THE FEASIBILITY OF ESTABLISHING A STAND...

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THEFEASIBILITYOFESTABLISHINGASTANDALONEUSDA-CERTIFIEDPOULTRYPROCESSINGFACILITYFORINDEPENDENT

PRODUCERSINSEMICHIGANINTRODUCTIONIn 2014,while trying to purchase prepared chicken to serve at a small farm fundraiser, I learned that locallygrownandprocessedpoultryisallbutextinctinSEMichigan.AtthattimeIwasunabletoidentifyarestaurantabletosourcelocallygrownpoultryforthemakingofbarbecuechicken,althoughonevenuedidoffertoutilizealocaldistributor,whowouldgladlysellhimpoultrythatwasgrownandprocessedsomewhereelse.

Ialsokeepmyownflockofaheritagebreedofchickens,whichIbreedinsmallnumbers.IprocessexcessmalesatMunsell’sPoultryProcessing,asmallbutactiveUSDA-certifiedpoultryprocessingfacility.IsearchedforotherUSDAprocessors that, likeMunsell’s, serve small independent farmers inMichigan,but foundnone. SinceSEMichiganhasapopulationofabout7.5millionpeopleandMunsell’sprocessesabout50,000birdsperyear,thismeans that on average every citizen in SEMichigan is allotted just 0.7%of a single locally grown andUSDA-processedchickenperyear.NowonderlocallygrownpoultryproductsinMichiganaresoscarce.

While these numbers do not account for poultry processed at USDA facilities run by individual farms, or forpoultry processed in non-USDA facilities, it remains clear that the lack of reliable processing is an importantbarrier to bringing independently grown but USDA-processed poultry to conventional markets in Michigan.Indeed, becauseMunsell’s is the only USDA-certified poultry processor in the state that serves independentproducers,itseemsthatthemarketforlocalpoultryhereisnotonlysmall,butalsofragile.

Altogether, these events ledme to incorporate a new company,Mighty Fine Poultry Processing, LLC, and toapply for funding from the USDA Local Food Promotion Program (LFPP) to determine the feasibility ofestablishinganewUSDA-certifiedpoultryprocessingfacilitytoserveindependentproducersinSEMichigan.ThegoalwascertainlynottocompetewithMunsell’sPoultryProcessingfacility,butrathertoincreasetheamountoflocallygrownpoultryproducedandconsumedinMichiganbystabilizingoptionsattheprocessingstep.

This report describes thework that was done as part of that USDA-funded feasibility study, which began inOctoberof2015andwascompletedinSeptemberof2016.Briefly,theworkofthisstudyincludedthefollowing:

• Surveysofindependentpoultryproducerstobetterunderstandthesupplyoflocallyproducedpoultry,andsurveysofdistributorstobetterunderstanddemandfortheseproductsinMichigan.

• Identification of potential sites for a new facility, as well as relevant regulations, example buildingspecifications,equipmentneeds,utilityrequirements,andwastestreamoptions.

• InputofvaluesidentifiedaboveintoanexistingFeasibilityTemplatetocalculatefeasibilityofanefforttoestablishanewUSDApoultryprocessingfacilityinMichigantoserveindependentproducers.

• Creationofthissummaryreportoftheworkconducted,tobenefitothereffortsaimedatrestoringtheproductionandconsumptionoflocallygrownandprocessedpoultryproductsintheUnitedStates.

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THEREGIONSoutheastMichiganconsistsofruralareaswhere local foodsareproduced,andpopulatedurbanareaswherelocal foods are scarce and highly valued. Despite the ability of the region to produce local poultry and theinterest in the population in consuming it, almost no locally produced poultry is actually available in SEMichigan.This isdueat least inpart to the lackofavailabilityofUSDA-certifiedpoultryprocessers that serveindependentproducers inMichigan. This project aims to solve that problembydetermining the feasibility ofestablishing a new USDA-certified poultry process facility in SE Michigan, with a goal of increasing bothproductionandconsumptionoflocallyproducedpoultryinMichigan.

PRODUCERSURVEYOneobjectiveoftheproposalwastobetterunderstandthecurrentsupplyoflocalpoultryproductsinMichigan.This was accomplished by surveying producers acrossMichigan for information about the poultry produced.Altogetherthissurveyrepresentsanestimated40,000birdsgrownannuallyby62differentproducers.Perhapsmoststrikingly,thissurveyrevealedthatover60%ofrespondentsdidnotaccessconventionalmarketchannels,andinsteadsoldtheirpoultryproductsprimarilytoneighbors,family,andfriends.

