Development of a Feasibility Template for a Small Multi-Species Meat Processing Plant

1. Development of a Feasibility Template for a Small Multi-Species Meat Processing Plant Rodney B. Holcomb Kyle Flynn Philip Kenkel Oklahoma State University Food & Agricultural Products Center 2011 Food Distribution Research Society conference Portland, OR

2. Why a Feasibility Template? • Converging – and conflicting – activities in the meat processing industry • Loss of small meat processors, especially those with USDA inspection • HACCP, family not returning to the business, costs of upgrades and maintenance, switch to “custom exempt” • OK went from 225 establishments in 1983 to 157 in 2000 to an estimated 100 in 2010 (Ward & Holcomb, 2003) • Growth of the local food movement and “process verified” meat demand • “Locavores” and “Know Your Farmer, Know Your Food” • Natural, organic, grass-fed, forage finished, free range, humane production, humane slaughter, religious slaughter, etc. • Result: demand niches for small producers, but a bottleneck at the slaughter/processing stage

3. Why a Feasibility Template? (part 2) • Scheduled slaughter for small inspected plants now extends into months • 3-6 months for surveyed small OK plants • Less time/space for dry aging or storage • The OSU Food & Agricultural Products Center (FAPC) regularly receiving requests for help examining small plant feasibility • Various plant sizes • Varying locations • One or multiple species • Result: Demand for feasibility studies and business plans, but little planning funds for hiring consultants • And even less understanding of meat business operations (Coleman, 2008)

4. Why a Feasibility Template? (part 3) • Little/no publicly available information on small meat plant costs: construction, start-up, or operating costs • Exception: the occasional “scrubbed” business plan or feasibility study found on the Internet • But, some recent publicly available information on plant design, food safety compliance, and even humane handling designs for holding pens • Guide to Designing a Small Red Meat Plant (ISU) • Applying for Federal Grant of Inspection for Meat and Poultry Plants (USDA-FSIS) • Humane Livestock Handling (Grandin) • Give producers a preliminary analysis tool for “what if” evaluations before committing time/money

5. Template Development • Based on a generic feasibility template developed by Kenkel and Holcomb (2003) • Incorporate information on small plants from Kyle Flynn and other plant owners/operators • FAPC’s meat processing facilities • Oklahoma-Texas Meat Processors Association • Contacts with cold storage construction companies and equipment suppliers • Create a spreadsheet with password-protected formula cells • Prevent user “abuse” • Users enter information in color-shaded cells only

6. Template Development Objectives • Have estimated costs/considerations for a facility that meets current USDA-FSIS requirements • Including a livestock handling area that meets recommended humane handling specifications • Include a basic equipment list for a generic, small meat processing plant • And suggestions/recommendations for additional equipment for further processing • Provide a flexible financial template that can be used for varying scale plant designs • Estimate profitability, cash flow, and returns on investment under various operating conditions

7. Template Components • Introduction • Basic info on the template, “how to use” imbedded PDF file with suggestions • Operating Assumptions • Breakdown of processing assumptions (species, retail) • Base case: beef, pork, lamb/goat/deer, retail • No. head/week, “smoked/processed” options for hogs • Utilities, maintenance, waste disposal, taxes, insurance, expense inflation rate, preferred discount rate for NPV • Plant, Property, & Equipment • Enter info on facilities, refrigeration system, holding pens, equipment (detailed list given), and even delivery truck • Enter debt financing assumptions • Depreciation calculations

8. Template Components (cont’d) • Personnel Expenses • Employees, positions, salaries, benefit assumptions, and overtime/bonus assumptions • Expense Projections • Pulls from user defined operating costs and calculated depreciation and interest expenses • Also includes area for user-defined “other” costs • Supplies and Miscellaneous (accounting, legal, fuel, etc.) • Loan Amortization (just calculations) • Market Projection (just calculations) • Operations Summary • 10-year profit/loss and annual cash flow projections • Return on Investment (just calculations) • NPV, IRR, ROA, ROE, Payback Period

9. Template Potential • Easy-to-use, basic model for a small multi-species meat plant • Comes with “base scenario” plant information • Lets users play “what if” and see impacts of changes in operating assumptions • Determine breakeven production levels • Good starting point for dealing with requests for assistance • Will be available as a free download from OSU’s FAPC website • At http://www.fapc.biz/services/agribusiness.html • Listed under “Resources”

10. Questions?