Feasibility, planning and purchase of Mobile Processing Unit (MPU) for Scaling up Free Range Poultry Meat Processing for High Volume Retail Market

Final report for FNC14-978

Project Type: Farmer/Rancher
Funds awarded in 2014: $22,500.00
Projected End Date: 12/31/2015
Region: North Central
State: Kansas
Project Coordinator:
Chris Sramek
Sramek Family Farm, LLC
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Project Information

Summary:

The local food movement in the High Plains region has achieved a significant milestone in 2015. Thanks to the support from North Central SARE and the dedication of several poultry producers, a USDA poultry meat processing facility now exists in Northwest Kansas. This represents the culmination of a dream-come-true for one of the poultry producers who has been pursuing building a facility for many years and who worked tirelessly to get the facility approved and operating.

The Mobile Processing Unit (or MPU for short) is a trailer based enclosed and completely equipped processing facility capable of processing up to 150 birds per day with expansion capability up to 200 birds per day. At start up, current USDA inspector availability and scheduling limits processing time to a half day, 3 days per week. In addition to the necessary processing equipment, the MPU includes packaging and storage capability as well.

This project included exploring the feasibility, designing, constructing, permitting, siting, startup and operating the MPU facility. And as a real test of success, the MPU has processed over 600 birds in short order and those birds come with an approved USDA inspection label.

Introduction:

As the demand for locally produced food in the United States continues to grow, a group of farmers in eastern Colorado and western Kansas are finding ways to diversify their farming operations and create opportunities for family members to return to the farm or provide beginning farmers an entry point into farming. One opportunity they have found is to supply regionally grown poultry products to customers in the High Plains region that includes Denver and the Front Range, home to nearly 6 million inhabitants.

Pasture based free range poultry production, a sustainable farming system adopted by many small-scale farmers across the United States, is being replicated in this region. However, pasture poultry producers in the area are at a significant disadvantage when it comes to addressing consumer demand for their locally produced chickens because birds processed on-farm do not qualify for USDA inspected status and there are only two USDA facilities, available to the public, in the entire 600 mile region between Denver and Kansas City that process poultry. For these reasons, sales are limited to direct household consumers and farmers markets while volume markets that make poultry farming more viable are not accessible. 

Over the past 3 years several western Kansas and eastern Colorado producers have been supplying small quantities of poultry products direct to consumers through the High Plains Food Coop (HPFC). This has provided helpful market information and connections for expanding production. A number of growth oriented producers in the region expressed interest in expanding production but were limited by processing barriers that exist.

To address these barriers, this project included preparation and construction of a Mobile Processing Unit (MPU) to process poultry for the original group of farms and to expand processing to other High Plains Food Co-op producers.   MPU’s are an innovative processing approach being used in other parts of the country and this project demonstrates the steps used to address implementation challenges related to USDA inspected MPUs.

Project Objectives:

The goals of this project were to: 1) organize the project, 2) estimate the start-up and operating costs, 3) determine feasibility, 4) site determination and permitting, 5) equipment purchasing and fabrication, 6) implementation and startup and 7) develop an expansion plan to scale-up processing.

Cooperators

Click linked name(s) to expand
  • Leon Atwell
  • Dallas Gilbert
  • Chris Schmidt

Research

Materials and methods:

The method taken for developing the MPU and the infrastructure to support it was a business approach.  Initial costs were estimated, projections determined and time schedule was estimated.  Iterative changes were made to those initial estimates as new information was gathered.  Outside perspectives and input were gathered from consulting and financing stakeholders.  And finally a careful watch on the market was maintained throughout the project in order to assure that the opportunity for market demand was still evolving in a positive direction.

Research results and discussion:

Major outcomes and impacts associated with the project include increasing production, producer revenue and jobs. In less than 2 months, over 600 birds have been processed, which is 60% more than have been processed all year. Production targets have been set for 2016 to ramp up production now that the MPU facility is operational.

