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BEEF | SLAUGHTER
BY ROBERT ARNASON
BRANDON BUREAU
Stephen Koontz has advice for anyone
looking to build a beef slaughter
plant in North America — don’t do it.
“Year in and year out, if I can talk a
producer group out of building a
packing plant, I’ve had a good year,”
said Koontz, an agricultural economics
professor at Colorado State
University.
Producer groups or businesses
thinking about building a plant usually
understand that four companies,
Cargill, National Beef, JBS and Tyson,
dominate the beef packing industry
in North America.
Nonetheless, most new entrants
don’t fully comprehend the big four’s
cost advantage, Koontz said.
When asked about the viability of a
$40 million, 250 head per day halal
and kosher slaughter plant that the
Manitoba Cattle Enhancement
Council is proposing for Winnipeg,
Koontz said it’s crucial to understand
the cost per kill of a new plant and
how it correlates to the number of
animals processed.
In a 2007 paper in which he analyzed
packer data, Koontz determined
that the average cost of
slaughter at the four major packers
was $120 to $165 per head, or a mean
of $140 per head. In comparison, the
slaughter cost at smaller plants were
$200 to $375 per head.
Updating the figures to 2012,
Koontz estimated it now costs the big
four $160 to $175 per head.
Assuming that costs have increased
a similar amount for smaller packers,
those plants would now spend $230
to $440 per kill.
As an example of scale in the industry,
Cargill’s packing plant in Dodge
City, Kansas, kills 6,000 animals per
day, but Koontz said even beef plants of
that size must operate at full capacity.
“Packers do make money, but it’s
an extremely low margin business….
The critical thing with these plants is
that they’ve got to run two shifts per
day, five days a week and one shift on
Saturday,” Koontz said.
“If you’re looking at any small plant,
they’re usually running one shift per
day, sometimes four days a week.
That just won’t cover the cost of your
building and your people.”
Koontz’s cost estimates are similar
to numbers cited by Canadian Cattlemen’s
Association president Martin
Unrau during a speech in Brandon
in late November.
He said costs are around $165 per
kill at certain JBS plants in the United
States and closer to $400 per kill at
smaller plants.
A CCA spokesperson said in an
email that Unrau’s figures are two
years out of date and can’t be applied
to a proposed slaughter plant such as
the ProNatur project in Winnipeg.
ProNatur spokesperson Adam
Dooley said it’s difficult to compare
this type of project to large commodity
players in the beef industry,
because the Winnipeg plant will target
niche markets.
“We have calculated our cost per
animal and it is competitive,” Dooley
said.
NEWS
Economist advises against slaughter plant
Analyzing costs | Low margins in slaughter plants make business difficult for new and small players
BY BARRY WILSON
OTTAWA BUREAU
Prairie grain farmers are having a
good year, but that should not be
attributed to the end of the CWB
monopoly, says National Farmers
Union president Terry Boehm.
He also argued during a video
appearance before the House of
Commons agriculture committee
Dec. 6 that government changes to
agricultural regulations and rules are
turning the clock back to an era when
farmers were at the mercy of market
forces and powerful monopolies.
During the past century, farmers
have lobbied for and won the right to
have a greater say in the government
Low margins force beef slaughter plants to run at full capacity. | FILE PHOTO
Although cost is a significant factor,
Koontz said another argument
against building a beef slaughter
plant in North America is that existing
facilities aren’t operating at full
capacity.
Based on data from his 2007 study,
Koontz said the industry had approximately
25 percent excess capacity.
A few plants have closed over the
last five years, but the North American
cattle herd has also contracted.
Therefore, Koontz said excess capacity
may no longer be 25 percent, but
it’s at least 15 percent.
The plant in Winnipeg is planning
to sell its beef into the kosher and
halal market, which should partially
compensate for increased killing
costs.
In a study published this year in
Agricultural and Resource Economics
Review, Lee Schulz of Iowa State University
found that steaks with a religious
claim earn a market premium
THE WESTERN PRODUCER | WWW.PRODUCER.COM | DECEMBER 13 , 2012
of $1.18 per lb. compared to steaks
that aren’t kosher or halal.
The premium is helpful, but Schulz
determined it’s relatively small compared
to organic beef, which garners
a premium of $2.98 per lb.
