The Biden administration has decided to “solve” the complex problem of low cattle prices and high meat prices by spending $1 billion to subsidize the construction or expansion of small and medium-sized meat processing plants.
Building capacity is one thing, making it viable is another – particularly in states with overly burdensome tax and regulatory regimes. In that regard, California provides a prime example.
Last week, Smithfield Foods announced it would close its only California processing plant, a pork slaughter facility producing Farmer John products with 1,800 employees in Vernon. It is also looking at options to end its farming operations in the state.
The plant will close early next year.
Jim Monroe, vice president of corporate affairs, told The Associated Press that company operating costs in California are much higher than in other areas of the country, including taxes and the price of water, electricity and natural gas.
“Our utility costs in California are 3 1/2 times higher per head than our other locations where they do the same type of work,” he said.
The Wall Street Journal reported that the company also cited the state’s regulatory climate, particularly Proposition 12.
Officially the Farm Animal Confinement Act, Prop 12 bans the sale of eggs, pork and veal products in California unless production facilities meet animal-confinement standards dictated by the state. The law applies to products produced outside the state of California.
The law was passed overwhelmingly by California voters in 2018. It has been challenged in federal court by processors and producer organizations, and that case is awaiting review by the U.S. Supreme Court.
The administration’s push to increase capacity favors small- and medium-sized processors over the four major companies that dominate the meat processing industry. The idea is to create more competition for livestock and drive up producer prices while staving off potential bottlenecks in the supply chain.
On its face that makes sense. But, it isn’t as simple as it sounds.
Smithfield is one of the big players, with 40,000 employees and 46 facilities across the United States. The Vernon facility only processes hogs from company-owned farms, but still couldn’t realize the efficiencies it needs to operate in California.
If a big, vertically integrated operator can’t make a go of it in California, how will a smaller company buying hogs on the market be viable?
The feds can throw as much money at smaller companies as taxpayers will borrow, but that’s not going to help those processors become viable in the face of high cost and regulatory burdens imposed by some state governments.
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