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Packer changes mirror producer challenges

Cattle and Beef Industry News
Feb 24, 2014

With small packing plants closing as fast as they are opening across the U.S., the big packing plant monopoly discussion could arguably have some new fuel, but it is easily squelched with the larger plants that have also closed over the last year.

With new modernized and automated equipment creating more efficient plants, the packing industry is destined to change, but to what extent? It has been more than 100 years since Upton Sinclair’s 1906 novel, The Jungle, exposed unacceptable working conditions and unsanitary practices in America’s meatpacking plants, and changed the industry. The book is considered the precursor for the Pure Food and Drug Act and the Federal Meat Inspection Act (FMIA) that were passed shortly thereafter.

Changing rapidly again through the 1970s and 1980s, with railroads and stockyards declining and the Chicago’s Union Stock Yard closing, packing plants began opening in rural areas. The large packers found their new niche.

But just like the weather, change in the packing industry is obviously underway again. With drought conditions continuing, declining cattle numbers, a growing population to feed, political discourse in the industry, and an ever-growing number of regulations, the packing industry is destined to take a hit, along with producers, on the path to change.


In March of last year, in Plainview, TX, one of the town’s main employers shut down—sending 2,000 people scrambling for work. The meatpacking plant closed because there’s a shortage of cattle due to the drought and economy, according to reports.

Plainview has been a center of the cattle industry for decades. But after more than 40 years in operation, Plainview’s Cargill beef processing plant shut its doors. Plant owners blamed years of drought and the dwindling supply of cattle.

The town of Brawley, CA, with a population just under 25,000, is following in Plainview’s footsteps, as Kansas City-based National beef Packing Company makes plans to shut its doors on Friday, April 4, laying off 1,300 employees.

The plant slaughters about 1,900 head of cattle a day, less than half the 4,500-head amount slaughtered at Plainview’s Cargill plant.

In a press release, National Beef cited the same issue for closure that Cargill faced. “A declining supply of fed cattle available for the Brawley facility was a key driver of the decision to close the plant,” Tim Klein, Chief Executive Officer of National Beef said. “This was a very difficult decision for us to make because of the impact on our employees and suppliers. We are optimistic about the long-term prospects for U.S. beef demand, and we will continue to focus on expanding our position as the industry leader in value-added beef products.”

But local government officials in Brawley are frantically trying to turn the table on this closure, with offers of loans and delays of required plant updates.

Northern Beef Packer in South Dakota got its share of headline news with its opening and closing, followed by a few weeks of scandal. The plant was the first new beef processing facility that’s been built in the U.S. in nearly three decades, according to its website. At full capacity, the facility would be able to process 1,500 head of cattle a day, producing 20 million pounds of beef per month.

In December, Judge Charles Nail Jr. of the U.S. Bankruptcy Court in Aberdeen, SD, approved San Francisco-based firm White Oak Global Advisors’ offer on the plant of $4.8 million in cash and $39.5 million in debt forgiveness, according to court documents. South Dakota Governor Dennis Daugaard said he has hopes that White Oak Global Advisors has plans to get Aberdeen’s failed beef plant up and running and sell it as an operating entity.

But what exactly do producers want for the packing industry? In the spring of 2012, a comprehensive survey was sent out to beef producers across North Dakota by a North Dakota State University (NDSU) professor. Of the 2,500 randomly selected producers who received the survey, 527 took time to fill out and return it.

Carl Dahlen, NDSU Extension Beef Specialist, asked producers a number of questions, including whether or not a meat packing plant opening in the state would increase the number of calves finished by the producer to sell directly to the packing plant. Only a third of those responding gave a positive answer; 66 percent said no.


The FDA is responsible for watching over some 167,000 domestic food facilities or farms, and another 421,000 facilities or farms outside the United States, according to FDA officials. But there are only about 1,100 inspectors to oversee these facilities, according to a 2012 CNN report.

A third party audit system was set up to help with this shortfall, but it is not always successful. Jensen Farms in Colorado, home of the highly publicized listeria outbreak that killed 30 people, was privately inspected, and given a “superior” grade shortly before the outbreak.

But despite closures, a shrinking cow herd and inspector shortages, beef production is still on a role.

Exports of U.S. beef closed 2013 by eclipsing the $6 billion mark for the first time, setting a new annual value record, according to the U.S. Meat Export Federation (USMEF).

Beef exports continued their surge in December, surpassing year-ago totals by nearly 13 percent in volume and 20 percent in value led by growth in sales to Japan, Mexico, Hong Kong and Central/South America. Totals for 2013 were up 3 percent in volume to 2.58 billion pounds and 12 percent in value ($6.157 billion)—breaking the 2012 value record.

“2013 presented a new set of challenges,” said USMEF President and CEO Philip Seng. “Last year, the closure of the Russian market to U.S. red meat products and our continued absence from the dynamic beef market in the People’s Republic of China stand out. And there were challenges in other markets, ranging from Indonesia to Saudi Arabia. The industry is focused on these challenges and USMEF is targeting the markets where we have the best chance of succeeding and creating a positive return for American producers and exporters.”

The new milestone for U.S. beef export value also meant new records for the average export value per head: an annual record of $244.96 per head of fed slaughter, up $28.23 from 2012 and a new monthly record in December at $279.16, up $36.52 from December 2012.