By having the poultry meat processing unit operational we are able to expand production and offer processing to other producers. Currently we have 4 producers supplying or setting up to supply product for processing. We have additional producers currently interested in supplying product for processing and as many as 12 producers from the food coop that could utilize the processing facility in the future.

Processing could reach 24,000 chickens a year by 2019 if market and production expansion projections hold true. If increased production is provided by 5-7 producers then increased revenue for each of those farms could be as much as $3,800 per month. In addition, we anticipate that between the processing labor and labor needed for the expanded production, 15 FTE jobs could be developed.

Without the MPU, 2015 production and processing continued to be a challenge with less than 1,000 whole chickens processed. With the MPU in operation 633 whole chickens and 23 Turkeys were processed in late October through mid December. Restaurants and corner markets in Denver are asking for 5 to 60 whole chickens per week. Working with up to 20 of these accounts will call for 2016 production to grow to 1600 chickens per month initially processing 100 chickens one day a week then expanding to 200 chickens 2 days each week. Requests are being received for parts and delivery of fresh chickens, but this would require additional processing procedures.

At the end of 2015, production requires 4 part-time on the farm employees and one part-time doing production and processing management. In addition, processing requires 5 to 7 part-time workers. This could increase to 5 full-time employees doing on-farm production and processing management and 7 to 10 part-time processing with expanded production and processing.

Processing and production scale-up has been delayed a year with the participating farms, further illustrating the necessity of the MPU to remove barriers for locally produced and processed chicken to enter the growing local food market. The ability to close out 2015 processing over 600 chickens in the MPU has the farms quickly preparing to tackle the market in 2016 and discussion with other interested and potential producers has begun.

Impact of Results/Outcomes

Start Up

Project start up included the formation of a business structure, High Plains Poultry, LLC, with bank and business formation documents being completed. Early projections of capital, startup and basic operating costs were developed then modified as additional information was obtained. A start-up budget to purchase, equip and fabricate the MPU was established to determine the initial investment capital needed. Financing options were also explored with a local bank.

Feasibility

Overall feasibility of the venture was considered from several different fronts. Attempting poultry processing in an operating beef processing facility was not considered feasible from a logistics and scheduling standpoint. Taking poultry to another processing plant involving 1000 miles of travel has not been feasible based on the time and travel costs. When compared with a stand-alone permanent structure, the MPU offered fewer site preparation requirements at a lower capital cost while being moveable and is meant to address the processing barriers in multiple locations within region. We hoped that construction time would be less affording a quicker turnaround to get operational, however that turned out to not be the case. It took over a year construction compared to the original estimate of 3-4 months. This was mainly due to partner’s schedules not coinciding with scheduling for needed training to meet State and USDA requirements, not construction issues.

The feasibility of various site locations was also considered. It was decided to proceed with establishing the initial site in northwest Kansas where the highest number of poultry could be produced on short notice with minimal travel costs and local support and labor resources were available.

Economic feasibility was explored as well. MPU costs and revenue were projected and indices for production levels and profitability established. Graphs 1 and 2 noted below, under the scale up plan, demonstrate those indices for processing and profit levels. Breakeven is expected in 2017 when efficiency of scale is reached. The price per bird for processing is expected to be at least $3 less than what is currently costing producers to share processing space in a facility or travel to a distant processor.   Processing costs will likely be moderated as processing efficiencies improve with volume.  

Several scenarios were evaluated for identifying the startup location for the MPU. Those options included purchasing land for locating the MPU, parking it on a farm and co-locating with or near a current meat processing plant. Several site selection criteria were taken into account including available water and electric supply, wastewater and eviscerate disposal and the impact of processing on the site. A final site for a startup location near a current large animal processing plant was determined as the best option and lease agreements were completed.

For permitting, other MPU owners were contacted or their reports reviewed, regulatory agencies were contacted, permitting requirements reviewed and the necessary permits and agreements obtained. Agreements or approvals were established for utilities, waste water disposal; eviscerate disposal, potable water supply, county health department oversight and USDA-FSIS inspection.

