Small processors' outlook: Partly cloudy
Feb. 28, 2011
by Steve Krut
Thousands of prognosticators nationwide are offering their take on whta 2011 will spell for the small businessman. But when it comes to small meat processors, they are themselves true visionaries who often see things rather clearly from the front lines.
Joe Cloud, who operates True & Essential Meats in Harrisonburg, Va., sees the New year as a mix of concerns and opportunities. Since purchasing the Talmadge-Aiken-inspected plant two-and-a-half years ago, he's made major transitions in the 70-year-old facility.
"We've taken advantage of what's here and what we see as a consumer desire to get away from buying their food from the 'normal channels', including box stores and major supermarkets," he explains. "There is a strong interest in buying locally produced food. We process for local livestock producers with their private label and they ultimately market their product on their own."
Cloud says he's just added the numbers for 2010 and found the plant processed nearly twice the 1,722 animals id did four years ago. He reported a revenue drop from just under $2 million in 2009 to just over $1 million in 2010, but offers that it was a deliberate decision to get away from a wholesale-oriented business model and to focus primarily on custom work. With custom work, the animals are not owned by the plant and the revenue numbers don't tell the actual story.
"The decision to forego wholesale revenues has freed up processing capacity," he continued. "This allowed a 35 percent increase in custom work, which now represents half of the plant's operation, leaving 30 percent retail and 15 percent wholesale business volume.Focusing on strengths
"We wanted to focus on what we do best and for 2011," says Cloud. "We see the local food movement as here to stay. It has acutally simplified our HAACP programs and we weill be working on a test-and-hold for raw ground and raw, not-ground products this year. It will involve more testing. Our greatest concern is a fear of the unknown, but we are handling producer-owned livestock from up to 150 miles away because there are fewer plants available to do that work."
Cloud feels strongly that getting qualified workers remains his biggest challeng in the coming months. The workers he seeks need to be physically fit to do the lifting, pulling and other tasks the job demands.
"I'm serious when I say obesity and training are major issues," he adds. "If I was in the housing industry, I could put an ad in the paper and get hundreds of applicants for nearly every skill area. When I put out an ad for meat plant work, I get a few people with some poultry plant experience, but the others are from the construction industry. They have to be trained. Those who aren't strong just can't take it and leave. The obese are more likely to have heart attacks and strokes and are often in poor health. And while we can train them, their health risks cost time and money.
"We have 20 employees, but some of the people we've needed to replace have experience but are aging," he says. "One went to the National School of Meat Cutting in Toledo, which closed in the 1960's. There are few places around thta teach meat-cutting skills, including vo-tech and trade schools. That is a sorely needed program for the small plant operator."All-natural bandwagon
The third-generation Buffalo, N.Y. processing house of F. Wardynski & Sons Inc. plans to exploit all-natural processing in 2011, using FDA-approved agents that instantly cure its bologna, sausage and hot dog products. The company claims the products have a 45 day shelf-life.
Dean O'Brien, the firm's vice president, says the all-natural curing program was developed over the past year-and-a-half and has drawn wide consumer acceptance. It has also eliminated the 24- to 48-hour curing time. This allows the federally inspected plant to stuff and cook the same day.
"Our customers want no nitrites, allergens, glutens or other additivies and still want a product with traditional taste," he contends. "And, ironically, those traditional curing ingredients and spices have sky-rocketed in price, with some jumping by 30 percent due to the fact that they are exported from other countries. Many of those sources have been hit with bad weather and the producers are stockpiling existing supplies, trends that have driven up prices."
O'Brien is fearful of the rising cost of raw materials for beef and pork in 2011. And, with only 23 employees, Wardynski's has implemented a delivery surcharge of $3 to help cover jumping gasoline costs.
"It's everything from growing demand, higher feed costs and even smaller herds that is driving up ingredient prices for us," he says. "We would like to see the economy get stronger and have a bit more certainty about what's coming with all costs from the regulatory to the supply end, but everyone will be in the same boat.
"We're banking heavily on the all-natural trend and thus far have gotten a good reception for our products in the Costco and BJ's type marketplace," he adds. "We're optimistic our retail offerings will allow us to grow in an obviously turbulent year ahead."Regulations changes
The New Year could hold total ruin or significant growth for David Haworth and his enterprise, Clark's Meat House in Riverton, Wyo.
