New meat plants face hurdles

Adding slaughterhouses seen crucial but process isn’t easy

When coronavirus outbreaks forced shutdowns at America’s giant meat plants, a bottleneck quickly was created: Farmers had nowhere to sell their animals, while consumers faced shortages and surging prices. New, smaller slaughterhouses could be the antidote to industry concentration, but it’s no quick fix.

Opening a slaughterhouse has plenty of hurdles. The facilities — where animals are killed, butchered, and meat is packaged into consumer-friendly cuts — aren’t always welcomed by locals. And there can be other challenges to finding the right location.

There needs to be enough livestock produced nearby and easy access to trucking routes, said Jeremy Robinson, who in March opened one of the country’s newest beef plants in Lone Jack, Mo.

He also had a hard time finding workers in an area where few had experience.

“Training was intense,” he said.

Then there are local, state and federal regulatory requirements for zoning and building. Even buying a defunct plant with a plan to revive it comes with a set of headaches. Old slaughterhouses have usually been out of commission for years, so updated permits are required. And the building has to be refurbished and outfitted with new equipment.

The whole process can take years, and it’s expensive, said Robinson, a managing partner of Republic Foods.

“In a normal market, starting a plant for 300 to 400 cattle a day, you need to be able to lose $4 million to get to profitability,” he said.

The pandemic laid bare how America’s system of churning out cheap meat is vulnerable to failure. Covid-19 outbreaks sickened thousands of workers, while plant shutdowns left grocery store shelves empty. Federal regulators and legislators have opened up investigations into industry concentration.

But it remains to be seen how quickly the supply chain can change — and whether consumers are willing to pay more for protein that’s produced under smaller economies of scale.

The meat sector is dominated by a handful of titans— Tyson Foods Inc. and its top two rivals, JBS SA and Cargill Inc., control about two-thirds of America’s beef.

The picture is similar for pork and poultry.

Most meat is produced in large, federally inspected plants. In January, there were 835 of those facilities, down 52% from 1,741 in 1976, according to the U.S. Department of Agriculture. Meanwhile, red meat production surged almost 40% in that period to 55.1 billion pounds.

The drop in facilities doesn’t tell the whole story because just a handful of plants today make up the bulk of production. In 2019, the 12 largest plants accounted for 52% of the total cattle slaughter.

The industry makeup not only can hit a huge chunk of supply when even one plant is down, but also leaves farmers with few options for selling their animals, which critics say gives the processing companies too much power over prices.

“We don’t have this robust infrastructure of small, mid-sized processing in this country,” said Ben Lilliston, interim co-executive director of Institute for Agriculture and Trade Policy. “It’s been wiped out.”

While the biggest U.S. cattle plants can process more than 5,000 animals a day, Robinson of Republic Foods says the sweet spot is closer to 500 to 1,000 head. That would ensure a fair market for local farmers, a plant workforce that’s not overloaded and that nearby restaurants and grocers get fresh meat, he said.

There’s movement underway to get more small plants running.

Congress is considering amending the Federal Meat Inspection Act and Poultry Products Inspection Act to make it easier for smaller processors to sell their products.

At the same time, Democratic Sens. Cory Booker and Elizabeth Warren have opened an investigation into meatpacker price manipulation.

The Justice Department has filed criminal charges in the poultry industry just as it opened a formal inquiry of beef companies.

Breaking up the big companies would result in more plants, more investment and more slaughterhouses, and in turn, make the industry less susceptible to widespread disruptions, said Christopher Leonard, author of the “The Meat Racket.”

But it doesn’t need to be a choice between the “monopolistic industry” that exists today and a “Utopian idea of small, local farming and backyard chickens,” he said.

History could be a guide to the change that’s needed now. A century ago, the U.S. sought to break apart a group of meat companies that dominated output, paving the way for more competition and laying the groundwork for the modern industry that lasted until rapid consolidation in the late 1980s.

“These monopolistic companies that have a stranglehold over the industry right now are telling us change is impossible, but the industry underwent really radical transformation over the last couple of decades and it was just driven by a business plan and a strategy to boost profit at a handful of companies,” Leonard said.