Future of Food

Don't tell Hannah Klitz how hard it is to launch a national, branded-beef business. This energetic and innovative 25-year-old knows plenty about the challenges cattle producers face in making a leap to consumer-direct sales. She is also proof that tenacity and a willingness to pivot can keep a dream like this alive.

Large packers and processors may dominate the meat and poultry industries, but today, many family cattle producers such as the Klitzes are working hard to carve out unique roles in food production by going direct to consumers. Hannah and husband, Eric, for example, head up Oak Barn Beef, a family enterprise based at West Point, Nebraska. They've added a retail storefront to their already-strong online sales platform and expect to grow beef sales this year. In 2022, the company processed about 100 head, with 90% of its sales through the business' website.

Oak Barn cattle are grass-fed, grain-finished and sourced from local producers. Harvested at about 1,450 pounds, all are DNA-tested for traits that correlate with tenderness and marbling. Product quality has been a draw for buyers from the start, but Hannah says demand skyrocketed during COVID.

"I think because we were a little more established at that point, we had a step up. But, there were a lot of challenges trying to keep up," she says, noting that they quickly sold out of meat. Because they had slots scheduled ahead with a local processor, they were able to continue harvesting cattle.

"We started 2020 with seven online subscribers to our boxes, but by June, we were up to 94. That was a steep learning curve," Hannah recalls. "We went from handpicking what went into each subscription box based on family preference to what was a more scalable process. We had customers from all over the country. One mom from New Jersey called us and said she had seven kids to feed, and she could not find any ground beef. We shipped her 40 pounds, and they have been loyal customers ever since."

Even now, a couple of years past the peak of COVID shortages, butcher space continues to be a challenge in many areas. It's a challenge that Oak Barn Beef faces by trying to add processors and get harvest spaces scheduled well in advance, but it's not easy to constantly adapt.

RELIEF FOR LIMITED HARVEST SPACE

To encourage more businesses such as Oak Barn Beef, USDA in February 2022 made available up to $215 million in grants and other support to expand meat and poultry processing options, and strengthen the nation's food supply chain.

Hannah is hopeful the funding will improve access to local lockers. But, she knows the solution is going to take time and challenges will still persist.

"A lot of our local lockers applied for those USDA funds, and they've either already received them or are in the process of getting them," she says. "A butcher we use in West Point tells us they are looking to double the size of their facility, but they are waiting for construction costs to go down. Another locker about 15 minutes from West Point just put in a new facility, and I hear they can do 30 to 40 head a day. So, there is some positive news."

Like Hannah, there are a lot of cattle producers who hope USDA funds will be a game changer for consumer-direct sales. But, those most likely to benefit will be early adopters such as Oak Barn Beef, believes Don Close, chief research and analytics officer at Terrain.

The internationally recognized leader in cattle marketing and policy says he's not sure the government's investment in smaller lockers will lead to a boom in direct sales or even a larger percentage of beef's retail price tag going into producers' pockets.

"I think that as cattle supplies contract and margins become tight throughout the industry, it will be increasingly difficult for small, independent operators to be profitable in this space," he says. "If we are looking at processors that can harvest fewer than 100 head a day, it's really going to be tough. You have to consider economies of scale. Large commercial entities have outlets that allow them to capture hide and offal credits, for example, something a small, independent processor can't do. For that alone, you are talking a cost difference of $100 to $200 per head."

Close adds that looking back, producers need to remember that even when packer margins were deep in the red, like in 2014 and 2015, they continued to buy cattle to fulfill sales commitments to end users. He says small processors, in many cases, simply couldn't do that without going out of business.

BIGGER, NEWER PROCESSORS

"Today, we are down to four major producers, but we have a good strong lineup of secondary packers," Close notes. "When we consider these secondaries, I believe there is more competition in the industry than we hear about. Given contraction of inventory and ongoing challenges with supplies, it's debatable from a numerical basis if we really need more slaughter capacity at all."

That doesn't mean he is against the investment dollars he's seen poured into the industry during the last two years. He just believes that investing in bigger processing plants, as opposed to small local lockers, will bring about more predictable positives for the U.S. beef industry and food production because of their scale and impact on the industry.