Haworth feels strongly that how government handles very small plants like his are critical to his future. The business he purchased six years ago has only eight full-time and two part-time workers, but it is the largest of its typ in Wyoming.
"I'm worried about how the inspection folks will handle the requirements for validation of HACCP plans," he asserts. "I've done some studies and found that the way the USDA requirement is being proposed would devastate my business.
"I have 47 different cooked and smoked products that I produce," he adds. "The USDA, and consequently state inspection programs like the one I am under, will require further validation and testing for every product. We do validate every product, but the pending rules say our data is not good enough and we would need more scientific data for each product. My start-up costs for such a program would total $94,000 initially and then run another $30,550 every year after that. It would clearly put me out of business."
Haworth, who is also president of the Wyoming Meat Processors Association, says to improve his profitability, he has had to reduce many costs. He has added a smokehouse and tumbling equipment to his business and has given up slaughter. He uses federally inspected boxed beef for his HRI customers, which includes schools and prisons in the state. He wants to continue offering fresh ground beef and patties, but notes that many suppliers no longer offer two-piece chucks, which has been increasingly difficult to find.
"I am seeing short kills from the large packers, which reduces supplies and makes my costs rise," he continues. "I am doing OK, but have to admit I'm not doing as well as I was two years ago. I just put up a new Web site for information about prices and my product line. I'm trying everything.
"I was a union plumber for years and went into this business to work for myself and follow the American dream, but I find out so much of that dream in the control of the government and others outside this field," he adds. "I added a $7.50 delivery charge a few years back to combat $4-per-gallon diesel fuel costs. It drew resistance at first. Then I dropped it to $5 and it gained acceptance. Now rising fuel costs are forcing me to revisit the idea of raising that charge. I've even taken to mixing many of my own spices to save on costs. I look at it like this: I spend more time working for the same dollar that I earned the previous year.
"There has been passage of legislation giving state-inspected meat plants the ability to ship product into interstate commerce," he says. "That would be a tremendous boon for us. It's awaiting the implementation and ground rules phase and then would have to be passed by the state as well. That's one area that could really spur our growth but things that help the little guy seem to get kicked to the curb or lose priority in the minds of the powers that be. What I'm saying is that things could go really good or really bad for us this year, depending on those who regulate us."Closing the doors
For Joe Hinz, who operated Big Bull Jerky in St. Paul Park, Minn., there will be no outlook for 2011.
He and his brother produced about 1,600 lbs. of jerky in the same manner the former owners had done for a decade. When he was encouraged by customers to move from state inspection to USDA coverage after four years in the business, he found he could not meet USDA demands for humidity monitoring without and investment of about $20,000.
"They [USDA] came in to our 800-sq.-ft. shop for four weeks," he recalls. "I spent a few thousand dollars on things they asked me to do, but they wanted more. It was the tipping point and I closed the business in May. I'm afraid that this is the future for many other small plants. Government is the problem...it is not the solution. The reality is that I don't miss getting up at 2:00 a.m. to spend 18-24 consecutive hours at work."Lots of opportunity
David Downs is a leading casings supplier to small and very small meat processors. As the owner of Mar/Co Sales Inc., Burnsville, Minn. he interfaces with many of those running such operations.
"I think there are many opportunities for small meat processors," he offers. "Most small processors have established themselves in their communities through their high quality and workmanship. They are not always the cheapest around. They are looking for the customers who are looking for more — great customer service and a great quality product they can't find in the large stores. The most successful processors have found a strong niche, but they're always looking for the latest trends and ideas to keep their stores fresh and new."
While Downs feels the opportunities are there, he also says that government intervention is one of the biggest concerns for the New Year.
"Small processors all know that food safety is of the utmost importance to the industry as a whole, but lately many of them feel the government is going over the top and trying to pass legislation that will have very little impact on food safety, but would result in huge new costs to meet thse new reuqirements," he says. "The main item in this area is the new interpretation of HACCP validation. It's currently on the back burner but they all know it's going to rear its ugly head again and some cost estimates would put most of them out of business."Steve Krut, an industry veteran, is a contributing editor writing exclusively for Meat&Poultry, specializing in small business isuues. He resides in Marietta, Pa.