Introduction
In 2005, a group of livestock producers requested a feasibility study to assess the potential of a producer-owned entity to slaughter, process, and market local grass-fed meats in Nevada. Specifically, the study sought to assess the economic feasibility of a mobile slaughter unit to be operated in northern Nevada. Although the project was found to be economically feasible and potentially quite profitable under certain conditions (see “Locally Produced Livestock Processing and Marketing Feasibility Assessment” by Curtis et al., 2007), it was not pursued further.
In recent months, interest in the project has revived among local livestock producers, as was discussed at the USDA Food Safety and Inspection Service (FSIS)-sponsored Red Meat Mobile Slaughter Unit (MSU) Information Session in September 2010. Livestock producers in attendance expressed an interest in obtaining additional updated financial information, including a sensitivity analysis based on differing meat pricing schemes and operating volume. Additionally, members of the FSIS team acknowledged that the previous feasibility study might have been overly optimistic in considering the possibility of running two MSUs five days per week year-round. Based on their personal experiences working with MSU operators across the country, the FSIS team believed that operating one unit one to two days per week was more realistic.
Taking these issues into consideration, University of Nevada, Reno researchers updated the previous study with new financial information, sensitivity analyses and discussion about business structure, and included information about obtaining a grant of inspection from USDA FSIS and the potential for using USDA Rural Development grant programs to finance startup and operating costs. This fact sheet highlights the results of the updated study “Regulatory and Financial Considerations for Red Meat Mobile Slaughter in Nevada,” the full version of which can be found online (see “Resources” at the end of this document).
Obtaining a Grant of Inspection from FSIS and Regulatory Considerations
The USDA-FSIS is responsible for inspecting all meat, poultry and processed egg products in the United States for safety, wholesomeness and proper labeling. To meet this end, federal inspection personnel must be present at all times in virtually all slaughter and egg processing plants and for at least part of each day in establishments that further process meat and poultry products (USDA-FSIS small plant guide).
A federal grant of inspection is required for a mobile slaughter unit to operate. There are seven steps to obtaining a grant of inspection, which are outlined in FSIS’s publication “Small/Very Small Plant Guide: Applying for a Federal Grant of Inspection,” which is available online (see the References section for full Web address). Further information can also be obtained by contacting the FSIS Small Plant Help Desk at 877-374-7435, or by contacting the Denver, Colo. District Office, which governs Nevada, at 303-236-9800. The seven steps are: 1. File an application; 2. Facilities must meet regulatory performance standards; 3. Obtain approved labels; 4. Obtain approved water source letter; 5. Obtain approved sewage system letter; 6. Provide a written standard operating procedure for sanitation (SSOP); and 7. Provide a written hazard analysis and HACCP plan.
Mobile Slaughter Unit Specifications and Costs of Other Required Equipment
The information in the following pages represents the financial outcomes if the MSU was in operation but not actively slaughtering. In other words, these tables show the costs of operation without considering revenue flows. All of the financial estimates were based on a model developed by Dr. Kathleen Painter of the University of Idaho. A link to Dr. Painter’s interactive model is available in the “References” section.
This study consulted TriVan Truck Body of Ferndale, Wash. for information about costs and specifications of a mobile slaughter unit due to its experience in constructing MSUs as well as their proximity to Nevada. Each MSU created by TriVan includes a mechanical/storage area, slaughter area, refrigeration unit, and miscellaneous equipment including knives, saws and scales. The unit in question would meet USDA inspection and licensing requirements and would not require additional furnishing or equipment.
A 36- to 38-foot MSU can slaughter a maximum of 10 head of cattle per day when operating with two full-time butchers. Carcasses begin chilling immediately and are down to temperature the morning after slaughter. As the cooling area has room for 6,000 pounds of meat, the unit can operate for two days before it would need to unload and resupply. Capacity and time limitations were taken into consideration when developing the financial information and sensitivity analyses.
As of September 2010, the cost of building a fully-equipped MSU with these specifications was $190,000 (M. Van Driel, personal communication, September 2010). Sales tax for the MSU and other equipment was calculated at 7.375%, the average of sales tax in northern Nevada counties as of September 2010. If used equipment were purchased from an individual rather than a dealer, sales tax may not apply; however it has been included here to present the most conservative estimate. The total cost of the unit with sales tax was estimated as $204,013. Loan and depreciation calculations for the MSU and associated equipment can be found in Table 1.
A semi-truck tractor must be purchased separately to haul the unit, which weighs 25,000 pounds. A used truck can be purchased for $30,000, while a new truck may cost as much as $125,000. For this study, the price of a used truck was estimated as $42,000. The total cost of the truck with sales tax was then estimated as $45,035. The calculations presented here do not include the costs of delivering either an MSU or semi-truck to Nevada. These costs would include fuel, labor and repairs.
