Natural Livestock Feasibility Study

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Natural Livestock Feasibility Study

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  • 1. FINAL REPORT Submitted to: County of Inyo Agricultural Final Report: Commissioner’s Office Attention: George Milovich 207 West South Street Natural Livestock Bishop, CA 93514 760-873-7860 Kevin Carunchio Feasibility Study County Administrator February 2009 Inyo County 224 North Edward By Jeff Schahczenski Independence, CA 93514 Submitted by National Center for Appropriate Technology 36355 Russell Blvd. PO Box 2217 Davis, CA 95617
  • 2. CONTENTS I. Executive summary.........................................................3 II. Labeling................................................................................4 Grass finished.................................................................5 Organic.............................................................................5 Natural..............................................................................5 Combination labels.....................................................5 Eastern Sierra Beef.......................................................5 III. Infrastructure needs assessment...........................5 Combined model results...........................................8 Implications....................................................................8 IV. Producers and partners...............................................9 V. Production...........................................................................9 VI. Market analysis.............................................................10 VI. Marketing opportunities.........................................11 Results............................................................................11 VII. Action plan and budget..........................................14 Recommendations.....................................................15 Appendix
  • 3. I. Executive summary NCAT to both educate and gather information Natural and organic meat sales have grown from potential partners to determine the feasibil-significantly at the national level over the past ity of developing alternative markets for the live-five years, as the graph indicates. However, this stock (mostly beef) industry in Inyo and Monogrowth has been built on a very small base of to- counties. To a lesser extent NCAT and partnerstal alternative livestock product sales. Even with also explored the broader development of a re-significant market growth at the retail level, the gional food system based on alternative productslivestock producer may have limited ability to from local livestock.capture a price premium in these markets. Often, The method for accomplishing these tasksmeeting the demands of new markets raises pro- was to hold two interactive workshops to bothduction costs, and it is not well known whether educate potential partners on what it would takelivestock producers can capture the value that to create an alternative market for livestock andthese new markets suggest. to survey livestock producers and merchants This feasibility study is primarily focused on of fresh livestock products, such as restaurants,the question of whether it is feasible to develop grocery stores and business that re-sell livestockalternative markets for livestock products in Inyo products. With the great help of the agriculturaland Mono counties that can add value to the commissioners and the Inyo County administra-current 30,000-plus calves and 21,000-plus lambs tors’ office we sent out 60 surveys to livestockand sheep produced there annually.1 producers and 282 to merchants. We had a return This report outlines the results of efforts by rate of 10 producer surveys (17 percent return Figure 1. Fattening up nicely Sales of organic and natural meats have grown rapidly in recent years. Annual changes are for the 52 weeks that ended in April each year. 60 Organic meats Percent annual growth 50 40 30 Natural meats 20 10 0 03 04 05 06 03 04 05 06 Year Figures are for prepackaged foods with organic or natural labels and sold at major food, drug or mass merchandisers, excluding Wal-Mart. Excludes freshly cut meat. Source: AC Nielsen LabelTrends1Inyo and Mono Counties: 2007 Annual Crop and Livestock Report. 3
  • 4. rate) and 28 merchant surveys (10 percent return labeling terminology is being highly criticized byrate). 2 some industry and consumer organizations be- NCAT’s determination is that the develop- cause it has great potential to confuse consumers.ment of a regional and alternative livestock The confusion results from similarity to the gen-market is NOT feasible at this time. Without eral label claim of natural that is already given tofurther educational and research efforts, along processed livestock products. To illustrate, natu-with greater willingness of livestock producers ral bologna refers to how the meat is processedand local merchants to seriously take increased into bologna and not the naturalness of the meatleadership and ownership in such efforts, further going into the bologna. The proposed naturallydevelopment of a viable alternative fresh live- raised standard is supposed to function as whatstock product industry is not possible. might be the equivalent of a combined antibiotic- and growth hormone-free label.II. Labeling Perhaps the real confusion for producers Lauren Gwin — in a recent unpublished dis- and consumers with labeling comes from whatsertation at the University of California, Berke- are termed label claims. Private parties are freeley — gives a concise overview of the current to create any label claim they wish, and can askconventional livestock market that in large part the U. S. Department of Agriculture (USDA) fordefines the current situation in Inyo and Mono authorization of a label claim. However, suchcounties: label claims require ample documentation of the “In 2005 the United States turned 33 million truth of the claim before it is granted. Use of suchcattle into 25.6 billion pounds of beef. The estimated a claim also opens the user to possible litigationretail value of the U.S. beef industry was $78 billion. if a competitor wishes to contest the truthfulnessThe beef industry is shaped like an hourglass. At the of the claim. Also, private parties can have theirtop are hundreds of thousands of farms and ranches claims authenticated by an unbiased third-partyacross the country that raise millions of beef calves. under a USDA program called process-verified.Near the middle of the hourglass are approximately This USDA-sanctioned label is not often used2,000 feedlots, where the cattle are fattened on high- by alternative marketers of livestock becauseenergy feed for the last few months of their lives. In of expense and complex paperwork demandsthe narrow neck of the hourglass are the even fewer for application. For further information on theslaughter and processing plants, most of them owned process-verified label claim process, visit http://by one of four companies, and the small number of archive.gipsa.usda.gov/programsfgis/inspwgh/retail conglomerates that own a large proportion of pvp/pvp.htm.the outlets where beef is sold. At the bottom of the Finally, trade associations may create eitherhourglass are the millions of consumers who buy that trademarks or label claims that they can attach tobeef.”3 the product for those who are members of their One way to view the alternative market for association. A good example of this approach tolivestock is to view it as a separate system of product differentiation is a label created by themarketing, as well as production, that differenti- American Grassfed Association (AGA). Learnates livestock products from this standard con- more about the label at www.americangrassfed.ventional model. Labeling and branding offer org.significant ways to create this differentiation. The This association trademark is for the expressprimary labels that are in use for this purpose use of those who are members of the AGA. It is aare: grass-finished or grass-fed4, natural and organic. third-party verified trademark and that verifica-To a lesser extent such additional labels as sus- tion is done by the Food Alliance, which has alsotainable, growth hormone free, antibiotic free, cruelty developed a broad third-party label for sustain-free and pasture raised have also been used. How- ably produced foods called Food Alliance Certi-ever, only grass-finished and organic labels have fied. Again, this label claim has to be approvedany degree of national recognition. A new and as by the USDA. Although this is a trade associationyet unfinished voluntary label claim that may be trademark, any private entity could create a simi-available soon is naturally raised; however, this lar individual trademark. For more information4 all questions were answered on surveys, we used as much of the data as possible.2Not3 Gwin, L, 2006. New Pastures, New Food: Building Viable Alternatives to Conventional Beef, unpublished Dissertation, University of California, Berkeley.4 I use the term grass finished. Grass finished means the animal was almost exclusively grazed on pasture until removal for slaughter.
