This year will not be an easy year. That seems to be an overwhelming consensus among processors, suppliers and industry leaders who have a day-to-day read on the pulse of the small-processor sector.

Scott Long has operated his Manteca, Calif.-based business for more than 30 years. His custom and retail firm, Long Ranch Inc., is typical of those more threatened by government than by any other economic factor.

“Our biggest problem is government, pure and simple,” he reports. “We are a fully integrated farm operation, raising our own pigs, processing them for retail, and doing custom work for many ethnic groups in our area. We have a major concern with our wastewater. Our annual permit for discharge has gone from $1,200 a year in 2000 to $11,000 for 2012. This is in spite of the fact that the discharge from our large lagoon has been reduced in volume by 75 percent during that time.”

Long is under the jurisdiction of the California meat inspection program and says the annual fee to license his four-employee meat business has risen from $50 in 2011 to $1,200 for this year. He isn’t sure how much more government-imposed costs his business can sustain.

“We do well with our own farm-raised pigs in the Napa Valley and San Francisco area,” Long adds. “We have to go to a USDA plant to slaughter them for the restaurant trade. Other than that, our operation is very basic with retail pork, including sausage and some bacon and hams we cure. We do a nice trade in roasted pigs for customers to pick up for parties. The grain costs to raise the pigs have increased, but that’s the same for everyone in the business. But it’s state and regional government that’s hitting us the hardest.”

Increasing fears

“In the 1980s, people who lost their jobs went on to start their own businesses. I’m not seeing that now.” This observation from Jay Hall, president of research and development for Excalibur Seasoning Co. Ltd., Pekin, Ill., reflects a spooked business environment.

“People are really scared about the massive layoffs, higher prices for meats and ingredients and the costs of doing business,” Hall explains. “There was good opportunity for value-added products that put meats on a competitive line with other foods, but the rising cost of raw materials is diminishing that relief valve.”

He points out that the cost of spices has gone from about 7 cents a lb. in finished meat products when he entered the industry in 1983 to about 15 cents today, and notes that some items like ground nutmeg have gone up 300 percent in just the past four years.

Dr. Jay Wenther, executive director of the American Association of Meat Processors (AAMP), is leery of some initiatives designed to drastically decrease sodium in foods. He points out that processors can only go so low in reducing sodium without losing its functional benefits and adversely affecting the flavor of the final product.

As consumers trend toward less-expensive meal choices, Wenther foresees the continued consumer purchasing trend of beef tenderloins and strip steaks being replaced with top sirloins and other protein sources, such as poultry. He says consumers will continue the trend of purchasing less-expensive, center-of-the-plate items.

Wenther explains that USDA predictions of drops in meat production and consumption of beef and pork will be challenging for small meat firms.

“Some businesses started out doing everything from slaughter and fabrication to processed meat production and retail sales, all under one roof,” he observes. “Due to business structure, in some cases business survival and expansion, some independent processors have begun to narrow the focus of their business. Instead of offering every product and service, they have focused their attention on the financial balance sheet to determine what products and services will be offered and what parts of the business must go by the wayside.

“Due to regulatory pressure and lower profit margins, some processors are getting out of the slaughter aspect entirely and focusing on the production of processed meats. Those in processed meats are narrowing the scope of their product line and we are seeing greater reliance on co-packing agreements with other processors,” Wenther points out.

This retrenching trend is exacerbated by the regulatory environment, he contends. Wenther says that despite normal slowing on the flow of new regulations during an election year and promises by the Obama Administration that new rules should have to meet the “common sense” test before enactment, AAMP sees new initiatives coming on allergen-based recalls that will impact overall sanitation, ingredient receiving, production scheduling, product formulation, labeling and employee training areas.

“Validation guidance will likely be published by FSIS this year,” Wenther adds. “That means it is almost a guarantee that future debates between inspection personnel and establishments will occur because of demands that production processes ‘relate, adhere to, match or be similar to’ scientific supporting documentation.

“If an establishment has been through an FSIS food-safety assessment recently, they have already been exposed to this agency expectation in regard to scientific support, but the release of the validation guidance will most likely cause much more scrutiny on this front,” he continues.

Employee retention challenges

Chad Lottman says 2012 will be a challenge for his 20-employee C&C Processing Inc., in Diller, Neb. The owner-operator feels getting and keeping good employees is becoming tougher each year.

“Maybe it’s that our unemployment and welfare system is too good,” he relates. “Too many people want a paycheck but don’t want to show up for work five days a week. It’s hard to find qualified people to slaughter and cut meat and it’s even difficult to get good packaging personnel. We are in a labor-intensive environment and not many people seem to be able to handle that labor portion anymore.”

Lottman says he likes to think on the positive side and sees some opportunities for higher volume with new and existing private-label accounts. He advises he’s been thinking about major upgrades in equipment for the past 18 months and if accounts with higher volumes can be attained he’s prepared to move forward – but he has to make sure he’s got sustainable levels to justify the new machinery.

“Costs, in general, for beef and pork have risen and I worry whether customers will pay for higher-priced meats in a downed economy,” he says, adding that “there is a level of higher price resistance that isn’t far away.”

But like many other small processors, he is concerned he is due for a USDA food-safety assessment in his processing area in the coming months. That would be his fourth and his last one three years ago resulted in a pair of USDA Enforcement, Investigations, and Analysis Officers in his business for 45 days. While that’s time-consuming, he’s nervous.

“Everything we thought we were doing right has a way of being turned around and we don’t know what we’ll end up with when it’s over,” he says.

Candace Cansler is the long-time executive director of the National Country Ham Association Inc., headquartered in Conover, NC. For her member firms, USDA regulations loom as a serious threat.

“USDA is building a new electronic database that includes each company’s HACCP plan,” she points out. “It was initially sold as ‘your company’s plan’, but in reality they no longer belong to the plant but to USDA. They are posting all NRs [noncompliance reports] on the new database in an effort to link all information about a plant so they can see patterns in NRs.

“Validating and verifying HACCP plans will be a daunting task for the small and very small plants that will be challenged by limited time and monetary resources, especially since it is not exactly clear what is expected,” she adds. “Couple this with implementation of STEC testing after March. This will be a new testing platform for everyone. Testing material is laboratory proven, but at this time has not been proven in the meat industry.”

Cansler is also concerned about the lack of a nationally enforced policy on immigration and rising health-care costs, which she says will range from 5 to 35 percent in increases for her membership this coming year.

Soaring fuel costs and high ethanol production mandates are affecting the affordability of the food supply for both people and livestock, she advises, and points out that the continued rise in meat prices and raw material costs will hit the industry hard early in the New Year.

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