By Megan Webb Ph.D., Contributing Editor
In the heat of the moment it is easy to get caught up in what we think we should do vs. what we can do. The need to react can make one feel like they are missing an opportunity when really it could be dodging a bullet. Pastures often look greener on the other side, but we may not know the true realities until they are experienced, and our sheer speculation can lead us to learn the hard way.
The ongoing pandemic has positioned food supplies to be a focal point for Americans. Cattlemen have been caught with a supply of cattle, but minimal places to get paid for the conversion of muscle to meat and are experiencing a loss in value. This challenge has left many wondering if they should jump onto the “selling local” bandwagon and, rightfully, add more value to their operation. Before diving in, several realities need to be faced. Are you willing to expedite the activity and oversight on your operation, let alone have the capacity and capital for an additional business?
From my experiences, I realized that our home operation needed to make adjustments to maximize efforts many years ago. For us, adding a small, federally inspected plant worked in our situation and fulfilled our pursuit to become vertically integrated. For us, having an operation wasn’t all about size, but about efficiency and the ability to control value and mitigate risk. Of course, this model is different from the economies-of-scale approach, but still a sensible economic model that allowed us to combine cattle procurement, plant operations and beef sales. It’s important to understand that it wasn’t easy to combine all three, and it certainly didn’t happen overnight and wasn’t something motivated by a pandemic. It wasn’t that we wanted to break ground and take on all the responsibility, we just didn’t have a local plant that was steady enough to remain open. You see, local meat plants are often only skilled at meat sales and operations but likely do not have the capital for operation improvements or livestock procurement. By becoming vertically integrated, it permitted the efficiency to “play the market” across our own cattle procurement and direct customer sales.
The local food movement is not new
The local food movement traces back to the 1933 Agriculture Adjustment Act when there was a spawn of subsidies and price supports as well as many political movements that have cultivated the growth from the early 1970s to today.
When selling locally, there are quite a few strategies that include direct-to-consumer marketing, including sales at farmers’ markets, farm stands, on-farm sales, pick-your-own operations and community-supported agriculture (CSAs) programs. According to the 2017 Census Agriculture data, only 3 percent of sales were comprised of direct-to-consumer farm sales. There are directories to help identify farmers markets, https://www.ams.usda.gov/local-food-directories/farmersmarkets, on-farm markets, https://www.ams.usda.gov/local-food-directories/onfarm and CSA programs https://www.ams.usda.gov/local-food-directories/csas.
When marketing beef as “locally raised,” there are a few angles to achieve the basic meaning. According to U.S. Department of Agriculture (USDA), local is defined as a measurable distance between food production and consumption that is 400 miles or fewer. For cattlemen, this means that cattle in a feedlot within 400 miles of any packing plant can be sold as “locally raised.”
For many feeders or persons retaining ownership, this might be easily obtainable, if desired. From a marketing perspective, meat from animals raised locally or “locally raised” does not have strong regulation on the terms of the claim, therefore private certification programs would need to be overseen by a third party and could be useful in definition clarity and statement accuracy to support such claims. Another mechanism to be considered “locally raised” is to have the agricultural food be raised, produced and distributed within the state. A great example of this is Kentucky Cattlemen’s Ground Beef.
When preparing your marketing plan, remember there will be oversight of what is required to be placed on a meat label, but keep in mind the non-label marketing material. Non-regulated marketing materials like videos, brochures and signs can more broadly help share an operation’s story.
Sell local but be ready
About 75 percent of beef plants are smaller facilities, but the majority of beef comes from the four major packers who comprise about 25 percent of the volume. They have the economies of scale to handle mass cattle procurement and domestic and international meat sales. When considering creating a local plant, there are many realities that must be considered such as overhead, operations, labor and sales.
Many small plants fail for a number of reasons. The first is capital; it can cost hundreds of thousands or several million, depending on the scale and equipment upgrade needs. Second, getting through the state or federal regulation process and obtaining an establishment number is a hurdle. Also, finding labor is a huge issue as jobs in these facilities are hard and repetitive in nature. There are a series of federal programs to assist with labor, but again, you’ll be devoted to following the red tape and will need more management personnel.
