Buy local meat business grows

AgDM Newsletter
September 2020

The COVID-19 pandemic that crippled packing plants fueled a spike in demand for local meat processing services. Many locker facilities went from being a few weeks out to get an animal processed to literally being booked into 2021. Some were booked solid even before slaughter disruptions occurred. Front counter sales skyrocketed in many cases.

COVID-19 also impacted the other end of the continuum. Farmers markets and farm stands delayed openings and changed operating procedures, which all likely impacted sales. Farm-to-school programs, which provide resources to help schools procure and serve locally produced food, may have been impacted.

A few reasons livestock producers may be interested in selling locally include having:

• An available market.
• Potential to capture premium prices.
• A direct connection with consumers.
• Recognition for their production practices and products.

In late-February 2020, USDA’s Agricultural Marketing Service began reporting fruit/vegetable, beef, pork, lamb/veal, and dairy advertised prices for products identified as local, organic, or local and organic. Among meats, beef is by far the most commonly reported. The National Retail Report - Local and Organic (WA_LO100) summarizes advertised prices at major retail supermarkets. These advertised prices provide no indication on sales volume.

But by publishing current prices, USDA provides supply chain participants information to evaluate market conditions, identify trends and monitor price patterns.

Producers can compare the local price information with customary prices relayed in USDA’s National Retail Report - Beef. It provides a summary of weighted average prices for beef cuts being promoted or featured in supermarkets. Together the two reports provide a rough, moment in time, comparison. Promoted items change week to week. Thus, not every product has both local and conventional prices advertised each week.

Missing data means prices can only be compared during weeks when conventional and local products are both advertised. These are national, aggregate comparisons. Price difference could vary greatly by region. Seasonality likely exists. Quality grade is not reported, but could potentially impact price differences. Many times a meat product may be local, even though it isn’t advertised as such, especially in the Midwest.

Do consumers pay more for local beef?

The simple answer is generally consumers do pay more for local beef. Averaging across all 28 beef products, over the last seven months, the premium for local has been $1.09 per pound. The maximum was $10.22 per pound for one product one week while the minimum was negative $2.17 - a discount.

The number of beef products advertised as local is relatively low. Over the last seven months the weekly average of beef products advertised as local ran about 5.2% of all beef advertisements. Not surprisingly some of the highest weeks with advertisements for local beef were during the height of national beef processing capacity reductions. In April and May, 9.0% of the advertisements, on average, were for local beef.

Premiums can differ greatly by product. Beef comes in fixed proportions. Individual cuts come from seven primals – rib, chuck, round, loin, brisket, short plate and flank. Garnering local premiums for high- end cuts such as steaks may be easy, less so for low- end cuts. The producer and retailer, if there is one, need to sell the whole carcass. Some lower priced products, like ground beef, are often in high demand and local premiums appear to consistently exist.

On the other hand, paying an extra few dollars for locally produced high-end products may not be attractive for some consumers. Advertised prices during 8/28/2020 thru 9/3/2020 for local boneless ribeye steaks were $12.99 per pound. Boneless ribeye steaks, not identified as local, were advertised for $9.44 per pound. That’s a $3.55 per pound premium for local, if everything else about the boneless ribeye steaks is the same.

That week, local boneless sirloin steaks sold for $1.03 per pound lower than their non-local counterparts. Ground beef 80% to 89% lean had a local premium, while local boneless New York strip steak and flank steak had lower advertised prices. Local products can be at a premium one week and at a discount another.

Even though buying local may eliminate the cost of a middleman, local food still often creates sticker-shock for some consumers because local food can be either the same price or more expensive than non-local foods in a grocery store. Small-scale producers and/or those selling locally may have higher production and marketing costs, which translates to pricier products for consumers. Larger producers, and supply chains, have the structure to run more efficient operations and can generally afford to externalize costs that a smaller, local supply chain may not. On the revenue side, large processors can earn more for by-products helping to offset costs. They refine different parts into useable products and sell in large enough volumes to access international markets.

System needs to find balance

Packing plants of all sizes, serving all markets, have important roles in the meat industry. Not surprisingly, recent disruptions fuel calls for change. But lawmakers should take care to appreciate the economic forces driving the industry’s development. US beef production is concentrated in the Midwest and Southern Plains. Higher capacity federally inspected slaughter plants evolved in these states to accommodate large slaughter volumes.

Scale and supply chain capacity likely developed to capture efficiencies. So, any reversal of these trends would have cost implications to the food system. Ultimately, the system must develop a careful balance between efficiency in desired meat production during normal times with greater resiliency during disruptions.

Small meat processors can only process a few animals each day. They cannot pick up the slack if larger counterparts go down. For example, according to USDA’s most recent Livestock Slaughter Annual Summary report the US has 480 federally inspected cattle slaughter plants with capacity to slaughter 1 to 999 head annually. In 2019, they slaughtered 163,200 head or 0.5% of the total. Working through the math, on average, each facility slaughtered 340 head per year, or 6.5 head per week, or 1.2 head per day.
Similarly, the 107 plants that slaughter between 1,000 and 9,999 head annually would have average yearly, weekly and daily slaughter levels of 2,444 head, 47 head and 9 head, respectively. Some of these small slaughter establishments would have more throughput. Some would have less. Volumes in many state-inspected and/or custom exempt plants serving local markets are comparable.