Importance of Business Commitments for Long-Term Viability20 July 2013
Consumer demand for local meat and poultry is increasing. To service this market, farmers need access to appropriate-scale processing facilities with the skills, inspection status and other attributes to handle these products safely, legally and to customer specifications, according to Lauren Gwin, Arion Thiboumery and Richard Stillman of the United States Department of Agriculture Economic Research Service in an examination of a number of case studies.
Farmers say that limited processing infrastructure restricts the supply of local meat and poultry.
At the same time, existing small processors often lack the steady, consistent business they need to be profitable. From their perspective, capacity is often not lacking but in excess. Seasonal demand for their services creates an unstable 'boom-and-bust' cycle that is difficult to maintain: fixed costs are paid all year and skilled workers need year-round pay-checks.
The report's authors say that case studies presented in this report suggest that addressing this problem requires a shift in the relationship between farmers and their processors away from a series of independent transactions, conducted at arm’s length, to a long-term interdependence. Increased commitment on the part of both farmers and processors involves not only enhanced coordination and communication but “hard” commitments: farmers commit, individually or in coordinated groups or brands, to providing the processor with sufficient, steady business, i.e. livestock to process.
Processors commit to processing those livestock to farmer specifications, consistently and on time. Strengthening commitments between processors and farmers - as well as along the entire supply chain - is essential to maintaining and expanding the processing infrastructure necessary for growth in local meats.
The authors drew on case studies of successful local and regional processors to illustrate what commitment looks like in practice. Having a few key 'anchor' customers provides steady volume and consistent business. Some processors are their own anchor customers, providing the majority of the throughput.
When farmers aggregate into a single niche brand, that brand can be a valuable partner for processors because it can deliver steady throughput and coordinated communication that can often be difficult for farmers to deliver individually.
"Whether about scheduling or services, costs or prices, meat quality or market conditions, processors and farmers need to communicate effectively with each other to develop and maintain strong business relationships"
Processors can use tools like active scheduling systems and variable pricing to assure that throughput is steady, week by week and over the year. This is part of their commitment to farmers, who know they will have processing dates for their livestock.
Processors who help their farmer-customers with business advice, marketing, and distribution - for free or for a fee - can build good working relationships and long-term loyalty.
Deeper commitment comes when farmers invest in their processors financially, for mutually beneficial development. Investments in local processors by their downstream wholesale customers can also be important for success.
Ongoing communication underpins the entire relationship. Whether about scheduling or services, costs or prices, meat quality or market conditions, processors and farmers need to communicate effectively with each other to develop and maintain strong business relationships.
Gwin and co-authors also described collaborative efforts around the country focused on local meat processing using a variety of strategies. Public agencies, universities, non-profit organisations and others have contributed through research, technical and regulatory assistance, investment and facilitating connections and peer-to-peer learning, not only between farmers and processors but all along local meat supply chains.
As illustrated by all of the case studies in this report, there is no 'one size fits all' solution. Local needs and conditions will influence what business models work best for farmers, processors, buyers and others involved with local meats.
In some locations where processors are lacking or are unable to work with local farmers, it may make sense to build new processing businesses to serve local markets if there is enough actual demand to support those businesses. But, in many locations, it appears that supporting existing processors - including helping them enhance and expand their businesses profitably - may be more efficient and effective, concluded Gwin and co-authors.
You can view the full report by clicking here.