Farmer Access to Regional Meat Processing Capacity in the North Central Region

View the project final report

Commodities

• Animals: bovine, poultry, swine

Practices

• Crop Production: food product quality/safety
• Farm Business Management: market study, marketing management, new enterprise development, value added
• Production Systems: organic agriculture
• Sustainable Communities: community planning, infrastructure analysis, local and regional food systems, new business opportunities, public policy, urban/rural integration

Mitchell, Peter D. MS, Purdue University, May 2011.
Location Behavior of USDA Inspected Meat and Poultry Slaughter Plants in the United States: A Spatial Probit Approach.
Major Professor: Dr. Raymond J.G.M. Florax.

After the implementation of new health inspection regulations in 2000 there was a precipitous decline of the number of slaughter plants in the United States. Particularly affected were small and very small slaughter plants. This loss of capacity is affecting local food supply chains and may limit local supply options. The empirical analysis in this thesis uses the spatial distribution of people and livestock to analyze the location choice decisions of existing and new meat and poultry slaughter facilities. Utilizing a spatial probit estimator the model analyzes how location factors from the existing stock of USDA inspected meat and poultry slaughter plants in 2007 are different from new USDA inspected plants established during the time period 2008-2010. This comparison provides an understanding of factors that affect the location decision of new USDA inspected plants. Empirical results reveal that slaughter plant location behavior is strongly affected by the location of existing firms, infrastructure, and agglomeration factors. Inspection type as well as input supplies also significantly influences the location choice of USDA inspected meat and poultry plants. The analysis further reveals that new USDA inspected meat and poultry slaughter plants increasingly tend to locate in the Northeast region, as compared to the North Central Region and other areas of the United States.

Introduction:

A vibrant local food system can increase the number of local jobs, provide consumers with more choices, farmers with greater market access, and the community with more business activity. In a geographic context, a local food system comprises food that is produced and processed within close proximity of the consumers of the product (Martinez et al. 2010). In this thesis we are particularly interested in the livestock and poultry aspects of both local and industrial food systems. The availability of local slaughtering capacity of livestock is obviously the critical link for local food systems to function. Industrial food systems have the advantage of reaping the benefits of economies of scale and scope. For farmers, a slaughter plant manufactures livestock into meat. For consumers, the slaughter plant is the manufacturing point where meat originates.
After the full implementation of new health inspection regulations on meat and poultry slaughter plants in 2000 there has been a precipitous decline in the number of slaughter plants. Particularly affected were plants with less than 500 employees (Muth, Wohlgenant and Karns 2007). In the year 2000 there were 861 USDA inspected meat slaughter plants and 301 poultry plants. By the year 2006, 791 meat plants were active in the slaughter industry and only 192 poultry plants (US Department of Agriculture, GIPSA 2007).
A number of factors have created seemingly favorable market conditions for locally processed meat and poultry. These factors include, a wide farm to retail price spread, growing consumer interest in local foods (Tropp 2008), and the proximity to a growing number of consumer markets (US Department of Agriculture, AMS 2010). As a result, farmers are seeking market entry. The lack of USDA slaughter capacity (Yorgey 2008; Worosz et al. 2008) has many farm and community groups actively seeking to locate new slaughter and processing facilities in their communities.
In the United States slaughtering and processing must be done under government inspection if the product is to be sold to consumers. A series of inspection laws developed over 100 years has created tiers of market entry barriers unlike for any other commodity in the United States (Maixner 2008). In addition to USDA inspected slaughter facilities, twenty-five states conduct their own inspection program. However, state inspected meat, required by law to be equivalent to USDA’s inspection standard, cannot be sold interstate (across state lines). The third inspection regime, sanctified in the Talmadge-Aiken Act, permits nine states to certify inspections for USDA. These nine special states can sanctify meat as USDA approved and therefore meat sold from these plants can be sold in commerce across state lines. The fourth inspection tier is actually an inspection exemption. Meat and poultry products used for personal consumption are exempted from inspection. Products produced in custom exempt plants are not permitted for re-sale and can hence not be sold to consumers.
The lack of availability of slaughter plants and the tiers of inspection are affecting local meat and poultry supply chains for farmers who seek entry into this market (Yorgey 2008).
This analysis seeks to determine the spatial distribution of USDA inspected slaughter plants and their relationship to the distribution of people and animals. We seek to discover if the spatial distribution of meat and poultry slaughter plants are changing through the location choice of new plants. In addition we would like to determine what is driving the location choice of new firms, and whether this is different from the past. Lastly, we seek to predict, based on the model developed in this thesis, where future plants might locate. We are particularly interested in the North Central Region of the United States as this region’s Sustainable Agricultural Research and Education (SARE) program has funded our research. In order to capture the full extent of the spatial effects we look at this region in relation to the rest of the lower forty-eight states.
It is likely that technological changes and the change in inspection regimes have both contributed decisively to shaping the geographic distribution and the location behavior of the slaughter industry. Both factors will be described in more detail in the next section.

The recent changes in the slaughter industry driven by stricter health regulations, just-in-time delivery, and innovative packaging techniques make it particularly relevant to investigate the location choice behavior of new slaughter plants. The objective of this thesis is to analyze the spatial distribution of USDA inspected meat and poultry plants and the factors that affect their location choice during the period 2007-2010. We seek to determine whether the spatial distribution is changing through the location choice of new USDA slaughter plants (2008-2010) as compared to the existing plant distribution in 2007. By identifying factors that affect location choice for meat and poultry plants, the probability that a USDA slaughter plant will locate in a given community can be determined.