  • 5. on trademarks see www.uspto.gov/#. on their labels it could either refer to the level of processing of the product or more typically Grass finished implies some implication that the livestock were Grass finished is now defined under a vol- raised free from the use of antibiotics or growthuntary label claim administered by the USDA. hormones. Unfortunately, these are not usu-Information on this claim is provided in the ally third-party verified labels meaning that theAppendix. The rule requires diets for ruminant consumer must ultimately trust the seller as toanimals —cattle, sheep, goats and bison, but the truth of the claim. In Inyo and Mono countiesnot pigs —to be derived solely from forage. It there already has been the development of a nat-also requires that animals not be fed grain or ural beef product associated with the Harris Beefgrain by-products and calls for continuous ac- brand. In this case it is difficult to tell whether thecess to pasture during the growing season. Be- Harris Beef brand or the separate natural label ising a voluntary standard, however, it does not more important to the development and successtechnically prevent a seller of a livestock product of this product.from claiming grass finished on the label if theUSDA accepts the label clam. However, since the Combination labelsenactment of the rule, it would be doubtful that Within the confines of the general laws ofany new grass-finished label claim applications label claims and trademarks, it is possible thatwould be accepted without meeting the USDA producers and sellers of livestock products coulddefinition. combine label claims. One could have a New York strip steak sold as natural, grass finished Organic and organic. Indeed, there are several livestock The use of a claim to be organically produced producers who are developing an organic grass-is strictly controlled by the federal government. finished livestock product market niche.The agency that is in charge of this label is theNational Organic Program (NOP). The main con- Eastern Sierra Beeftact for information on organic standards is their Throughout the workshops and discussionsWeb site at www.ams.usda.gov/nop/. with Inyo and Mono county livestock producers It is important to note that the organic label is and merchants there was interest in the creationalso a third-party verified claim and those live- of an Eastern Sierra Beef label. This would be astock producers who wish to use this label must possibility, provided the trademark or brand isbe inspected annually by an accredited certifier, not already owned by some other entity.develop an organic systems plan and in generalmaintain extensive production and sales records. III. Infrastructure needs assessmentNCAT, through its ATTRA project, provides a The development of alternative markets forgreat deal of information to assist with organic livestock has been hampered by the lack of ade-certification. For more information, visit www. quate processing facilities. Indeed, this is perhapsattra.ncat.org. We disseminated over 200 publi- the single greatest barrier to the development ofcations on this topic to livestock producers and alternative markets for livestock products na-merchants who attended our workshop in Bish- tionwide. Inyo and Mono counties do not haveop, Calif. existing facilities adequate for processing signifi- cant numbers of livestock. In addition, there are Natural no larger-scale feedlots available in the area that With the exception of a possible new USDA could be used to feed-out significant numbersvoluntary label clam called naturally raised as of yearling beef to slaughter weights. This is amentioned above, natural is a label claim that is serious handicap in developing an alternativelargely meaningless at least as it refers to how the market.livestock is produced. While individual sellers There have been three possible scenariosof livestock products may use a natural claim discussed by participants in the two NCAT work- 5
  • 6. shops and evaluated by survey respondents with how to build, expand or upgrade a processingregard to these infrastructure deficiencies: mobile facility, gives a very graphic picture of the com-slaughtering alone; mobile slaughtering with an plexity of such an effort.5associated cut-and-wrap facility; or a stand-alone Costs of a stationary facility depend highly onprocessing facility that would both slaughter and the number of animals needed to process in totalcut and wrap livestock products in one location. and whether the facility can be sized to accountAs part of our survey we specifically asked live- for maximal use throughout the year. Most stud-stock producers which of these alternatives they ies support large economies of scale for process-preferred. The results are presented in Table 1 ing facilities and assert that the decline in theand 2. number of moderate and small processing facili- ties is evidence of this economy of scale.6 Howev- Table 1. Processing facilities wanted er, these studies are in relation to the commodity livestock industry and do not take into account Mobile 1 new niche and more valuable livestock market Stationary 7 opportunities. Mobile and cut and wrap 2 For this report we concentrated our research Total responses 10 efforts on mobile slaughtering with an associ- ated cut and wrap facility, to get some sense of Table 2. Processing and marketing the cost investment involved in serving an alter- functions needed native livestock industry in the Eastern Sierras. In our estimation a stationary livestock facility Slaughtering 6 would cost more than the combined model of Aging 4 mobile slaughtering and cut and wrap facility. Packing and wrapping 5 While a future analysis would have to be under- Marketing 3 taken to get specific estimates for these alterna- Total responses 18 tives, review of existing studies on the subject provides a good starting point. Besides its high cost, the other difficulty with Clearly, of those responding, a stationary a stationary facility would be the transportationslaughtering facility is preferred. Also, respon- costs of getting animals to the facility and thedents want the facility to provide the services costs associated with holding them for periodsof slaughter, aging and packaging. The mobile of time until slaughter. The mobile slaughter andand cut-and-wrap option was highly discussed cut-and-wrap facility would eliminate the needat both workshops, so it is interesting to see such to transport animals to slaughter, but would stilla low interest in this alternative by survey re- entail getting the mobile unit to individual farmsspondents. Interestingly, Deb Garrison of Central on a regular schedule. Mobile slaughtering alsoCoast Grown in San Luis Obispo, Calif., who creates the need to deal with the issues of offalspoke at one workshop, is very near opening a disposal on-farm and the questionable ability ofmobile slaughter and cut-and-wrap facility that livestock producers to hold a set amount of ani-will be the first of its kind in the state of Califor- mals in a corral to be slaughtered on the ranchnia and is one of only six that are operational in Producers were asked about the last two is-the United States. Contact www.nichemeatpro- sues in the producers survey. Eight of 10 respon-cessing.com/goal.html for more information on dents said they had the capacity to corral animalsmobile slaughtering and cut-and-wrap facilities. temporarily and five of eight respondents said Besides moderate interest, the issue of provid- they could handle offal waste on farm. However,ing needed processing infrastructure of course re- discussions with county environmental officialslates to cost and production capacity needs. New —and the experience of others in the state of Cali-modern stationary livestock processing facilities fornia — raise the issue of on-ranch offal disposalare very costly and require great effort to build. as a potential problem.Figure 1, adapted from an excellent resource on Fortunately we have access to a very good6NCRDC, 2008. Iowa Meat Processors’ Resource Guidebook. Available free for download at www.ncrcrd.iastate.edu/pubs/contents/189.htm.56 A Barkema, M Drabenstott, N Novack, 2001. The New U.S. Meat Industry, Economic Review, Federal Reserve Bank of Kansas City.