USDA-FSIS requires that each MSU operational site provide an ante-mortem pen for live animals at rest and in motion. While this area may be provided by the livestock producer (i.e. this may be the area where animals are normally kept on the farm or ranch), $5,000 has been budgeted for this expense in the event that the MSU would want to provide some sort of non-permanent holding facility that could be set up at each location, in additional to other miscellaneous associated expenses.
While meeting the requirements for humane slaughter is the responsibility of the MSU operator, USDA-FSIS recommends a humane approach to livestock slaughter, and suggests that the stunning and bleeding areas be designed to minimize excitement, discomfort, and accidental injury when unloading or driving animals. FSIS recommends that animals be bled on a sloped concrete ramp with lines to a drain field, or over a gravel bed that allows blood and water to drain to prevent pooling. In addition to creating insanitary conditions, pooling of blood and water can also result in the MSU getting stuck in mud. Five thousand dollars ($5,000) was incorporated into this budget to offset some of the costs of concrete beds and/or gravel beds at operation sites. It should be noted that individual producers may need to undertake the costs of providing concrete or gravel beds at their facility, or this may be an additional cost the cooperative would take on.
Although the MSU is built to include all supplies needed for slaughter, an additional $5,000 was included in the start-up costs to cover any additional supplies not considered elsewhere in the budget. The total cost of facilities and miscellaneous supplies with sales tax was estimated as $16,106.
Table 1: MSU Equipment Loan and Depreciation Calculation
All financial estimations were based on calculations and formats developed by Painter, 2008.
*Table here
Livestock Costs
This study assumed that the MSU will be purchased by a cooperative of livestock producers who would work together to finance the start-up costs and manage operations of the unit along with the assistance of a part-time manager. Cooperative members would be allowed to have their livestock slaughtered at no additional costs aside from the initial buy-in and annual membership. This membership should be proportional to the number of animals that members intend to slaughter each year, and membership would be a requirement for access to the services of the MSU. Finally, it was assumed that the cooperative entity would purchase each animal from the producer as it is slaughtered and would then retain profits from the retail sales of the finished product. Methods used to obtain wholesale prices, carcass yield assumptions, and retail prices are explained in detail in the full report (available online at uced see the full citation under “References”). The estimated per-head profit for beef, pork and sheep given varying pricing scenarios is presented in Table 4.
Operating Costs
Operating costs for the MSU include labor, supplies, utilities and other overhead costs. With the exception of the manager/compliance officer, butchers and auto insurance, operating costs will vary by the number of days the unit is in operation or by slaughter and processing volume. The manager’s position and auto insurance are fixed costs that are not volume-dependent.
Labor is the largest operating cost for the MSU. For this example, it was assumed that the MSU would need staff consisting of one part-time manager/compliance officer, two full-time butchers, one MSU driver/assistant, and assistant butchers to be hired hourly as needed. Additionally, overtime salary was written in for the USDA inspector based on USDA-FSIS guidelines that stipulate that inspectors provide service without charge for up to five consecutive eight-hour days but charge overtime beyond that time. Table 2 outlines the labor cost assumptions, including taxes and benefits, which were made for this study. Please note that in the following tables, there are some items for which the quantity is zero, and therefore there is no listed value or cost per year. These items have been left in the tables to show that they would need to be considered under other scenarios than the one presented.
Table 2: Labor Cost Assumptions
All financial estimations were based on calculations and formats developed by Painter, 2008.
*Table here
Supplies for operating the MSU include miscellaneous items such as cleaning supplies, paper towels and plastic bags. Utilities include propane for the unit’s hot water heater and electricity to run the air conditioner, fans and lights. Other operating costs associated with the MSU include cut and wrap charges, smoking charges for hams and bacon, storage locker rental, fuel and lubricant for the unit and the semi, machinery and truck repairs, auto insurance, business taxes and licenses, overhead, and operating interest. These costs are outlined in Table 3 and are explained in detail in the full study. They are based on Painter (2008) from an interview with Joel Huesby. Many of the costs have been adjusted to reflect 2010 prices and conditions in Nevada.
Table 3: Supplies, Utilities, and Other Operating Costs
All financial estimations were based on calculations and formats developed by Painter, 2008.
*Table here
Important Considerations
When considering the estimates developed for this study, it is very important to keep in mind that these are projected profits and losses based on a financial model that cannot account for all potential variables. Below are some of the areas in which extra caution should be exercised.
Labor Assumptions
One major assumption this model undertakes is that labor will meet the MSU operator’s expectations of quality, reliability and availability. In terms of both quality and availability, it is important to consider whether two high-quality, well-trained butchers will be available to be hired for the job in Nevada. Additionally, would two such butchers be willing to work the schedule the MSU would require? Although this model has been adjusted to assume that the butchers will be paid full-time whether they are working or not in order to address this issue, in reality it might be difficult to find two butchers interested in working varying hours and traveling around with the MSU.
