Investments and Opportunities for Meat and Poultry Processing Infrastructure

Wed, September 01, 2021 11:12 AM | Anonymous

American Pastured Poultry Producers Association (APPPA) respectfully submits these comments regarding the opportunity to invest in poultry processing infrastructure. The COVID-19 pandemic exposed critical capacity and logistical failures in our country’s processing infrastructure that has resulted from industry consolidation. APPPA’s comments will focus exclusively on poultry.

Inspected processors who are members of APPPA have expressed a concern about the long-term feasibility of very small plants. They cite inflationary pressure on labor, utilities, and supplies, in addition to regulatory pressure. Labor shortages represent the primary concern among very small plant operators. These concerns will still be present after USDA awards these funds. We ask that these funds simultaneously help very small plants, like those represented by APPPA, while making generational impacts by adding processing capacity in every state in the union.

What seasonal throughput issues (e.g., under- and over-utilization during parts of the year) or regional challenges need to be considered for plant expansion or development?

All 50 states and U.S. territories have unmet demand for poultry processing for independent farmers. In much of the country, local poultry processing demand tends to be seasonal and distributed across rural areas. Retaining labor is a primary challenge for seasonal plants.

Employee turnover increases training costs and decreases efficiency. The people who want to work tend to want to work every day and year-round. APPPA members who operate inspected processing facilities say that investments in automation and other infrastructure are required to help offset the labor shortages that have affected them year-after-year.

Working with plants to develop 12-month solutions for their seasonal plants should be a priority for USDA.

What constitutes sufficient actual demand for small and very small processing facilities to keep a business operational with appropriate cash flow?

We believe that on-farm poultry processing can cash flow with less than 20,000 birds per year when that processing is done on farm under a PL 90-492 exemption. Based on processor feedback, a cooperative poultry processing facility would likely need to process greater than 100,000 birds per year.

Consider a small plant operator, and member of APPPA, who defines the gap between 20,000 birds processed under exemption and the level required to make a USDA inspected plant viable as “no man’s land.” At 20,000 birds, the on-farm processing added value to the farm and represented a volume that could be direct marketed by the farm.

The plant ultimately scaled up to 120,000 birds through an inspected plant, which changed the business model to focus on wholesale business. However, 120,000 birds in a wholesale market are not a competitive volume. To get the wholesale price down to a competitive number, the plant would need to operate five days a week, eight hours a day. The volume increase would need to coincide with an investment to further automate the plant to reduce labor shortage concerns.

This underscores an important consideration in terms of the very small plants operated by APPPA members. These processing plants are owned by farmers who need the processing to get the value out of the poultry they raise. They need processing solutions that fit into their business model and the regional food models they serve.

At any given time, approximately ten very small poultry processing plants are members of APPPA. USDA could grant each of these plants up to $1,000,000 to help upgrade their plants to deal with automation, cold storage, and other upgrades and have an immediate impact on their competitiveness. These inspected processors are often hubs for other members of the pastured poultry community. When they go out of business, their processing customers (i.e., independent family farmers) go with them; most often, there are no other processing options available to cover the loss in capacity.

How can USDA support access to processing services for smaller-scale producers? Are there opportunities for producers to engage in cooperative or collaborative arrangements with each other or other facilities to both ensure access and provide a sufficient supply for a plant to operate?

The answer to food security and competitive agricultural markets is more processing options. We understand that not all safe and legal processing needs to occur under USDA inspection. Not all markets require a USDA small or very small plant to meet regional marketing demands. We have two ideas that could increase processing capacity and ease cash flow challenges that commonly face very small plants.

In our first consideration, we ask USDA to consider that they’ve had part of their answer codified in the Poultry Processing Inspection Act since August 17, 1968. In our second consideration, we outline an idea using regional inspected plants with distributed Retail exempt facilities.

PL 90-492 Creates Competitive Processing Capacity

9 CFR 381.10 defines multiple exemptions from inspection in the Poultry Processing Inspection Act. There are three underutilized exemptions that should be part of this conversation on restoring competition through processing capacity.

The Producer Grower exemptions, of which there are two, allow farmers to raise and grow up to 1,000 or up to 20,000 birds and process them on farm.

The Custom exemption allows a processor to process an unlimited number of birds for an unlimited number of individuals; however, those processed birds are for personal consumption purposes only.

The Small Enterprise exemption makes provisions for a processor to buy up to 20,000 birds from multiple farmers, process those birds, and then sell them back to the farmers for distribution.

The problem with these exemptions is that individual states can determine whether they will accept the exemptions and ultimately determine what compliance looks like. State regulatory personnel often lack the training and the knowledge required to make these exemptions an effective solution for farmers across the country. The result is unequal access and ambiguity that inhibits farmers from accessing one of the easiest ways to increase competitive access to processing.

In some states, such as Indiana, efforts to clarify PL 90-492 exempt processing regulations were successful; in other states, such as California, those efforts are met with resistance by a commercial poultry lobby. Lobbyists often argue their case under the guise of food safety, but food safety fears have not been realized with exempt processed poultry. Opposing exempt processing by the commercial poultry lobby does prevent competitive market access by smaller scale producers.

USDA should use this opportunity and some of these funds to make the PL 90-492 exemptions a viable processing path for everyone. Remove the ambiguity that occurs at the state level and enable producers access to these federally approved processing options.

Alternatively, USDA could develop a new plant definition that is scale appropriate for areas of the country that have difficulty in staffing a profitable USDA plant. These micro plants could be limited in annual processing volume (e.g., 40,000 birds per year) to offset the regulatory burdens commonly placed on very small plants.

Both approaches (exempt and micro plants) would open the opportunities for entrepreneurial farms to add processing value without funding from USDA and have an immediate increase in processing capacity. The longer-term benefit is that as markets for locally produced poultry increases and regions experience stable processing options, some of those plants will organically grow into very small USDA plants, thereby increasing capacity. In this way, the market dictates whether a very small plant is feasible instead of the industry trying to force a common approach across all processing scales.

Retail Exempt Facilities

Considering the seasonality limitations, volume requirements, and cash flow challenges of operating a small or very small plant, several APPPA members suggest a model that creates regional processing capacity with smaller satellite Retail exempt facilities that would further process the poultry prior to sale.

The regional plants could be operated as either non-profit processors or as dedicated for-hire facilities, assuming seasonal demand makes it possible. USDA could provide funds to help these plants upgrade existing facilities or to establish themselves. Some land grant universities, such as Alabama A&M, have existing processing capacity that would fit this model.

After slaughter at the regional plant, the poultry could be distributed back to the farmer to further process in several Retail exempt processing facilities. USDA could use funds to support this operation by funding a reefer truck to distribute product from the regional plant to the Retail exempt facilities.

This collaborative approach can allow the regional plant to specialize in slaughter without worrying about accommodating all the individual demands a producer may have for further processing.

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