuss the programs. “This required a comprehensive approach, it required new programs that would provide resources toward expanding capacity and markets, provide resources for strengthening the supply chain between the farmer and the consumer and making sure there was the availability of credit when the opportunity or circumstances required it.”

However, these programs are not without requirements that reflect the current administration’s thinking on hot-button topics such as the environment, business consolidation and labor.

Environmental matters

Vilsack said that as part of the evaluation criteria that was used in determining more than 300 applications USDA received for the first round of federal funding was community impact and support.

“So, to the extent that facilities that applied had strong community support it would be reflected in the application, and that in turn would give that particular application a competitive advantage,” he said.

“We identified a relatively small group, around 40 projects, that merit further review and evaluation. So, I’m confident that of the announcement that we’re making there is strong community support for the projects, and we anticipate and expect to continue to see that in future decisions that we make on this round, round one, and certainly in round two.”

Vilsack added that a degree of environmental analysis would be required by USDA as a condition of entering into an agreement with the agency and depending upon the nature of the project. “… but we certainly don’t see any indications with reference to the projects we’re announcing today that there’s going to be any significant impact. Otherwise, they probably wouldn’t be receiving grants,” he said.

Greater Omaha Packing received $20 million in MPPEP funds that will enable the company to expand its beef processing capacity by 700 head per day and support an additional 275 jobs. (Source: Greater Omaha Packing Company)

 

Buyouts under scrutiny

Another requirement of the program is that USDA must be notified if a sale or a change of total or partial ownership of the facility is under consideration. If the facility is undergoing a sale or change in ownership within 10 years after the grant is awarded, then that notification will trigger a review by the agency which will proceed accordingly based on what’s found in that review.

Although consolidation within industries can confer numerous benefits like business efficiencies, access to resources and lower prices for consumers, the drawbacks can be a detriment to stakeholders up and down a supply chain.

The 2019 fire at Tyson Foods’ beef processing plant in Holcomb, Kan., caused significant disruptions and exacerbated the imbalance between fed cattle supplies and packing capacity.

The global pandemic shut down the United States – and temporarily stalled meat processing plants – in 2020.

And a cyberattack on Greeley, Colo.-based JBS USA in 2021 interrupted meat processing operations in several countries and simultaneously disrupted supply chains, logistics and transportation to customers.

In 2020, Dustin Aherin, analyst – Animal Protein for Rabobank, said in “The Case for Capacity” report, that relative imbalance had been building in the beef industry for decades.

“The drought-induced cow herd contraction and resulting decline in fed cattle availability in the early 2010s, drove the most inefficient packing plants out of business as competition for limited cattle supplies drove cattle prices to record levels,” Aherin wrote. “The remaining plants are those that have best managed operating costs through optimal geographic location, supply chain relationships and economies of scale.”

Aherin said additional packing capacity could counteract the imbalance between fed cattle supplies and packing capacity while still allowing significant margins for packers. But will more small and medium-size packers tempt the bigger players into an acquisition spree?

To address this, the intermediary lending program was established to help a facility experiencing financial trouble. It’s another method USDA can employ to ensure that independent processors remain independent.

“USDA has no plan to purchase any of these facilities,” Vilsack said when asked if federal buyouts of troubled processing facilities were a possibility. “There are a multitude of options once we receive notification in terms of what USDA could potentially do. They could potentially take a look at additional loans; they could steer the facility to relending opportunities…there’s a series of options that are available to USDA, but purchasing the facility is not one of them.”

Questions about labor

The meat processing industry has long depended upon immigrant labor to staff processing lines. So, part of the evaluation criteria that was used to determine which projects should be funded was the availability of labor – construction, operational and other key personnel. Vilsack said applicants need to make the case that they are able – through decent jobs, decent wages, benefits and things of that nature – to attract a work force. Success in making that case resulted in a more competitive application for funding assistance, he added.

Vilsack said he did not foresee labor as an issue for participants in the USDA programs.

“These are not large-scale production facilities,” he said. “These are small- to mid-size production facilities. That was the sole purpose of this project, this effort that the president launched was to create greater local and regional capacity, not getting into the large production facility [but] basically bolstering the current capacity by having a multitude of opportunities across the country for producers to choose from.

“I just don’t anticipate as great a challenge on the workforce side as I would if we were talking about 20-some very large production facilities.”

