Economic Tidbits

Beef Processing Resiliency

COVID-19 and other events have increased the attention paid to the structure, processing capacity, and resiliency of the beef processing sector. One response by policy makers and industry participants has been to seek to increase processing capacity through additional investment in small to medium-sized facilities. The idea being capacity expansion will improve resiliency during unusual events like COVID-19 or other supply shocks. Accordingly, the USDA announced it intends to invest $500 million towards expansion of meat processing capacity. The agency says it wants to “increase competition in meat and poultry processing to make agricultural markets more accessible, fair, competitive, and resilient for American farmers and ranchers.”

The policy response raises the question—will an increased number of small to medium-sized processing facilities and increased capacity improve resiliency? Research by agricultural economists at Kansas State University (KSU) explored this question. Results of the research were presented by Justin Bina and Glynn Tonsor at the 2021 Risk & Profit Conference sponsored by KSU. Figure 2, from the presentation, shows the number of beef packing plants categorized by size in four regions. Note the regional differences in plant capacities. Most of the nation’s processing capacity, 52 percent, is located in Region 7, which includes Nebraska. Region 7 is home to six facilities with daily slaughter capacities at or above 5,000 head. In contrast, Region 5 contains no facilities of 5,000 head or more but has three facilities with less than 1,000 head per day capacity.

Figure 2. Beef Packing Capacity by Region

Source: Rabobank

Weekly slaughter nationwide was off 40 percent during the worst of the COVID-19 pandemic in April of last year. The drop off was mostly due to labor shortages and concerns over worker safety. Workers either became ill or were unwilling to work due to infection concerns. Figure 2 compares weekly slaughter in 2020 to 2019 for the nation and the four regions listed above. COVID-19 caused a slowdown in slaughter across all regions, however the timing and magnitude of the declines differed across regions. Regions 5 and 8, with mostly smaller plants, saw the biggest declines, near 70 percent at one point. In contrast, Region 6 fared the best with a slowdown of around 30 percent.

Figure 3. Regional Impacts to Processing from COVID-19

Source: USDA AMS, compiled by NASS

Bina and Tonsor suggest the geographic dispersion of packing plants may have lessened the COVID-19 impact on a national scale. They also note that regions with a greater density of large facilities did not fare any worse relative to other regions. Thus, a greater density of large facilities in a region did not contribute to increased operational capacity problems. Bina and Tonsor further suggest that when labor is the constraining factor, additional physical capacity may not provide increased resiliency. Moreover, additional physical capacity may sit unused during “normal times,” adding costs to the system.

Many arguments are made for increasing the number of small to medium-sized beef processing facilities. Bina and Tonsor’s research suggests improved resiliency during periods of labor constraints may not be a valid one. Bina and Tonsor’s slide presentation can be found at:

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