Koontz said cost per kill ultimately
determines if a plant succeeds or not.
“It’s really hard to get enough premiums
to offset a higher cost plant,”
he said.
“The theory of premiums is great.
But … what market is not being satisfied
now that you’re going to satisfy?
Or whose market are you going to
take away from them?”
Cargill already produces certified
halal beef at its Dunlop plant in
Guelph, Ont., which processes 1,500
head per day.
The Islamic Food and Nutrition
Council of America certifies the beef
from the Guelph plant, which is much
closer to the major Canadian markets
for halal beef than Winnipeg.
GRAIN | MARKETING
High grain prices not linked to end of CWB monopoly, says NFU president
Maintaining stance | National Farmers Union president Terry Boehm contends costs for producers will rise
regulatory and co-operative grain
system, the Saskatchewan farmer told
MPs during the first NFU appearance
before the committee in months.
“We’re systematically dismantling
that collaborative system under the
guise of buzzwords like modernization,
rationalization, an assortment of
pieces along that line and really recreating
an adversarial system where
farmers fundamentally end up paying
for all the costs in the system, as they
always have,” said Boehm.
After weeks of testimony about how
this year, with its record grain and
oilseed prices, has been a good one
for prairie farmers, Conservative
MPs pressed Boehm on how farmers
are doing in the aftermath of the
CWB monopoly.
The Conservatives pressed for and
eventually won the battle over ending
the CWB monopoly, but the NFU
was one of the strongest defenders of
the single desk.
Peace River Conservative MP Bob
Zimmer said his farmer constituents
have seen positives in the market since
the end of the CWB monopoly Aug. 1.
Are NFU farmer members better off
this year than last year?
“The prices are not determined
entirely by single desk or no single
desk or voluntary or otherwise,” said
Boehm. “We have droughts that have
created relatively buoyant prices, so
for the moment farmers are getting
high prices, but you can’t attribute
that to marketing freedom or a voluntary
board.”
Zimmer responded: “It’s been a
good start, I must say.”
On Dec. 4, Western Barley Growers
Association director and past president
Brian Otto told MPs on the committee
it was more than a good start.
He said deliveries are at a decade
high level, elevators are moving crop
quickly and railways and export terminals
are turning deliveries around
quickly.
“This is how a commercial marketplace
should work and certainly creates
an atmosphere that will attract
investment into our industry.”
In his testimony, Boehm said his
organization is dedicated to a farm
BY ROBERT ARNASON
BRANDON BUREAU
81
NORTHERN BEEF PACKERS | CATTLE
South Dakota
packing facility
opens doors
It’s been six years since the project
was initially proposed, but a $109
million beef slaughter plant in Aberdeen,
S.D., finally began processing
cattle this fall.
Northern Beef Packers, which is
partially owned by Korean investors
and was built to alleviate a beef processing
gap in the Dakotas, is now
processing cattle. As it scales up production
into 2013 and 2014, plant
managers expect to process 1,500
cattle per day.
If a second shift is added, the
plant’s kill capacity could reach
3,500 per day.
The plant plans to buy cattle from
North and South Dakota, Minnesota
and Iowa because producers in
those states now ship cattle south to
plants in Nebraska.
Laure Swanson, Northern Beef
Packers marketing director, told the
Bismarck Tribune that Canadian
producers have expressed interest in
selling cattle to the plant.
Aberdeen, which is about a sixhour
drive south of Winnipeg, may
offer significant transport savings for
Manitoba producers, who normally
sell cattle to plants in Alberta or to
processors hundreds of kilometres
south of Aberdeen.
NORTHERN BEEF
PACKERS PLANS
TO PROCESS 1,500
CATTLE PER DAY.
3,500
CATTLE COULD
BE PROCESSED
IF THE PLANT ADDS
A SECOND SHIFT
model that differs from the large farm
assumption of current policy.
“We believe that small-sized and
medium-sized family farms should
be the fundamental food producing
units in Canada,” he told MPs. “Our
mandate is to work for economic and
social justice for those farmers.”
He said government policies on the
CWB, the Canadian Grain Commission
and the railways are returning
the farm economy to a time when
farmers had less power.
“All of these policies that we’re seeing
are really shifting the clock back
without actually looking at the entire
public good, (without) economic
cost-benefit analysis taking place,”
he said.