A rough out design for the MPU was prepared and reviewed. A trailer, construction materials, refrigeration unit and equipment were purchased and unit fabrication and construction initiated. A rough drawing of the facility layout is shown below. A number of design changes and construction challenges were addressed. Agencies were contacted; USDA-FSIS requirements reviewed and the necessary approvals, permits or certificates were obtained to meet the safety plan requirements for startup. The safety plans were prepared for and reviewed by regulatory agencies including a HACCP plan (Hazard Analysis and Critical Control Point), a SOP plan (Standard Operating Procedures), a SSOP plan (Sanitation Standard Operating Procedures) GAP and Sanitary Dressing Procedures, in order to obtain a USDA-FSIS provisional facility inspection grant number. In addition, the lead partner on the project participated in HACCP training and received a certificate to be the on-site HACCP officer during processing.

MPU unit fabrication and construction was completed, USDA-FSIS inspectors reviewed the facility and granted a provisional facility inspection permit number in July 2015.   Modifications to the plant were recommended by USDA-FSIS and 3 more visits by inspectors were completed to confirm changes were acceptable. Final approval by USDA-FSIS was received in October 2015 and the first processing day occurred on October 20th. The USDA-FSIS inspector noted at the time that this was the only federally inspected mobile poultry processing facility in the USA.


Scale up Plan

The primary purpose for this project is to increase production, processing and on-farm revenue for poultry producers to expand into wholesale and institutional markets.   Aggressive expansion plans call for getting production up to 2000 birds per month by 2019. That would put processing at over 500 birds per week or nearly 200 per day operating 3 days per week. Production, marketing and distribution limitations will likely stretch that aggressive schedule out.

Graphs 1 and 2 below depict the expected volume and profitability indices developed for the MPU as the operation is scaled up.

As processing volumes rise, incremental gross margin improvements are expected from processing efficiencies and better pricing on supplies. Meat unit production is projected to increase 7.4 times 2015’s volume. Higher bird throughput during each processing day will improve per unit costs as start-up and clean-up labor and facility costs are allocated across a higher number of units. In the interest of being conservative, though, projected per unit labor and supply costs were not adjusted to reflect these impacts. Additionally, per unit overhead costs will decline thereby improving overall profitability and positive cash flow. Overhead declines as a percent of revenue from 58 percent in 2016 to 26 percent in 2018. After initial cash flow and profitability targets have been met, additional investments in equipment can be explored to achieve further processing efficiencies and gross margin expansion.

Taking into account this scale up plan on a practical level, we consider the following. An eviscerating table stationed with 5 employees can process 30 to 40 birds per hour, depending upon experience and processing line team work efficiencies, thus in 5 hours the 200 bird per day goal is achievable.   However, length of day (5 hrs) and number of days (3) is limited to inspector availability and the need have 1 or 2 days to package and deliver is another limiting factor. Therefore, options to increase the number of birds’ processed per day would be: 1) Add another USDA inspector and processing shift; 2) Add another eviscerating table and line; 3) Consider using overhead eviscerating chains with two lines.   The latter two options would require adding killing and plucking capacity with equipment and labor as well as using all available trailer space, but that may be more feasible than to meet regulatory requirements to put option 1 in place. Graph #3 below, illustrates the total volume contribution for each processing day per week with improving processing efficiencies and increased production over time. Maximum processing scale-up capacity reaches 30,000 chickens in 2020, processing 200 birds X 3 days X 50 weeks.

 

Participation Summary

Educational & Outreach Activities

15 Webinars / talks / presentations

Participation Summary

Education/outreach description:

In July, 2015 a regional leadership team for healthier communities was given an introduction and tour of the MPU. Then again in December 2015, resource personnel for the same team along with additional team members were given an introduction and tour of the facility. The Healthy Communities Initiative goals are to assist or be a conduit for new ventures that overcome barriers for the evolution of a new local food economy. The group’s main focus is to form a regional food policy council, but team members were delighted to see the MPU’s completion and its great potential to expand local poultry production across the region.