  • 7. Figure 2. Steps needed to build, expand or upgrade a meat plant and organizations that can help (Adapted from the Iowa Meat Processors’ Resource Guidebook, 2008) Plant design: IDALS, IMPA, FSIS, architects and Background research (prospecting): contractors IMPA, AAMP, IDALS, VAAP, AgMRC Sections 3 and 4 Rules and regulations Waste water: DNR (IDEA will assist with this permitting Business planning and feasibility: process) CIRAS, SBDC, SCORE Business license: IDED Section 1 Construction: : Local Inspection: IDALS and FSIS Section 3 Supplies: IMPA, other plants, producer groups Financing: and producers Local banks Financial assistiance: Local goverment, IDED, USDA Section 2 Processing SSOPs and HACCP: Labor: Plant construction: Iowa Community College, Meant and food science extension, Contractors Iowa Workforce Development IDALS/FSIS Section 4 Latinos in Action Section 3 Section 57
  • 8. study that looks at the costs of operating a mobile (Nevada in 2006 and Wyoming in 2004), locationslaughter unit with an associated cut-and-wrap and in what specific equipment was included infacility just across the border in northern Nevada. the estimates. In summary, the Nevada combinedThis work was in part the basis of our surveys so facility start-up costs were estimated to be ap-that we could compare their results with ours. proximately $1.76 million dollars for more thanThere has been another study done that can also 2 million pounds of meat processed per yearprovide some comparative analysis from Wyo- and the Wyoming combined facility would costming.7 These comparisons offer rough and dated $508,000 dollars at 950,000 pounds of meat pro-estimates of what costs and concerns might be cessed per year.in this situation. We did have one of the Nevadastudy authors present at the producers work-shop, and he too cautioned about applying their Implicationswork to the Inyo and Mono counties area. A fundamental question is: What volume of meat would producers in Inyo and Mono coun- ties be willing to commit to a local processing Combined model results facility? Based on these existing studies, the costs of Our survey of producers give us some limitedsetting up a mobile slaughter unit are presented insight into the answer to that question. First, sixin Table 3. The average of the costs from the two of 10 respondents said they marketed a total ofstudies would be approximately $233,000. 4,725 calves in 2007. Two additional respondents The cost of a cut and wrap facility as estimat- sold 13,000 pounds of beef directly to consum-ed by the two studies is presented in Table 4. ers in large portions such as halves and quarters. Finally, eight respondents out of 10 said they Table 3. Mobile slaughter unit costs produced 5,658 head of cattle in 2007. It is inter- Item Nevada Wyoming esting that one respondent actually sold 1,000 pounds of meat in small cuts directly to consum- Trailer $190,000 $150,000 ers. However, six respondents out of 10 claimed Supplies $5,000 $25,313 to have enough interest in the idea of an alterna- Semi-tractor $45,000 $20,000 tive livestock processing facility to put at least a Commissioning $6,500 $6,000 $500 investment in a processing facility. A rough Sales tax $10,325 $7,000 estimate of the possible investment interest on Total $256,825 $208,313 the part of six of the 10 respondents is $23,000. If we assume that these investors committed their entire annual production to the new Table 4. Fixed cut-and-wrap facility costs facility, this would represent an annual Nevada Wyoming* processing of 3,935 head of beef cattle. If we Building expense $1,333,369 $299,550 further assumed that these cattle are slaugh- Furniture fixtures $36,360 tered at a live weight of approximately 1,100 Facility equipment $136,100 pounds each and that only 330 pounds of marketable meat is obtainable from each Totals 1,505,829 $299,550 carcass, we have an estimate of 1,298,550 Capacity (pounds/meat/ 2,169,600 950,000 pounds of cattle to be processed. According year) to both the Wyoming and Nevada studies, a Cost per pounds processed $0.69 $0.32 single mobile slaughter could process close * The Wyoming study did not to 1 million pounds of livestock per year.8 break down costs. Thus, if our survey represents committed producers to this project they could pos- There is considerable difference in the costs sible supply the capacity of production neededof the facility based on a gross estimate of the to keep one mobile slaughter unit and associatedtotal pounds of meat processed per year. There cut-and-wrap facility fully operational for a year.are also differences in the time of the estimates78Federal States Marketing Improvement Grant, 2004. Mobile Slaughter Unit for Wyoming: Assessment of Needs and Values.8 There are differences in the estimated capacity of mobile slaughter units (30,000 pounds to 1,000,000 pounds per year); my analysis suggests that the Nevada study iscloser to the true capacity.
