The federal government is finally listening to you about the state of the cattle market. USDA announced that they were planning on investing $4 billion in the food infrastructure of the U.S., from production, processing and distribution to consumer markets.
This is part of the Biden administration’s Build Back Better program. And paid for through the American Rescue Plan Act.
We all know where the weakness is in the food processing industry, especially in beef processing. Cattlemen have made enough noise recently that it garnered the attention of Secretary of Agriculture Tom Vilsack.
A press release announcing the project says, “USDA will help to ensure the food system of the future is fair, competitive, distributed, and resilient; supports health with access to healthy, affordable food; ensures growers and workers receive a greater share of the food dollar; and advances equity as well as climate resilience and mitigation.”
The statement said that “recent events have exposed the immediate need for action” for the beef industry. “With attention to competition and investments in additional small- and medium-sized meat processing capacity, the Build Back Better initiave will spur economic opportunity while increasing resilience and certainty for producers and consumers alike.”
Now the problem will be how do you spend it and who gets to spend it? USDA already knows that meat processing has been a problem and they know cattle producers are in a financially vulnerable position. What the cattle business needs is more competition.
It’s frustrating to see just how strong beef demand is yet the industry can’t produce enough product to satisfy that demand. The beef industry is a growth business and it’s sad that we can’t process the cattle to satisfy that demand. I don’t think I’ve ever seen the federal government take this strong a position supporting the beef industry. Usually, one agency or another is taking potshots at it.
I always get nervous when the government shows up and says, “We’re here to help.” Building a bunch of small packing plants won’t help the major problem, which is that we don’t have enough competition for price discovery. Small plants are great for those selling quarters or trying to merchandise a unique product but won’t get the major four packers to pay more for cattle if they don’t need to.
Colin Woodall, CEO at NCBA, relayed his conversation with Secretary Vilsack through a Zoom conference. He said that NCBA is more than happy to help USDA figure out how and where to invest this money. He mentioned that Vilsack was very focused on the beef situation and eager to help that industry. Woodall said we need more investment in packing capacity.
He suggested providing loans, grants and direct cash payments to build new plants. Yet he realizes that, in the short term, existing plants could use help by expanding shackle space. He mentioned National Beef’s plans to double capacity at its Tama, IA, plant.
Woodall also said that the proposed Sustainable Beef plant, to be built in North Platte, NE, looks like it could be a reality but will take several years to be operational.
The packing industry has changed a bunch over the past 10 years. Packers have cut back on excess capacity, but have made investments in value-added projects. What was a 1-2 percent-margin business has turned into an 8-10 percent-margin business with further processing. Profit margins like this should be enough to attract new players into the business.
Employee retention has always been the packing industry’s nemesis. Most production jobs are done by foreign-born labor and the Obama administration’s political asylum program helped fill those jobs, but the Trump administration killed that program. The H2-A seasonal worker program would be a good immigration law to change so workers could work beyond the seasonality of the crop they came to harvest. But that would require immigration legislation, and we know how popular that is.
The U.S. cattle and beef business should be a growth industry. We have a desirable product that the world’s consumers are just starting to get a taste of. We consume less beef per capita than we did in 2000, which was 67.5 pounds. Today per capita beef consumption is 57.8 pounds, and we produce 26 to 27 billion pounds of beef a year
It will be interesting to see how this food infrastructure project goes. We already have the most dynamic food delivery system in the world; we just need more folks to work the packing plants and drive the trucks. And of course, climate change will have a role in this project somewhere. For now, keep praying for rain in the West. — PETE CROW