USDA’s Meat and Poultry Processing Expansion Program

Fifteen small to medium sized meat processors in twelve states have now received a total of $35 million through USDA’s Meat and Poultry Expansion Program (MPPEP) to expand processing capacity. USDA says, the program was conceived to “create new jobs, support development of new processing plants, establish stronger business opportunities for local producers and entrepreneurs, and provide consumers with more options at grocery stores.”

Anyone reading my articles over the last two years know that I spend a great deal of time tracking and analyzing packing capacity in the red meat industry. Capacity and the utilization of that capacity is key to margins, not only across the entire industry, but more importantly, for an individual plant. And closely tied to capacity is the concept of economies of scale. These two economic considerations have largely been the drivers of packing industry growth over the last several decades.

So, now the beef packing industry faces two major challenges – a tight cattle supply and a tight labor supply – both of which are key to a plant’s financial well-being or even survival. Consequently, the situation creates a great deal of competition for both. There have been plant closures over the past 3 years as packers faced both these challenges in the red meat and poultry industries. This situation truly illustrates the financial hardship created in the current economic environment with even older fully depreciated, debt-free plants. When the situation is tough for large, well-established plants with no debt, one can only imagine the challenge for a small start-up facility competing for cattle and employees. They will only be successful if they have a dedicated cattle supply with qualified plant employees and market to a dedicated customer base. There are new and small plants doing just that. However, USDA’s big picture statement about processing capacity does not seem to be consistent with that business model.