  • 9. However, an investment of $23,000 represents a There are no ranches that are currently certifieddown payment of only about 10 percent of the organic or that appear to provide any signifi-cost of creating a mobile unit, much less an asso- cant amount of grass-finished beef to the currentciated cut-and-wrap facility. conventional market. If ranchers were to supply While the survey responses do not suggest a an organic or grass-finished market this wouldstrong willingness at present on the part of Inyo require some changes in their current produc-and Mono counties’ producers to invest in the tion practices. Even meeting the less stringentinfrastructure necessary to develop an alterna- demands of a natural product may be difficult fortive livestock production facility, perhaps with many ranchers in Inyo and Mono Counties. Also,time and further education a larger core group of the fact that 80 percent of the livestock producersinterested producers could meet minimal needs are operating under federal or City of Los Ange-for such an investment. les leases is of concern. There may be limitations linked to those leases that would make meeting the requirements of alternative market nichesIV. Producers and partners difficult. Finally, the most important question is NCAT held two workshops attended by ap- whether there are significant costs to productionproximately 30-plus community leaders who changes and whether correspondingly significantexpressed by their attendance alone some interest price premiums are available to warrant chang-in pursuing next steps for building an alternative ing production practices.livestock industry in the two-county area. Copies It was not clear, nor would anyone share,of the flyers created to advertise the workshops exactly what price premium they are currentlyare attached in the Appendix to this report. We receiving for providing a natural product to Har-arranged national and regional expert speakers ris Beef. One comment from a rancher was that itfor these workshops, who provided excellent ex- amounted to “additional pennies on the pound.”amples of how to develop alternative markets for Dinner conversation with another rancher sug-livestock and strengthen regional food systems. gested that $1.40 per pound live weight for beef These experts and others can be drawn on cattle was about what they were receiving forto guide any future efforts. It was clear from the their product. Apart from gathering this anec-meetings that there was both enthusiasm and dotal information, we also asked questions inskepticism among several local producers and our producer survey about alternative systems ofmerchants regarding more work on this effort. production and price.Of particular note was the interest of the Mam- The first relevant question we asked was: Ifmoth Mountain Ski Area in purchasing local you were to participate in this local producerlivestock products for the resort. The fact that business entity, briefly describe how your currentthey purchase 50,000 pounds of fresh meat a year livestock operation might change (i.e. feed outand grind their own hamburger on site is particu- and not sell on the hoof, produce specialty prod-larly significant. However, their current provider uct, natural, grain fed)?is Coleman Meats and that company is quickly Unfortunately we received only four answersmoving to all-organic products. The question is out of the total 10 respondents. Three answerscan Inyo and Mono county livestock producers were to reiterate that they were already doingprovide matching quality product at a competi- natural beef production. A second answer wastive price? that the respondent would feed out animals on federal lands with some extra feed to supplementV. Production range. NCAT furnished excellent educational re- The next question we asked was: Researchsources on the production requirements for suggests that certified organic and grass-finishedproducing organic, grass-finished and natural beef can be profitable and return $1.40 per poundlivestock products. As mentioned earlier, several live weight price and a profit above all costs in-ranchers in the two county area are already pro- cluding labor and management of $266 per head.viding natural livestock products to Harris Beef. Table 5 provides a summary of their responses. 9
  • 10. Table 5. Answers to question 19: Profitability Responses % of total 1. This is a much higher price and/or profit than I am receiving now. 4 40 2. This is not much different than the price and/or profit I am receiving now. 2 20 3. Organic grass-finished production is not possible on my ranch. 2 20 4. I don’t trust that such prices can be maintained. 2 20 Total responses 10 100 Clearly some respondents think that at the less, it does appear to be a very valuable marketprices and profit level quoted, grass-finished and if you can meet the demands of the market and iforganic production improves profitability. How- you are willing to make the production practiceever, an equal percentage doesn’t believe the changes necessary to meet those demands. Judg-numbers or believe they can not produce a grass- ing from the responses to our survey, such will-finished or organic product. The two answers ingness does not appear to be very high.that suggest that their current price and profit isclose to the potential price premium of certified VI. Market analysisbeef are intriguing. One of these respondents There are currently three markets for live-was a very small producer who sells direct to stock beef in Inyo and Mono counties. The com-consumers, suggesting the economic viability on modity market has a current price of $1.14 perlow volumes of this business model. The other pound live weight; a natural/Harris beef marketrespondent already earning the indicated prices has an unknown price; and direct sales, withand profits also sold direct, but had a fairly high very limited data, appear to be about $1.40 pervolume of sales, at 20,000 pounds of beef per pound live weight. There is no specifically grass-year.9 finished or organic markets for livestock as of yet It is important to note that the average 2007 in the two-county area. Unfortunately there alsoprice for cattle in Inyo and Mono counties was is very limited data on organic and grass finishedreported as $1.14 per pound live weight, a 28- markets. NCAT’s recent work on this topic doescent-per-pound lower price, or approximately bring together known research on this topic.10$280 less per head, for a 1,000-pound beef. How- Unfortunately, much of this data was collectedever, the ability of consistently receiving such a under private contract and only parts of it can beprice premium on a grass-finished organic prod- shared publicly.uct is questionable. The research on this is lim- Table 7 from the aforementioned report thatited and the research referenced in the question shows the average retail value of certified or-has been done by NCAT and Iowa State Univer- ganic grass-finished beef based on a survey of 17sity. retailers who sell this product directly over the Table 6 provides more details on the profit- Internet. It is important to note several pointsability of grass-fed and organic beef produced from this table. First, a live 1,100-pound beef onlyin Montana in 2007. As can be seen, there were represents approximately 330 pounds of retaila range of returns to the ranchers in Montana cuts. Of course large and small processors needselling to this very small niche market. Nonethe- to create some kind of valuable product from the remaining 770 Table 6. Profit raising organic grass-fed beef pounds of animal. Average Median High Low But just begin with Profit per head $163.07 $266.13 $547.80 -$376.71 the rough estimate Break-even selling price for all $1.25 $1.16 $0.90 $2.67 that the retail value costs ($/pound) of an 1,100-pound or- ganic grass-finished Percentage return on all costs at 17% 21% 56% -20% beef is close to $2,850 $1.40/pound10is not clear if this 20,000 pounds represented total carcass weight or processed weight.9It10 NCAT, 2008. Building a Montana Organic Livestock Industry: Final Report Montana Growth Through Agriculture project.
