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Key questions to ask before investing in a packing plant

11/02/2005


As a result of the New BSE Reality we are coming to terms with, some producers are considering investing in beef processing plants. Before making your decision, ensure “that light at the end of the tunnel isn’t just a bear holding a flashlight” by asking yourself these important questions:

What is your rationale for getting into processing?

Often producer-packing operations are driven by financial returns on cattle sales, more than what the processed beef can receive to support those cattle prices. It’s tough to have it both ways.

Where is your market?

Before building a plant, establish relationships with retailers, foodservices operators, institutions and additional processors in order to confirm the market and, (if you can), the commitment to purchase your beef.

Do not underestimate the trust cattle producers have with consumers and resulting opportunities to communicate this credibility as a powerful beef brand that will differentiate your product.

Serving niche markets can give you a competitive edge, so check out opportunities such as halal, kosher, grass-fed, organic, natural and processed opportunities like beef jerky and ethnic specialty sausages.

To stimulate demand, why not get the government to commit to serve more Canadian beef to prisons and the military?

Will the packing plant be viable after the border opens for over 30 month cattle?

What will you do when the border opens for over-30 month cattle to the U.S. and you can get more money for your cattle south of the border? A business plan should address a closed and open U.S. border scenario to ensure a sustainable and competitive packing plant.

Have you considered competitiveness against committed capacity expansion and the large processors?

Can your proposed packing plant compete with major facilities already committed to expanding or currently being built? The Canadian Cattlemen’s Association projects federal slaughter capacity to be at about 98,000 head by 2006. This would be a 24% increase from current levels in 2004, and an annual kill increase of 4.9 million head.

The large packing plants process thousands of head each day. How will your plant compete given their economies of scale, strong distribution, and alliances with major supermarkets and foodservice distributors?

Can the operation recruit and retain the labour it needs?

Finding qualified labour that will remain in the industry is a major challenge, and one that is often underestimated.

How will the plant handle the disposal of specified risk materials, CFIA regulations and associated costs?

Rendering firms that previously paid the packer to collect waste materials are now charging fees to remove the product. Also, be sure you understand CFIA and USDA expectations before confirming projected operation costs.

Have you considered competitiveness issues for cow and bull meat?

Packers need to ensure their cow and bull meat are priced competitively against imports; meet the quality and format needs of further processors; guarantee consistent supply all year; and possess traceability procedures and HACCP certification.

“The Future Ain’t What it Used To Be”

The BSE crisis has resulted in a brutal wake-up to cattle producers who understandably want to take action. While building more capacity is required, it must be competitive and sustainable to meet your goals. Before making your decision, take a step back and obtain objective professional advice. It will be the best investment you ever made.

By Andrew Raphael, Director of Agri-food. Originally published in Alberta Beef (January 2005). For more information on this topic, please contact Andrew at 604.685.8408.