DEVELOPMENT OF A FEASIBILITY TEMPLATE FOR A SMALL

DEVELOPMENT OF A FEASIBILITY TEMPLATE FOR A SMALL MULTISPECIES MEAT PROCESSING PLANT Rodney B. Holcomb Kyle Flynn Philip Kenkel Oklahoma State University Food & Agricultural Products Center 2011 Food Distribution Research Society conference Portland, OR

WHY A FEASIBILITY TEMPLATE? Converging – and conflicting – activities in the meat processing industry � Loss of small meat processors, especially those with USDA inspection HACCP, family not returning to the business, costs of upgrades and maintenance, switch to “custom exempt” OK went from 225 establishments in 1983 to 157 in 2000 to an estimated 100 in 2010 (Ward & Holcomb, 2003) � Growth of the local food movement and “process verified” meat demand “Locavores” and “Know Your Farmer, Know Your Food” Natural, organic, grass-fed, forage finished, free range, humane production, humane slaughter, religious slaughter, etc. Result: demand niches for small producers, but a bottleneck at the slaughter/processing stage

WHY A FEASIBILITY TEMPLATE? (PART 2) Scheduled slaughter for small inspected plants now extends into months 3 -6 months for surveyed small OK plants � Less time/space for dry aging or storage � The OSU Food & Agricultural Products Center (FAPC) regularly receiving requests for help examining small plant feasibility Various plant sizes � Varying locations � One or multiple species � Result: Demand for feasibility studies and business plans, but little planning funds for hiring consultants � And even less understanding of meat business operations (Coleman, 2008)

WHY A FEASIBILITY TEMPLATE? (PART 3) Little/no publicly available information on small meat plant costs: construction, start-up, or operating costs � Exception: the occasional “scrubbed” business plan or feasibility study found on the Internet But, some recent publicly available information on plant design, food safety compliance, and even humane handling designs for holding pens Guide to Designing a Small Red Meat Plant (ISU) � Applying for Federal Grant of Inspection for Meat and Poultry Plants (USDA-FSIS) � Humane Livestock Handling (Grandin) � Give producers a preliminary analysis tool for “what if” evaluations before committing time/money

TEMPLATE DEVELOPMENT Based on a generic feasibility template developed by Kenkel and Holcomb (2003) Incorporate information on small plants from Kyle Flynn and other plant owners/operators � FAPC’s meat processing facilities � Oklahoma-Texas Meat Processors Association � Contacts with cold storage construction companies and equipment suppliers Create a spreadsheet with password-protected formula cells � Prevent user “abuse” � Users enter information in color-shaded cells only

TEMPLATE DEVELOPMENT OBJECTIVES Have estimated costs/considerations for a facility that meets current USDA-FSIS requirements � Including a livestock handling area that meets recommended humane handling specifications Include a basic equipment list for a generic, small meat processing plant � And suggestions/recommendations for additional equipment for further processing Provide a flexible financial template that can be used for varying scale plant designs � Estimate profitability, cash flow, and returns on investment under various operating conditions

TEMPLATE COMPONENTS Introduction � Basic info on the template, “how to use” imbedded PDF file with suggestions Operating Assumptions � Breakdown of processing assumptions (species, retail) Base case: beef, pork, lamb/goat/deer, retail No. head/week, “smoked/processed” options for hogs � Utilities, maintenance, waste disposal, taxes, insurance, expense inflation rate, preferred discount rate for NPV Plant, Property, & Equipment Enter info on facilities, refrigeration system, holding pens, equipment (detailed list given), and even delivery truck � Enter debt financing assumptions � Depreciation calculations �

TEMPLATE COMPONENTS (CONT’D) Personnel Expenses � Employees, positions, salaries, benefit assumptions, and overtime/bonus assumptions Expense Projections Pulls from user defined operating costs and calculated depreciation and interest expenses � Also includes area for user-defined “other” costs � Loan Amortization (just calculations) Market Projection (just calculations) Operations Summary � Supplies and Miscellaneous (accounting, legal, fuel, etc. ) 10 -year profit/loss and annual cash flow projections Return on Investment (just calculations) � NPV, IRR, ROA, ROE, Payback Period

TEMPLATE POTENTIAL Easy-to-use, basic model for a small multi-species meat plant � Comes with “base scenario” plant information Lets users play “what if” and see impacts of changes in operating assumptions � Determine breakeven production levels Good starting point for dealing with requests for assistance Will be available as a free download from OSU’s FAPC website � At http: //www. fapc. biz/services/agribusiness. html � Listed under “Resources”

QUESTIONS?