  • 11. many of them only just startingTable 7. Pricing on a single certified organic grass-finished beef operations. A valuable next step based on average prices would be to visit these projectsLive animal weight 1,100 pounds with the intent of gaining better Pounds Price/pound Total value understanding of actual operat-Tenderloin steak 13.2 $26.75 $353.10 ing facilities.New York strip steak 15.4 $21.24 $327.10Rib-eye steak 26.4 $19.02 $502.13 VI. MarketingStir fry/cubes 8.8 $6.95 $61.16 opportunitiesRound roast 75.9 $6.37 $483.48 An important question toGround beef 190.3 $5.90 $1,122.77 answer is: What regional demand is there for alternative livestockTotal meat (pounds) 330 $2,849.74 products in Inyo and Mono coun-or $2.59 cents a pound. Thus, given a $1.40-per- ties? Another critical questionpound profitable level of production, the margin is: What prices would those who demand thesebetween the producers’ value and the ultimate products be willing to pay for them? To beginretail value of a single beef is about $1.19 per finding answers to these two fundamental ques-pound. tions, we surveyed 282 merchants in the two- The question is: Can the infrastructure be county area. A total of 28 surveys were returned.profitably built and operated with a gross margin Seven of these surveys were excluded from theof $1.19 per pound? The Nevada study discussed analysis because the respondents did not actuallyabove estimates such profitability for a mobile purchase meat products for resale to customers.slaughter unit and cut-and-wrap facility with a Since we also used as the basis of our survey acattle price of $1.30 per pound live weight for similar survey done in Nevada, we will comparebeef slaughtered at 800 pounds live weight, or where appropriate and available our data with$1,040 per slaughtered beef. This was for a grass- those of Nevada.11finished niche market and it was based on utili-zation of the facility for pig and sheep slaughter Resultsas well. Finally, it requires a production level of We asked two questions about basic volumeabout 2 million pounds of livestock being slaugh- of sales of the retail business and location. Tabletered each year. See Table 4 above for more 8 indicates that a significant number of respon-information. dents do over $250,000 in total retail sales. Also, Despite the best available data, there should the majority of respondents were from the Mam-be great caution in trusting these kinds of paper- moth Lakes area, but with a fair representation ofand-pencil analyses, as much needed as they are. other locations. See Table 9 for details.There are only six of these types of project oper- The first question related to livestock pur-ating in the United States, chases had to do with the fre- Merchant data Table 9. Respondent location Mammoth Lakes 5 Table 8. Retail sales Bridgeport 4 Table 10. Frequency ofLess than $50,000 0 Bishop 3 meat purchases per month$50,000 to $80,000 2 Lone Pine 3 Never 0$81,000 to $125,000 2 Lee Vining 3 One to two 1$126,000 to $180,000 4 Olancha 1 Three to five 10$181,000 to $250,000 1 June Lake 1 Six to 10 7More than $250,000 11 Chalfant Valley 1 More than 10 3Total responses 20 Total respondents 21 Total 21 11 This is the same study referenced earlier. 11
  • 12. quency of meat purchases per month. It is clear Table 12. Important product attributes forfrom Table 10 that the merchant respondents are fresh meatmaking frequent purchases of livestock products. Inyo/Mono Nevada We also asked the volume and price of cur-rent livestock purchases of beef, including steak Taste and flavor 1 1and hamburger; and sheep, including leg of lamb Freshness 2 1and rack of lamb. Unfortunately, we did not get Safety 3 2many responses to price and volume questions Tenderness 4 2and no respondent reported purchasing sheep Price 4 4products. Table 11 provides this information. Marbling 5 8 Table 11. Produce volume and average price Muscle texture 5 9 New York strip steak Leanness 6 3 Average price per pound $5.73 Type of cuts 6 5 Pounds per month 1,345 Humane 7 6 8 respondents 16,140 lbs/year Environ. friendly 8 7 Ground beef Feed type 9 8 Average price per pound $2.48 Natural 10 8 Pounds per month 6,321 13 respondents 75,852 lbs/year Packaging 11 8 Organic 11 9 We also asked a series of questions about theattributes of livestock products they purchased. Origin 12 11Here we have comparable data from the Nevada Brand name 13 12study. However, the Nevada study questions Sales and promotion 14 10were asked of consumers, while ours were asked Total respondents 21 542of retail merchants. This data in Table 12 pro-vides some important insight into the question a sense of the merchants’ willingness to pay forof feasibility for a regional alternative livestock a specialty livestock product in Inyo and Monomarket. counties. We presented the respondents with a First, it is surprising how similar the results choice between two products of three types: Neware between our survey and Nevada, despite the York strip steaks, ground beef and leg of lamb.fact that the Nevada results represent far more Choice A we termed the conventional lower-respondents and that Nevada surveyed consum- priced good. Choice B was the same producters and we merchants. The notable exceptions to except for the inclusion of two attributes, grasssimilarities are that marbling appears more im- finished (lean) and produced locally, or grownportant to the consumer than the merchant. Also, in the Eastern Sierras. If respondents chose B,leanness is a much more important attribute to we gave them a series of higher prices to choosethe consumer. It is notable that the attributes from as well as the option of putting in their ownof natural, organic, or feed-type (grass-finished price. If they chose A we also gave them a choiceor other) seem to be relatively unimportant to at a price that seemed reasonable to them or thethe consumer or merchant. This data does not option of simply stating that they would not buyprovide great optimism for organic, grass-fin- the local grass-finished product no matter whatished or natural livestock products in the region. the price. The results are presented in Table 13Finally, though price is not the most important below.attribute, it is important to both consumers and It is clear from Table 13 that for the most partmerchants. the merchants were interested in the local and The balance of the survey attempted to get grass-finished (lean) product. In the case of New12
