Fortunate forecast

by Steve Krut
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What the New Year portends for smaller businesses in the meat and poultry industry is generally not as frightening as it is frustrating. Looking ahead to the coming year, small company operators and their representatives share some overlapping areas of concern, almost all of which have a basis in growing governmental control, and in some cases, outright coercion.

Randy Alewel, of Alewel’s Country Meats, Warrensburg, Mo, is troubled by the continued governmental intrusions that don’t consider small businesses and attempts to “dictate what a business needs and wants.”

“Smaller firms don’t have the resources to physically go out and perform individual validations that are increasingly being called for by government,” Alewel laments. “If they tell us what they want and what the rules are, we will play by them. But when they say go out and develop the technical information and we individually recreate what has already been done by someone else, it becomes too cumbersome and expensive.

“We find we are putting more product through the retail-exempt areas because of well-intentioned but impossible demands, increased costs and increased paperwork,” he adds. They [government] only look at their demands at ‘face value’ and fail to realize the second and third order of ramifications they are creating.”

Alewel says a prime example of this is in the health-care area. Many operators are already seeing premium increases of up to 40 percent for 2010.

“Currently, our employees are happy with their healthcare coverage,” he explains. “But some of the changes they are proposing will have profound effects on our rural hospitals and local physicians. They are failing to see that the proposed policy changes will continue to drive industry out of our area and force them to either close or move to other locations.”

Alewel is adamant about the affect of increased ethanol production and usage will have on food prices. He contends they promote an inefficient program through subsidies that ultimately raise costs in other areas.

“This raises grain prices and the cost of feeding livestock,” he says, “and the proposed increases in ethanol use levels will do even more damage. Small businesses like ours can survive because these policies are driving larger firms out of business or further limiting them. We, in fact, are doing what no one else wants or can do. Those policies destroy more than they help, but if you are small enough and have the right frame of mind, you can survive by filling those niches.”

Labor pains and more

Bob and Judy Filbrandt have operated Bob’s Processing in South Haven, Mich. for 30 years. Like most small facility owners, they point out that rising health care, energy and the increasing regulatory costs continue to limit further growth in their business. And despite being located in a state with one of the highest unemployment rates, recruiting enough workers for its plant is, surprisingly, an operational challenge. “Labor is a huge issue for us,” Bob explains. “You would think that with all the people out of work you could get help. We just hired a new girl and after training her, she told us she can now only work 12 hours a week or she will lose her insurance through government assistance.”

The Filbrandt’s son just came back into the business with them, but they have to contend with the fact that the cost of doing business has continued to rise, forcing them to invest in labor-saving equipment.

“It used to be you did some things you always did without making much money on them,” Bob points out. “Now those days are gone and if it isn’t profitable, we can’t afford to do it and have gone to a different mode. This means everyone has to carry a larger workload.” Environmental issues are going to hurt a lot of meat processors, the Filbrandts say.

“We are lucky we are on the city water and sewer systems,” Bob adds. “Other plants with their own lagoons are seeing their fees for such systems rising out of sight. Many operators are being forced to hire someone to run their treatment systems or go to school for further training. And this is being forced on the ones that the Department of Environmental Quality admits are in good working order. If you ask the DEQ about those that are not performing well or are not licensed, they say they don’t have time to go after them. This only punishes those who do the right thing,” Judy says.

Legislative voids

Jay Wenther, executive director of the American Association of Meat Processors, the largest organization representing small and very small meat plants in the U.S., says the basic challenge is USDA spending too many resources over-inspecting the smallest establishments that produce a minimal amount of product. He says this also means that agency resources are stretched into under-inspecting higher-volume meat operations.

“Congressional pressure for increased food-safety measures may also be a concern as more food safetybased legislation is presented in 2010,” he continues. “This takes us back to the need to reconsider a risk-based inspection system to potentially enhance the current food-safety systems.”

Topping that concern, he adds, is the fact that for more than a year the USDA has been operating without an Undersecretary for Food Safety.

“They do have Mr. Mande in the agency as Deputy Undersecretary for Food Safety, but no final person has been put in the other position, Wenther notes. Therefore, the agency is functioning without any true leadership during a time when Congress and the public seem to be asking for more regulatory control and increased safety of the meat produced in the U.S.”

Wenther is also alarmed about a more sinister tact being taken by the Food Safety and Inspection Service to force more labor-intensive costs and unmandated rules on small plants.

“We are seeing a common trend regarding microbiological testing methodology as establishments work through an agency food-safety assessment and expect this trend to cont i nue into this year,” he says. “During a food-safety assessment, establishments are being told that when microbiological testing occurs, the establishment should ensure that the laboratory method used is validated and ‘equivalent’ to the FSIS method identified in FSIS Microbiology Laboratory Guidelines.

“The agency doesn’t essentially mandate this ‘equivalency’ because there really is no regulation that backs up these FSIS expectations,” he adds. “The agency states that establishments can do whatever they choose as long as they can justify it with supporting documentation. Simply put, the agency is manipulating the HACCP regulations to their advan- tage instead of actually establishing true regulation or follow structured regulatory rule-making protocol.”

Wenther points out small plants will be further challenged by future FSIS initiatives on recall programs, food-defense plans, test-and-control programs, humane-handling protocols and documentation to assist the agency in E.coli O157:H7 traceback to the original source.

He adds that some opportunities may be presenting themselves in implementation of legislation that allows state-inspected meat and poultry plants to ship into interstate commerce. But he also cautioned that FSIS and state-inspection programs are taking a closer look at establishments under inspection that transfer operations into custom or retail areas and may be attempting to impose further regulations on these areas.

Generational appeal

Rod Klemke, who for the past 24 years has run Klemke Sausage Haus in Slaton, Texas, has seen his share of changes in the industry.

“Things have changed too much,” he says, to the point “that we are living in such fear of lawsuits we are no longer able to run our plants the way they need to be run to continue into future generations.” And in the current environment, succession plans are a moot point for companies in an industry that future generations are avoiding in many cases.

“The most difficult thing small firms like ours are facing is the inability to bring young people into the business,” he says. “I’ve talked to young folks who really like meat processing but don’t want to go into it in as an owner or manager. They’ve told me the paperwork is too oppressive and they don’t want to base their lives around it. One fine young man told me he would love to run a meat business but could not spend his life fighting paperwork and living under the stress you are under.”

Such a telling statement is cause for Klemke to reflect on his own future:

“We’ve grown from eight employees to 30 today and ponder where we go from here,” he says. “If we want to see our jerky business grow, we have to build a separate building to produce it or the larger accounts keep a distance from us, not because we made someone sick by processing it in the same building with our other products for 24 years, but because someone is afraid of a lawsuit.

“I come into the plant every morning at 5:30 a.m. and do my HACCP paperwork, long before production starts,” he adds. “Still, the inspection

folks say I’m wrong because I don’t want to wait until they show up so they can see me doing it. There is something wrong with this picture. If I think that’s wrong and still go through it, what about the future of our industry? Younger people say we’ve fallen victim to an insane system.” •

Steve Krut, an industry veteran, is a contributing editor writing exclusively for Meat&Poultry, specializing in small business issues. He resides in Marietta, Pa.
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