Source: Pure Prairie Farms 

 Impacts realized

The opportunities for increased processing capacity are available across the United States. USDA awarded nearly $6.9 million to Saline River Farms LLC which plans to build an 83,000-square-foot red meat processing plant in Southern Illinois.

Executives from the company said the facility would create more than 400 jobs for two shifts five days a week when fully operational. Saline River estimated the plant would process 40 million lbs of beef and 19 million lbs of pork annually using the latest technology and automation. Groundbreaking on the plant will be in spring 2023 with a 15 to 18-month construction timetable before the plant is operational.

“There are producers from a large number of states, scattered around the Midwest, that will be transporting beef and pork product to us to be processed,” Jeff Diederich, a partner with Saline River Farms, said. “That product will be processed here so this is an opportunity to bring dollars from outside Illinois, back to Illinois, put people to work and then ship that product back out.”

Additional examples of meat and poultry processors participating in the program are readily available.

Greater Omaha Packing in Omaha, Neb., received $20 million in MPPEP funds to go toward a planned $100 million investment to upgrade the company’s freezers, expand wastewater system capacity, remodel key areas for value-added further processing and increase its carcass holding coolers. The improvements will enable Greater Omaha to expand the company’s beef processing capacity by 700 head per day and support an additional 275 jobs.

“This significant investment will allow the company to remain competitive in the marketplace and continue to support our small family feeder operators while providing incremental value back to the producers,” said Henry Davis, chief executive officer of Greater Omaha. “We believe the production expansions will keep us at the forefront of an ever-changing industry.”

Iowa-based Pure Prairie Farms recently purchased a shuttered poultry plant in Charles City, Iowa, with plans to restart operations in the fall of 2022. Pure Prairie is a group of Iowa, Wisconsin, and Minnesota family chicken farmers that will provide birds for the plant.

Montana Premium Processing Cooperative (MPPC), a start-up cooperative, created in partnership with the Montana Farmers Union and Farmers Union Industries, will use MPPEP funds to provide independent producers in Montana with an option for a local USDA inspected meat processing facility in an area that is currently without federally inspected processing.

Vermont Livestock Slaughter & Processing, Ferrisburgh, Vt., will use MPPEP investment to modernize their multi-species processing facility, potentially tripling their throughput.

Leakesville, Miss.-based Cutting Edge Meat Co. plans to significantly increase processing capacity and shorten a six-month backlog for processing currently facing producers. Cutting Edge provides pork and beef processing for producers in Mississippi, Alabama, Louisiana, and Florida.

And family-owned New Stockton Poultry in Stockton, Calif., sources and processes specialty chickens to meet demand within a variety of immigrant and other communities.

Industry speaks

In response to the program announcement, the National Cattlemen’s Beef Association (NCBA) shared its appreciation for the funding after advocating for enhanced meat processing capacity.

“NCBA has long advocated for expanded processing capacity to provide cattle producers with additional options for turning their cattle into high-quality beef,” said Tanner Beymer, senior director of government affairs at NCBA. “Today, the cattle industry needs more targeted capacity in high-need areas, and we look forward to these facilities launching and expanding operations. We appreciate USDA working with NCBA to strengthen the marketplace and support America’s cattle producers.”

The United Food and Commercial Workers International Union (UFCW), which represents 1.3 million workers in grocery stores, meatpacking plants and other industries across North America, also expressed support for MPPEP while noting room for improvement in USDA’s plans.

“As America’s meatpacking and food processing union, UFCW applauds the Biden Administration and the Department of Agriculture for working to improve capacity and create a fairer, more diverse meat and poultry industry,” said Marc Perrone, president of the UFCW International.

“The investments announced this week through the Meat and Poultry Processing Expansion Program are admirable, but they’re missing a crucial focus: workers,” Perrone added. “Any attempt to expand or improve this industry moving forward must include specific provisions for fair labor standards that protect workers and safeguard the hard-fought protections they’ve already won at unionized processing facilities around the country.”

USDA will soon be taking applications for a new phase to deploy an additional $225 million to provide gap financing for independent processing plant projects that fill a demonstrated need for more diversified processing capacity.

“We think it’s going to expand capacity in beef, pork and mixed processing by over 500,000 per year,” Vilsack said. “We think it will expand capacity in poultry by 34 million birds per year.

“We anticipate and expect over 1,100 jobs be created on an ongoing operational basis, and that doesn’t include the construction jobs that will go as a result of the expansion and construction of new facilities.”