  • 13. Table 13. Willingness to payType of meat Number of Maximum Conventional Average % people who price per price per of price rise prefer the type pound pound accepted*New York Strip Grass fed, local 15 $8.98 Conventional 3 $8.17 $8 12%Ground beef Grass fed, local 14 $4.13 Conventional 6 $2.92 $3 27%Leg of lamb Grass fed, local 12 $5.67 Conventional 3 $3.42 $5 12%* Percent price accepted if respondent choose grass-fed, local meatYork strip steak and leg of lamb, merchants were Though not directly comparable to our data, it iswilling on average to accept a 12 percent higher nonetheless interesting that consumers are willingprice for the product. In the case of ground beef, to pay more for high-end cuts than merchants,on average respondents were willing to pay a about the same for ground beef and slightly lower27 percent higher price for the product. It is also for leg of lamb. This data partly reflects a majorinteresting to note that even when the respondent flaw in the Nevada study, in that they exam-rejected the local and grass-finished product, they ined consumer willingness to pay. However, thedid seem to think a somewhat higher price was expected buyers of the Nevada product are mer-justified for steak, but not ground beef or lamb. chants, not consumers. For this reason, our study However, do these acceptable higher prices examined merchant willingness to pay.for specialty livestock products provide enough Second, the Nevada study used the highermargin to warrant the infrastructure and produc- willingness to pay percent values as critical datation change costs that would be required to meet for the analysis of the feasibility of investmentthe market? Our data does not easily provide an in setting up a farmer- or rancher-owned mobileanswer to that complicated question. If we look at slaughter and cut-and-wrap facility. The actualthe Nevada study data and previous work from price points that they used for their analysis forNCAT we can gather further clues to this impor- beef were based on whole carcass retail conven-tant question, but no definitive answer is possible tional prices increased by the percent increasewithout significant further study. in price that consumers indicated they would be Some additional insights are available from willing to pay. They assumed a retail price forthe results of the aforementioned Nevada study. a whole beef carcass in their analysis of $1,875First, in the Nevada study the consumers (not based on an 800-pound slaughter weight or $2.35-merchants as in our study) were willing to pay per-pound average for the animal. However,42 percent higher prices for New York strip NCAT’s study, though it is based on certifiedsteaks, 12 percent higher prices for ground beef organic and grass-finished animals, seems to im-and 15 percent higher prices for leg of lamb. ply a retail price for this product based on whole 13
  • 14. Table 14. Comparison of per-pound retail pricing 1. It does not seem that there is a core group of whole beef carcass of producers willing to take significant financial risk to make the necessary investment in a facil- USDA 2007 average Nevada study NCAT study ity for processing. The ranchers surveyed do Conventional Grass finished Grass finished/ not think a mobile processor with a combined organic cut-and-wrap facility is feasible. There does $2.09 $2.39 $2.59 seem to be stronger interest in a stationary pro- cessing facility in their area, but such a facilitycarcass of $2.59 per pound. Table 14 summarizes is even more expensive and difficult to build thanthis information. a mobile unit and cut-and-wrap facility. The important point is that in the Nevada 2. The ranching community does not seemstudy there is an expectation that consumers prepared to change their systems of productionwill be willing to pay 30 percent more for beef to meet the demands of alternative markets thatproducts if they are local and grass finished, and have the potential to deliver price premiums.that assumption leads to an assumed ability of While some producers seem able to meet thethe processor to charge 30 percent more for their demands of the natural beef market, that is onlyfinished beef products to merchants. The business possible because the natural brand is connectedprofitability expectations of the Nevada study are to a very successful company, Harris Beef, whichcritically tied to these assumptions. Meanwhile, already has significant brand recognition.our analysis, although based on a smaller number 3. The ranching community seems to be splitof respondents, suggests that merchants are not at present between a subgroup that is working di-likely to pay 30 percent more for steaks, but might rectly with Harris Beef and getting a higher pricebe willing to pay close to that for ground beef. and those who are receiving general commodityGround beef represents approximately 58 percent prices. This is not the kind of situation where itof the retail beef in an average carcass, so it may is likely that ranchers could work together in abe that the Nevada study has severely underesti- substantially risky and large investment project.mated the true value of their product and hence Furthermore, it simply may be that Harris is offer-their profitability in operating a mobile slaughter ing enough of a price premium that there is littleunit and cut-and-wrap facility. motivation to pursue an alternative market. Finally, it is important to note that the Nevada 4. The local natural beef market alone doesstudy does include the slaughtering of lamb and not offer the kind of price premium necessary topork to make sure the facility is utilized at full sustain the development of a processing facility,capacity year-round. By contrast, it appears that either stationary or with mobile unit, in the area.this multispecies utilization might not be the case If a significant number of ranchers could commitfor Inyo and Mono counties. to producing a significant volume of grass-fin- ished or certified organic beef cattle, than it mightVII. Action plan and budget be feasible to invest in such a facility. Even with In the estimation of NCAT the development the expectation of processing organic and grass-of a regional and alternative livestock market is finished cattle, we highly recommend doing aNOT feasible at this time in Inyo and Mono coun- very careful analysis similar to the Nevada studyties. Thus no future action plan and budget will before launching too far into such a project.be submitted. Without further educational and 5. The necessary willingness by the merchantresearch efforts, along with increased willingness community to pay more for alternative livestockof livestock producers and local merchants to seri- products has not been demonstrated. Paying moreously take greater leadership and ownership in for hamburger is not a sufficient foundation forsuch an effort, further development of an alterna- establishing an alternative market and merchanttive livestock product industry is not warranted. unwillingness to pay more for high-end cuts orThere are several reasons behind this determina- alternative products such as lamb is a major prob-tion: lem in making an alternative processing operation economically feasible.14
  • 15. Recommendations: Table 15. Educational needs 1. Continue to try to bring together the ranch-ing community into more discussions of the eco- Number wantingnomic viability of their industry. At present the Marketing 4ranching community seems divided. During the USDA label 3first workshop for producers, an NCAT speaker specificationsasked about pricing and profitability and not one Managing public lands 1person would respond. This demonstrates an Cooperative formation 0unwillingness to work together on improving the Business planning/ 2economic conditions of the livestock industry. investment 2. Find out what it would cost to replicate the Animal fertility/genetics 4kind of analysis that was done in Nevada. Seek Specialty production 2grant funding to pursue such a study if you can Dealing with offal 1get a core group of the ranching and merchant Meat tenderness 2community to commit to overseeing the study.See ATTRA publication Building Better RuralPlaces at www.attra.ncat.org for funding sources. 3. Visit the California Central Coast mobileprocessing unit to gain a better understanding ofactual operational costs of a mobile slaughter andcut-and-wrap processing facility. 4. Provide greater educational opportunitiesto the ranching community. The producer surveyasked questions about the need for future educa-tion, and Table 15 provides the results. Although this assessment may seem harsh, itis not our intention at NCAT to squash the pas-sion of any individuals to improve their commu-nities and way of life. We met a lot of passionateindividuals and kind folks who are strugglingto preserve their way of life during our work onthis study. NCAT’s mission is helping people bychampioning small-scale, local and sustainablesolutions to reduce poverty, promote healthycommunities, and protect natural resources. Wewelcome any future opportunity to further yourefforts. 15