Regulations Like producers, packing plants continue to face an onslaught of costly government regulations, narrowing the balance between profit and loss, and increasing the chance of closures.

Just last week, the Occupational Safety and Health Administration (OSHA) published an interim final rule establishing procedures and timeframes for handling retaliation complaints under the Food Safety Mod ernization Act (FSMA).

OSHA invites the public to submit comments on the interim final rule.

FSMA, signed into law January 2011, provides employees who disclose information about a possible violation of the Food, Drug and Cosmetic Act with protection against retaliation from businesses engaged in the manufacture, processing, packing, transporting, distribution, reception, holding or importation of food.

This interim final rule establishes procedures, burdens of proof, remedies and statutes of limitations similar to other whistleblower protection statutes that OSHA administers.

Individuals may submit comments electronically at http://www.regulations.gov, the Federal eRulemaking Portal, via mail or facsimile. Comments must be submitted by April 14, 2014.

Earlier this month, California-based Rancho Food Corp. had to recall nearly nine million pounds of beef that was not inspected by USDA, leading food giant Nestl to subsequently recall nearly 238,000 of their Hot Pocket products that used the meat.

Last week, in Geneva, Switzerland, at the World Trade Organization (WTO), public hearings got under way for the country of origin labeling rule (COOL).

Previous labeling rules required only the country of origin to be noted, such as “Product of U.S.” or “Product of U.S. and Canada.” New rules that took effect last year require that labels for steaks, ribs and other cuts of meat include clear information about where the animals were born, raised and slaughtered. Labels must specify, for example, “Born in Mexico, raised and slaughtered in the United States.”

“That’s a really big label on a package of meat that doesn’t really guarantee anything,” said Cory Eich, President of the South Dakota Cattlemen’s Association. In addition, meatpackers say it’s costly to have to segregate and track animals along the entire supply chain.

The American Meat Institute, the National Catttleman’s Beef Association, the National Chicken Council, the National Pork Producers Council, the National Turkey Federation and the North American Meat Association said they offered many solutions and all were rejected. The groups say the sorting requirements add too many costs for meatpackers.

“This retaliation will be crippling to our industries and threaten the long-term relationship with two of our most important export markets,” the groups wrote.

“COOL is a broken program that has only added costs to our industries without any measurable benefit for America’s livestock producers.”


Every segment of the industry seems to have a different perspective of what the consumer wants, with each taking on some semblance of its own agenda.

According to the American Meat Institute (AMI), shoppers place high importance on value, quality and variety when making purchasing decisions in the meat aisle, according to the Power of Meat survey published by AMI and Food Marketing Institute (FMI). The ninth annual report, conducted by 210 Analytics, LLC, in partnership with The Cryovac Brand, a part of Sealed Air’s Food Care Division, was unveiled at the FMI/AMI Annual Meat Conference and explores purchasing, preparation and consumption trends through the eyes of the shopper.

As the number of homecooked meals containing meat or poultry increased slightly from 3.6 to 3.8 dinners per week, consumption of heat-and-eat and readyto-eat items also increased.

With one-third of shoppers undecided whether they will cook or eat out as little as two hours before dinner time, value-added products offer tremendous opportunity to capture more of the mealtime dollar.

“The meat and poultry industry is continuously responding to consumer demands,” said James H. Hodges, AMI President and CEO. “The variety of convenient, fresh and processed products on the market today offers easy, nutritious meal solutions that are indispensable at that critical, ‘what’s-for-dinner,’ decision hour.”

Although it remains the leading factor, the Power of Meat suggests that shoppers are trending away from a focus strictly on lower prices when making meat purchasing decisions. Even so, 83 percent of shoppers check promotions across stores, with the paper circular being the most commonly used research tool. These weekly sales promotions are an integral part of meal planning, and for some, channel choice. For 27 percent, the primary store for meat and poultry is different from their primary store for groceries in general. Supermarkets, club stores and butcher shops are the primary beneficiaries of channel switching.

Shoppers cited quality, strong customer service, in-stock performance and variety as the main drivers of meat department satisfaction. As an imperative to departmental satisfaction and shopper retention, customer service largely focused on having knowledgeable meat managers available for questions. Shoppers not only value service, but cite they would absolutely (33 percent) or maybe (53 percent) use hands-on preparation and recipe tips.

“With shoppers looking for even more convenience and value across all channels, food retailers are wellpositioned to better serve the changing needs of customers and be an integral provider to the meal time experience,” said Mark Baum, Senior Vice President and Chief Collaboration Officer for FMI. “Because of the breadth and depth of their offerings and services, food retailers can offer personalized and authentic experiences to shoppers that make the best use of their time and fulfill their protein preferences.”


“The only thing certain in life is death and taxes.” Even the author of the famed quote is debated, but whether it’s Ben Franklin or Daniel Defoe, the statement rings true for the meat packing industry. While the large corporations are struggling with a stigma carried forward from the original years, the small mom and pop companies are facing the same struggles as the rest of rural America. The outcome remains to be seen.

Saddled with the job of feeding an estimated 312 million Americans alone, the meat and poultry industry is the largest segment of U.S. agriculture, and no doubt, it will adapt to the ever changing environment. — Traci Eatherton, WLJ Editor (Editor note: This is a three-part series looking at the global picture of the packing industry)

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