PRODUCERSURVEYSUMMARY62respondentsraisingchickens,turkeys,andotherpoultryinMichigan

Numberofbirdsraisedandprocessedperyear 2,000-5,000: 3% 500–2000: 23%100–500: 34% lessthan100: 40%Specialattributes Freerange: 87% Cagefree: 89%Veganfed: 16% Heirloom: 62%Organic: 17%

Productsproduced“mostoften”or“sometimes” Wholebird 92% Breast 24%Eggs 82% Other 34%Poultrymeatssoldprimarilyat Farmer’sMarkets 34% WholesaleDistributors 2%GroceryStores 5% Restaurants 2%Institutions 2% Other 63%

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Priceofwholeprocessedchicken Lessthan$6/lbatFarmer’sMarket 35% Priceperpoundofbreastmeat Variesfrom$6/lbto>$10/lb Wherepoultryisprocessed Onthefarm 13% Custom(nonUSDA) 34%MichiganUSDAprocessor 42% Other 11%Interestinotherservices“strongly”or“somewhat”interested HumaneSlaughter 82% Smoked,sausage,orgroundmeats 67%Freezerspace 45% Brokering,wholesale,orretailservices 46%Brandingormarketing 46% Discountedfeed 74%Foodtesting 59% InterestinproducingmorepoultryifnewUSDAprocessoravailable Yes 63% No 10%Possibly 27%

DISTRIBUTORSURVEYThisproposalalsoattemptedtodeterminethecurrentdemandfor localpoultryproducts inSEMichigan.Thiswas accomplished by surveying grocers, restaurants, and distributors in SEMichigan for the amount of localpoultryproductspurchasedandtheprice.Altogethertheresultsofthesurveyrepresentover150,000poundsperweekinpoultrypurchasesat$1.54-$3.00perpound,whicharetypicallysoldtoconsumersata90-100%mark-up. Boneless skinless chicken breasts were the primary product purchased. Respondents were able toaccess littleornoMichigan-grownpoultry,butallwere interested indoingso. Instead, itwasdiscoveredthatthe “local” poultrymarket for grocers, restaurants, and distributors in SEMichigan is broadly dominated byproductsfromMillerPoultry,whichprocessesnearly500,000birdsperweekattheirplantinOrland,Indiana.

POTENTIALFACILITYSITESFourpotentialfacilitysitesinWashtenawCountywereidentifiedandaresummarizedbelow.

Street Twp/City Acres $/Acre Price Building ZoningEnterpriseDr ScioTwp 2.14 $303,738* $650,000 11,750sqft IndustrialJacksonRd ScioTwp 1.13 $190,265 $215,000 NA IndustrialCherryHillRd SuperiorTwp 2.00 $85,000* $170,000 Storage AgriculturalStoneSchoolRd AnnArbor 2.00 $70,000 $140,000 NA Industrial

*includesbuildingonsite

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1.170ENTERPRISEDRIVE,SCIOTOWNSHIPThe property at 170 Enterprise Drive in Scio Township is just west of Ann Arbor within a small establishedindustrialpark.Thesiteincludesa11,970squarefootClassCindustrialbuildingon2.15acres,with20parkingspaces,1loadingdock,and2grade-leveldrive-indoors.Overheadpipingforwaterandcompressedairhasbeeninstalledthroughoutthebuilding.ThesiteiszoneI-1Industrialandislistedat$650,000.

2.JACKSONROAD,SCIOTOWNSHIPThis1.13acrepropertyonJacksonRoadinScioTownshiphaseasyaccesstoI-94,TractorSupply,Menard’sandLowe’s.ThesiteiszoneI-1LimitedIndustrial,andislistedat$215,000.

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3.10996CHERRYHILLROAD,SUPERIORTOWNSHIPAt the time that this sitewasoriginally evaluated, this 2-acreproperty at 10996CherryHill Road in SuperiorTownship included a small storage building and was listed at $170,000. Since then the building has beendemolished,andthepropertywasrecentlyrelistedat$95,000.Thesiteiszonedagricultural.

4.STONESCHOOLROAD,ANNARBORThecurrentparcelatStoneSchoolRoadinAnnArborisapproximately5.3acres,andincludesabuildingonthesouthhalfoftheproperty.Theownerwishestodividetheproperty,andtosellthe~2acresofopenlandonthenorthsideofthepropertyat$70,000peracre.

