It is never easy to build a new beef processing plant, let alone operate it successfully. Just ask the group of cattle industry investors who sunk $40 million into a brand new plant near Balzac in Alberta. The plant opened to great fanfare in 2006 but closed just 14 months later because of tight margins and fluctuating cattle prices.
This group was one of several over the years that had aspirations to start a new processing venture. It is worth noting, therefore, that of the new U.S. plants that went from drawing board to reality in the past 20 years, more failed than succeeded. In light of the first real expansion currently underway in the U.S. beef processing sector since the early 1990s, it is important to remember what the ingredients are for success. Here are the key ones:
As home realtors invariably say, it’s all about location. A new plant will struggle if it has to compete head-on with long-established plants within a region. Researching how many cattle are within that region is critical. A newly formed company in Nebraska that recently unveiled plans to build a US$200 million, 300,000-square-foot beef processing plant in North Platte apparently did its homework. Sustainable Beef LLC says most of its cattle will be purchased within 200 miles of North Platte.
This leads to another ingredient. Do not underestimate the level of competition that will come from other packers on both the buy and the sell side. Sustainable Beef will face fierce competition for cattle from JBS’s Grand Island, Nebraska and Greeley, Colorado plants and from Tyson’s Lexington and Dakota City, Nebraska plants.
It is also critical that any new enterprise raise enough financing not only to build a world-class plant but give it sufficient working capital to operate for its first three years. Virtually no plant makes money in that time. A new plant can be considered a success if it breaks even in the third year. That is what felled Northern Beef Packers in Aberdeen, S.D. It started operations in October 2012 but quickly faced a capital crunch and filed for Chapter 11 bankruptcy protection in July 2013.
Another essential ingredient is to have highly experienced managers in all the key positions, especially the general manager, operations manager, heads of sales and marketing, head cattle buyer and head of food safety. New plants must also be able to have slaughter, fabrication, hide and rendering facilities under one roof. They ideally should have the ability to produce ground beef, especially if the plant is harvesting fed and non-fed cattle. This is what Agri Beef Co.’s new 500-head-per-day plant in Jerome, Idaho, intends to do.
Among the worst things a new venture can do is to predicate its success on highly unrealistic expectations. This is what happened to Future Beef’s operation in Arkansas City, Kansas. The company claimed it would produce carcass yields far above the industry average. But it filed for bankruptcy only seven months after it opened in August 2001. A Canadian bank that was owed more than US$160 million by the former Future Beef plant bid US$28.7 million to become its new owner and then sold it.
As for selling beef from a new plant, brands are increasingly essential for processors of fed cattle. A new venture might not survive without having a significant percentage of value-added sales. JBS USA Beef, which includes Canadian numbers, had record beef profits in 2020, partly because its value-added products under numerous brands increased 20 per cent from 2019. Attracting and keeping labour is another obvious ingredient for success.