While not usually seen as outreach, the inspection team from USDA-FSIS is noted here because this was such an unusual project for them. None of the inspectors had direct poultry processing experience and none of the inspectors had experience with mobile units. So preparing for and completing the inspection approvals was a new learning experience for them.

MPU information will be included in the January 2016 HFPC cooperative meeting, held every year in Denver, Colorado and typically attended by 100-150 producer and customer members. It is anticipated that the report on the MPU will be well received.

Numerous meetings were attended where the progress of the MPU project was asked to be reported on. They included:

    • Regular meetings of local RC & D, High Plains Food Co-op and Extension
    • (2) Kansas Rural Center Statewide Food, farm and Community Workshops
    • (4) Statewide Healthy Communities Convening’s
    • (3) Rocky Mountain Farmers Union collaborative meetings of Rocky Maintain / High Plains established and emerging food-hubs
    • (4) Organizational meetings of a regional food policy council

It is anticipated that we will be asked to continue doing presentations for the general public, businesses, organizations, institutions, community leaders and Government officials.

Project Outcomes

Recommendations:

Potential Contributions

This project primarily benefits High Plain’s poultry producers by providing a more convenient, efficient, cost effective and easier-to-access option for a federally inspected poultry processing facility in the region.   Another contribution is the time, energy and money the partners spent dealing with the significant challenges posed by the project. Major challenges confronted in this project included construction time, sorting through the regulatory process, funding and construction costs and getting the unit mobile.


Construction Time:
The original estimated construction time for the MPU was 3 months with actual construction taking 14 months. This was primarily due to the decision to do most of the facility construction work internally and not farm it out. The key construction project leader also had a number of major family challenges and farm changes happen during the construction phase.  All project partners had other duties, farms to run and multiple community responsibilities so adding another project to their plates proved to stretch out the time it took to complete construction. A major learning contribution was being more realistic about the construction schedule.


Regulatory process:
The regulatory process proved to be a monumental challenge, especially dealing with all the different regulatory bodies. This included the local health department and city water department, the local land fill, the state department of health and environment, the state department of agriculture, USDA and the Food Safety and Inspection Service (FSIS). Direction, information, policies and requirements often seemed contradictory, unclear and interpreted differently by staff across agencies and between agencies. In addition, preparing to make the unit mobile across state lines requires separate engagement with each of these regulatory bodies in a separate and distinct locale, region, state and district.


Funding:
The cost of starting up an entity and building the processing unit turned out to be more than we expected. The actual cost of the unit proved to be 33% more than original estimates. The total invested in startup, design, equipment, permitting, supplies and construction costs has been over $75,000. While having SARE support for construction and equipment cost has proved very helpful, partners in the project have contributed more funds, time and equipment than originally planned.


Mobility:
Currently the mobile processing unit is stationary. We opted to focus on getting inspections, approvals and completing startup before exploring mobility aspects.   Our expansion plan includes taking the unit to another site; however we will need to address the significant regulatory challenges that come with moving it around.

Future Recommendations

The challenges for producers just to produce, process, distribute and market poultry products directly are quite substantial. Addressing the regulatory burden makes it nearly impossible to accomplish. It is highly recommended that the regulatory process be streamlined, be more efficient and made more customer friendly. Dealing with all the different regulations presented significant, time consuming and often frustrating challenge to getting the processing unit up and running. Also, be honest with start-up funding projections; expect surprise costs and adjustments in plans. Would recommend having financing and cash in place to address changes quickly.   Last, be conservative with initial customers and market and do not overpromise production and ability to supply high quality product.   Start with a smaller and achievable number with flexible pricing; because over-time quality and consistent supply will build your market at a manageable pace.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.