On Feb. 24, President Joe Biden signed an executive order on resilient supply chains. As a part of this order, the President called for the advancement of agriculture supply chains that are less vulnerable to disruption and sourced here at home.
To that end, the U.S. Department of Agriculture (USDA) sought comments on how to promote agricultural production that was diverse and less concentrated than it is today. The pandemic showed, most prominently, how a concentrated meat market was vulnerable to emergency disruption in ways that were destructive across the sector.
Based on insight and experience working with farmers, ranchers, processors, and on a long history of policy work, the Center submitted the following letter to the USDA, recommending a course to be pursued:
May 21, 2021
Administrator, Agricultural Marketing Service
United States Department of Agriculture
1400 Independence Avenue SW
Washington, DC 20228
RE: Center for Rural Affairs Comment on AMS-TM-21-0034, Supply Chains for the Production of Agricultural Commodities and Food Products.
Dear Administrator Summers,
The Center for Rural Affairs is a private non-profit organization that works to promote opportunity. We engage people in decisions that affect their community and the quality of their lives. This includes work to further develop diverse, resilient supply chains in the agricultural sector.
The Center is most active in Iowa, Nebraska, South Dakota, and Minnesota—states at the heart of cattle, pork, poultry, and feed production. In the past year and a half, our work in these states has especially focused on the effects of the COVID-19 pandemic on agricultural producers, processors, and other small businesses. The interruptions of the pandemic revealed the dangerous effects of consolidation up and down the supply chain, with farmers, processors, and retailers facing significant losses, and customers facing product shortages and high prices.
Our work on the ground with business owners demonstrated what the data also indicates, namely, that the concentration of meat processing had forced some farmers into drastic financial losses, uncertainty in financial planning, and a lack of access to markets. Smaller processors became overburdened and lacked the capital to expand to meet the growing demand from farmers. Customers, in some cases, started to turn to informal arrangements to obtain meat from local farmers. When America’s supply chains grind to a halt, not only do American consumers lack access to essential goods and services, but other nations jump to fill in the gap made by American shortages in international markets.
In the early phases of the pandemic, consolidation led to enormous losses in the meat sector. According to the Federal Reserve:
“In May, beef prices were 18 percent higher than a year ago, and pork prices were 7 percent higher than in 2019. Also, beef prices increased 11 percent from April to May, the largest monthly increase on record.”
As prices shot up for consumers, they crashed for producers, dropping as much as 20 to 30 percent in late spring. The picture of damage to the meat industry painted by an analysis from Oklahoma State University and the National Cattlemen’s Beef Association in April 2020, before the worst of the pandemic’s effects were felt, was stark:
“The total beef cattle industry impact of COVID-19 is an estimated loss of $13.6 billion in total economic damage.”
The problems are the result of persistent market concentration. In 1985, 50 percent of meat production was accounted for by the four largest firms; by 1996 that number had risen to 80 percent. A similar concentration was seen more than a century ago, when 80 percent of meatpacking belonged to a mere five companies, but antitrust laws amended that situation. Today, the number sits around the spot it has been since the mid-1990s, at 85 percent. The story is one of local decline. Since 1990, the number of livestock slaughter establishments has decreased by 40 percent, and federally inspected slaughter locations have also decreased by 36 percent.
The problems of the meat supply chain were especially evident in light of the pandemic, but are by no means restricted to livestock. These questions also implicate the conservation of the inputs necessary to produce sufficient agricultural products here in the United States, this means that resiliency requires healthy soil, water, and reliable energy. Below we recommend the following use of funds from Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA) in order to support supply chain resilience in livestock and beyond.
