Mega-Custom

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Memorandum - Mega-Custom

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Date: Re: Target market: USDA private label & co-pack, not small custom processors

What is a "Mega-Custom" plant?... "Custom" processing indicates that the business will butcher and process a variety of livestock - beef, pork, lambs, goats, poultry, other... for the owner of that animal. "Mega" would indicate a facility that has expanded operations to be able to accommodate a larger number of animals than the typical local custom kill/process plant has the ability or resources to handle. Additional services are also likely to be included.

Why a "Mega-Custom" plant?... there are literally hundreds of small lockers and custom butchers/processors in each state in which I cover and when soliciting interest in a "mega-size" meat processing business, virtually on one is interested in expanding and the reason most often given is the major involvement of USDA and the associated regualtions that are required. They are satisfied with their current level of business. As noted, the majority of these operations are not USDA ins[ected, but primarily state inspected. The reason being that their clientel is local and there are no marketing efforts that would require USDA requirement. Of course there are a few exceptions.

Also, there are very few processor options for the small and "mid-range" grower/producer - beyond a few animals that the small custom/process plant is able to accomodate, the producer is obligated to sell their finish animals to the large producers. Within the meat & poultry industry there is a movement to "mid-size" plants - example, 50 to 200 per day, as opposed to the large processors that are able to do several hundred "per hour".

The ability to handle a variety of species increases the flexibility of the business and minimizes the pitfalls that can accompany single critter harvest and processing. Also, with the increase size over the small custom plant, a Mega plant can allow management to "manage", unlike the small custom plant that often sees the owner/manager involved directly in production jobs, and is most often, "the primary butcher". Interruptions to make management decisons and to handle routine business activities can have an effect on the profit margin.

Food Hubs are becoming increasing common and would be one of the Target Customers, along with, acreage owners and small operators. It may be unseen by most, but there seems to be a return to the basics of farming that may be compared to the 30s and 40 when farms that were not much bigger that some of today's "acreages". Likewise with the interest of "all natural", "chemical free", "organic", etc., it means that the services offered by a Mega-Custom business can accomodate a variety of customers. Food Hubs have been prominant in the Eastern states and large metro areas and is only becoming popular in the Midwest in the past few years. Where there are Food Hubs in the East, most often a "meat processing" business is the hub of the food hub.

A "marketing" service is also a major feature that can be offered by a mega-custom operation. Mareting is a weakness of virtually all of the small custom/processing operations. Marketing will be discussed in greater detail later in this report.

Editorial - with the genuine possibility of an economy collapse, "food", along with "shelter", is critical to survival. Investing in food-related activities could be considered a hedge against a falling dollar or if the dollar should lose its "reserve currency" status..

Where a "Mega-Custom" plant?... in a local, regional area that would expect to serve an area of approximately 100 mile radius from the plant. This would likely be an area that would accomodate 5 to 15 counties, depending on the state and the specific area.

Facilities & Operations Options -
USDA complient - HACCP, SSOP, SOP, etc.
Harvest (Slaughter) - Beef, pork, Lambs, goats, (maybe poultry?) - separate entry points and kill areas for large animals and small animals, as well as a separate kill area for poultry.
Process & Break... Totes and Combos to transport elsewhere for further processing - can be common to all species
Further Processing - packaging, canning, labeling
Ready-to-Eat (RTE) - process and packaging
Coolers and Freezers - to be considered would be to increase the size of Coolers and Freezers area in order to be able to offer rental of such services. With the increase in "local" production of meat, vegatables and fruits, the rental of coolers and freezers can offer additional capacity to growers/producers.

Facility Size - of course there is no "exact" size requirement for such a facility, but an example would be 10 to 30 beef per day, and 50 to 200 small animals (hogs, lambs, goats) per day. Holding Pens, Coolers and Freezers capacity would be calculated relative to the ultimate capacity of the slaughter area. Once the environmental challenges are met with such a facility, then the size of the facility and the type of animal is not significant. That could include the ability to handle poultry slaughter and processing. Processing could be in a common area for all meat and poultry.

Facility Equipment - A facility of the size described would allow for production equipment that would significantly increase the productivity that is often associated in a small plant. Increased efficiency relates directly to increase profit. Computers and a variety of automation devices would be incorporated into necessary plant equipment.

Facility Software - Incorporated into a Mega-Custom plant would be sophisticated software for tracking livestock, as well as the producer and the origin. Such software would include data collection, recording weights & labeling, tracking production tasks, labor - indeed, all aspects from Growers/Producers database, to Receiving to Shipping and even to the end-user customers database. Efficient Tracking and Traceability are critical to such a business such as is being described. And that is not to diminish the need for "basic" bookkeeping and accounting - that often goes without saying.