  • 16. Appendix16
  • 17. 17
  • 18. TRADE/MARKETING/ECONOMICS AMS establishes voluntary standard for grass-fed marketing claims by Phyllis Marquitz, Director, Food Policy and derived from grass (annual and perennial), forbs (e.g., Audrey Monroe, Manager, Technical Issues Communication – legumes, Brassica), browse and cereal grain crops in the NCBA vegetative (pre-grain) state. Summary Animals cannot be fed grain or grain byproducts and must have continuous access to pasture during the growing season The U.S. Department of Agriculture (USDA) – the time period from the average date of the last frost in Agricultural Marketing Service (AMS) issued a voluntary spring to the average date of the first frost in fall in the local standard for grass (forage) fed marketing claims Oct. 15. area of production. AMS determined it was impractical to restrict the use of harvested, stockpiled or stored forages due The grass-fed standard states that grass and/or forage to the diverse range and climate conditions across the United shall be the feed source consumed for the lifetime of the States. Therefore, hay, haylage, baleage, silage, crop residue ruminant animal, with the exception of milk consumed without grain and other roughage sources may be included as prior to weaning. Additionally, the animal cannot be fed acceptable feed sources. grain or grain by-products and must have continuous access to pasture during the growing season. The full standard is Supplementation available on the Internet at http://www.ams.usda.gov/lsg/ Routine mineral and vitamin supplementation may be stand/GrassFed101607.pdf. included in the feeding regimen to correct any deficiencies in the animal’s diet. Some supplemental ingredients are not Background allowed in the diet, including cereal grains, grain byproducts Increasingly, livestock and meat producers are using (starch and protein sources), cottonseed and cottonseed meal, production or processing claims to distinguish their products soybean and soybean meal and non-protein nitrogen sources in the marketplace. AMS, through its voluntary certification such as urea and animal byproducts. and audit programs, verifies the accuracy of these claims. If incidental supplementation occurs due to inadvertent The proposed voluntary standard establishes the exposure to non-forage feedstuffs or to ensure the minimum requirements for producers choosing to operate animal’s well being during adverse environmental or a USDA-verified program involving a grass (forage) fed physical conditions, the producer must fully document the claim. The standard encourages uniformity and consistency supplementation that occurs including how much, how often in commercial practices. and what was supplemented. AMS proposed an earlier standard in 2006 that was Production practices modified based on public comment to become the new AMS determined that additional production practices standard. AMS received 19,811 comments concerning the beyond a grass-fed diet should not be incorporated in 2006 grass (forage) fed claim from consumers, academia, this standard. Additional labeling claims can be made in trade and professional associations, non-profit organizations, conjunction with the grass-fed claim (e.g. free-range, no national organic associations, consumer advocacy antibiotics or hormones administered) to highlight other associations, retail and meat product companies and production practices. Importantly, a marketing claim of livestock producers. grass fed does not mean the animal was raised in free-range conditions. Dietary requirements In order to market beef as grass fed, the ruminant Officials made clear in the new standard that issues animal’s diet throughout its lifespan must be derived solely regarding the nutritional qualities of meat from grass-fed from grass (forage), with the exception of milk (or milk animals are outside the scope of the marketing claim replacer) consumed prior to weaning. For the purpose of this standard. AMS determined that nutritional claims on labels voluntary claim, forage is defined as any edible herbaceous are more appropriately addressed through a different USDA plant material that can be grazed or harvested for feeding, agency and a different approval process. with the exception of grain. Forage-based diets can beNOVEMBER-DECEMBER 2007 ISSUES UPDATE 2
  • 19. TRADE/MARKETING/ECONOMICS Verification of marketing claim Beginning Nov. 15 (the voluntary standard effective Key Points date), livestock producers became eligible to request that • USDA’s Agricultural Marketing Service issued USDA AMS verify their grass (forage) fed claim. Notably, a voluntary standard for grass (forage) fed in the standard, AMS clarified that all label claims, including marketing claims on Oct.  – establishing the ones verified by a USDA Process Verified Program, must be minimum requirements for producers operating a approved by USDA’s Food Safety and Inspection Service USDA-verified program involving this claim. (FSIS) Labeling Program and Delivery Division (LPDD). Therefore, all labeling issues and questions, including • In order to market beef as grass fed, the ruminant requiring a USDA Process Verified Program for approval of animal’s diet throughout its lifespan must be a grass (forage) fed claim, transition periods and the use of derived solely from grass (forage), with the grass fed in a company’s name must be addressed by FSIS. exception of milk consumed prior to weaning. Upon request from AMS, verification of the grass-fed • Animals marketed as grass fed must have livestock marketing claim will be accomplished through an continuous access to pasture during the growing audit of individual production processes. The producer must season; however, a marketing claim of grass fed be able to verify that the grass marketing claim standard does not mean the animal was raised in free- requirements are being met through a detailed documented range conditions. quality management system. • When the voluntary standard became effective on Nov. , livestock producers became eligible to request that a grass (forage) fed claim be verified by USDA AMS.24 ISSUES UPDATE NOVEMBER-DECEMBER 2007
  • 20. Building an Eastern Sierra Food System Starting With Alternative Livestock Jan. 7, 2009 at Whiskey Creek Restaurant in Bishop from 1 to 4:30 p.m.Learn about alternative livestockCan organic, natural Find out at this workshop, and grass-finished sponsored by the Inyo and livestock markets Mono Counties’ Agricultural To RSVP or for morebe more profitable? Commissioner’s Office, Inyo County information, contact and Mojave-Desert Mountain RC&D. Kelley Williams at (760) 878-0292 or How can we build A social hour with an alternative beef kwilliams@inyocounty.us local markets for taste-testing experience will start at our products? 3:30 p.m.
