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Business Commitments Key to Local Meat Processing Success

June 28, 2013

Earlier this month, the USDA’s Economic Research Service (ERS) released a report titled “Local Meat and Poultry Processing: The Importance of Business Commitments for Long-Term Viability”.  This report follows a related report, published last year by ERS, that evaluated the availability of slaughter and processing facilities for local meat production and the impact on market supply of local meat.

The authors of the new report, Lauren Gwin, Arion Thiboumery, and Richard Stillman, reported that consumer demand for local meat and poultry has risen, yet there are constraints on production both due to limited processing infrastructure and, at the same time, insufficient business for processors necessary for profitability.  They report, through seven case studies of local and regional processors, that best practices center around long-term commitments by processors to provide consistent and high quality services, and by farmers that commit to a steady level of meat for processing.

They analyzed the types of processing varies among three separate channels, “very local”, “local-independent”, and “regional-aggregated”.  They define “very local” as a direct supply chain from farmer to processor to buyer, “local-independent” as a supply chain from farmer to processor, who then returns products to the farmer for distribution through CSAs, farmers’ markets, restaurants, or retailers, and “regional aggregated” as several farmers to an aggregator who arranges processing and distribution.

Farmers and processors of local and regional meat and poultry face problems when processing schedules boom and bust throughout the year due to seasonality of production.  Farmers have difficulty scheduling processing during particularly high-demand times of the year.  Processors, on the other hand, have difficulty remaining profitable with inconsistent demand for their services.  The authors describe this dilemma as “a fundamental tension between farmer needs and processor needs.”  Based on their analysis, the dynamic between farmers and processors must make a shift from “convenience to commitment”.

A successful approach employs business commitments with core, anchor customers that help stabilize the volume of business, as well as a commitment from producers to provide and improve upon high-quality processing services in addition to other support like business advice, marketing and distribution services.

The initial case study examines the relationship Lorentz Meats, in Cannon Falls, MN, has with its customers.  Lorentz Meats offers slaughter, fabrication, packaging, and value-added production for niche meat brands and independent farmers.  In 2000, they built a $2 million plant and operated at a deficit for three years.  Once they established key customers through Organic Prairie, High Plains Bison, and Thousand Hills Cattle Company, Lorentz Meats operated with a positive cash flow.

Now, Lorentz Meats has stable processing because their three core customers have requirements to deliver fresh product weekly to their customers, which creates a successful, interdependent relationship for the processor and farmers.  Since the three core customers provide about 65% of their volume, they can provide services to 200 other local direct marketers including small-scale local farmers.

The report concludes, “Whether about scheduling or services, costs or prices, meat quality or market conditions, processors and farmers need to communicate effectively with each other to develop and maintain strong business relationships.”

The full report including six other case studies is available here.

The authors of the report are Lauren Gwin from the Agricultural and Resource Economics Department of Oregon State University and the Associate Director of the Center for Small Farms and Community Food Systems; Arion Thiboumery, an Extension agent with Iowa State University; and Richard Stillman,  a senior economist with ERS.

Lauren and Arion coordinate the Niche Meat Processor Assistance Network (NMPAN).  NMPAN is a national network of people and organizations creating and supporting appropriate-scale meat processing infrastructure for niche meat markets.  NMPAN assists processors, producers, buyers, regulators, and others involved in this growing sector by coordinating, distributing, and developing information and resources to improve access to processing infrastructure and the long-term stability of this sector.

Categories: Local & Regional Food Systems

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