Investment in Diversified Meat Supply Chain
Pursuant to the aim of E.O. 14017 to create resilient supply chains, we recommend that grants be administered as soon as possible to small meat processors in accord with the authorization for such programs contained in the Consolidated Appropriations Act of 2021. It is important that these grants be used to bring small plants up to federal inspection standards, but this is not sufficient. Resiliency and redundancy in the meat supply chain demand expanding the capacity of independent processors, and this requires funding for building expansions, equipment, technical training, and other uses, including the following:
- The development and issuance of a Hazard Analysis and Critical Control Points plan for the eligible entity, which may be developed by a consultant;
- The purchase or establishment, as applicable, of processes, and operations necessary for the eligible entity to comply with applicable requirements under the Federal Meat Inspection Act (21 U.S.C. 601 et seq.) or the Poultry Products Inspection Act (21 U.S.C. 451 et seq.);
- The purchase of cold storage, equipment, or transportation services or equipment needed to respond to COVID-19 demand;
- The purchase of software and computer equipment for record keeping, production data, Hazard Analysis and Critical Control Points record review.
- The development of a feasibility study or business plan for, or the carrying out of any other activity associated with, establishing or expanding a small meat or poultry processing facility; and
- Other activities associated with expanding or establishing a smaller establishment or very small establishment (as those terms are defined in the final rule entitled ‘Pathogen Reduction; Hazard Analysis and Critical Control Point (HACCP) Systems’ (61 Fed. Reg. 33806 (July 25, 1996))).
- The construction or purchase of humane handling infrastructure, including holding space for livestock prior to slaughter, shade structures, and knock box structures.
Support needed for applying
Often, the process for applying for grants can be technical and daunting to a busy small business owner. The Center for Rural Affairs recommends that USDA include the following provisions in this grants program to support eligible meat processors in applying for and obtaining grants.
- Conduct targeted outreach and offer technical assistance to very small processors (those with either 10 or fewer employees or less than $2.5 million in sales). Of those funds made available for meat processors under this grant opportunity, reserve 50 percent of those for very small processors.
- Ensure the application itself is simple, practicable, accessible online, and available from local USDA staff.
- Offer a simplified application process for operations applying for grants of less than $100,000.
- Release a notice of funding opportunity at least two weeks before the grant application opens.
- Conduct outreach about the grant opportunity in every state.
- Allow eligible entities who are refused a grant the opportunity to submit a revised application.
- Give priority to proposals that:
- Increase farmer and rancher access to animal slaughter options within a 200-mile radius of the location of the farmer or rancher;
- Support a smaller or very small establishment as defined in the final rule entitled `Pathogen Reduction; Hazard Analysis and Critical Control Point (HACCP) Systems' (61 Fed. Reg. 33806 (July 25, 1996); or
- Support a minority-owned business, defined as a for-profit business not less than 51 percent of which is owned by 1 or more Black American, Native American, Hispanic American, or Asian American individuals.
USDA support for food hubs and cooperative processing infrastructure
In order to provide alternatives to the existing consolidated supply chains, we recommend that USDA incentivize the development of alternative processing, packaging, and distribution hubs that can allow small, independent farmers to bring their products to market in a competitive way. Grants could be used for the following investments:
- Increase funding to Cooperative Development Centers, through the Rural Cooperative Development Grant (RCDG) Program.
- Provide competitive grants to next generation food processing entities, partnerships, corporations, cooperatives, or limited liability companies producing either a good derived from an agricultural commodity or using a process to produce a good derived from an agricultural product.
- Provide competitive grants to economic development corporations to invest in alternative processing businesses and infrastructure.
- Provide funding and personnel for technical assistance in the creation of food hubs and processing entities from USDA Service Centers.
USDA Support for Local Food Markets
We recommend that the USDA invest in new market opportunities for small producers, connecting farmers with alternative avenues, particularly farmers markets and direct-to-consumer marketing, for selling their produce. USDA has several established programs aimed at promoting and developing these markets under the Local Agriculture Market Program (LAMP). Within LAMP there are sub-programs which fill different roles in creating resilient local food systems.
The first is the Value-Added Producer Grant (VAPG) program. Grants provided through VAPG are reserved only for agricultural producers who grow or raise raw products not yet ready for consumption. Producers can use VAPG funds to develop, process, and market value-added goods ready for sale to consumers. The Farmers Market and Local Food Promotion Program (FMLFPP), another sub-program, is designed for established and starting food systems. Because these grants are focused on the system as a whole, they aim to connect partners within the system, such as producers with retailers. The grants from FMLFPP can be used for a number of activities advancing a local food system. Finally, the Regional Food System Partnership Program (RFSP) provides funds to large scale food systems. RFSP grants can be used for a number of purposes, mostly centered around educating, training, certifying, or otherwise preparing producers and food-related businesses for doing business in a regional food system.