  • 21. SpeakersNancy Matheson the Eastern Sierra, including ski lift operator,Agriculture Program Specialist, sporting goods salesperson and fire lookoutNational Center for Appropriate Technology, Butte, Mont. attendant, have all contributed to her success in promoting the Sierra Business Council’s Nancy will speak about mission to the area. Mary currently serves on developing regional and local the Mammoth Unified School Board. food systems. She helped create the Grow Montana Coalition, which promotes Debra Garrison Central Coast Grown, San Luis Obispo, Calif. community economic development policies that Debra will speaksupport sustainable Montana-owned food about her currentproduction, processing and distribution efforts in theand improve Montanans’ access to Montana development offoods. Nancy grew up on her family’s dryland Central Coast Grownwheat farm east of Conrad, Mont., and later and her work withmoved to Berkeley, Calif., where she earned a unique farmera Bachelor’s degree in human and natural cooperative. Debraresource geography at the University of was one of the founding members of theCalifornia-Berkeley. She has more than 20 Central Coast Ag Network and works as anyears of involvement in agriculture and rural independent contractor to help local farmscommunity development with an emphasis and ranches market their products. She serveson sustainable food and agriculture systems on the board for the San Luis Obispo (SLO)education in the Northern Rockies and Ag Task Force and is a committee memberIntermountain Northwest. of the SLO Agriculture Commissioners Direct Marketing and Ag Tourism working group. HerMary Canada primary goal is to see a sustainable communityEastern Sierra Field Representative, food system in San Luis Obispo County. DebraSierra Business Council, Mammoth Lakes, Calif. spent most her life on her family’s farm in Nipomo, Calif., where she raised turkeys and Mary will grew avocados, apricots and lemons. With the discuss her assistance of her father, Harvey Garrison, she interest in the developed farmers’ markets in Santa Maria and Slow Food Lompoc after participating in state-level policymovement and her work with local chefs in development of California Certified Farmers’developing a local and regional food system. Markets. Debra has an agri-business degreeMary was a small business owner for 28 from Cal Poly, San Luis Obispo, concentratingyears in Mammoth Lakes. Her other jobs in in marketing and policy.
  • 22. AlternativeLivestockProduction, Processingand Marketing Options Nov. 17 at Whiskey Creek Inn in Bishop from 1 to 5 p.m.Learn about alternative livestock productionCan organic, natural Find out at this workshop, and grass-finished sponsored by Inyo and livestock markets Mono Counties’ Agricultural To RSVP or for morebe more profitable? Commissioner’s Office, information, contact Inyo County and Mojave-Desert the Inyo and Mono Mountain RC&D. Can mobile Counties’ Agriculture processing A social hour from 4 to 5 p.m. will Commissioner Office return more value follow with an alternative beef taste- at (760) 873-7860 to the producer? testing experience.
  • 23. SpeakersJeff Schahczenski in animal science at the University of Missouri andAgricultural economics and marketing specialist, interned at the United States Sheep Experiment StationNational Center for Appropriate Technology, Butte, Mont. near Dubois, Idaho. She also holds a Master’s degree in animal science. Linda joined NCAT in August 2000 andJeff will speak about issues around alternative beef works primarily with the ATTRA National Sustainableprofitability and marketing. He will also talk about Agriculture Information Service project on sheep, goatissues of labels and branding of new livestock products. and multispecies grazing issues. She is author of severalJeff is an agriculture economist with more than 25 ATTRA livestock publications including the following:years of experience in sustainable agriculture and Dairy Sheep, Goats: Sustainable Production Overview andrural development projects including cooperative Meat Goats: Sustainable Production.development and marketing analysis. Steve LewisLee Rinehart Douglas County extension educator,Livestock production specialist, College of Cooperative Extension, University of Nevada-RenoNational Center for Appropriate Technology, Shavertown, Pa. Steve will discuss recent efforts by Nevada livestockLee will talk about changes in beef production practices producers to create a mobile slaughter and cut-and-wrapto meet the needs alternative beef markets, particularly facility for a branded natural beef production cooperativeorganic, natural and grass-finished systems. Lee has in northern Nevada. Steve is an extension educator at thea Master’s degree in agricultural education and a University of Nevada Cooperative Extension in DouglasBachelor’s in animal science from Texas A&M University. County. He holds Bachelor’s and Master’s degrees inHe has previous experience as an extension agent in agriculture from the University of Nevada-Reno and aTexas and Montana, as well as farm-based experience Doctorate in agricultural education from Texas A&Mas the manager of a beef cattle operation. Lee is author University. He focuses on community education inof several ATTRA National Sustainable Agriculture leadership, environmental stewardship, agriculture andInformation Service livestock publications including the youth development.following: Cattle Production: Considerations for Pasture-Based Beef and Dairy Producers, Ruminant Nutrition for George WorkGraziers Pasture and Rangeland and Grazing Management Rancher and owner Work Ranch, San Miguel, Calif.Linda CoffeyAgriculture livestock program specialist, George will speak about his experience as a foundingNational Center for Appropriate Technology, Fayetteville, Ark. member of the Central Coast Home Grown Meat Alliance and the group’s finally near-successful efforts to openLinda will talk about changes in ruminant production one of California’s first mobile large animal livestockto meet the needs of alternative ruminant markets, processing units. George and his wife, Elaine, are nationalconcentrating on sheep and lamb in particular. Linda award winners for environmental ranch stewardship andcomes from a family farm in central Missouri, where offer their expertise to those wanting to learn more aboutshe raised cattle, hogs, sheep and horses. She majored land stewardship.Save this date for a second workshopBuilding an eastern Sierra food system: The case for alternative livestockJan. 7, 1 to 5 p.m. at Whisky Creek Inn, BishopWhat do the terms localvore, slow food and building a regional food system mean? How can we eat more of our localbeef and lamb? How can we feed our ourselves, our schools and tourists with food from our region’s agriculture?Speakers to be announced.