"The timing of when new facilities are scheduled to come online is dead in the middle of when cattle supplies are expected to be the tightest," Close adds. "The challenges of starting a new commercial facility are going to be incredibly tough going, and I think for at least a couple of years, things will be very tight for these new players."

He believes it could be the beginning of 2025 before there is a measured increase in the U.S. calf crop. And, this is assuming a break in the drought, which is still holding across key production areas.

EFFICIENCY AND FOOD SAFETY

Asked if the farm-to-table movement is a way to produce more and better-quality food, Close says, "We won't necessarily be providing the consumer with a better product as a result. While the whole locally produced concept sounds good, adding a lot of small processors makes managing food safety harder and risks making beef prices higher, which could be detrimental to overall beef demand."

When it comes to the future of food, he doesn't think this small section of the beef market will be an answer anyone can live or eat on long term.

"We can never overlook the fact that we are still responsible for feeding some 330 million people domestically," Close says. "Add on top of that beef exports that went from a low of about 8% to now approaching 15%. We simply can't do that on a localized basis alone."

ECONOMIC SUSTAINABILITY IN DANGER

A veteran of the cattle industry, Joe Davis runs a 210-head cow herd in Oconee County, South Carolina.

Like many cow/calf producers, Davis says he's become disillusioned by what he sees as a packer monopoly, but even he doesn't think a lot of small, local processors is the answer.

"I do believe our industry's ability to be economically sustainable is being destroyed by the concentrated packing industry," adds Davis, a member of the South Carolina Cattlemen's Association board of directors and a raiser of SimAngus HT cattle.

For 20 years, the cattleman says he's gotten carcass data back on his cattle, which he retains ownership of through the feeding phase.

"Like a lot of cattle producers, I've invested in moving everything in what I've been told is the right direction. And, we've seen a lot of improvements on the production side. But, the dollars have not followed those improvements," he says, adding the average cow/calf producer today takes just 30 cents out of every dollar, a figure that used to be 60 cents.

As much as he understands the enthusiasm for direct sales and funding for local processors, Davis says he doesn't see it as a real long-term solution for the U.S. beef industry.

Like Close, he says he doesn't believe there is enough efficiency in most small processing businesses to keep them financially viable long term.

"My calves that are in the feedlot gain 4 1/4 pounds a day," Davis says. "That's a good example of the system we have in place that allows us to be productive when it comes to beef production in this country.

"We grow and process cattle extremely efficiently. We don't need to reinvent the beef industry, but we do need to break up a monopolistic sector within it or allow governmental oversight. That's the only way a cattleman like me stays in business. That's how the next generation makes a living. And, we are going to need them all to make this work for the future."

USDA GRANTS, NEW PROCESSORS

The USDA awarded some $21.9 million in grants to smaller livestock and poultry processors under its Meat and Poultry Inspection Readiness Grant program last year. The funding went to projects in 37 states, with the goal of helping to strengthen and develop new market opportunities for meat and poultry processors in the U.S. A list of 2022 grant recipients can be found at https://www.ams.usda.gov/…

In addition, several new large processing facilities, owned at least in some part by producers, have been announced recently. Some of those include:

-- Producer Owned Beef, in Amarillo, Texas. Expected to come online in 2025, this new processor was awarded $12.232 million from the Texas Enterprise Fund. The facility is expected to be able to process 3,000-plus head each day and employ nearly 1,600 people. The processor announced its producer owners will receive a percentage of wholesale beef prices for cattle they supply and share profits from the plant.

-- Sustainable Beef LLC, in North Platte, Nebraska. Operational late 2024, this new facility will have capacity of 1,500 head per day and employ some 875 workers. The state contributed about $20 million of federal COVID relief funds, with the city of North Platte giving $1 million in forgivable loans. This plant has reportedly signed an agreement with Walmart for a minority stake and board representation. The processor was organized by feedlot operators and ranchers.

-- Cattlemen's Heritage Beef Co., in Mills County, Iowa. This new processor, with no opening date yet announced, would be able to process 1,500 to 2,000 head each day and employ 800 people. The plant will be fully sustainable with traceability processes and family-farm raised and sourced. Construction is scheduled for this year.

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-- Follow Vicki on Twitter @myersPF

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