We Need More Small Plants

04:15PM Apr 27, 2020
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( Certified Angus Beef )

The opinions expressed in the following commentary are those of Kate Miller, a third-generation rancher and tenured beef salesman working in both domestic and international channels. She can be found on Twitter @the_meat_lady, Facebook: Kate Miller-The Meat Lady or by email: miller.kathryn@yahoo.com

“We need more small plants!”—-The tiny violin solo of the beef industry.

To start: there are 853ish USDA beef kill plants in the US, the big four run 27 of them.

Plant ownership is three business models in one: cattle buying, production operations, beef sales. Guys who jump into small plant ownership usually have ONE of these areas covered. Cattle social media spins this fairytale of plant ownership being easy—but the big four run them all out of business.

Not quite.

Here is a campfire story about a guy who buys a beef plant:

He goes and buys a beef packing plant. He sinks a couple hundred thousand or a couple tens of million into the building and upgrades. He knows he can buy cattle better than anyone else, and he hires a plant manager—usually a retired packer manager—to come handle production. The stage is set and it seems bulletproof. Buy fairly, make great product.

By some stroke of luck he gets his USDA establishment number, meaning he hired a consultant who knew what they were doing or he bought a plant that had a number and it was an easier process.

While he is getting started, he sells product locally. Things go okay in small loads. Then he ramps up and product stalls on the dock.

He call a trader someone recommended.
He calls local retail.
He calls local food service.

They tell him he needs a 3rd party audit.

He googles “third party audit” and sees 1000 different choices. He finds out the one audit his potential customers want cost thousands of dollars and takes 6 months to complete.

Meanwhile—-
Product starts backing up.
He ends up fire selling to the trader who mostly ignored him for pennies.

He starts losing money.
Product keeps backing up.
He stops being able to pay for cattle.
Cattle stop coming into the plant.
He shuts down.
The next person lines up to buy the place for pennies on the dollar.
The cycle begins again.

It gets blamed on the Big 4, but the reality is that the Big 4 didn’t even know he existed.

This guy flew blind the whole time! The Prime Act would not have saved him. mCOOL would not have saved him. No piece of today’s watercooler diatribes would have fixed this situation. He just didn’t know what he didn’t know. Even if he bought cattle better than anyone else. Even if he hired an operations guy with 30 years’ experience. Even he hired the best operations consultants.

He couldn’t generate revenue.

Because he didn't know the first thing about trading product.
He didn't have the right audit.
He didn't have the insurance.
He didn't have the right testing.
He didn’t know about marketing agreements.
He didn't have the skill or relationships to move his product off the dock.

Without a sales pipeline with those things in place—he wasn't able to optimize production, so he focused on the things he could move like ribeyes. Which is great during grilling season and Christmas, but then he gets hung in a down market. Like clockwork, his one sales pipeline goes dry because he is out of the market.

He starts calling people crooks about this time. Customers flakes on commitments because he was 25% out of the market. Meat traders tell him he can’t sell at USDA because he isn’t audited or the product is old. And from his vantage point, everyone looks like a crook! They are robbing him blind—-because he didn’t know what he didn’t know.

The packer gets blamed for undercutting him, and we start all over with this song and dance. When all that happened was he didn’t know the seasonality of ribeyes or tenders. He didn’t know what he didn’t know.

The reality is that a small plant asks ownership to be skilled traders of two inherently different commodities while being technically skilled operations managers. Does this sound reasonable to you? It doesn’t to me. It sounds like a lot of sleepless nights and heartburn.

Big Daddy doesn’t need to run these guys out of business. “Not knowing what you don’t know” breeds an inherently inefficient system where small plants are constantly in a state of bankruptcy—taking cattlemen and the plants down with them.

So we constantly live in a black hole where small and medium sized plants are a revolving door of ownership.

BUT WE NEED MORE PLANTS!!

You bet. This is the part of the story where some organizations start playing another tune about plant consolidation and captive markets and monopolies.

We had more plants once.

The largest wave of plant consolidation happened back in the 70’s and 80’s. When WW2 era plants started closing down. Why? They had not reinvested in the building since it opened. These were highly profitable institutions that didn’t reinvest, and as the market changed towards a more quality oriented consumer---they pocketed the money and closed shop. In the 1970’s, there was 10 plants around Los Angeles alone and by 1985 they were all gone. The big 4 didn’t force them out. The market place changed, and they didn’t evolve.

The next big wave of plant closures was 2013-2014 when we cattlemen were printing money. No one complained when the Big Four closed 9 plants in 13 months on the back of record prices and margins in the red. Yes, I know you don’t want to hear that. The claim is that packer’s closed building and sit in empty plants as a conspiracy against cattlemen. It fits this creative narrative. When the truth is less sinister: they have the ability to control their ledgers. Is that a conspiracy or smart business?

I’m not trying to ruin a pipe dream—-In fact I’m offering my services to small plants get started. I’ll help you sell, and I’ll connect you to the resources to do so. I know this wasn’t a warm and fuzzy sales pitch, but it’s high time we stop glamorizing an uphill battle of establishing a market and romanticizing plant ownership. We have to stop creating this victim narrative.

It’s not for the faint of heart. It’s not for the closed minded. You’ll only survive if you connect all the pieces of the puzzle: procurement, operations, sales. If you’ve got 2/3—you are still DOA.

There is no shortage of cowboy packers who have never picked up a knife, but you don’t know what you don’t know. And what you don’t know—-will put you under much faster than any boogeyman packer theory. They don’t have to cheat you. They really don’t even know you exist. They just have to let you learn what you don’t know the hard way.