The Small Meat Processing Plant Model:

A Feasibility Template for Producers and Extension SpecialistsRodney B. Holcomb, Kyle Flynn, and Philip Kenkel

Oklahoma State University

Robert M. Kerr Food & Agricultural Products Center

Introduction

The growing demand for local food, combined with USDAs Know Your Farmer, Know Your Food program (USDA,

2011) and increased demand for organic/natural meats (FMI & AMI, 2011), have contributed to a surge in demand for

small-volume meat processing services. However, the number of small meat processing plants has declined over the past

two decades for a variety of reasons. As a result, the few existing meat processing plants have become back-logged with

business. Producers trying to niche market their livestock have found themselves without timely and consistent access to

slaughter facilities.

The Robert M. Kerr Food & Agricultural Products Center (FAPC) at Oklahoma State University has seen an increase in

requests for assistance related to meat processing plant evaluations. Although publications such as the Guide to Designing

a Small Red Meat Plant published by Iowa State University (Iowa State University, 2009) and the Small Meat Processors

Business Planning Guidebook (Gwin, Thiboumery, Garrison, & McCann, 2011) are valuable sources of information on

plant design and operation, they are both limited in focus. Conversely, producers interested in their own meat processing

plants want to address different sizes and business models. To handle the multiple requests for assistance, the FAPC

developed a feasibility assessment tool for small, USDA-inspected, multi-species meat processing plants.

The spreadsheet template is designed to help livestock producers, food business entrepreneurs, and their local/state

Extension specialists determine the viability of a proposed processing plant. Most livestock producers and food business

entrepreneurs do not understand the factors that impact plant operations and ownership, nor do they have the skills or

experience to make sound financial decisions for a plant. Plant owners must consider the impacts of balancing a variety of

potential business activities under one roof: custom packing for multiple species (cattle, hogs, sheep, goats, bison, etc.),

handling wild game (e.g. deer, elk and wild hogs), and possibly operating a retail shop.

How to Use the Template

The template is a Microsoft Excel file, available at http://fapc.biz/services/files/smallmeatplant_feasability.xls. A

companion instructional guide video is also available at http://fapc.biz/services/news/videos/smallmeatplantfeasibility.

Upon opening the template, users will first see an introductory sheet that explains the uses of the template and provides

contact information for posing questions to the templates developers. The introduction page also includes an imbedded

PDF file that walks the user through the steps to using the template.

Some of the key user-provided inputs include 1) the capacity of the plant, 2) the livestock species handled by the plant, 3)

information related to facilities and equipment costs including financing choices, and 4) personnel for operating the plant.

All of these inputs, along with other costs and inflation factors, are entered on the Operating/Production Assumptions

tab, the Plant, Property, & Equipment tab, Personnel Expenses tab, and the Expense Projection tab. The base-line

estimates used for illustration purposes are for a plant with the capacity to slaughter 25 head per week of combined cattle,

hogs, and sheep with additional revenue generated from seasonal deer processing and a retail counter.

Entering Data

Template users begin by entering information in the green cells on the Operating/Production Assumptions tab. The

information currently entered in these cells represents rough estimates of costs based upon numerous previous studies and

suggestions from currently operating small meat plants. If the user does not have adequate information for a desired plant,

this baseline information may be a reasonable estimate. The cells that are not in green are protected because they are

formulas rather than input cells. Password protection prevents users from inadvertently altering cell formulas or

jeopardizing the integrity of the various calculations.*

Hyperlinks allow users to easily jump from one section to another. Many of the input cells also include pop-up comments

to help users better understand the information to be provided in those cells.

*(Note: If a user wishes to adjust the template to fit a specific project in a more customized way, they can contact the

templates developers. If a customized template is created, the developers recommend that it be saved under another

filename. By doing so, users will be able to revisit the original template for reference.)

Figure 1: Operating/Production Assumptions Tab of the Small Meat Plant Template.

Figure 1 shows the Operating/Production Assumptions portion of the template, which contains the most designated user input

cells. Users identify the slaughter capacity of the facility, the breakdown of slaughter activities for three species, any additional

business generated by wild game processing or other revenues, and estimated monthly utility rates. This section also allows

users to input information on working capital (short-term borrowing), property and income tax rates, maintenance and insurance

costs (as a percent of PP&E), inflation rates for both expenses and goods/services prices, and a discount rate for use in net

present value calculations. Warning messages appear if the combined slaughter capacities by species exceed the stated plant

capacity.

The projected working capital requirements should provide a general estimate of the amount of short-term funds that may be

borrowed and repaid within a single operating year. Interest costs on working capital are automatically transferred to the

appropriate sheets within the template.

The anticipated price and expense inflation rates are intended to allow the user to account for projected changes in input and

output values over the planning period. These rates impact annual expenses and output prices as shown on the Expense

Projections and Market Projections sheets in the template.