These existing programs can and should be a component of USDA’s effort to create resilient supply chains throughout the United States. LAMP is designed to enhance the production, processing, distribution, and accessibility of locally produced raw products--the critical goods and services sought by E.O. 14017. In order to match the goals of the department, USDA should increase funding for VAPG, FMLFPP, and RFSP and look for new ways they can be used to grow local food markets.
Water and Energy as Inputs
A critical part of building a more resilient and equitable supply chain for the production of agriculture and food products includes a robust analysis of other inputs in this process. When it comes to the production and consumption of livestock, meat products, and value-added agricultural goods, two key inputs arise as clear opportunities for the USDA to facilitate expanded resiliency in these supply chains—energy and water. For the products resulting from the supply chains described above, these two components constitute vital, finite resources which will likely be impacted by climate change and could serve as an opportunity for USDA to reduce costs to producers, mitigate the impacts of pollution, and improve quality of life across rural America while building redundancy and resiliency into the supply chain.
As a result of consolidation and concentration within the meat industry, livestock operations have become larger and grown to host more animal units. As a result, these operations have expanded their responsibility to manage their contributions to nutrient pollution to natural streams, rivers, and wetlands in the surrounding watershed. While these operations are required to comply with Clean Water Act regulations as a point-source polluter, often through the filing of nutrient management plans, there remain several opportunities to target conservation resources to these operations in order to mitigate the degradation of water resources as both an input and externality of the supply chain. The USDA has an array of conservation programs, including the Conservation Stewardship Program (CSP), the Environmental Quality and Incentives Program (EQIP), the Agricultural Conservation Easement Program (ACEP), and the Conservation Reserve Program (CRP) which could be targeted to improve water quality and flood resiliency outcomes within this existing economic system. We encourage USDA to target resources for practices like cover crops, wetlands, restoring native vegetation, creating pollinator habitat, and improved manure management systems as a way to help ensure that water is both readily available as an input to the meat production supply chain while also being conserved and protected. Water is a crucial component of this supply chain and increasing conservation practice adoption can help reduce availability and abundance risks for producers, cut production and compliance costs, and ultimately build a more just and resilient agricultural system.
As cattle, pork, poultry, and feed production operations, meat processing facilities, and agricultural retailers have become more concentrated, so too has their energy consumption. For producers with large confinements that require constant ventilation or plentiful storage of grain for sale and feedstuff, energy costs can comprise a significant portion of annual operational expenses, adding more financial risk to producers. For producers in the Midwest, it is not unusual for energy costs to run in the hundreds of dollars each month, particularly in warm summer months when greater ventilation is necessary and during corn harvest years where energy-intensive grain drying is required for safe storage. In drought years and drier climates, irrigation equipment can also require significant energy resources, such as diesel fuel, to deliver sufficient water to crops. Meanwhile, meatpacking plants, feed mills, fertilizer manufacturers, and other businesses within the agricultural supply chain are consistently recognized as high-intensity energy consumers. This contributes to a greater share of emissions and higher energy costs for all aspects of the supply chain. In fact, in Iowa, the agricultural sector has been identified as the top source of greenhouse gas emissions in the state.1 While energy costs are a fluctuating, yet required, expense, we encourage USDA to work with all stakeholders to identify opportunities to deploy distributed renewable energy systems, such as solar and wind energy to producers, manufacturers, processors, and others throughout the supply chain. By leveraging the already-existing Rural Energy for America Program (REAP) or the newly-announced Rural Energy Pilot Program, USDA can work to cut energy costs, reduce greenhouse emissions, and, ultimately, build a more resilient and secure supply chain for these products.
Thank you for your consideration,
Senior Policy Associate
Center for Rural Affairs