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Challenges facing new beef processors and lockers

Beef producers hope that the construction of new plants not owned by the “Big Four” will increase both packing capacity and producer profitability. Only the future holds the answer to this.

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ORANGE CITY, Iowa — Announcements of proposed beef processing plants and new local lockers seems to be the norm. Some of this was brought about by beef distribution problems due to COVID and concerns about the supply of beef. But lack of profitability in the cattle industry is also fueling the proposed construction of new plants and lockers.

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Beef producers hope that the construction of new plants not owned by the “Big Four” will increase both packing capacity and producer profitability. Only the future holds the answer to this, but in the meantime, there are some important challenges to consider in proposed business plans.

Will the new plant or locker be able to source cattle? The nation’s cowherd had shrunk 2.2% at the beginning of 2022, and drought continues to increase the harvest of cows. All of this points to less calves in 2023. This means new processors and lockers will need to bid more to secure cattle, putting an extra strain on their cash flow.

What about the economy of scale? A breed representative once pointed out that to be competitive, a plant must either produce beef that is cheaper or offer a better product. Because a lot of proposed plants are smaller than established plants, they won’t have the advantage of economy of scale. This means they must be able to offer a product that is unique, such as more sustainable or guaranteed more tender. Local lockers can offer customer-based products such as “locally grown” and processed beef products not produced by larger packers such as beef sticks and dried beef.

Who’s the buyer for the plant’s meat and what do they want? The latest trend in the beef industry has been the demand for high quality beef — especially the steaks. However, the rib, loin and sirloin comprise only 25% of the carcass. Even if the shoulder steaks are added in, the total percentage of higher quality steaks is only about 50% of the carcass. This leaves 50% of the carcass to be sold as lower-priced cuts. And all cuts (steaks, roasts, ground beef) need to be case-ready for the grocer or food service.

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What about organ meats and the by-products? Larger packers obtain a portion of their revenue from the organ meats (livers, tongues, hearts) and by-products such as hides and blood. The “Big Four” packers have designed their plants to process these items on site and avoid the cost of shipping to another site for further processing. Smaller plants and lockers probably will not be as efficient in handling organs and by-products.

Who’s the labor force? Currently businesses in the U.S are struggling to find labor, and new plants and lockers will have to offer attractive wages to recruit new employees. Ideally, a packing plant or locker would like to hire employees who are already trained and skilled. If they aren’t, time is lost training new workers.

Can the infrastructure accommodate a new plant or locker? It takes a volume of water to operate the facility, and drought has added to the cost of water in some locations. Relative to infrastructure, does the community have housing, schools, and businesses to support an increased population?

Is everybody supportive? Ultimately, success in these kinds of ventures involves strong commitment from everyone — the cattle producers, local businesses and the community. Together, much can be accomplished!

Beth Doran is an Iowa State University Extension beef specialist.

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