Tuesday, September 06, 2022

Walmart buys into planned meatpacking plant in effort to lower costs; move could presage vertical-integration trend

Walmart is getting into meatpacking, marking "a new shift of vertical integration for the country's largest big-box store and the cattle industry," Chris Clayton reports for DTN/The Progressive Farmer. "Walmart signed an agreement for a minority stake and board representation in Sustainable Beef LLC, a $325 million planned beef packing plant that will process 1,500 head a day in North Platte, Neb., where Walmart already operates a major distribution center."

A group of feedlot operators and ranchers created Sustainable Beef two years ago, early in the pandemic, out of concern about their access to processors. "With Walmart's backing, Sustainable Beef's project gets a leg up on a series of independent proposed packing plants looking to add capacity to process anywhere from 6,000 to 14,000 head a day — depending on which facilities can get off the ground," Clayton reports. "The investment from Walmart locks in Sustainable Beef's funding, allowing the project to start moving dirt this month and set a target date to open in late 2024, Walmart stated. For Walmart, the investment helps lock in beef supplies for some of their retail stores after facing tighter meat supplies and high boxed beef prices over the last two-plus years."

The move could presage a trend of retailers forming partnerships with midsized regional plants independent of the Big Four (Cargill, JBS, Marfrig and Tyson) that control about 85% of fed-cattle processing nationwide. "This is a dramatic shift in the beef industry, but I think it's completely inevitable," Chad Tentinger, developer of Cattlemen's Heritage Beef Co. in Iowa, told Clayton. "I've had my eye on this for a couple of years in the beef industry. We've seen it in the hog industry, and we've seen it in the poultry industry. So I think it was just a matter of time before it came up in the beef industry." Tentinger and other cattle producers and processors told Clayton they don't want a scenario where retailers control plants and feedlots, giving them too much control.

Walmart made a similar move in 2018 when it began bottling milk in Fort Wayne, Ind., for 500 stores in surrounding states. The move was meant to cut out middlemen to maximize profit, since milk is generally sold for little to no profit to lure shoppers into stores. The move hurt small dairy farmers.

Other efforts to break up the Big Four's power are afoot. The Agriculture Department announced last week "it was awarding $21.9 million in grants to 111 smaller livestock and poultry processors, boosting total awards to $54.6 million under the Meat and Poultry Inspection Readiness Grant Program," Clayton reports. USDA is also "expected to announce roughly $425 million in larger grant and loan awards sometime before the end of the year through multiple meat and poultry processing programs."

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