Figure 2 shows the Plant, Property, & Equipment (PP&E) section of the template. This section provides users the ability

to input cost information on building, equipment, land, and even company vehicles. Users then identify the percent of the

total PP&E costs to be debt financed and the terms for the loan, with principal and interest calculations derived on the

Loan Amortization portion of the template. Depreciation is also estimated in the PP&E section, using straight-line

depreciation for the facilities and MACRS depreciation schedules for equipment, special purpose buildings, and vehicles.

In keeping with the accepted practices of investment analysis, depreciation expenses are not considered in the net present

value and internal rate of return calculations.

Figure 2: Plant, Property, & Equipment Tab of the Small Meat Plant Template.

Figure 2 shows the Plant, Property, & Equipment (PP&E) section of the template. This section provides users the ability

to input cost information on building, equipment, land, and even company vehicles. Users then identify the percent of the

total PP&E costs to be debt financed and the terms for the loan, with principal and interest calculations derived on the

Loan Amortization portion of the template. Depreciation is also estimated in the PP&E section, using straight-line

depreciation for the facilities and MACRS depreciation schedules for equipment, special purpose buildings, and vehicles.

Additional information for employees is entered on the Personnel Expenses sheet (Figure 3). The only other sheet where

user input is requested is Expense Projections, where users can enter amounts for supplies/miscellaneous expenses in

both a start-up year and the first year of operations. All expenses are adjusted annually by the inflation factors provided by

the user on Operating/Production Assumptions. Market Projections estimates the annual sales and direct production

expenses for each business activity.

Figure 3: Personnel Expenses Tab of the Small Meat Plant Template.

Estimating Annual Profit/Loss and Cash Flow

The Operations Summary sheet (Figure 4) makes use of user-provided information and template calculations to generate

a combination of profit/loss statements and annualized cash flows for the construction/start-up year and ten years of

operations. Changes in each years profit/loss and cash flow are the result of changing input/output prices, depreciation,

and debt payments. Appropriately, losses in any given year show up in a red font.

Estimates of annual cash flows are determined by adding back depreciation expenses and subtracting loan principal

payments from net profits. Estimated annual cash flows do not take into account the principal amounts of short-term

borrowing (i.e. working capital), but rather assumes that short-term loans are both made and repaid in the operating year.

Figure 4: Operations Summary Tab of the Small Meat Plant Template.

Estimating Returns and Sensitivity Analysis

Common methods for determining whether a project is generating sufficient returns to justify the initial investment include the

internal rate of return, the net present value, and the payback period. In the feasibility template these measures are summarized on

the Return on Investment sheet (Figure 5).

Another key step in feasibility assessment is determining how the projected profits will be affected by changes in internal and

external factors. Sensitivity analysis is the systematic process of asking: What if? By adjusting key factors in the spreadsheet users

can analyze the sensitivity of profitability, cash flow, and returns to small and large changes in any factor.

Figure 5: Return on Investment Tab of the Small Meat Plant Template.

Conclusions

The Small Meat Processing Plant Feasibility Template is a simple first step for livestock producers, food industry entrepreneurs,

and Extension specialists examining the potential of a proposed meat processing venture. The flexibility and user-friendly nature of

the template, combined with free public access, make it the most useful and customizable tool currently available.

The template has received significant attention since its release in early 2012, with the developers receiving emails and calls from

users nationwide. The template has been recognized as a valuable tool for small meat business operators by the Niche Meat

Processor Assistance Network (an eXtension effort), and has been linked to the Networks website. The template was also recently

highlighted in a Journal of Extension Tools of the Trade article (Holcomb, Flynn, and Kenkel, 2012).

References

Food Marketing Institute (FMI) & American Meat Institute (AMI). (2011) The power of meat: an in-depth look at meat

through the shoppers eyes 2011. Arlington, VA: Food Marketing Institute, and Washington, DC: American Meat

Institute.

Gwin, L., A. Thiboumery, D. Garrison, and N. McCann. (2011) Small meat processors business planning guidebook.

Corvallis, OR: Niche Meat Processor Assistance Network publication NMPAN1. Retrieved from:

http://www.extension.org/sites/default/files/w/9/91/NMPAN1_Business_Planning_Guide_May_2011.pdf.

Holcomb, R.B., K. Flynn, and P. Kenkel. (2012) A feasibility template for small, multi-species meat processing plants.

Journal of Extension [On-line], 50(5) Article 5TOT11. Available at: http://www.joe.org/joe/2012october/tt11.php.

US Department of Agriculture. (2011). Know your farmer, know your food (KYF2). Retrieved from:

http://www.usda.gov/wps/portal/usda/knowyourfarmer?navid=KNOWYOURFARMER.