Services - Mega-Custom can combined the low volume, multi-species services that are currently offered by the local custom processing plants with the increased volume and ability to offer services to slaughter, to hanging carcasses, to break & box, or to further process, as the customer would request or desire. With state-of-the-art software for data collection and tracking and tracing, mixing of species and owners does not present a problem. It can start with weighing individual animals. Futhermore, with USDA Federal inspection, additional services can be offered such as private labeling and co-packing. This allows all parties expanded capabilities to market their products, and that would include the Mega-Custom plant for similar products that may be desireable to offer.

Co-packing is a major offering and could then also accomodate "Specialty" and "Niche" Products, such as offal products that are often included with inedible rendering products at smaller plants.

Packaging
Combos & Totes, boxes, packaging and canning.
Labeling

Associations
Pork Producers
Cattlemen's Association
Lamb Producers
County Fair Boards
4H & FFA
Potential Participants & Investors
Growers & Producers - from small acreages to confinements & feedlots -
Custom Processing plants -
Feedlots and Confinements

Financial - The most likely form of financing is in the form of a Limited Liability Corporation (LLC). Companies and corporations of all sizes are making use of this type of financing, particularly on new and startup businesses and where there is a significant cost of assets are required, ie. facilities and equipment. Many small, local banks are not able to accomodate such a financial requirement, but are maybe a significant finacial force when working with LLC members which are local pariticipants or investors.

LLC - There are a number of reasons for using LLC as the primary financial needs of a business such as a Mega-Custom business. For one thing, it eliminates the primary need for bank financing, where small rural banks are often handicapped for a project of this size. One of the primary uses of LLC financing on a project such as we are describing here, is to allow the "Community" to be an investor, and this level of participation should be encouraged and solicited. The involvement of the Community in helping finance such a project increases the likelihood of the success of such an undertaking. Of course a major benefit to the "investor" is the feature of an LLC to spread the risk among the shareholders. Of course it is also viewed as an economic benefit to area.

Economic Development - There are numerous state and federal programs to offer incentives to such a business that are viewed as an economic benefit to rural America and local Communities. Small Business Development Centers (SBDC) or similar such organizations that normally work through local colleges and

Grower / Producers - local

Investors - local and outside the community. With the interest rate so low, Investors can be encouraged to participate for the likelihood of a much better return than could be realized on regular "savings".

Grants - USDA, utility companies

Marketing & Sales - There is a significant advantage to be able to offer products anywhere - not just local. Furthermore, a USDA facility would allow selling to Retail Outlets, Resturants, Institutions, etc. The primary interest of this business would be more involved with those that are interested in the co-pack and private labeling service. There would be little, if any, interest in individual butchering and processing of single species where the customer would be using the meat for their own family consumption. The intent would be to leave that business in the hands of current "custom butchers".

With USDA inspections and sophisticated labeling software, "private labeling" and "co-packing" increase the potential to add customers that are interested in a speciality market or to sell product beyond their on consumption. Thus sharing Marketing & Sales with customers reduces the Cost-of-Sales for all participents ands increases the likelihood of profitablility.

One of the primary methods of marketing includes the use of social media and a website. These marketing tools can be time consuming to manage and keep updated and yet if there is no "fresh" element involved then the "surfer" will eventually not return and thus the reason for this exposure in the first place is to gain "surfer" traffic.

Food Hubs - Many Growers and Producers have a specific product, and they often focus or highlight "organic", "all nature", "hormone free", "free range fed", or other such terms that create interest to a specific buyer. The point here is that often times the missing link in this business is a processor that can accomodate the need to satisfy the link between the producer and the customer.

Food Hubs are a form of marketing that can reduce the Cost-of-Sales for everyone and of course that leads to increase profit for everyone involved. It has been a practice that has been in place on the East Coast for 20 years of more, but only recently seemingly has reached the Midwest. It can take a lot of time ot organize and manage and thus it is a perfect form of service that can be integrated into a business such as is being described herein. Reference material can be located at a number of locations including Wallace Center and Mad River Food Hub.

Farmers' Markets - Many small growers and producers that are currently selling through can be helped considerably by extending there prospects beyond the Farmers' Market and indeed may even reduce or even eliminate the need for this time consuming and low margin sales outlet.

Training, Assistance, Education & Influence
SBDCs
Power Companies
State Economic Development
USDA Economic Development
Senators & Represenatives
Area colleges could be encouraged to offer education and training in the form of classes and materials on all the fundamentals involved with growing and raising specific livestock and poultry.

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