Reliable labor can be difficult to find in any scenario but is especially important when considering a MSU because the success of the unit would rely heavily upon the key positions of butchers and a driver/assistant. If one of these positions became vacant on short notice, or if an employee showed up late or not at all, it could seriously impact the ability of the MSU to keep up with its slaughtering schedule. The USDA inspector must be scheduled in advance, so last-minute changes might affect the MSU’s ability to operate. The inspector might have his or her own scheduling constraints that would prevent timely rescheduling. Additionally, the USDA inspector must be paid for any amount of overtime, and although this model accounts for one hour of overtime per day the MSU is operating, if the unit routinely goes into overtime the wage impacts could be substantial.
Another essential consideration with labor quality is how well the butchers will treat the animals prior to and at the time of slaughter. Humane treatment of livestock may be very important to cooperative members who use the MSU’s services, and will affect the MSU’s reputation. Treatment of livestock may also affect the MSU’s ability to maintain an eight-hour workday, as there may be instances when animals need extra time and care to be calmed to maintain both a humane standard and the quality of the end product.
Truck and Unit Maintenance and Repair
This model budgets $50 per kill day in repairs for the unit, increased from the estimate provided by Curtis et al., 2007. In addition to wear and tear on the truck and unit from driving across great distance to service cooperative members, there will be wear and tear on items within the unit as well, including knives, saws, and plumbing and ventilation systems. If a key tool were to lose its functionality in the middle of a kill day, or if the truck or unit were to need a major repair on the way to or from a kill site, it could affect the unit’s ability to maintain its schedule or take it out of operation completely. The model also assumes that the unit’s driver/assistant has the ability to handle minor repairs and maintenance, which may not be reasonable and again highlights the importance of reliable, high quality labor.
Pricing and Marketing
Retail prices in this model were based on the current going rate of meat products both nationwide and in Nevada at the time of publication. Table 4 displays premium and discount pricing schemes. The base price was derived from national averages in terms of dollars per pound for all cuts for the four-week period of June 28 through July 25, 2010 as found in The Beef Checkoff’s report, “FreshLook and PromoData July 2010 Highlights” (National Cattlemen’s Board, 2010). These figures were then adjusted to reflect northern Nevada averages as of October 2010. While the base prices in Table 4 are rooted in national and regional retail averages, it might be a very strong assumption to believe that consumers will view MSU products as being as good as or better than other products currently available and be willing to pay the prices offered. Previous research has shown that regional consumers are willing to pay premiums for Nevada meat products (Curtis et al., 2007; Curtis, et al., 2008); however, the cooperative’s products would need to be of a consistent and high quality in order to earn prices at or above retail levels.
Additionally, the model assumes that customers will be willing and available to purchase the products. In reality, the cooperative will need to locate and reach customers, which may require extensive marketing and branding efforts and incur additional costs. Gaining entry into retail outlets will likely require substantial investments of time and funds. Marketing a product with premium pricing may be made more difficult given the economic downturn in Nevada and expected slow recovery.
Table 4: Breakeven Pricing and Production Scenarios
*Table here
Summary and Conclusions
While Nevada’s livestock producers continue to have an interest in mobile slaughter as an alternative and flexible option for harvest, it would be a risky investment for Nevada at this point. This conclusion is based on variables relating to labor, MSU maintenance and repair, and distance and time considerations, coupled with sensitive profit and substantial start-up costs. Although not discussed in this publication, in order to be profitable the MSU would also require coordination among numerous producers to travel to each slaughter site and may require adjustment of calving schedules to ensure a more consistent supply of product.
References
Cowee, M.W. and T.R. Harris. 2011. “Regulatory and Financial Considerations for Red Meat Mobile Slaughter in Nevada.” University Center for Economic Development Technical Report UCED 2010/11-04.
Curtis, K.R., M.W. Cowee, A. Accosta, W.Hu, S.R. Lewis, and T.R. Harris. 2007. “Locally Produced Livestock Processing and Marketing Feasibility Assessment.” University Center for Economic Development Technical Report publication number UCED 2006/07-13.
Curtis, K.R., M.W. Cowee, M. Price, and T.R. Harris. 2008. “Economic Feasibility of a Multi-Species Slaughter/Processing Facility in Northeastern Nevada.” University Center for Economic Development Technical Report publication number UCED 2007/08-11.
Painter, Kathleen. 2008. “Feasibility Analysis for a Mobile Slaughter Unit.” Peer reviewed and published on eXtension's website, Cost Calculator for a Mobile Slaughter Unit.
USDA-FSIS. 2006. “Small/Very Small Plant Guide: Guidelines for Obtaining a Federal Grant of Inspection for Meat and Poultry Establishments.” Online. Retrieved October 22, 2010 from Plant Guide
Van Driel, M. September 2010. Personal communication.
This publication was supported through funding from the United States Department of Commerce Economic Development Administration under University Centers Program contract #07-66-06415-01 and the ImMasche Endowment Fund.