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FEASIBILITYANALYSISFinally,informationgatheredwasusedtocalculatethefeasibilityofthisproposedeffort,usingtheFeasibilityTemplatedevelopedatOklahomaStateUniversity(www.agmrc.org/media/cms/feasibilitytemplate_FBBB1058664B5.xls)Inparticular,thefollowingassumptionswereusedasInputs:

• Firstyearprocessingvolumeandrevenue:o 35,000wholechickensat$4/birdo 3,000cutchickensatanadditional$2/birdo 4,000wholeturkeysat$9/bird

• Annualgrowthinprocessingvolumeof5%peryear• Annualpayrollcostsof$150,000• Annualsupplyandmiscellaneouscostsof$60,000• Monthlyutilitycostsof$1500• Totallandcostsof$140,000• Totalbuildingcostsof$476,675,ascalculatedbyGeorgiaOrganicsforafacilitythissize

http://sustainagga.caes.uga.edu/documents/PoultryFeasibility2012.pdfp.42-44• Startingpropertytaxcostsof0.5%or$3683• Totalequipmentcostsof$120,000

Thisinformationwaspluggedintothefeasibilitytemplate,withthefollowingresult:

Altogetherthesecalculationsshowthatgiventhesecostassumptions,thiskindofefforttobuildasmallstand-alone poultry processing facility from the ground up is not financially feasible within a 10-year time frame.However, it is important to note that situations in which some part of the infrastructure such as land andbuilding are already in place, or in which more birds can be expected to be processed per year, may befinanciallyfeasible.

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CONCLUSIONSMajorconclusionsfromthisstudyincludethefollowing:

1. The Producer Survey demonstrated that over 60% of producers did not sell their products inconventionalmarkets,butinsteadsoldtheirmeatprimarilytofamily,friendsandneighbors(p.2).

2. The Distributor Survey demonstrated a very large unmet demand for local poultry by grocers,

restaurants,anddistributors(p.3).

3. The lackof sales toconventionalmarketsby themajorityofproducers (Conclusion1),combinedwiththe large unmet demand for local poultry products (Conclusion 2), suggest a need for improveddistributionchannelstomovelocallygrownandprocessedpoultrytoMichiganmarkets.

4. TheProducerSurveydemonstratedthatlocalproducersproducewholebirdsmostoften(p.3),whiletheDistributorSurveydemonstratedthatthegreatestdemandisforbonelessskinlesschickenbreasts(p.3).

5. The Producer Survey demonstrated that a majority of independent producers are interested in theabilitytoproducevalue-addedproductssuchassmokedmeats,groundmeats,andsausage(p.3).

6. The Producer Survey demonstrated that a majority of independent producers would produce morepoultryproductsifmoreUSDA-certifiedpoultryprocessingoptionswereavailable(p.3).

7. The Feasibility Analysis demonstrated that a simple stand-alone poultry processing facility aiming toprocess~50,000birdsperyearisunlikelytobefinanciallyfeasiblewithina10-yeartimeframe(p.6).

AltogethertheresultsofthisstudyshowaveryhighunmetdemandforlocalpoultryproductsinSEMichigan,and strong interest fromsmall independentproducers in increasingproduction tomeet thatdemand ifmoreUSDAprocessingoptionsaremadeavailable.Ontheotherhand,thisstudyalsoshowsthatestablishinganewstand-aloneUSDA processing facility is unlikely to be financially feasible, if it relies only on processing and asmallamountofcuttingforitsrevenuestreams.Meanwhile,thisstudyalsopointstountappedopportunitiestohelpsolvetheproblemofcreatingdistributionchannelstomovemorelocallyproducedandprocessedpoultrytomarket.Importantly,solvingthisproblemhasthepotential tobenefitbothproducersandconsumers,and tocreateadditional revenuestreams to stabilizetheprocessingbusinessmodel. Consistentwiththisview,asecondPlanningGrantproposalwassubmittedtotheUSDA LFPP program in 2016, this time to develop plans for amore complex facility thatwould not onlyprocesspoultryforindependentproducers,butwouldalsoaggregate,store,anddistributepoultryproductstoSEMichiganconsumers.Thatworkisnowongoing,withasecondreportexpectedin2017.

WendyLockwoodBanka

MightyFinePoultryProcessing,LLCNovember2016

wbanka@umich.edu