Wednesday, March 28, 2012

When state government gets involved with farms...

As my friend Sabra reminds me, not all government programs are bad.  Many projects are well intentioned, and many do good things.  We see a whole bunch of press about how government is impacting farms in a negative way, and this is an example of a positive impact. 

State of Vermont's Mobile Slaughter unit

Statement of problem
Small farmers all over the country have a problem when they produce animals.  They can only sell direct to the consumer, and only has whole or half animals.  To allow the farmer to sell individual cuts of meat, or to restaurants or catering companies, you have to have your animals slaughtered and processed under government inspection, either federal inspection, under the USDA, or in the case of Vermont, under state inspection. 

The problem that they had in Vermont is that most of the slaughter facilities that processed chickens did so as part of a larger business -- they didn't process anyone Else's birds, and the number of businesses that the small farmer could choose from was shrinking.  So even if you wanted to take the time and expense to have your birds slaughtered under inspection there wasn't anyone to do it. 

So the Vermont state legislature decided to help that by funding the construction of a mobile slaughter trailer; they initially budgeted $80k, and due to various changes in design and equipment ended up with a final cost of $93k.  . 
This trailer was designed and built to provide all of the requirements for processing animals, and was offered on lease to interested individuals.   During the initial budget and design process, lots of people expressed an interest in operating the trailer, but as with most ventures, when it actually came down to operating the trailer, of the 14 people that were interested, some had moved on to different work, some couldn't make it happen, some weren't good business planners...

They find an operator
One fellow stepped up.  George Eisenhardt agreed to operate it.   Financially the trailer was offered on a 10 year lease, with the lease payments going back to the state to repay the cost of construction.  At the end of the lease the goal was to have the leasee own the trailer outright -- basically an interest-free loan from the state to the operator.  The payments were $775/month.    The State of Vermont didn't want to own the trailer, they wanted someone else to own and operate it, as both operating and regulating the trailer is a conflict of interest for the state.

Operation of the trailer wasn't trouble-free; there were some changes that had to be made in the design, drainage didn't work right, so there were pools of water.  The trailer could have been insulated better for use in the cold winter months, and the state forgave part of the lease payments so that the needed changes could be made. 

Day to day operations
The basic operation of the trailer was to kill, pluck, gut and chill the birds of individual processors.  Each farmer was required to take and store those birds at their farm or business after the slaughter. 
To make sure that it complied with health code, the farm where the trailer was located needed to have their water tested to make sure it passed, and that were was some way to dispose of the waste water  on the farm. 

Restrictions on poultry that could be processed
The trailer was allowed to kill birds from other farms during any particular stop, as long as 51% or more of the birds being processed were from the farm location.  Over time several farms would pool their birds and bring them all to the trailers current location and the processing would happen there.   If you were killing less than 51% you had to have an approved septic system and other engineered amenities (per State of Vermont law), and most small farms didn't want to bear that cost; so the 51% rule was observed. 

Inspection costs and procedure
The trailer would arrive, the hosting farm would bring their birds out, other farms would bring theirs out, and the processing was done under the State of Vermont inspection.  The state would send an inspector out to the location, and the inspector would be there for an 8 hour day.  The trailer operator, George in this case, could elect to keep the inspector longer, provided he paid the overtime for the state inspector, at $62/hour.    The average cost for an hour of inspectors time is $32, plus $0.51/mile travel, to and from the inspectors office, sometimes more than 50 miles away.   So on one of these processing days, the state would pay an average of $275 a day to the inspector to be present.  The trailer operator and farmers didn't pay anything as long as they held it to an 8 hour day. 

What happened?
In the first year of operation, George processed 4,000 birds.  In the second year it was 10,000 birds, and in the final year of operation it was 14,000 birds.  Most of the increase was by the original farms growing more birds; most of the farms involved increased their bird production, some of them by as much as 400%.  Farmers are a cautious lot, and conservative; from these results I think that they're finding their market expanded and having more success. 

The processing fee per bird was $4, which gave the following gross sales amounts for each year: 

year 1: $16,000
year 2: $40,000
year 3: $56,000

The yearly lease was $9300, and fuel and labor costs are unknown to me, but I'd guess that in year 3  the operator probably cleared (NNN) $15,000.  

The problem that the operator had was that the locations for processing were long drives; and towards the end of this he'd be criss crossing the state to get from one to the other; driving and setup time wasn't compensated; so he's doing a lot of birds, but eventually decided to move on. 

Notes on how to make this work better
One way to reduce that would be to have 4 or 5 docking stations with approved water and facilities and concentrate more of the processing there; this is complicated by the 51% rule I wrote about above, but it would reduce the travel somewhat.  Another method would be to have routes around the state so that you only move the trailer the shortest distance you can on any given day.  Even with these sort of improvements, to provide a living wage for the operator I think you'll need to raise the price of processing to $6, which would net the operator $43,000 -- a decent wage, and enough to keep them doing it next year.  Competitive with other industries. 

Sale of the trailer
The state of Vermont auctioned the trailer  in January of 2012, getting a  final bid of $61k for it.  The auction occurred after the poultry season had concluded for the winter, and it's not clear whether the new owners, tangletown farm, is going to be processing birds for any other farmers.   Several of the farms that were using this trailer expressed an interest in purchasing it, but were not interested in processing birds for other farms in the area, seeing them as competitors.   

Its interesting that the final sale price + the lease proceeds ended up being pretty darn close to the expense for the trailer in the first place.  Unlike some projects, the state didn't lose its shirt on this project. 

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