U.S. cattle ranchers and investors are sinking hundreds of millions of dollars into new beef plants after temporary closures of massive slaughterhouses at the start of the COVID-19 pandemic left farmers with nowhere to send animals destined to be turned into meat.
A cyberattack against the U.S. unit of Brazilian meatpacking giant JBS SA that idled nearly a quarter of America’s beef production earlier this month again highlighted vulnerabilities in the country’s meat supply chain and caused more headaches for farmers.
Ranchers, as well as the U.S. Agriculture Department (USDA), say the sector is too consolidated and therefore reliant on a handful of large processors and their industrial meatpacking plants.
Smaller startup meat plants are aiming to provide local ranchers with more places to slaughter cattle, particularly those raised to produce higher-quality beef. They say adding plants can ensure some meat production continues if large facilities close.
When large meat plants close, meat supplies tighten while ranchers get stuck with cattle that would otherwise have been slaughtered. That means the price of cattle generally falls, while the price of meat in supermarkets rises.
Extended shutdowns of some of the biggest U.S. slaughterhouses due to COVID-19 outbreaks hobbled meat production in spring 2020, leading to limits on consumers’ purchases at grocery stores and a decline in frozen inventories that processors have yet to replenish.
Rusty Kemp saw the need for more processing capacity after a 2019 fire at a Tyson Foods plant in Holcomb, Kansas, left meat buyers scrambling for supplies and cattle producers with nowhere to sell their cattle. Then, the pandemic and ransomware attack on JBS hit.
Kemp is now planning to break ground on a $300 million beef plant in Nebraska this fall.
“We thought the Holcomb fire was an absolute train wreck and then COVID came along and Holcomb didn’t seem that bad,” he said.
Kemp’s plant, named Sustainable Beef, will kill 1,500 cattle a day and use blockchain technology so consumers can track a piece of meat all the way back to the ranch, he said.
Sustainable Beef is co-owned by cattle producers who will provide animals for slaughter to the plant, instead of to major packers, Kemp said. He hired former executives of one of the biggest processors, Cargill, as consultants because of their expertise.
But Kemp said he is not trying to pick a fight with the four major processors and that bigger plants are still needed to produce large volumes of meat.
“We absolutely need more capacity and more players,” Kemp said.
More Room To Slaughter
Nationwide, at least five new processing facilities of varying sizes have opened or are planned following supply shocks early in the pandemic. Combined with expansions at existing plants, including one owned by JBS, daily U.S. slaughter capacity is set to increase by about 5%, according to a Reuters calculation and data from industry group the North American Meat Institute.
Market conditions are favorable for new entrants. Cattle supplies are ample, while beef prices and profit margins for packers have soared due to strong exports and demand from U.S. consumers.
In Butler, Missouri, Todd Hertzog and his family opened Hertzog Meat Company this month after considering the project for five years.
Though the $3.75 million plant is only slaughtering about 20 cattle a day, it serves nearby ranchers who want to produce higher-quality beef, said Hertzog, who manages the operation.
“The pandemic opened our eyes to the needs of local producers,” he said.
Production disruptions during the pandemic pushed Cliff Welch to begin construction on a meat processing plant near Central City, Kentucky, at a price tag of more than $1.2 million. The cyberattack on JBS then reinforced Welch’s decision to build the facility, slated to open in late 2021, he said.
Welch aims to slaughter 75 cattle a week to start, with the capability to eventually kill 300 head a week. He said he will produce custom cuts of meat using “old-style butchery” and plans to sell it locally.
“I’m starting from ground zero,” Welch said. “It’s a big undertaking.”
Welch said he received a $250,000 grant from Kentucky for the project.
The U.S. Agriculture Department has pledged to support increased processing as part of a $4 billion initiative to strengthen the country’s food system.
“The hope would be that by spreading out, by creating diversity in size and diversity of ownership and diversity of operations, we create greater resilience,” USDA Secretary Tom Vilsack told reporters after the JBS attack.
Missouri last year paid about $17 million in grants to meat processors with fewer than 200 employees that wanted to expand or build new facilities, state agriculture director Chris Chinn said. The payments doubled the amount of red meat inspected by the state in a program sparked by the pandemic, she said.
“It added stability to our local communities and our rural areas,” Chinn said. “They didn’t have to depend on one local source to get their food.”
Smaller Plants, Same Problems
Small facilities are finding they face some of the same challenges as larger outfits, notably a labor shortage, without the benefit of a big corporation behind them.
After opening in March, Missouri Prime Beef Packers struggled to find workers for a plant in Pleasant Hope, Missouri, that now kills about 200 cattle a day, despite putting ads in newspapers and on radio, said Dallen Davies, director of company culture.
The facility is slaughtering cattle raised under special guidelines, such as being grass-fed or certified for humane handling, as a way to add value for ranchers and provide a better product for consumers, Davies said.
Plants need to differentiate themselves because they cannot compete with industry titans on volume or on low prices achieved with mass production lines.
Former President Donald Trump last year said he urged the Justice Department to look into allegations the meatpacking industry broke antitrust law because the price that slaughterhouses pay farmers for animals dropped even as meat prices climbed. U.S. governors and lawmakers are pushing the department to keep probing.
Those involved in slaughterhouse expansion say they still need to do something to give ranchers more options in the meantime.
“We really don’t want to wait around and see if the government is going to solve this problem,” Kemp said. “We decided to take matters into our own hands and do this.”
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