Last, product sales can be quite an issue. Determining if you are selling beef as primals or retail cuts is key as you need to know if the labor is worth the time. Focusing on sales efficiency is also instrumental. Is it worth the cost to add freezer space for long-term, local consumer purchasing or is it more efficient to create a volume of fresh beef for trucking to distributors while keeping your overhead of freezer storage low?
Don’t forget some states have farm-to-school lunch programs and state institutions that could be instrumental in handling the volume of ground beef. Still, that won’t balance out if you don’t have avenues to sell the fifth quarter or the excess fat, hide, internal organs, blood and bone. If you aren’t careful to find an avenue for everything but the “moo,” you could end up paying rendering services to haul away about 37 percent of each animal’s weight.
Local beef sales
Whether you want to be a small locker selling locally or a cattleman obtaining inspected product from a small plant to sell out of your farm gate, you need to understand how much cash there will be left on hand after covering your costs. To provide a general illustration of the effect that yield loss has on beef value, here is an example:
If the live price of a steer weighing 1,435 pounds is $.96 per pound, the breakeven after accounting for the the 63 percent dressing percentage and the weight loss from offal, hide, variety meats and blood will be around $1.53 per pound. The remaining hanging carcass weight will be around 904 pounds.
The cutting yield loss of a USDA Yield Grade 3 carcass utilizing 62.7 percent yield and accounting for the loss of about 37.3 percent in bone and external fat, causes the breakeven to be $2.44 per pound and leaves 567 pounds of sub-primals remaining.
The next step to consider is retail yield loss, which can be influenced by cutter skill and the streamline of the fabrication process. Generally, there is approximately 10 percent retail cut loss, leaving the breakeven value at about $2.71 per pound. Understand that these estimates are ballpark figures and will be augmented among processors and producers as there are many factors like animal type, age, sex and management influences that affect yield performance. Additionally, the associated costs of overhead, labor, packaging, sales/distribution and insurance have not been factored in.
If you plan to have cattle harvested and need an inspected facility, you can evaluate the meat inspection directory https://www.fsis.usda.gov/wps/portal/fsis/topics/inspection/mpi-directory to find a location. It is important to note when selling directly from your farm, no product that is custom exempt can be sold or donated. All labeling must be approved by the establishment and can only be used when finally approved and an establishment number is referenced on the label as a mechanism of traceability. There are many animal product claims such as animal welfare claims, organic claims, food safety claims and nutritional claims where guidance, https://www.fsis.usda.gov/wps/portal/fsis/topics/regulatory-compliance/labeling/Claims-Guidance will need to be followed.
When determining what is reasonable to charge customers and help ensure repeatable purchases, considering your margin is important. Often packer margins are between 5 and 20 percent, so in the above example, including the value of $2.71 per pound for total yield loss and factoring in a 20 percent margin, the packers would need about $3.25 per pound on average from the retailer. The National Daily Boxed Beef Cutout and Boxed Beef Cuts, https://www.ams.usda.gov/mnreports/ams_2452.pdf report showcases the value packers are paid.
The segment that adds the most margin is the retailer – between 30 and 60 percent. Higher end retailers would be on the upper side as they charge more for the added service. A purchaser at the retail case in this example could pay $5.20 per pound, on average.
When selling locally, something to keep in mind is that not every family can afford protein purchases of whole sides or halves of beef in a single transaction. In this example, a side of beef from a packer at a minimum would be about $768, factoring in only yield loss and margin value. If the goal is to foster sustainable meat sales locally, establish avenues for all products to mitigate price pressure and ensure consumer purchasing power for beef, not a cheaper protein source like pork or chicken.
If you desire to sell locally, take steps, not strides, and keep sustainability in mind. Consider your operation’s strengths and weaknesses, assess your business model and weigh the options for partnership, further development of beef programs with your packer, potential to become vertically integrated, or adding sales opportunity out the farm gate. As Theodore Roosevelt stated, “Do what you can, with what you have, where you are.”