Two recent analyses suggest that producers can beat the odds and gain extra income by building or acquiring a small, cooperatively owned packing plant.
The large-scale pork packing industry traditionally has been a commodity business of low margins, burdened by labor and environmental concerns. By building or acquiring a small-scale packing plant, pork producers can beat the odds and squeeze a few extra bucks from a cooperatively owned venture.
That's the view of Strategic Action Research Consultancy (SARC) International analyst William F. Tooley. He provided preliminary details of a small pork packing plant viability study at Pork Academy prior to World Pork Expo in Indianapolis.
The study was commissioned by the National Pork Producers Council (NPPC) but shouldn't be viewed as an endorsement of the conclusions drawn. The group stresses that producers should proceed with caution before building a pork packing plant.
Tooley reviewed building and operating costs of about a dozen small pork packing plants in North America. "Small plants are sized for better quality and greater efficiency. Optimum efficiency in these 'kill and cut' slaughter plants appears to be reached at a kill speed of about 300 head an hour, 2,400 head a day," he says. Even smaller,low-stress kill floors will work, he says. Plant options and costs are spelled out in Table 1.
The important thing is, says Tooley, don't wait too long to act or the window of opportunity closes for producers. The long-term price trend for selling commodity pork products to packers is fairly dismal. There is money to be made in pork, but not in selling live hogs.
Follow these three key points. If you wish to survive and prosper: sell meat, not hogs. Build or acquire a small plant. Develop a loyal customer base designed to fulfill customer needs. Financing is available for those who have the identified customer base, says Tooley.
Return on Investment A second, checkoff-funded study on the feasibility of small pork packing plants was presented to the Illinois Pork Producers Association (IPPA) by Tom Stein, DVM, president of MetaFarms.
"Producer-owned cooperative packing plants are feasible and most likely will add between $5 to $10 to the effective live hog price," he says.
His study is based on a spreadsheet to model the fresh pork (kill/cut) side of a packing plant in which primals could be sold for further processing, he explains. The model is based on a 10-year analysis projecting budgeting and capitalization. The spreadsheet allows producers to run different scenarios of projected costs, efficiencies and revenues linked to the processing facility - and evaluate the potential risks and rewards of investing in these types of value-added cooperatives.
"The business results are highly sensitive to a few, key, critical issues such as carcass cutout yields and average prices received for the primal cuts," explains Stein. "This study is an educational tool for all pork producers to learn more about the business of pork processing."
"Producer-owned cooperatives have the potential to help independent pork producers remain a viable part of the pork industry," says Jeff Galle, IPPA president.
For some, the margins offered in packing could increase the profitability of producers selling live hogs by 50%, says Stein. "But the important thing is to have some control further down the pork chain that gives producers a career path to a branded product or further-processed product," he explains.
According to IPPA's Tim Maiers, plans are to make the spreadsheet available to producers on their Web site (www.ilpork.com) in the near future. A series of producer meetings is also targeted for late July into early August to pursue the whole issue of market discovery and small pork producer cooperatives. Several other agricultural groups, including NPPC, also provided funding support for the project, says Maiers.
Glenn Grimes and the folks at the University of Missouri still argue small packing plants aren't viable.
Grimes reported in National Hog Farmer ("Ten Points to Ponder about Packing," January 15, 2000, page 10) that most small plants don't have a future in the pork industry.
"All the information we have would say that the cost for a small plant, regardless of how small or who owns it, would be substantially more than the larger plants that we have," says agricultural economist Grimes during World Pork Expo. "We estimate that a 2,000-head-a-day plant with the same technology would have roughly double the cost of killing and cutting a hog that a 15,000-head-a-day double-shift plant would have."
Smaller plants have proportionally larger overhead costs and more difficulty marketing by-products, says Grimes.
As stated in the earlier article, there were 29 small U.S. meat packing plants killing 1,000-2000 head/day 20 years ago; there were just four in 1998. At the same time, the number of larger plants killing 6,000 head or more a day has more than doubled in the last two decades.
Grimes observes the three words you can say about small plants is that they have been under-financed, under- managed and under-committed.